Budget Resolutions and Economic Situation

HC Deb 29 November 1995 vol 267 cc1247-306

Madam Speaker

I must put a 10-minute limit on Back-Bench speeches.

6.11 pm

Mr. Gordon Brown (Dunfermline, East)

The House may recall that in Easter this year the Chancellor of the Exchequer said that the feel-good factor would probably not return for two years—until after the election. We now know what he meant, because the central challenge for the Budget—to acknowledge and tackle the real weaknesses of the British economy—was to encourage new and sustained investment, to close the investment gap with our competitors and to move people out of welfare into work and so reduce the huge bills for social security.

In yesterday's Budget, however, not only was there no significant encouragement for new investment, and no new plan to tackle unemployment, but the Chancellor had to report that, after 16 years of Conservative government—and after all the boasts of economic transformation—investment, three years into a recovery, is virtually stagnant, rising by only 1 per cent. this year. Public borrowing is now £7 billion above his estimates of the summer. It will be £10 billion higher next year and £10 billion higher the year after. Public finances are in such a poor state that even after a shocking 17 per cent. cut in public investment over the next three years and a 27 per cent. cut in the hospital building programme, he has had to admit that his best chance of balancing the Budget is probably not in this century but at the beginning of the next.

The Chancellor cannot, because he is imprisoned by his own economic failure, deliver the one measure that Conservative Members were demanding, and looking to for their job security: undoing the damage of the 7p tax rises since 1992.

Mr. Jacques Arnold (Gravesham)

In view of his concerns over public finance, how would the hon. Gentleman finance the £8 billion cost of his 10 per cent. starting rate for income tax?

Mr. Brown

There is no £8 billion cost of a 10p starting rate for income tax. I will tell the hon. Gentleman what the choices will be at the next general election. HON. MEMBERS: "Answer the question."] I am answering the question. The hon. Member for Gravesham (Mr. Arnold) has a few questions to answer to his constituents about the promises that he made about tax cuts that have never been delivered.

I will tell the hon. Gentleman what the choice at the next election will be: it will be between what the Chancellor said yesterday—the Conservative plan to abolish capital gains tax and inheritance tax, at a cost of more than £4 billion to benefit only a few—and our proposals to use the same resources to get the starting rate of income tax down to 15 per cent., or preferably 10 per cent. I know what choice, on fairness grounds and on employment grounds, the electorate will make.

This is not just the 7p up and 1p down Budget. It is not just the Budget that gives—as I will show in a minute—with one hand but takes with another. The Government cannot present the Budget as inspiring, as a turning point or as the 17th relaunch—for it would have been the 17th failed relaunch—so they now to try to salvage it and present it as cautious, sensible and prudent.

Prudence would have meant that the Chancellor tackled our deep-seated economic weaknesses, that he had a long-term strategy while being cautious in the here and now, but there is no sign at all from his Budget that he has any sense of direction or strategy for the British economy. He cannot be considered prudent if he neither acknowledges nor addresses the fundamental investment and skills gap with our competitors and has no clear direction for this country. He is not a prudent Chancellor with real scope and options that he can consider and reject, for what he calls his prudence is forced on him. He is a man without real choices, a prisoner of his Government's failure, paralysed into inaction as a result of everything that has happened to the economy under Conservative management for the past 16 years.

Mr. Nick Hawkins (Blackpool, South)

The hon. Gentleman has talked about the need for investment. How will his party's policies to sign up to the social chapter and have a statutory minimum wage help investment? They will ruin investment, especially in manufacturing, and destroy jobs.

Mr. Brown

It is interesting that the same question that was asked of me last week has been asked this week by a different hon. Member who was not here last week. I will repeat what I said. Britain has slipped from 13th to 18th in the world prosperity league. Of the 17 countries ahead of us, 16 have a minimum wage. The hon. Gentleman must face up to the fact that there is a minimum level of social justice that contributes to economic efficiency in modern economies. The idea that we should return to a 19th century situation, where there is no protection at all for people in the workplace, is unacceptable to this country.

The result of everything that has happened is that after 21 tax rises—the biggest tax rises in history—with, even this year, as was admitted in a recent report, living standards for the majority still falling, with consumer confidence still weak because of widespread job insecurity and despite all the promises of the Conservatives being the low-tax party, all the Chancellor can offer to undo the damage of a 7p in the pound tax rise from 1992 is to make it a 6p tax rise from 1996.

People will ask, "What has all the suffering been for?" It has been for one solitary tax cut that cannot mitigate a record of 21 tax rises. Big tax rises followed by a small tax cut still equal a big tax rise since 1992. A tax cut one year in five cannot undo the damage of tax rises in the other years. Three billion pounds given away cannot compensate for more than £16 billion that has been taken away.

Mr. Tim Smith (Beaconsfield)

The hon. Gentleman says that the 1 per cent. reduction in the standard rate is the only progress that is being made on tax reductions, but that it is not true. There are two other respects in which we shall be moving towards a 20p rate. The tax on savings is to be reduced to 20p, at a cost of £800 million. Will he support that?

Mr. Brown

The hon. Gentleman raises what the Deputy Prime Minister said immediately after the Budget. The Deputy Prime Minister was sent into the television studios to tell people that they were £9 a week better off as a result of the Budget, but when the Treasury press release was examined immediately afterwards, it turned out that £6.50 of the £9 was an assumption that people were getting a 4 per cent. pay rise and that the tax changes added up to a fraction of the £9 that was mentioned. Taken overall, all the tax changes made by the Chancellor are worth little more than £2 a week to the ordinary family. Many people's savings have been destroyed by the Government; the hon. Gentleman should face up to that fact.

Mr. Jacques Arnold

Will the hon. Gentleman give way?

Mr. Anthony Coombs (Wyre Forest)

rose—

Mr. Brown

No, I will not give way to the hon. Member for Gravesham again. I will give way to the hon. Member for Wyre Forest (Mr. Coombs), and then I shall continue my speech.

Mr. Coombs

The hon. Gentleman talked about savings, but what destroys savings are the inflation rates—about 26 per cent.—that we had under the last Labour Government. Will he tell the House what his target inflation rate would be?

Mr. Brown

I thought that the hon. Gentleman would ask about the 40 per cent. increase in unemployment in his constituency in the past five years. I will tell him about inflation. We have said very clearly that we will set an inflation target. We shall consult the Governor of the Bank of England and set that rate in government.

The Chancellor must now explain his inflation target. Is it 2.5 per cent.? If it is, he has gone beyond it and he has failed to meet it this year. There is no guarantee that he will meet it in future years. I thought that the Chancellor might tell us that his inflation target is 1 to 4 per cent., but now he is telling us that it is 2.5 per cent. That is very similar to the memo that he sent to Back Benchers, in which he said that he might meet the 1 to 4 per cent. target on some, but not all, occasions.

The Chancellor of the Exchequer (Mr. Kenneth Clarke)

I did not intend to intervene, but I shall answer the question. The target is 2.5 per cent. by the end of the Parliament and we are on course to achieve it. As I said yesterday, the target will be 2.5 per cent. for the rest of the Parliament. The Chancellor, and not the Governor of the Bank of England, is supposed to set that target. Why cannot the hon. Gentleman answer any of the perfectly legitimate questions that my hon. Friends have put to him? What will he do in the vote on the tax on savings, what inflation target will he set and what is the cost of his proposal for a 10p basic rate?

Mr. Brown

I have answered all those questions. I thought that, after last night, hon. Members would be more anxious to question the Chancellor about what he has done and what he has failed to do.

I have made it absolutely clear that we shall consult the Governor of the Bank of England on the inflation target when in government. That is the sensible thing to do. The Chancellor must explain why inflation this year is at 3 per cent. when his inflation target is 2.5 per cent. The Governor of the Bank of England says that he has no confidence that the Chancellor will meet the target by the end of the Parliament.

I will remind hon. Members about taxation. Despite all the promises of tax cuts, year on year, the tax cuts in the Budget leave value added tax at 17.5 per cent. and VAT on fuel at 8 per cent. Employees' national insurance contributions have risen since the last election and they have not been reduced. Mortgage assistance has been halved and it remains unchanged. The airport tax and home contents insurance tax have not been reduced. Anything that the Chancellor has given this year must be set against what he has taken away. After VAT rises, national insurance rises, cuts in mortgage help, cuts in the married man's allowance and new airport and car taxes, people are almost £700 worse off under the Conservative Government. Having taken the pounds, they are returning only the pennies. People have suffered enough as a result of the Government's actions.

Mr. John MacGregor (South Norfolk)

rose—

Mr. Brown

I will give way to the right hon. Gentleman. He is a distinguished former Treasury Minister and I doubt whether he agrees with many of the things that have happened since he left the Treasury.

Mr. MacGregor

I shall make my speech in my own way, thank you very much. We know that the hon. Gentleman has already committed himself to substantial public expenditure increases. Would he reverse the tax measures that he has just mentioned? Would they become tax reductions if he were in power?

Mr. Brown

I have committed the Labour party to one measure: the employment and training programme. We would fund that measure—just as the Chancellor should have—with a windfall tax charge on the profits of the privatised utilities. When the Chancellor speaks at the end of the debate, he will have to explain why the Conservative party is always a soft touch for the privatised utilities.

Let us be clear that what the Chancellor gave yesterday he also took away. The tax cut will be paid for by a council tax rise of 11 per cent.—if our calculations are correct—in some parts of the country. Water charges and rents have increased and there are hidden taxes. Rail fares are up, as are prescription and dental charges. The Chancellor and the Deputy Prime Minister have claimed that we are £9 a week better off. Some people will be better off by £9 a week, but the Chancellor will have to scour the country looking for a whisky-drinking, vintage-car-owning pensioner who is looking for community care and who has assets of between £8,000 and £16,000. Very few people are better off in real terms as a result of the Budget.

On the fairness of the Chancellor's proposals, it has been reported today that—after all the benefits that they have received—the richest 10 per cent. will gain £7.30 per week and the poorest 40 per cent. will gain only £1.04 per week after the Budget changes.

Mr. Malcolm Bruce (Gordon)

rose—

Mr. Brown

I shall give way to the hon. Member for Gordon (Mr. Bruce) because he is a Liberal Democrat.

Mr. Bruce

I am grateful to the hon. Gentleman for giving way. He says that he is concerned about the rise in council tax, which has occurred because of the Chancellor's sleight of hand in putting pressure on local authorities to finance the education budget. Does the hon. Gentleman agree that the education money would be better provided from the 1p income tax cut? Will he join the Liberal Democrats in voting against that 1p reduction, which we believe should go to education?

Mr. Brown

When the hon. Gentleman makes his contribution to the debate this afternoon, I should be grateful if he would confirm whether he agrees that the assisted places scheme should be scrapped and the money used to reduce class sizes. That is an important change. I should also be grateful if he would tell us whether the Liberal party will go to the next election promising a rise in the basic rate of income tax, as he hinted in his speech yesterday.

Mr. Bruce

We will tell the hon. Gentleman at the general election. I asked him a simple question. He and his colleagues have said that they want to put money into education and that they do not wish to increase council taxes. We have pledged to vote against the 1p reduction in income tax this year—has he?

Mr. Brown

Never has an intervention been more telling. The Liberal party spokesman is not prepared to say whether he will go to the next election promising a tax rise. That would be the honest position of a party that has pledged to vote on Monday against the tax changes.

Let us examine what the changes mean for ordinary people throughout the country. Hon. Members will recall that the Chancellor told us that the tax rises since 1992 should not be exaggerated. He said that, for most people, they amounted to little more than the price of three pints of beer a week. Staying with the pub economy—which the Chancellor finds so congenial and of which he is an acknowledged master—and using the same equivalents, we find that the weekly sums from the tax cuts that he announced yesterday will amount to fewer than two or three packets of peanuts. That is the equivalent of what the Chancellor has done.

Let us recall what the Chancellor told the Conservative party conference only a few weeks ago. Do hon. Members remember what he said to earn the traditional crouching ovation that he gets at such events? He said: It is a Budget I'm looking forward to a lot more than the last two. Many of you feel, I know, that the time has come for some reward in the Budget. So far this Parliament we have given you the hors d'oeuvres and not the main course, the trailer not the film, the warm-up not the main performance". I can tell the Chancellor that, as a result of yesterday's Budget statement, we have gone straight from the hors d'oeuvres to paying the bill without receiving the main course. We have gone from the trailer to the end credits. People are walking out and there is still no main feature. We have gone from the warm-up to the final curtain, and nothing that the Chancellor has done is worth a single round of applause.

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

The hon. Gentleman said that nothing that the Chancellor did yesterday was worthy of support, but I remind him that his leader pledged his support for the 1p reduction in income tax. Will the hon. Gentleman tell us whether he believes that that 1p reduction should be financed by less public spending or higher borrowing?

Mr. Brown

I will tell the hon. Gentleman what we shall do. We shall not vote against the 1p cut in income tax; and I will tell him why. People have suffered enough; they have been punished enough by the Conservative Government.

I find it interesting that Conservatives—not only Conservative Members of Parliament, but Conservatives in the country—now spend all their time writing to the Labour party. One of my colleagues received his Budget representations, not from his local Labour club, but from Middlesbrough Conservative Club Ltd., founded in 1883. The letter started: The Management Committee of this club are becoming increasingly concerned about the falling trade which has been apparent for some months now. We know that we are not alone in the immediate vicinity. Trade is down by some 8 per cent. throughout the licensing trade in the region. My Committee will be obliged if you will bring this matter to the attention of anyone you think can influence the situation. So little faith do they now have in Conservative Members that even Conservative clubs find it necessary to write to the Labour party with their Budget representations.

What of the fundamental problems that should have been tackled in the Budget, the original causes of the tax increases—the neglect of investment and the failure to get people back to work? After 16 years of promises of economic miracles, what has been done about the central challenges to arrest the decline from 13th to 18th place in the world prosperity league? Where is the investment-rich economy that the Government promised? There has been only a 1 per cent. increase in investment this year, in spite of a promise of a 6 per cent. increase in the summer.

Mr. Andrew Robathan (Blaby)

Will the hon. Gentleman give way?

Mr. Brown

I will not give way again. I have given way a dozen times to Conservative Members and none of them—[Interruption.] In spite of their barracking, none of them has acknowledged that they should be returning to their constituents to apologise for what has happened as a result of the Budget.

We have the slowest increase in investment out of recession since the 1930s, yet there was not one measure, apart from those previously announced, that the Chancellor could genuinely say directly gives attention to spurring investment forward.

If the Government had been serious, they would have introduced the investment allowances that we proposed in our pre-Budget submission. If they had been serious about infrastructure investment and helping the housing market, they would have considered the phased release of capital receipts to allow local authorities to build. Instead of improving the prospects for investment, however, they have cut public investment.

Mr. Robathan

rose—

Mr. Brown

I will not give way again.

What do the Government offer in its place? The private—

Mr. Legg

Will the hon. Gentleman try to answer one question?

Mr. Brown

I have given way many more times than most Ministers are prepared to, and Conservative Members are intent on not allowing me to make my remarks; they are simply trying to disrupt them.

What do the Government offer in place of the cuts in public investment? They offer the 10th relaunch of the private finance initiative, and not a plan or a programme but a wish list.

The Chancellor should listen to this. He failed, during three years of the private finance initiative, to deliver projects worth the original sum of £15 billion and delivered only £1 billion—a fraction of what was promised. Having failed to deliver his promise, the right hon. and learned Gentleman simply makes more promises and announces the possibility of 1,000 projects, at a cost of £25 billion. Is it not typical of the Government to seize on the manifest failure of their private finance programme, declare it a resounding success and move it right to the centre of their plans for the future without any sign of how they will repair the failures of the past three years?

The small print reveals that this is not a programme but an open-ended list of unlikelihood, offering not a plan but what the Budget press statement calls an illustrative list of projects"— merely a list of potential partnerships that have been identified. What started as an initiative, followed by the formation of a panel and then a panel executive, has now become simply the announcement of an action plan that will come later.

Where has that taken us? A car park in Eastbourne; the unpopular Skye bridge. The jewel in the crown appears to be a hospital incinerator built in Hillingdon, which is now the subject of complaints about toxic emissions and is being used by Blue Circle Industries plc more than by local hospitals. Beyond that, we are given castles in the air, when people want projects on the ground.

Private companies in the construction industry and elsewhere are now longing for the task force, the statement of priorities and the clear commitment to action that the Labour party offers.

If the Chancellor wants an example of what has happened to the private finance initiative, he need look no further than the channel tunnel rail link. It was launched as a project in 1986, legislation was promised in 1987 and finance promised from the Government in 1993. The bids have yet to be assessed and the builders have yet to be agreed. In September, the Government finally took a decision; they appointed a negotiator to consult and then discuss with prospective bidders. There is no signature and no start, almost 10 years on. Now, as the French travel on their high-speed link, completed before the tunnel was opened, the British link may not be completed until next century—the year 2002.

Mr. Hawkins

Will the hon. Gentleman give way?

Mr. Brown

I will not give way any more.

What of crossrail? It was first promised in January 1989, the Government gave the go-ahead in 1990 and this year, 1995, it is at risk because of the costs of rail privatisation.

Public money for the railways should be used not to fund expensive consultancies and the subsidies that will accompany privatisation but to invest in rail transport.

Why not use money from the venture capital trust and the European investment scheme budget, which has not been taken up, to invest and help small businesses move ahead? Why not bring new technology into schools under competition proposals that my right hon. Friend the Leader of the Opposition has made?

What is happening to employment under the Government? The best way to save money in the long run is to tackle the £20 billion bill that is the cost of unemployment. The biggest barrier to sorting out our public finances is the billions being poured down the black hole to pay the costs of unemployment.

Perhaps the Chief Secretary to the Treasury will draw the House's attention to what he said in his pamphlet, "Changing Gear: What the Government should do next" before he landed up at the Treasury. As we are discussing public investment, let me read what he said: In the public sector, a wide range of public investment should be undertaken. Amongst the investment undertaken should be house-building, renovation, insulation aimed at inner-city areas in part at least, road building, other infrastructure work, telecommunications and school equipment. The right hon. Gentleman said that it would be sensible to think that £4 billion to £5 billion would be spent on capital projects in the next two years. He continued: If such a policy combined with other less expensive initiatives we suggest elsewhere on training and social policy were to be vigorously pursued, the atmosphere as well as the real economy might well be different at the time of the election, and if we lost, we would at least not have landed ourselves with the permanent stigma of apparent callousness and inaction"— exactly the stigma that now threatens to attach itself to the Conservative party as a result of the huge cuts in capital investment for which the Chief Secretary and Chancellor are now responsible. I will tell them how they might begin to tackle the problem. They might do so by adopting our plans to reduce unemployment, especially youth unemployment and long-term unemployment.

What do the Government do instead? They scrap the community action programme, which was launched two years ago by the then Chancellor in the Budget and which was helping 100,000 people a year. They cut the training budget by 4 per cent.—I am not surprised that the Secretary of State for Education and Employment is now not to speak in this week's Budget debate—and, of course, by freezing it, they scrap the one-parent benefit, which provides an incentive for single parents to return to work. They are making it increasingly difficult for single mothers to take up employment again.

What should the Government have done? They should have introduced our employment programme, and they should have paid for it with the windfall tax on the utilities. If anyone has any doubt about the case for such a tax, they should look at the profit made by Yorkshire Water. It has increased its profit by 50 per cent.—not by supplying the people of Yorkshire with water, but by not supplying them. [Interruption.] Conservative Members are well aware that the plans to take away the supply of many people in Yorkshire are still on the table, and could be introduced. But how can they defend circumstances in which the profits of Yorkshire Water have doubled, while the service that it is providing is the subject of massive criticism—even from constituents who normally support the Conservative party?

This Budget is a survival package for the Government, and it has failed. It does not begin to tackle the underlying weaknesses. It does not tackle the investment gap with our competitors; it does not tackle the skills gap, because there is no new measure to deal with post-school training for young people other than the measure to deal with single parents, as the one-parent benefit has been cut.

In my view and, I believe, in the country's view, the Government have run out of steam and given up on the future. They are not prudent; they are paralysed and powerless—frozen in the headlights of the oncoming election. This is the Budget of a Government who are now a prisoner of failure. The public are not short-sighted, greedy, gullible, easily fooled or forgetful of what has happened. The public do not want to praise this Government: they want to bury them.

This is a Budget that marks not the beginning of the Conservative party's fight back, but the irrevocable public exposure of its terminal decline. It will be seen not as the brave new launch, the turning point for victory, but as the last-gasp effort of a decaying regime.

After this Budget, the public know as they have never known before that the long night of Conservative rule is drawing to a close. It is the Budget of a Government with nowhere to go and a Chancellor with nothing left to offer. This Government are in terminal decline: they should go, and go soon.

6.42 pm

The Chief Secretary to the Treasury (Mr. William Waldegrave)

I always enjoy the speeches of the hon. Member for Dunfermline, East (Mr. Brown). That was not one of his vintage contributions, but I was very flattered when he referred to my elderly pamphlet, produced in 1980. I recommend its approach to my hon. Friends on the Back Benches; it was moderately troublesome to the Government of the day, and shortly afterwards I was given a job. I consider that quite a good way of proceeding.

I think that the pamphlet makes me look rather good. It sounded rather moderate to me. Given the investment figures in those programmes of the 1980s, the Government have a very good record. And, if we are to go back into the past, we cannot fail to remind the hon. Gentleman that he came to the House on a CND manifesto. Opposition Members always get cross when we remind them of that, but it strikes me as a more fundamental shift in political stance than any that I have made.

The Budget has three main themes. It keeps spending down, keeping borrowing on its downward path and protecting high-priority programmes; it sets Britain on a course of cutting taxes in a sustainable way; and—through the £700 gain in real income that the average family has experienced since the last election; some £450 will probably be added next year—it continues, in a plausible way, our campaign to reform the way in which government works, so that the state does less but new partnerships are built with the private sector.

First, let me deal with spending and borrowing. The Budget keeps borrowing on a clear downward path by keeping tight control on public spending. Lower borrowing will keep pressure off interest rates. That is good news for business, investment, home owners and, above all, jobs. I am sure that the House will be pleased to learn that three building societies have cut their mortgage rates this afternoon; that shows that they support the climate of confidence produced by my right hon. and learned Friend's Budget.

We have made tough decisions to return public finances to a sound footing. Borrowing always goes up in a recession, but once the recession is over the test of a Government is the Government's ability to ensure that it goes down again. That is what we are doing. We have done it before. We inherited an unsustainable level of public borrowing in 1979. There was a tough Budget in 1981. My noble Friend Lord Howe—ignoring 364 economists, the Labour party and everyone else—tackled the public sector borrowing requirement head on. The consequence was one of the longest periods of growth that we had experienced since the war.

We are now doing the same. We are already in the fourth year of a period of sustained growth—the steadiest for a generation. Exports are doing extremely well: last year we increased our share of world trade, which is very unusual. Businesses are investing: contrary to what was said by the hon. Gentleman, manufacturing investment was up 12 per cent. this year. As for business investment, an increase of 9 per cent. is forecast for next year. Living standards are improving, and unemployment is falling—and all that is happening without an increase in inflation.

Mr. Donald Anderson (Swansea, East)

What is the reason for the continued decline in sterling?

Mr. Waldegrave

The hon. Gentleman should ask the markets. We do not have targets for sterling. I do not know whether the hon. Gentleman would like to set some targets; would he like sterling to be higher, or lower?

Mr. Anderson

rose—

Mr. Waldegrave

The hon. Gentleman will find that there are benefits as well as costs. What matters is the inflation target, and the inflation target will be met. I do not think that serious commentators are in much doubt about that.

We intend to lower the public sector borrowing requirement further. Our goal is clear: we intend to bring the budget back towards balance over the medium term. We have done that before, and we will do it again. Balance should be achieved at the end of the decade; the current balance will be in surplus a year or so earlier.

Sound public finances cannot just mean ever higher taxes to balance ever higher spending. That is the fundamental difference between Conservative and Opposition Members. We believe that, when the businesses and workers of the country create wealth, it belongs to them. It is their right to keep what they make; Government must take only the minimum that is needed to provide decent services and the essential functions of government.

The Labour party used—honourably and openly—to believe the opposite: that far more should be done and financed collectively, and less left to the individual. As the right hon. Member for Chesterfield (Mr. Benn) put it in an eloquent speech in the debate on the Gracious Speech, it should be done less by profit and more by collective will. That is, after all, what the political argument has been about for 200 years or so. Now, however, things are alleged to be different. As The Independent recently put it, elegantly, The British Left have at last returned, snout-first, to the politics of the pork barrel". That was the view of Niall Ferguson. New Labour claims to want even lower taxes than we do, but with no theory and philosophy to explain it. [Interruption.] If the hon. Member for Edinburgh, Central (Mr. Darling) can prove to me that Niall Ferguson was writing in The Daily Telegraph, I shall withdraw what I said at once.

Mr. Alistair Darling (Edinburgh, Central)

The article to which the right hon. Gentleman refers was written by Niall Ferguson, but it was not the view of The Independent. Niall Ferguson is a commentator, and he is entitled to his view. The right hon. Gentleman should not suggest that the newspaper, editorially, took that view.

Mr. Waldegrave

That strikes me as the feeblest intervention of the afternoon. I thought that the hon. Gentleman was going to point out a serious mistake. Muddling up The Daily Telegraph and The Independent would have been a serious mistake. I do not think that Opposition Members like what Niall Ferguson wrote.

Labour has now joined in the competition for low taxes, but it has no ideology, no theory and no idea of what that is for. We had about £1 billion of extra spending from the hon. Member for Islington, South and Finsbury (Mr. Smith), who opposed all the savings that my right hon. Friend the Secretary of State for Social Security had made. I think that that is the way in which Labour is proceeding. Its practice is to oppose and sneer at all the savings, and to tell the lobby groups that it is against them, but then to back off and, when its members have lunch with people in the City, say that that was not spending.

For us, the Budget process starts with the tight control of public spending. We have always fought to keep state spending down. We have always believed that one can provide the services that people want without putting an intolerable strain on the taxpayer. We have always linked that to our fundamental political belief: that in the end big government is not only inefficient but threatens freedom. We do not—as the Opposition do—collect shopping lists of expensive commitments from the lobbyists and pressure groups and then ask the taxpayer to foot the bill. We start with the taxpayer.

In July, the Cabinet asked the special committee on public spending—EDX—to re-examine public spending. We did so. We found savings. They were not easy. There is very little Government spending that does not have some defender or nothing to be said in its favour, or the House would not have voted it in the first place. But we succeeded.

Mr. Harry Barnes (North-East Derbyshire)

The Red Book tells us that public expenditure is to go down by £3.25 billion. Elsewhere, reserves have gone down by £3.2 million. Are we not left with dangerously low reserves? What if the money that is supposed to be saved on social security fraud does not materialise?

Mr. Waldegrave

That is a perfectly fair point to probe, but I do not think that the hon. Gentleman is right. We have not broken the reserve in any recent years. This year the underspend looks like being about £750 million or £800 million. We thought carefully about a reasonable figure for the reserve, and I can assure the hon. Gentleman that we have one.

We succeeded in finding public spending savings. My two predecessors did not make my task easier; they had helped the Chancellor to cut projected public spending in his previous two Budgets by £43 billion. None the less, in this year's public spending round, we have gone further and the total has gone up to £53 billion.

For 1997–98 alone, we cut the public spending control total by £3.2 billion from the ceilings that the Cabinet endorsed at the start of the spending round. That is about 1 per cent. in real terms. It is also £12 billion lower than when we first set plans for that year, two Budgets ago. This year, we predict an underspend of about £¾ billion. Spending this year will be only about¼ of a per cent. higher in real terms than in 1994–95. Over the whole period of the public expenditure survey, our plans represent tighter spending control than at any time since just after the war, when the Attlee Government were demobilising.

Doing it this way—by real spending control—means that tax cuts are sustainable. In fact, spending controls bring a double benefit: they let people keep more of what they earn; but they also mean government that is smaller, more efficient and less of a burden on people and industry.

As a result of the drive to greater efficiency, we have been able to cut the cash cost of running Government in each of the next three years. Compared with £15.1 billion this year, next year we will spend £300 million less on Government running costs, the year after £530 million less and the year after that £860 million less—a cash cut of more than 5 per cent. In real terms, the figures are even more impressive. By 1998–99, the annual cost of the civil service will be nearly £2 billion—more than 12 per cent.—lower in real terms than today.

Mr. Denis MacShane (Rotherham)

If public expenditure and the cost of the civil service are going down so dramatically, why, in a written answer that I received today, has the cost of chauffeurs for Ministers gone up by 50 per cent. since 1991? Will the Chief Secretary set an example and occasionally catch the bus?

Mr. Waldegrave

That sounds like a good subject for a Chief Secretary to look at, and I thank the hon. Gentleman for his helpful indication of where I might look for further savings in next year's expenditure round.

The savings that we have made will not reduce standards of public services. The citizens charter and the competing for quality review have shown that standards can rise with lower costs. We have already carried out 1,000 competing for quality reviews across Government, covering 70,000 staff. More than £1 billion-worth of business has been won by the private sector, with significant reductions in the costs to the taxpayer. The programme of fundamental expenditure reviews and senior management reviews have led to 20 per cent. cuts in senior staff in major Departments and contributed to the drive for greater efficiency across Whitehall. Other reductions come from better procurement, rationalising functions and reducing the span of Government through privatisation.

Those reductions build on the Government's considerable success in the fight against excessive bureaucracy: holding down running costs and the number of civil servants. There are now 506,000 civil servants—fewer than at any time since the war, 65,000 lower than at the previous election and more than 30 per cent. lower than in 1979. Numbers will continue to fall as a result of those reductions and should be well below 500,000 next year.

I heard the hon. Member for Edinburgh, Central mutter about quangos—quite rightly. They are the next target. Central Departments are just one part of the Government machine that we are committed to modernise. Circling each Department are large numbers of satellite bodies, which are commonly described as quangos. They come in all shapes and sizes. Some spend money and run programmes on behalf of Ministers. Some provide services themselves. Some are regulatory and raise income from fees. The great majority consume taxpayers' money.

The Government have already had considerable success in reducing the number of quangos and improving the efficiency of those that remain, but we intend to make further efforts. We shall review the way in which the administration costs of quangos are controlled. We need to ensure that they are exposed to the same discipline as Departments. We shall consider the scope for further reducing the number of quangos. All are at present subject to periodic review. That process will continue. But we shall look at them in groups to see whether there can be overlaps that can involve removal of whole organisations. We shall help Departments with the effective management of quangos. The efficiency unit in the Cabinet Office will undertake a scrutiny aimed at generating practical guidance on how to improve that efficiency.

The hon. Member for Dunfermline, East spoke about the private finance initiative, and my hon. Friend the Financial Secretary, who leads on that subject, has been talking about the PFI today. In 1979, the public sector was the owner of many loss-making industries, nationalised by Labour after the war, and which Government should never have owned. Our privatisation programme transformed many of them into efficient world-beating companies, like the present British Steel. Today, we face the challenge of achieving similar improvements in services that the Government have a duty to provide, services for which we must keep responsibility: roads, hospitals, prisons, and a whole range of other things. That is where the PFI can be extremely powerful.

That policy is now central to the next stage of the reform of government in Britain. Government are often not the best manager and provider of services, whether they are people-intensive or capital-intensive. A huge prize of more efficient provision, giving better value for money, is available if we can harness business management expertise at every stage, to design, build, finance and operate public services. This gives an opportunity to free the public sector to do the things that it is best at, for example, an NHS that is focused on core clinical services rather than the maintenance of boilers and the management of car parks.

The PFI is gathering momentum and projects are demonstrating good results. We will have about £5 billion-worth of deals signed by the end of this financial year. The scepticism—as exhibited by Opposition Front-Bench Members—that accompanied its growth has been just like that in the early 1980s on privatisation. Opposition Front-Bench Members will find that the programme will work and, in due course, they will probably come to support it. [Interruption.] As they say, some of them support it already. Some of them advocate it, and one even claims to have invented it—the deputy leader of the Labour party.

We are on course to deliver projects that are worth about £5 billion by the end of March, and there is much more to come. It is not just about capital spending; it is about making the Government more and more a purchaser of public services rather than a provider of capital assets. But even as it is, the policy will maintain publicly sponsored capital at about £224½ billion a year through the survey period—a level, which, in real terms, is higher than almost at any time in the 1980s.

The other reform relates to the extension of challenge funding, which builds partnerships with local authorities, private business and the voluntary sector. Challenge funding has already been a formidable success in tackling urban regeneration, adding £1 of private money to every £1 of public money invested. We want to see that continue and have announced third and fourth rounds of bidding for the single regeneration budget. Challenge funding has also been successful in the Home Office, in its town centre video camera campaign. That is why we are announcing plans to extend it into the regeneration of deprived housing estates; local employment enterprise and training initiatives by the training and enterprise councils; a new challenge fund for the renewal, repair, improvement or replacement of school buildings; and establishing a network of centres to raise standards of literacy and numeracy.

Happily, my job is not all about cuts, though cuts are an important part of good government. Good government is also about priorities and ensuring that money goes where it is needed. For example, the Budget demonstrates our commitment to schools. In total, we will increase provision for schools by almost £880 million. Our plans will extend quality and choice in education by funding, among other things, a major new initiative on nursery vouchers, a doubling of the intake of the assisted places scheme, and enabling banks to offer subsidised loans to students.

Mr. Malcolm Bruce

Will the Chief Secretary confirm that the bulk of the expenditure is to be provided through local authority funding rather than direct Government funding, and that the Government's proposed allocation to local authorities represents no increase in real terms compared with last year? Is not the net effect that education funding will have to come from cuts in local services and an increase in council tax?

Mr. Waldegrave

There are two separate issues. There is a large increase in central Government grant—the aggregate external finance grant—of almost £1 billion and there is an increase in standard spending assessments. The hon. Gentleman should wait for the Secretary of State for the Environment's statement tomorrow. It will be possible for all education authorities to spend the increase on schools, whatever their budget.

We are launching two new challenge funds to lever in private money to improve school buildings. As I have said, we have £880 million more for schools. The two principal English Opposition parties—to my knowledge the same thing is happening in Scotland—have been—

Mr. Gordon Brown

Not in Scotland.

Mr. Waldegrave

No doubt, different things have been going on in Scotland. The two Opposition parties have been co-ordinating campaigns in the English counties, and probably in Scottish counties, on education spending. I am sure that most of my hon. Friends will have noticed such campaigning.

We have provided £880 million more and it is fair to ask whether the Opposition want to provide more or less. Perhaps the Labour party wants to provide less because it is now a tax-cutting party. It is now outbidding us on tax cuts, so it might want to spend less. Does it want to spend more? That is a fair question. The Member for Dunfermline, East walked straight past all the questions asked by my hon. Friends and I expect that he will walk straight past this one. Does he want to spend more than £880 million on schools this year? That is not a difficult question, but I do not think that we will get an answer.

The same is happening on crime. Since we came to office, spending on law and order has more than doubled in real terms. Over the past two years, recorded crime has fallen significantly for the first time in modern years. That is no accident. Police manpower has increased by over 20 per cent. since 1979. Our plans provide for a further 5,000 policemen on the beat over the next three years and almost 4,000 extra prison places. We have consistently backed the police since 1979 and the Budget does so again.

Can anyone believe that Labour would spend more? Would it spend less? Will we get an answer? I think that the hon. Member for Dunfermline, East nodded. That may be a spending pledge on the police. We should note it. He is now shaking his head, so I think that pledge has been withdrawn.

Our other consistent priority has been health. Next year, current spending on the NHS will go up by about £1.3 billion—over 1.6 per cent. in real terms. The private finance initiative will bring in at least an additional £165 million in private sector investment. I expect it will bring in even more. As always, the NHS will keep what it can save. The hospitals' target in efficiency gains next year is 3 per cent. or £650 million. That means about £2 billion in a tight spending year in extra resources for patients in the national health service. That is the mark of our commitment.

Every Labour spokesman competes with us on health spending. However, when the Labour party was in government, it cut nurses' pay. It is the only party in the history of the NHS to cut spending in real terms. The only year that that has happened since the foundation of the health service was 1977–78. However, our record on health spending is better—we beat the Labour party on health spending. We can do that only because we are tougher on spending on lower priorities. The hon. Member for Bristol, South (Ms Primarolo) said as recently as last year that she wanted to spend—rather like the Liberals on education—the product of a penny on income tax on the NHS.

Ms Dawn Primarolo (Bristol, South)

We did not say that.

Mr. Waldegrave

I did not mean "we"; the hon. Member for Bristol, South herself said that she would like to spend the product of 1p on income tax, or about £1.6 billion, on the health service. Since she is now in the Treasury team, she has forgotten about that. She has blotted it out of her memory. The remarkable transformation in the political position of the hon. Member for Bristol, South has been observed with astonishment by those of us in other parts of Bristol in the past few years.

Ms Primarolo

Read out the quotation then.

Mr. Waldegrave

I will send the quotation to the hon. Lady. The Government have a clear strategy. [Interruption.] The hon. Lady is presumably saying that she does not want more spending on health.

Ms Primarolo

That is not the point.

Mr. Waldegrave

It is the point. Does the Labour Front-Bench team want more spending on health or not? I may be mistaken that a couple of years ago the hon. Lady wanted more spending on health. I thought I was complimenting her because as she was—and still is in reality—a good tough left-wing politician, she would have wanted more spending on health. I am now told that I have misquoted her. I apologise and I withdraw that. The hon. Lady did not want any more spending on health. I entirely withdraw those allegations. We are none the wiser as to whether the Labour Front-Bench team wants more spending on health. We will not learn that.

The Budget, like its predecessors, is a Budget for jobs and growth. We are keeping public spending down as a share of GDP and keeping taxes down. We believe that that is the way to get more jobs, a more secure economy and better prospects of sustained growth. We point to the success of the economies that follow that line. Keeping public spending down is fiscally responsible; it continues the process of lifting the total burden of government from industry; it helps to make employing people cheaper; it helps incentives for work by taking many of the lower-paid out of tax; it cuts the burden on small business; and it makes Britain Europe's enterprise centre.

There is a counter-argument. Some honest and intelligent people take a different view; they include the right hon. Member for Chesterfield and the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), as I read in the Evening Standard. People such as Professor Layard and Professor Wynn Godley take a different position. They argue that higher spending, even with higher tax, will achieve what is needed better. That is a perfectly logical and coherent position, but one with which the Government disagree. That is the ever-present argument between left and right.

We have not heard those counter-arguments today from the hon. Member for Dunfermline, East. We have heard no alternative political position whatever. All that we have had is the Labour party advocating more spending when it talks to the lobbies; less spending when it talks to the City and it wants to look respectable; and income tax at 10 per cent. when it talks to the media. That fools no one.

There are two explanations for what Labour is up to. The first is that it has not really changed its policy at all, but knows that it cannot be elected if it shows its true high-spending colours. That is what the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) hopes when she says that she wants Labour to win and Gordon can say anything he likes if he thinks that it is going to win the election; but when Labour is in power they will be looking for other priorities apart from tax cuts. That is what the hon. Lady hopes and believes, but that ascribes such low motives to the hon. Member for Dunfermline, East and to the Labour party that I cannot subscribe to it.

The second interpretation is less Machiavellian and more charitable and therefore the one that I believe. It is that Labour simply has no idea of the implications of what it is doing or saying. All that matters is to look good, like Robert Redford in the film "The Candidate". The hon. Member for Dunfermline, East would be splendid in the role. He might lose a little weight, but he would look very good. The Labour party just strings out the soundbites and who cares if they are contradictory. Like the great Tom Lehrer's song on Wernher von Braun: "Once the soundbites are up who cares where they come down. That's not my department says Gordon von Brown."

Let us compare a few soundbites. The hon. Member for Peckham (Ms Harman) said on the private finance initiative: It is a privatisation initiative. Its not privatisation by the back door, its privatisation by the front door. That is for the scares on health privatisation. On the other hand, the right hon. Member for Sedgefield (Mr. Blair) said: The PFI is right in principle. We have supported it, and in many ways we have been advocating it.—[Official Report, 28 November 1995; Vol. 267, c. 1077] The right hon. Member for Kingston upon Hull, East (Mr. Prescott) said, "We initiated it." Those are the soundbites for the City and commentators. The hon. Member for Dunfermline, East has said We also see limited application in provision"— he is being very statesmanlike here— for private finance for publicly-led projects in education and health. That is not what the hon. Member for Peckham says.

The soundbite for those who want tax cuts is "7p up for 1p down". That is a neat slogan. But when it comes to spending, they want more on every major programme, as we heard again today. Do they want to cut borrowing faster or slower? They do not know.

We have just heard the hon. Member for Dunfermline, East promise to do away with a list of taxes which my right hon. and learned Friend the Chancellor had to introduce to bring public borrowing down. He liked none of them, and we had lots of nods and winks that they would all go. Where would the money come from? Having given itself such a contradictory set of slogans, no wonder that the best that new Labour can do is to abstain on the principal issue of this Budget: our judgment that the time has come to return to lower taxes. That is the result of new Labour. It is firmly based on new principles, but when it comes to the big issue, it manages to come to the decisive conclusion to abstain. That is wonderful.

I shall be interested to see whether Labour Members abstain on the cutting of whisky and beer duties. I expect that they will. We had no answers because they have not decided what to do, which is rather surprising. Nor have Labour Members decided what they will do about the 20p savings rate of tax. They walked straight past that question, too. We had no answer on that or anything else.

To use the words of Dr. John Wells, an honest adviser to an honest man, the late John Smith: the Shadow Chancellor has been engaged in the truly astonishing feat of trying to present Labour as the Party of low taxation and public borrowing … it is breathtaking. For if a party of the centre-left has any simple guiding economic principle, it must surely be that it stands for a more active state than right wing—and for a bigger share of Government spending in national income". That is surely right, which is why my right hon. Friends and I are in the Conservative party. We believe in a smaller state and in less Government spending. What anybody thinks that they would support that by backing the Labour party now is as much a mystery to Dr. Wells and me as it must be to the right hon. Members for Chesterfield and for Sparkbrook—an unlikely but formidable alliance.

One thing that I can say for sure is that, if this country were to find itself with a Labour Government elected on such a basis—having promised lower taxes and higher spending, with no theory or ideology of any kind to guide them, and no consistency or plan—it would find itself in a world where the soundbite would avail it of nothing. It is called the real world. Labour would be a broken-backed Government within six months, as they always have been before. Today's speech by the hon. Member for Dunfermline, East was not in the real world. By contrast, my right hon. and learned Friend's Budget, like him, is honest, straightforward, robust, and well founded in a commonsense application of sensible principles. That is why Conservative Members wholeheartedly support it.

Several hon. Members

rose—

Mr. Deputy Speaker (Mr. Michael Morris)

Order. I remind hon. Members that Madam Speaker has ruled that, from now on, Back-Bench speeches are restricted to 10 minutes.

7.12 pm

Mr. Jim Cunningham (Coventry, South-East)

I was interested to listen to the debate yesterday and today.

As some of my hon. Friends pointed out, council tax payers will bear the brunt of the so-called "1p reduction" in income tax. I am sure that many people will be alarmed at that proposal because they will fear for the services provided by local authorities. It has been suggested that extra money will be provided for education, although it has not been made clear whether that will be ring-fenced, so people in local authorities will be extremely worried about the Budget's impact on their jobs. It will threaten jobs, from teachers to cleaners. Even before the Budget, local authorities in some parts of the country, especially Coventry, had already started looking at jobs, pay and conditions. That did not bode well for lower-paid employees, or the education service and other services. So I imagine that many people in Coventry will be alarmed about this Budget.

The Budget did not do much for the unemployed, and I saw no reference to investment in young people. Rather, it contained punitive measures against young people as benefits will again be cut. Once again, young people are the whipping boy. One-parent families and old-age pensioners will also carry the brunt of this Budget.

Over a period of years, the Government encouraged many people, particularly young people, to take out mortgages. Unemployment now threatens their ability to pay those mortgages. Worse, the Government, who say that they support a property-owning democracy, have cut mortgage relief over the past two or three years. If one goes further down that road one notices a little thing called negative equity. The Government have hung a millstone round the necks of many young people who want to own their own homes, yet they call themselves the Government of hope.

Much has been made of the new initiative, which is actually an old initiative—it has certainly been around for a number of years—called "city challenge". I had always thought that the scheme was designed for the inner cities. The problem is that it is a lottery, so it will not tackle some of the major problems of the inner cities as the Government claim. On the contrary, leaders of city councils may have to wait 10 years before they see results using that method of pouring money back into our inner cities.

The Government have also made great play of the fact that, over the next two or three years, they will employ 5,000 extra policemen. When that figure is broken down, one sees that cities like Coventry will be lucky to have between 10 and 15 extra policemen. We need more than that to tackle some of the crimes committed in parts of the inner city that I could mention. Ministers have come to Coventry and insulted parts of that city and its population.

The Government propose to cut some £2 billion from the social security budget. Given that £3.5 billion has been cut over the past two or three years—the past two or three Budgets must be taken together—it means that £5 billion or £6 billion will have been taken from the social security budget.

The Conservatives claim to want to help the poor and say that they are the compassionate party, but over the past two or three years they have cut housing benefit, which does not help one-parent families, the poor or the homeless. One has only to talk to people who work for charities in any major city to find that, rather than assist organisations like Shelter, or the Cyrenians in Coventry, the Government have cut resources for staff which those organisations badly need. Those organisations not only house the homeless but deal with people with drugs problems. The Home Secretary said that he intends to set up a special task force to deal with drug abuse. If we leave out MI5, that task force must be funded, but there is no reference to it in the Budget.

The Budget does nothing for industry or to expand our industrial base. Conservative Members often talk about wealth creation, but when it comes to putting their money where their mouths are, they do nothing to help industry, which is crying out for help. It is no good simply tinkering with small measures like corporation tax. The Government must come to grips with the needs of industry, which include money for research and development, and for training. Where will future generations go to learn their skills? The Government have no proposals on that.

Except for a few hundred houses built while the Government have been in office, when was the last time that council house construction took place or cheaper housing was built for the less well-off? Instead, the Government have introduced a punitive Budget. That is the only way that it can be seen. It is not designed to help the needy, the unemployed, new home owners or local government. Rather, this Budget—I presume that next year's Budget will do the same—is all about tax cutting. That will benefit no one because the Government still owe the public £650 a year, or another 6p, which they robbed them of. They should not forget that yesterday's Budget did the public no big favours. They owed the public that cut in income tax because they ran the country into a £50 billion debt. The Government have the effrontery to tell the British people that they are doing them a favour with these tax cuts. They are not a favour, and the sooner the Government decide to go, the better for everybody.

7.19 pm

Mr. John MacGregor (South Norfolk)

For the record, I have declared in the Register my outside interests, although I do not think that anything I shall say will have a direct impact on them. I congratulate my right hon. and learned Friend the Chancellor on his wise, shrewd and balanced Budget. He is right not to take any risks with inflation or interest rates. The tax reductions have been shrewdly chosen and have many good targets, and I support the priorities of education, health and the police.

There is much that I should like to say, but in view of the time limit I shall confine myself to a few comments. I particularly draw attention to the measures for retirement incomes and the provision for long-term care. We all know the issues—demographic patterns and the fact that people living longer creates health problems in later life—and we all know about the high cost of community care. That may become one of the most potent political issues over the next 20 years.

The Chancellor has started to tackle the short-term problem of the feelings of many people who have saved throughout their lives only to see their savings eroded to meet the cost of community care in residential homes. The cost of that may also include the family home. Therefore, I warmly welcome the increase in the capital thresholds from £8,000 to £16,000 and from £3,000 to £10,000. That will bring relief to many people with modest savings. Many such people spoke to me while I was making speeches on that issue in various parts of the country.

The perception that the family home may have to be sold worries people. That does not always happen, but frequently it does and in due course I should like to see the family home exempted from the needs calculation for meeting the cost of retirement care. At least the Budget has introduced a good measure.

In the context of short-term issues, I welcome the reduction on savings incomes to 20 per cent. for basic rate taxpayers. It will affect mainly retired people because they are the people with building society deposits and a small amount of equities. The significance of that measure is shown by the actual cost in tax relief, which is £800 million. It is a significant measure that will help many retired people, but the long-term problem is much more formidable. It is essential to start to tackle the issue by encouraging many more families who can afford it to start saving through personal pensions and long-term insurance schemes—not just through TESSAs and PEPs—to meet the cost of retirement care.

At the moment, only 10,000 to 15,000 insurance schemes are being taken up but I have no doubt that in the next 20 years there will be a much greater need for such schemes. That means introducing tax relief measures to encourage people to save more. I am delighted that consultation documents are to be produced and that a couple of measures have already been suggested. A range of options is possible and I hope that over the year ahead we shall introduce them. An important actuarial point is that the earlier people start to save, the less they need to pay and the more benefits they will receive at the end of the day. Every year lost in encouraging people to take out policies for retirement care is a year lost for many families. Through tax measures and constant education, it is necessary to change the culture among the younger generation towards this issue, because it will have an impact on them. I am glad that the Budget took a step in that direction.

The second issue also relates to savings and I shall couple it with the Chancellor's remarks about the need for tax simplification. That does not just mean explaining tax measures to make them simpler for professional advisers and the public at large. We need to simplify the underlying structure of the system. In that respect, I should like to highlight capital gains tax. I welcome what has been done about inheritance tax and I hope that capital gains tax can be tackled next.

The right step on capital gains tax is not to abolish it altogether because there is a real issue in terms of the early years. The right approach is to taper capital gains so that the assets and the capital gains move quite swiftly, say within seven years, out of the tax system altogether. That is a much simpler way to deal with the issue than the current one and I hope that the problem can be tackled.

The third issue relates to the expenditure plans and it is the source of some disappointment. As a former Chief Secretary, I am fully aware of the difficulties that face any Government every year. I have been in several spending Departments and on the other side of the table, and I understand all the issues. I congratulate the Chief Secretary on his reductions in the overall expenditure plans this year, although part of the contribution is from the contingency reserve. I am sure that he will be very tough on that reserve in the year ahead.

I support the plans for education, health and the police and it would be churlish of me to single out the area in which I am critical of what has been done. Nevertheless I shall do so to highlight it for the years ahead; it relates to the roads programme. I strongly support the private finance initiative on roads and the concept of design, build, finance and operate. I started them and thought that they would be important in the years ahead. I hope that in due course motorway tolling can be linked to them to produce resources that will enable us to ensure a significant future roads programme. However, I do not think that the PFI and DBFO will be enough over the next three or four years.

A substantial number of road projects have been cut as a result of reductions in the programme. That worries me, partly because all over the country there is a need for more bypasses for environmental and other reasons, to relieve towns and villages that are hard pressed by traffic, but also because if we do not maintain a decent roads programme, congestion costs on businesses and the economy will start to grow again. Of course, a cut in the programme also has an impact on the construction industry.

Over the past 15 years a considerable number of bypasses have been built in my constituency and they have been of major benefit to all my constituents. There have been big improvements to the trunk roads in Norfolk, which were much needed for our economy. We have benefited substantially, but more bypasses are necessary and further improvements, by which I mean mainly widening of the main motorway and trunk road network throughout Britain are required. I hope that in future the Chancellor will look again at the impact of his measures on the profile of the roads programme to see whether more can be done.

My final comment flows from what the Chief Secretary said in the final part of his speech. In 1987 I was the first Chief Secretary to cost the Labour party programme and I remember the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) looking absolutely astonished at the scale of the programme to which his Front-Bench colleagues had committed him. Over the past few years we have been able to demonstrate clearly that Labour is the high-tax, high-spending, high-borrowing party. It has not changed and I was astonished by the effrontery of the Leader of the Opposition and the hon. Member for Dunfermline, East (Mr. Brown). They have put together a number of tax increases and have clearly implied to the public at large that they will reduce them although, of course, we know that they will not. They attack quite a large number of increases in fares or charges—the hon. Member for Dunfermline, East did that in the debate—and imply that they would not have occurred under a Labour Government. All over the shop Labour is still committing itself to spending. The hon. Member for Oxford, East (Mr. Smith) shakes his head, but I understand that within the past month 40 per cent. of all Opposition speeches have urged higher spending and that clearly shows what they will do.

Mr. Darling

Will the right hon. Gentleman give way?

Mr. MacGregor

No. I am almost finished.

Labour is trying to con the electorate into thinking that it would be a low-tax party as well because Labour Members know that that is politically attractive. However, when one examines the totality of their proposals, it is clear that that could not happen under a Labour Government. They would be back to high tax, high borrowing and high spending. On 10 November, the game was given away on "Clive Anderson Talks Back" by the right hon. Member for Chesterfield (Mr. Benn), who said that at present the Labour party did not want to cause trouble internally because it wanted to return to government, but that when we come to power then you'll find the Labour Party is the same Party it's always been. That is true. Therefore, the charge of the Labour party being a high-spending party—

Mr. Deputy Speaker

Order. Mr. Malcolm Bruce.

7.29 pm

Mr. Malcolm Bruce (Gordon)

Following the right hon. Member for South Norfolk (Mr. MacGregor), I support the principle of cutting the roads budget, although we think that the money should have been switched to public transport. I agree with him, however, that that cut should not be at the expense of long-overdue bypasses. It would have been extremely damaging if, as was suggested a little while ago, the Government had frozen all road projects that had not been started. I live in a part of the world where the population has grown by 50,000 in the past 10 years. A number of planned bypasses are just at the point where they should be started and I hope that they will not be further delayed.

I apologise to the Minister who will reply to the debate because, due to a previous engagement, I will not be here for his speech. No discourtesy is intended. No doubt he will take a free kick at the open goal.

This is a cautious Budget because it had to be. The Chancellor of the Exchequer knows that the economy is so sluggish that the most important thing that it needs is a drop in interest rates. The Chief Secretary to the Treasury alluded to that and I understand that today the Confederation of British Industry called for a cut in interest rates. I hope that enough room has been created for that to happen. In my alternative Budget, I made it clear that getting interest rates down was the single most important economic priority.

The other problem and the reason why the Budget had to be cautious is that, although not quite in the terms that the Chief Secretary set out, to some degree, borrowing is out of control. If the Chancellor was not to cause alarm bells in the markets, he had to demonstrate that any changes that he was going to introduce were properly balanced and properly funded.

Having said that, there is a degree of dishonesty in the way in which the Budget has been constructed and presented. The most specific point is that the borrowing position does not justify the standard rate of income tax cut that has been driven by a political imperative that does not square with the Government's analysis last year. The Chief Secretary's predecessor, speaking in the Budget debate just one year ago—bearing it in mind that he was talking about a forecast public sector borrowing requirement deficit of £21 billion for the current year, which is £1 billion less than his successor is forecasting for next year—said: at those levels of borrowing, no prudent domestic or international observer of the British economy should have expected to see tax cuts … it is far more important … to be right than to be popular"—[Official Report, 30 November 1994; Vol. 250, c. 1237.] That is obviously true until one gets to within 18 months of a general election, when clearly it is far more important to be popular than to be right. In the circumstances, inevitably the Chancellor of the Exchequer has been pulled in that direction.

The Chancellor's own wise men have given him some sort of shot across the bows. In the Financial Times today, Mr. Gavyn Davies of Goldman Sachs says: The target for the public sector borrowing requirement next year … is too high, and should not really have permitted sizeable tax cuts. Also, we have probably reached the point where spending plans have been cut so much they become implausible. That is where the Chief Secretary's mettle will be tested. It is much easier to cut off the forecast figures than to deliver them at the end of the day. I am not saying that he will not achieve that, but the specifics of how it will be done have not been set out. In a pre-election year, when unpopularity faces the Ministers who preside over cuts, I predict that he will have difficulty delivering them. Consequently, his borrowing forecasts may yet turn out, as they did last year, to be more optimistic than he hopes.

Apart from that, the dishonesty involves the fact that on analysis the education commitment is nothing like as generous as the Chancellor sought to make it. The Chief Secretary stated that this was the commitment—from central Government sources, it appears that all that the Government are offering is funding for their pet schemes: the assisted places scheme and the nursery voucher scheme. All the rest of the funding must come out of the local government settlement.

The Chancellor wished to portray himself as a one-nation Tory keen to protect public services when in reality the best that he has done is hold the health budget just about to real health inflation. Although he has put some additional money into increasing the number of police officers, it is a phased introduction and £20 million is not a huge sum in the context of the Budget and it is against the background of cuts elsewhere in the Home Office budget.

Nevertheless, we welcome and will support some modest measures in the Budget. In particular—here I take up the comments of the right hon. Member for South Norfolk—the threshold adjustment and the help for the elderly who need long-term care are needed. Some imaginative new proposals, which again were alluded to, go in the right direction for encouraging people to make provision for themselves and for giving them an incentive to do so.

Not surprisingly, I welcome the 27p reduction in duty on spirits. The Chancellor of the Exchequer did not acknowledge that that was a reversal of the 26 per cent. increase that he introduced last year in a fit of pique after he was defeated on the VAT on fuel issue. Over time, whisky has consistently been our biggest export and home sales have suffered. I am not sure that the Chancellor was being that magnanimous because the indications I have are that his revenue fell as a result of the impact of the tax last year. I hope that he will stop there, listen to the Scotch Whisky Association and reduce duty on spirits so that it is more in line with the alcohol content and the gap is narrowed between beer and wine.

Overall, the Budget is something of a damp squib. For the reasons I have stated, the cut in the standard rate is not justified. We have consistently stated that we believe that education could be funded. We have said that, if necessary, we would increase taxation for it and we will vote against the 1p reduction in income tax and challenge others to support us in so doing.

The Budget's most alarming feature was the uprating of the Government's borrowing forecast. That took even independent commentators by surprise. We knew that it was bad, but not as bad as that. The Chancellor is forecasting that next year's borrowing deficit will be greater than his forecast for the outturn this year. This year's outturn is forecast to overshoot by £7.5 billion. The 1997–98 figure shows borrowing at £15 billion, which is three times the level forecast in last year's Budget. In the past 10 years, the average error in PSBR forecasts has been £11 billion per annum, so it is a big variation and not a firm foundation for definite decisions. Frankly, the figures are awful and for the reasons that I have stated they could turn out worse. In addition, the wise men do not agree with the Chancellor's forecast that he can achieve 3 per cent. growth. They forecast 2.7 per cent. I hope that the Chancellor is right because clearly we want the economy to sustain higher levels of growth.

After 16 years in government, the Tories have not found the holy grail of sustained economic success. Some things are being done. Reform of the trade unions has been very much for the better and my party supported most of those proposals.

Mr. MacShane

It would, wouldn't it?

Mr. Bruce

Indeed it would because we believe in democracy, in industrial democracy in particular, and that the country has been dramatically improved as a result of those industrial relations reforms. I understand that the leader of the Labour party and Labour Front-Bench Members also support them, although they fought them all the way at the time.

The Government have also perhaps helped to deepen the understanding of certain fundamental economic realities such as that enterprises must ultimately make a return on capital if they are to survive. Having said that, the Red Book confirms that the post-war average growth rate of 2.5 per cent. is all that has been delivered under 16 years of Conservative rule. Although there are some important improvements in the underlying economic indicators, we have not yet got to the point where we can say that there is real confidence that permanently low inflation has been achieved.

When the Prime Minister says that inflation is in the box, he is being a little complacent, given the sluggish state of the economy, which is a major fact or in keeping it under control. As a result of that, the Government have not got to the point where we can say that we have stable and competitive interest rates. One of the reasons is that the Government insist on keeping interest rates under political control. All the indications are that that keeps them at a higher base rate than they would be if they were taken out of the immediate political arena, as we Liberal Democrats would wish.

Those may be some of the reasons why investment is low—and it is low, historically, across the board. Last year the Treasury and Civil Service Select Committee was sceptical about Government claims that business investment would be 10.75 per cent. Sure enough, that figure was revised to 3.25 per cent—and the investment forecast for the whole economy was revised from 5.75 per cent. to 1 per cent. Although manufacturing investment is on the increase now, that is after a deep recession. As a percentage of GDP, it is still at an all-time low.

The Government are cutting their own capital spending as a means of helping to get their borrowing under control and trying to justify tax cuts. The private finance initiative has been launched many times, and was originally hailed as a way of boosting public capital spending. The hope was that it would unlock additional resources.

However, the Red Book shows that the forecast increase in the PFI is exactly offset by the forecast cut in the Government's contribution to capital expenditure, so the PFI is now directly substituting for what the Government would have done, and there is no net benefit in terms of the capital expenditure that might have been delivered.

The Chancellor and the Government talk about getting expenditure below 40 per cent. of GDP, but unless they are prepared to explain it, that is a meaningless figure plucked out of the air. If it is to be achieved by economic success, that means reducing unemployment and increasing earnings so that there is less call on the welfare budget, which is obviously the biggest single factor outside the Government's control.

If that is the plan, we need to know what policies the Government have, which they have not shown us over the past 16 years, to achieve that transformation. But to date they have totally failed to deliver. If there is no such magic new policy—there is certainly no evidence of one—the Government can mean only that they favour transferring more of the cost of health, welfare and public service provision to the consumers of those services. Presumably the provision to some of the most vulnerable people in our society will be reduced too—witness today's earlier benefits statement.

If that is what the Government are about, their argument may be perfectly honourable and justifiable, but it is not honest simply to call for public expenditure to he cut to 40 per cent. of GDP or below, without explaining how to achieve that. The Budget was a blatant attempt to sell a false prospectus.

First, the Government claim that there is room for justifiable and sustainable tax cuts, when patently there is not yet. They also claim that spending on health, education, and law and order has been increased. Health has been protected, but spending on law and order has been frozen and, unless the Chief Secretary to the Treasury can clarify the position for me, I shall continue to believe that real investment in education has, if anything, been barely maintained, and may still end up cut.

The Government claim to be providing a big funding boost for education, but they are doing nothing of the kind. That confidence trick involving education makes Liberal Democrats especially angry, because in our alternative Budget we made a commitment to a £2 billion boost as a minimum requirement for education—to deliver the nursery education that all parties claim to want, but for which only the Liberal Democrats are prepared to identify the funding, to reduce class sizes, and to provide more funding for books and materials, and better-quality further and higher education.

The Government claim that education will be boosted by £878 million. But the direct Government contribution will be enough only to finance their pet schemes, nursery vouchers and assisted places. All the rest is to come from the local. authorities. The trouble is that this year's allocation to local authorities does no more than reverse last year's cuts. The Government are simply putting us back where we were a year ago.

Even working on the proposals for this year alone, the figures do not stand up. The Government say that there will be a 3.1 per cent. increase from last year's reduced total Government grant support to local authorities. Out of that, plus their council tax income, local authorities are expected to find an extra 4.5 per cent. for education. As education accounts for about half local authority spending, that means that 2.25 per cent. of the 3.1 per cent. increase should be earmarked for education.

It does not take a mathematical genius to work out that that leaves only 0.85 per cent. for all the other services—a real cut of almost 10 per cent. That means drastic cuts in local services such as community care, home helps and other essential local services. It also means that council tax will have to rise, and I gather that there is to be an announcement about that.

So the Government's proud boast of taking a penny off the standard rate of income tax has been made at the cost of a dramatic increase in council tax.

Mr. Waldegrave

indicated dissent.

Mr. Bruce

The Chief Secretary to the Treasury is shaking his head. Perhaps he would care to tell me why in the Red Book the Government forecast an increase of £900 million in council tax income. That is clearly a sign that they intend to lift the caps, and that they expect local authorities to increase council tax to close the gap.

The Government hope that somehow or other they will gain the credit for cutting taxes, and still be able to claim that they have increased funding on education, while the local authorities will have to deliver the money and put local taxes up. That is dishonest; it is a sleight of hand—although it is probably typical of what one might expect.

Government spokesmen have acknowledged the fact that we Liberal Democrats have set out our priorities for the current year in our alternative Budget, which is more than can be said for the official Opposition. We have made clear our desire to have reduced interest rates and permanently low inflation—we agree with the Chancellor about the importance of that. We also stress the importance of bringing borrowing under control. I rather suspect that, because of the pressures that the Chancellor is under, we are now more concerned about that than he is.

We have set out our priority for an extra £2.5 billion for education, including £500 million to be spent on the fabric of our schools. We propose to take 750,000 people out of tax altogether, by introducing a 50 per cent. tax on earnings above £100,000. We would also harmonise the national insurance and tax thresholds. Disappointingly, the Government have left that area unreformed for a long time.

We would boost public transport, research and development, health, community care, overseas aid, child care and the spirits industry rather more than the Government have. We would also introduce specific measures to get the long-term unemployed back into work.

Those are costed, responsible priorities. What a contrast to the official Opposition. Both the other parties are off on the fantasy of trying to persuade voters that we can have higher spending, lower taxes, safe borrowing and a healthy economy.

The Labour party appears to have written its economic policy in Disneyland. It attacks the tax cuts on the ground that they are not enough, yet intends to abstain rather than support them. If Labour Members want tax cuts, why do they not have the guts to support them? If they do not want them, surely they should vote against them.

The Labour party explains nothing about how it proposes to cut tax, yet at the same time pledges more funding for education, health, transport and all kinds of welfare benefits. Labour says nothing about borrowing, inflation or interest rates. It wants to defy the laws of economics, and probably the law of gravity too. In its flirtation with Murdoch the Labour party should remember Icarus, who found that when someone flies too near the "Sun" he comes to earth with an almighty crash.

I believe that British voters are understandably disillusioned with politicians who make false promises that cannot be sustained because they never stood up in the first place. The Liberal Democrats' message is simple: "You know you get nothing for nothing. Good things have to be paid for. If tax cuts are to be sustainable, the economy has to have delivered the fruits of success. So if you vote for the economic policies of either Labour or the Tories you are doomed to disappointment. Liberal Democrats could make all the difference."

7.48 pm

Mr. John Townend (Bridlington)

The Chancellor of the Exchequer has shot the fox of the hon. Member for Dunfermline, East (Mr. Brown), who expected to be able to stand up and condemn him for a giveaway Budget and an attempt to bribe the electors in order to win the general election. Clearly the hon. Gentleman got it all wrong, because one would not get an enormous number of votes with tax cuts of £3.25 billion.

My right hon. and learned Friend has acted fiscally responsibly over tax cuts, because he has matched them pound for pound with spending cuts. That should please the markets, and it will give my right hon. and learned Friend a window of opportunity to cut interest rates in weeks rather than months.

That is vital if the Government are to achieve their target of 3 per cent. growth in 1995. Growth has slowed in recent months. The housing market is flat, the construction industry is in decline, retail business in the high street is weak, business confidence is dropping, and exports are slowing. So a boost to business confidence and consumer confidence is needed. By themselves, £3.25 billion-worth of tax cuts are not sufficient. They need to be accompanied by lower interest rates.

The Budget should not be judged in isolation. There will be another Budget before the election, and it is imperative that the Government continue to cut public expenditure so that they are in a position to make further tax cuts next year. With regard to specific tax changes, I strongly welcome all of them. They will be especially welcomed by the public who have had to bear three years of tax increases. I should like to mention one or two of those changes.

I am particularly pleased with the help to be given to businesses and small businesses. The marginal relief on business rates is to be welcomed, although we should look at the whole basis of the calculation of valuation of small shops for rent. At present, they are disadvantaged compared with large shops and supermarkets. The lower corporation tax is also welcome, but, above all, the abolition of inheritance tax on private businesses is long overdue. When the Opposition were in power—there is no doubt about it—many fine private family businesses had to be sold because of the old death duties.

As a third-generation wine merchant, I am delighted that my right hon. and learned Friend the Chancellor has cut whisky duties. I am also relieved that there have been no further duty increases on beer and wine. But the long-term problem of higher duties will have to be dealt with—I had hoped that this year the Chancellor might have made a start—because smuggling is increasing rapidly.

What worries me, with my experience of the industry, is that criminal elements are becoming involved. We all remember what happened during prohibition in the United states when the Mafia got involved in the drinks industry. The Mafia did not go away when prohibition ended. At some stage we shall have to deal with the problem. We cannot have an open market. Our own industry has been put at a disadvantage. We do not need to come down to the level of duties of the continentals, but we need to halve the difference. We could do that at one stroke if we put 1 per cent. on VAT. I do not expect my right hon. and learned Friend to do that. Nevertheless, the problem will not go away.

As a Member who represents a constituency where retirement is a major industry, I agree with my right hon. Friend the Member for South Norfolk (Mr. MacGregor) and strongly welcome the changes with regard to the level of assets in old people's homes.

I turn to direct taxation, which is one of the most important aspects of the Budget. I do not think that it has got home to many people that we now have a basic 20p tax rate for all savings. On all savings—in building societies, banks and shares—people will pay only 20 per cent. tax. That is a great achievement. The widening of the band brings the day nearer when the majority of people will pay a 20 per cent. tax rate.

We have heard all about the so-called 10 per cent. rate that the Labour party is proposing. It is a confidence trick. I have been on a number of media shows—television and radio—in recent days with members of the Opposition. One member of the Opposition Front-Bench team said, when challenged about how much the rate would cost, "Ah, but it is only going to be a band." A band can be as little as £500 or £1,000, which would produce only a 10 per cent. tax saving. The proposal is a confidence trick, and it is dishonest.

There is complete chaos in the Labour party. I was also on television with the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), who said that Labour should cut taxes at the low end and pay for them by increasing them at the upper end. I think that the right hon. Gentleman represents—probably—more members of the Labour party than the Leader of the Opposition.

I want to say a little about spending, because, in view of my long-expressed views, I am naturally disappointed that reductions in public spending were not greater. I am a little perturbed that the results of the very good work done by my right hon. Friend the Chief Secretary to the Treasury on cutting departmental spending were completely absorbed by increases in the priority areas of education, health and the police. All the tax cuts were financed by reductions in the contingency fund.

However, it would be churlish to ignore the Chancellor's achievements, for this is the first time since Mr. Healey capitulated to the International Monetary Fund and cut spending over two years by 8 per cent. in real terms that general Government expenditure has been cut in real terms by 1 per cent. If that was the beginning of year-on-year reductions, I would be delighted. However, I find it disappointing that, after a 1 per cent. cut this year, the Red Book shows that, in the following two years, spending is set to rise again by half a per cent. each year.

The Government must give priority to reducing taxation. If one turns to page 88 of the Red Book, which shows tax revenue as a percentage of rises in gross domestic product, one sees the mountain that we have to climb to return to a lower tax regime. In the four years to 2000–01, tax as a proportion of GDP is projected to rise to 39 per cent.

We have to kill the doctrine of the inevitability of rising public expenditure. We need to change the culture in the public sector of "what matters is what we spend"; that things will be better if we spend another £1 billion on health or on education. We should concentrate on output, and what is achieved. When one considers how much we are putting into education, some of the recent reports on the standard of reading and spelling are very worrying.

We must judge a service on its output rather than its input. In the long term, we must take a long, hard look at spending on education and the national health service, as we are doing with the social security budget. There is no doubt that, although they are priority areas, they are very big organisations. I am sure that there is as much waste and over-management in those areas as there is in any other.

We still have a few sacred cows. In overseas aid, there have been no cuts in bilateral aid, and the Red Book says that we are the fifth largest donor in the world. We are also told that we are the 18th wealthiest country. Furthermore, some of the money donated is wasted. "The Cook Report" on television last night was very interesting, because it showed that £1 billion has been wasted in Albania.

I draw my right hon. Friend the Chief Secretary's attention to the fact that he should look next year at Scotland, Wales and Ireland. We all know that expenditure in Scotland costs 30 per cent. more per head than in England. Expenditure in England is just over £2,000 a head, in Scotland it is £2,900 a head, and in Wales it is £2,365. Yet expenditure per head in Northern Ireland is more than £5,000 a head, which is set to be increased under existing plans by adding £130 million this year and £190 million next year to the budget. There should be a peace dividend from Northern Ireland—at least they are not blowing everybody up.

We have started on a long journey to bring taxes down eventually to below the level they were at the last election. That must go hand in hand with reducing spending as a proportion of GDP and progressively continuing to move, as my right hon. and learned Friend the Chancellor plans, to a balanced Budget.

We have no differences in our party on those aspirations. My right hon. and learned Friend and I agree. The only slight difference we have is the speed at which we travel. But it is vital that we make a major stride forward in next year's Budget and then set out our programme for the next five-year Parliament to bring taxation and spending down in the long term to or below 37.5 per cent. of GDP. I strongly support all the taxation measures in this Budget.

7.58 pm

Mr. Thomas McAvoy (Glasgow, Rutherglen)

We have just had a demonstration of what the Chancellor called "the slash-and-burn tendency". The remarks of the hon. Member for Bridlington (Mr. Townend) about Scotland and Wales, and especially about Northern Ireland, were clearly misjudged.

I regret that the Chief Secretary is not in his place, since I took what he said at the start of his speech as a serious confession. He said that he had attacked the Government in 1980 purely and simply to get a job with them. Of course, he eventually succeeded. It certainly told me a great deal about his inner strength.

The right hon. Gentleman is the Chief Secretary of a Government who have increased taxes over the past three years, after they made an election manifesto commitment not to increase taxes. Some measure of humility might have been in order. Although it might have been hard for someone from the Chief Secretary's class to make an apology to the country, he might have said with some humility that the Government were responsible for those tax increases. The nemesis of the Government will come sooner or later, but it will certainly come; and the Chief Secretary's nemesis may come even sooner.

The Chancellor realised early on that the British people would not be fooled by the tax cuts that his Back Benchers wanted. He knew full well that to come up with those tax cuts, even against the fiscal advice of his own Back Benchers, would have told on him, because the Government still have around their neck the fact that they have increased taxes by the equivalent of 7p on the basic rate. I know that they do not like us to repeat it, but that figure should be repeated again and again. Even after the Budget, with its certain level of tax cuts, a typical family will still be worse off by £670 per annum. That is the measure and the achievement of the Conservative Government.

Another reason—I hope, the most important reason—that the Chancellor took into account in his decision not to cut taxes further was the amount of debt that the Government owe. For years, the Labour party has had to withstand lectures from Conservative Members that it was not fiscally correct, could not run a Government, and could not handle the finances of a Government or run the country. When I think of black Wednesday and the state of the Government, I am not inclined—more importantly, the people of this country are not inclined—to listen to lectures from any Conservative Member, and especially from those on the Government Front Bench, with their record of running the country.

I do not see anything in the Budget to help industry in my constituency. The Hoover domestic appliance plant, which has an excellent export record, is in my constituency. I do not see any measures to help that company to operate and expand its market. The company and its work force have an excellent export record. I do not see any measures from the Government to help such companies. There is not much joy for my constituents in the Budget.

The hon. Member for Bridlington mentioned spending in Scotland. It is a fact of life that the Scottish Office, according to the expenditure plans announced yesterday, faces a sharp reduction in its annual budget over the next few years as a result of an overall cut in Government spending. Although the Secretary of State for Scotland—as a tactical move—chose to stress that the £173 million increase in cash terms in next year's total allocation was the highest ever, the fact is that the amount of money allotted pro rata to the Scottish Office has been reduced.

The Secretary of State has failed to fight his corner, and he has failed to fight Scotland's corner. The figures show that the Secretary of State for Scotland has had to accept a £320 million cut in real terms to next year's budget, and his Department faces cuts rising to 5 per cent. in the financial year 1998–99. The Secretary of State has failed to fight his corner against the Treasury.

I echo some of the comments made by a former Secretary of State for Transport, the right hon. Member for South Norfolk (Mr. MacGregor), about cuts in the roads programme. I am a member and a supporter of the west coast main line group. I support rail services. I do not support motorway madness or roads for their own sake.

The fact of life is that the economic life of this country depends on an efficient road system for industry and commerce. Now we have a £4 billion brake on new routes because of cuts in that programme. That is purely and simply a short-sighted, short-term measure to respond to an immediate situation. The Government are putting off the evil day, because they think that we can do without the roads for another year or so, but damage will be done to haulage, freight companies and the economy as a whole because delays and traffic jams result in so much cost to the country. The Government's decision is short-sighted.

I know that the environmental lobby will argue, with some justification, about a reduction in road traffic. The Government have not mentioned the excellent report by the RAC, in which it suggests ideas which would cut car journeys by 20 per cent. I am in favour of cutting car journeys. It is ridiculous that an organisation such as the RAC, in a genuine attempt to tackle the problem of traffic, can come up with innovative ideas and methods that sometimes go against the interests of the car owner, when all that the Government can come up with is a £4 billion cut in the roads programme.

The hon. Member for Gordon (Mr. Bruce) is not in his place. He was in the Chamber for some time, waiting to speak. I am sorry that he is not here. I am sick to the teeth of the hypocrisy of the Liberal party, which preaches one thing in one area and something else in another. The hon. Gentleman said that his party was in favour of cutting the roads programme, yet the Liberals make a special case wherever it suits them to do so. In my constituency, the Liberals are campaigning against a project to complete a 12-mile motorway link. I welcome the hon. Gentleman's comments, but some motorway building is essential.

Mr. Eddie Loyden (Liverpool, Garston)

Does my hon. Friend think it a good idea that we should begin to consider reviving the coastal merchant fleet? It is the most environmentally acceptable method of transport and one that we should fight for. Places in Scotland and the rest of the United Kingdom would benefit from shipbuilding. Coastal vessels could transport most of our goods around the coast without all the environmental problems that roads bring.

Mr. McAvoy

I am grateful to my hon. Friend for that brief intervention—I think. I look forward to intervening in his speech at some point, especially during a 10-minute limit on speeches. My hon. Friend's point is correct. We have under-utilised resources and methods of transport such as that mentioned by my hon. Friend. The Government's short-termism has failed to take account of that.

Of all the Budget measures announced by the Government, the one that describes the Government and their ethos best is the cuts in special benefits for lone parents and in housing benefit for the under-25s. That is a disgrace. The Chancellor claims to be a one-nation Tory. The nation will pay the price of treating its young people in that way, and the Government will certainly pay the price, too. Despite the Government's efforts to discourage that section of the population from registering, young people will fall over themselves to make sure that they are registered somewhere in time for the next general election. That will be their chance to seek revenge on the Government.

8.7 pm

Mr. Robert Hicks (South-East Cornwall)

The Budget confirms that my right hon. and learned Friend the Chancellor is determined to secure sustainable economic growth in a low-inflation environment. If, as a consequence of the measures announced yesterday, we can expect further reductions in interest rates sooner rather than later, that is to be welcomed.

Much has been written and spoken about tax rates. Given my right hon. and learned Friend's approach and his wish to help specific sectors of the economy and particular groups, he was right to limit the reduction in the standard rate to 1p. As the parliamentary representative for a low-income area, I have always argued that in a tight financial situation it is more important to increase personal allowances than to cut tax rates. I welcome my right hon. and learned Friend's decision to increase personal allowances above the level of inflation.

I am pleased about a number of other measures, one of which specifically relates to the proposed assistance for people in residential and nursing homes. The existing financial arrangements are certainly too harsh in their application, and they undoubtedly penalise the thrifty and cause widespread anxieties among families. On public expenditure, I welcome the Chancellor's decision to make additional financial resources available in real terms for education, health and the police. There will be widespread public support for that decision.

The purpose of my speech is to make a number of comments about public expenditure as part of the unified Budget as it relates to the economy of the south-west, and Devon and Cornwall in particular. The House will know that, historically, the economy of Devon and Cornwall has been dependent upon primary activities such as agriculture, fishing, mining and quarrying, and later on tourism and defence.

The south-west is the most dependent of all the United Kingdom regions on defence and defence-related economic activity. The changes in the United Kingdom's defence requirements have led to the loss of some 21,000 defence-related jobs in the past 10 years, with further reductions of 20 per cent. forecast between now and the year 2001. The loss of income to the local economy through defence reductions is estimated to be in excess of £500 million.

Unemployment levels in Devon and Cornwall are traditionally higher than in both the official south-west region and the United Kingdom as a whole. Forty-eight per cent. of the travel-to-work areas in Devon and Cornwall feature in the worst 33 per cent. of the United Kingdom's unemployment black spots. Conversely, average earnings in the area are significantly below the United Kingdom national average. In my constituency, average earnings are 16 per cent. below the national average.

It is often said that our cost of living is lower. I wish that that were the case, but nothing could be further from the truth. The cost of living in my area is some 8 per cent. above the United Kingdom average, and this is compounded by the wide discrepancy in average council tax bills. For example, the average council tax bill in Cornwall last year was £447, which was 51 per cent. above the average in South Glamorgan. I would hardly consider Cornwall to be a spendthrift county, and it is more likely that this significant differential reflects a more favourable grant settlement for Wales than for England.

While I am not seeking on this occasion to question the overall level of public expenditure, I am seeking to influence Ministers to agree to a more equitable distribution that takes into account the genuine needs of the far south-west. It is only right that we in the far south-west do everything within our power to help ourselves, and this we will do. Indeed, the fact that we are helping ourselves will be evident from our tangible achievements in attracting foreign inward investment into Devon and Cornwall.

A total of £48 million of inward investment was gained last year, which resulted in the creation of 895 new jobs and the safeguarding of a further 550 existing jobs. The figures for the year beginning April 1995 are even more encouraging. Some £64 million in investment has been gained so far, leading to the creation of 1,237 new jobs and the safeguarding of 595 jobs. That is excellent news, and it is evidence that we are prepared to help ourselves. But just as the UK's industry, commerce and business in general seek a level playing field in their dealings with our European Union partners, so Devon and Cornwall require the same conditions in terms of the support we receive from the Government through public expenditure compared with the funds allocated to other parts of the United Kingdom.

I shall provide the House with two sets of figures to illustrate the existing unfairness. Last year, Devon and Cornwall received less than 1 per cent. of the national single regeneration budget, despite having almost 3 per cent. of the United Kingdom's unemployed people. Yorkshire and Humberside—with approximately the same percentage of unemployed people—received £19.2 million, or four times the allocation for Devon and Cornwall.

Secondly, taking Government aid and support as a whole, Devon and Cornwall last year received just £50 million in total, compared with £187 million for Wales and £530 million for Scotland. All these figures are taken from either the reports on the regional economy prepared by the Plymouth business school or the two independent reports prepared by Coopers and Lybrand. In addition, our regional daily newspaper, The Western Morning News, initiated in September a responsible and objective campaign for a better deal for the far south-west.

The Prime Minister and senior Ministers are aware of the findings of the independent reports, but there is increasing frustration and anger manifesting itself within the far south-west about the inability or unwillingness of the Government to respond to our genuine economic and social needs. When the Prime Minister received these reports 12 months ago, he said: We shall certainly take account of your points in allocating resources". We are at that time in the political calendar when the decisions determining public expenditure allocations are made. I just hope that due consideration will be given this year to meeting the requirements of Devon and Cornwall.

8.17 pm

Mr. Harry Barnes (North-East Derbyshire)

The speech of the hon. Member for South-East Cornwall (Mr. Hicks) was very different from that of the hon. Member for Bridlington (Mr. Townend). It was not just that the hon. Member for South-East Cornwall made a constituency speech, but that he referred to equitable distribution and how that related to the income tax provisions. Those points were entirely absent from the speech of the hon. Member for Bridlington, and I found myself at the opposite end of the political spectrum from every point made by the hon. Gentleman in his speech.

I wish that there was greater honesty from the Government in our Budget debates in the House. I realise that, in politics, that may be a wild wish, but we seem to have moved into a dangerous era of news management. We have had a Budget statement and debate in which some of the priorities have not been referred to at length. We have spent a lot of time debating the extra 50 per cent. on strong cider that will raise £5 million, and we have almost passed over what is happening with regard to VAT. Only one brief reference was made to that matter, although there are some proposals in the Budget which are aimed to raise £600 million by altering the accountancy schemes that operate in the collection of VAT. That is quite important. Will the scheme function? We are talking about a large amount of money.

News management does not merely take place when the Chancellor is addressing the television cameras in here. When we get to look at documents relevant to the Budget in the Vote Office, we find that some are press releases that are intended as news management. The Treasury argues that the average family will be about £450 a year better off and certain newspapers will pick up on that, but when one reads the qualifying remarks, one finds that it is talking about hoped-for economic growth, improvements in wages and other provisions and that that is what it is all about. Really, when one talks about the financial consequences of the Budget for an average family, if there is such a thing, one should consider the amount of money that will result from the Budget itself.

What was to be the Chancellor's final word on tax cuts? That was what everyone was concentrating on. We discover from the Red Book that, all told, income tax cuts account for about £3.7 billion. More than half that amount comes from the avenues that the hon. Member for South-East Cornwall mentioned and from alterations in the bands and allowances. That is interesting because, if we had had none of that, we could have had a tax cut of 2p in the pound instead, which was the headline that many people were looking for.

At least the cut in the Budget shows that the Chancellor is giving some consideration to other factors that need to be taken into account, although the Budget is generally entirely inadequate and inappropriate for our needs and does not do anything for investment and growth, as the Opposition Front-Bench team has said.

Where does that £3.7 billion come from? As I said in an earlier intervention, £3.2 billion is from the reserves. I do not want to over-egg the argument because there are some technical reasons why it is as much as that. Higher figures are given for reserves for the year ahead and the year ahead of that. As one moves into the fresh year, one always takes a certain amount of money out of the reserve, but it is a fact that, at the time of the autumn statement in November 1992, the contingency reserves stood at £4 billion and they are now down to £2.5 billion. Those reserves are gradually being raided and we may be in a precarious position if some of the other items contained within the Red Book do not function properly.

That is a serious consideration and it seems to have been recognised in a number of contributions tonight. People realise that that is where the money is coming from. If all of it has not come from raiding the reserves, at least a part of it—the tax cuts—has, and I do not think that that is a healthy position for us to be in, especially as some of the rest is expected to come from tackling social security fraud. Hon. Members have already expressed doubts as to whether it will be tackled to the extent indicated. So there seems to be something economically dodgy about balancing the amounts.

On the equity considerations, the arguments expressed by the hon. Member for Gordon (Mr. Bruce), the Liberal Democrat spokesman, are important. We have been told that local authority expenditure on education will increase by something like 4.5 per cent., which is an increase in monetary terms. When we take into account inflation rates, it becomes an increase of about 1.25 per cent. The problem is that the latter figure is then tied in with the local government figure. We are told that local government expenditure will increase by 3.3 per cent.—just a little ahead of the inflation rate—so there will he no increased money for local government, although education has been granted that increase in expenditure. Cuts will therefore have to be made in other areas.

In one area—the fire brigade—equity runs in favour of Cornwall and not Derbyshire. The length of coastline is taken into account in the formula. Cornwall has a considerably longer coastline than Derbyshire, which is in the middle of the country and so has no coast at all. On grounds of equity, it seems that that arrangement should be altered.

It is little wonder that some money is being found for education, given the organisation, petitioning, lobbying and demonstrations with which parents, children and teachers have been involved. They have got some response. As always with this Government, however, when one gets a response in one area because of pressure, there have to be cuts in other areas—often areas of considerable need.

In Derbyshire, we have considerable problems in other areas, such as social service provision. I believe that tomorrow we will hear an important statement from the Secretary of State for the Environment, which concerns district councils and will be of vast importance to Derbyshire. The problem is not only the size of the total bill and whether it is being raided in areas other than education, but the massive problem of the avenues of distribution, which is of considerable importance in Derbyshire.

North-east Derbyshire has one of the worst-funded district councils in England per head of population. It is unbelievable when one considers the nature of the area. I know how it works because I know something of the nature of the formula that operates. It is a fiddled formula and happens to hit us from all directions.

We need a more open and honest Government, who will explain what they are up to and are not merely trying to manoeuvre and manipulate people when they produce Budgets. Greater expenditure is justified in many areas, such as overseas development. The peace dividend in Northern Ireland should be spent in Northern Ireland. Those are the sort of things that we should be able to get our teeth into in these Budget debates.

8.27 pm

Sir Andrew Bowden (Brighton, Kemptown)

There is no question but that the Chancellor presented a highly responsible Budget yesterday in the face of a propaganda campaign conducted by the official Opposition in which they claimed that everything that the Government have done and said in the past six months was designed purely to provide massive sums of money for huge—and irresponsible—tax cuts. Yet again, they have been shown to be totally wrong. I hope, however, that the Chancellor will be able to follow it up in the very near future with a significant cut in the interest rate.

On education, we must be careful to recall that we are talking about expenditure in the next financial year. There is every prospect that, in that financial year—beginning April 1996—the inflation rate will not be in excess of 2.5 per cent. That means that the increase in expenditure on and money made available for education will be nearly double the rate of inflation. Local authorities will certainly be able to maintain services in their areas and, in many cases, they will be able to improve them.

In East Sussex, which covers my area of Brighton, the settlement exposes the hypocrisy of the campaign organised by the controlling political parties on East Sussex county council, which have been going around Brighton and the county saying that, within the next three financial years, there will have to be massive cuts in expenditure on education. They were talking about £24 million pounds. Such a cut was never going to happen and the new announcement of the money that is to be available has shot the campaign to pieces.

Unfortunately, many parents were seriously worried and upset by what I can only describe as a scandalous campaign. We now need a community campaign in East Sussex and Brighton conducted by parents, school governors and teachers to ensure that that additional money is spent in the county's education budget. Without one, I suspect that the county will find excuses for not doing so.

I want now to deal with pensioner issues. I warmly welcome the proposals on long-term care. They will give many families more financial security and greater peace of mind. The director general of Age Concern England, Sally Greengross, stated: Older people who are worried about paying for care will be delighted to hear the proposals in regard to the capital limits for residential and nursing home care. That is indeed a major step forward, but it is just the first step.

The Government have said that they are preparing a consultative document on some of the problems of long-term care. I hope that that document will contain a range of proposals and possibilities so that there can be widespread consideration of the options. I hope that the document will include the possibility of people being able to buy equity in residential homes and/or to purchase a room in a residential home. That would help many people to preserve part, if not all, of the capital derived from the property that they owned and, when they died, the proceeds of selling their equity or room in the residential home could be passed down in the family.

There are two groups of pensioners that concern me deeply. There are those who do not claim income support when they could and those who have a few pounds a week above the income support level. Many of them will be worse off than people in receipt of income support. We have not yet found a way of giving the help and support that we should to those sections of retired people.

I am upset with one thing in the Budget—the Government's decision to cut the home energy efficiency scheme. Until the Budget, it was open to pensioners as a whole. Now, as I understand it, it will be limited to those on income support. That will create hardship and difficulties for those who do not claim income support when they could and for those who have only a few pounds a week above the level of income support. I submit to the Government Front Bench, with great respect, that that should be carefully reviewed. I hope that the decision will be reversed.

The payment of council tax on elderly relatives' annexes is another matter that has not been clarified by my right hon. and learned Friend the Chancellor and it needs to be clarified as quickly as possible. A compromise might be that, if a flat can be sold separately, it should be liable for council tax, but if it cannot be sold separately, it should not be liable for council tax.

The Budget is a harbinger of good things to come. The country can be grateful that we have a Chancellor with great courage and integrity.

8.34 pm

Mr. Bill Etherington (Sunderland, North)

When the Chancellor of the Exchequer made his statement yesterday, I took particular note of two sentences that he uttered early on. He said that he would seek greater wealth and personal prosperity in which all can share and that he would like to give the weak and the less fortunate a helping hand."—[Official Report, 28 November 1995; Vol. 267, c. 1055–56.] I am afraid that, given the use of those terms, the Chancellor's statement was disappointing and, indeed, a miserable failure. He is not going to do anything of the sort.

Another illuminating point, which the plethora of media publications since the Chancellor's statement do not seem to have picked up on, was that the Chancellor mentioned that tax receipts last year were lower than expected. I was alarmed to hear that he is looking for more privatisation of public services and more private investment in public services. I think that the Government were the first to use the term "double whammy". That is a classic example of a double whammy because it can be guaranteed that the pursuit of those philosophies will mean that the public will have to pay more for services, not less.

I was intrigued by the Chancellor's section on transport and I praise his nice attitude on the treatment of veteran vehicles. I think that they are veteran vehicles when they are over 25 years old, but they might be vintage. Certainly people treasure such vehicles. If people do not have a vehicle on the road, they should not have to pay tax.

I was somewhat beguiled by the idea that one can somehow improve things by increasing the tax on fuel for road vehicles and the road fund tax—presumably to try to cut emissions, although the only way to do that is to reduce the number of miles that are run. At the same time, however, we are led to believe that there will be a considerable reduction in public expenditure on transport, especially public transport. Albeit on a small scale, there will be an increase in the cost of motoring. Many people have no choice but to use a vehicle—and they are not all well off—yet there is no credible alternative in the way of a well-integrated public transport system with proper investment. I found that strange. It is a short-term policy.

I had the dubious pleasure this morning of listening to the Secretary of State for Social Security on Radio 4 after the 7 am news. For once, he sounded uncharacteristically unconvincing when speaking about the Government's policies on single parents. The reason that he sounded unconvincing might be to his credit because he was, after all, trying to defend the indefensible. We should take the attitude of the Secretary of State in conjunction with the proposals on housing benefit. We are talking about two of the most vulnerable sections of society, but where is the helping hand for them? They are not getting the helping hand; they are getting the reverse.

Do the Government really believe, after years and years of under-investment in housing and the rise of private landlords brought about by their deregulation policies, that people on housing benefit are in a position to negotiate with their landlords to get a reduction in rent simply because the Government think that it is possible? Does anyone really believe that that is a credible proposition? My experience suggests the opposite.

Recently, one of my constituents was being threatened by her landlord. If she was not to be out on the street, she had to give him £10 a week in addition to the housing benefit that he received directly. He would not give her a rent book or a receipt. That is the sort of behaviour that is bred by the Government's present housing policy. I will say a little more about that later.

We are also led to believe that the reduction in tax on savings to 20p in the pound is a wonderful thing. What about investment income? We are told that the Chancellor wants to reward hard-working people, but I do not think that he rewards them by taxing what they earn at a higher rate than he taxes investment income. A millionaire who has invested £1 million can get away with paying tax at 20p in the pound, yet people on relatively moderate incomes must pay tax at a rate of 40p in the pound. That does not seem very satisfactory.

The Chancellor said that he believes that the Government can afford a 1p reduction in tax. That is notwithstanding the fact that the education budget has been cut consistently for many years. The council in my constituency is so strapped for cash that it has had to cut many education services and it is dreading—as I am—tomorrow's statement. It has also closed welfare rights agencies because of chronic underfunding through the Revenue support grant. I hope that, tomorrow, my local council, Sunderland city council, will be allocated the same amount of money as Westminster city council. That would solve all of my problems.

If the Chancellor can afford the 1p reduction in tax, which advantages those on high earnings disproportionately, why can he not afford to reduce value added tax on fuel? That would have given a helping hand to those in need, but there was nothing of that nature in the Budget.

I welcome the fact that tax on beer is not to be increased. I am fairly neutral on the subject of duty on whisky, but I am intrigued about why the duty on strong cider must be increased. If the tax increase is based on alcoholic content, why are spirits and wine—which are stronger than cider—not taxed in the same manner? I am still trying to work it out; it does not seem very logical.

On housing, I must declare an interest. I belong to the Durham Aged Mineworkers Homes Association, which comes under the auspices of the Charities Commission and is involved with the almshouse legislation. There will be 51,000 new social lettings this year, which is 9,000 fewer than the Government's lowest estimate. The cut from £1.5 billion to £1.1 billion will feed through into 18,000 fewer jobs next year—almost 10,000 fewer in the construction industry—and 30,000 fewer in the following year.

That will have a drastic effect in the northern region, where next year the number of homes that housing associations can start will fall from 3,097—which was the figure first promised—to only 1,670. That is a reduction of almost 50 per cent. Yet the Chancellor says that he is trying to do something about the housing sector. The only thing that he has done is introduce the spectre of more private landlords—and anyone who has studied history dreads that.

I believe that the Budget is based on economic failure. The hon. Member for Brighton, Kemptown (Sir A. Bowden) described it as a prudent Budget which was not quite what was expected. I agree that it is a prudent Budget in some respects, but it does not address any of the problems that I face in my constituency. It will not alter society for the better—indeed, I believe that it will have the opposite effect.

Much has been said about the Labour party's position on the 1p reduction in income tax and whether we will vote against it. I do not pretend to speak for the party; I just try to speak honestly for myself. One has to be prudent, but I must admit that I shall find it very difficult to resist voting against the 1p decrease because I think that it is regressive and to be deplored.

8.43 pm

Mr. Matthew Carrington (Fulham)

At the outset, I declare my interests as they appear in the Register of Members' Interests—although I do not think that they will be very relevant to my speech tonight.

It is a great pleasure to support a very cautious and prudent Budget. The last few Budgets were necessary, but I cannot say that they were altogether pleasant. It is never pleasant to be forced to raise taxes but, coming out of a recession, it was necessary. For a party that is always strongly committed to reducing the tax burden, it was an unfortunate necessity.

The medicine has worked, however, and the economy is now doing extremely well. Our inflation rate is low—historically, it is at a very low level—and there are very few signs of inflationary pressures in the economy. Unemployment is decreasing, and it has been doing so consistently for a long time. Even the public sector borrowing requirement is decreasing fast—it decreased by £7 billion last year. The only problem is that it is not decreasing as fast as was projected originally and we are contemplating being one year behind the initial predictions.

Nevertheless, growth in the economy has been good. Last year, at 4 per cent., economic growth was too good as such a level is unsustainable in our economy. This year, the growth rate has reduced to a very healthy 2.75 per cent. That is still well above the economy's trend rate, which is some 2.25 per cent. With a rise expected next year, I think that we can be content that economic growth is very strong and not leading to inflation.

We are seeing signs of long-term, sustainable growth and that means that the supply side reforms for which the Government fought over 16 years are at last having an effect. All of that good news led my right hon. and learned Friend the Chancellor to produce a cautious Budget in which he did fundamentally very little. Although the economy is doing well, the recovery is still patchy.

The outlook is favourable for exporters, but two sectors of the domestic market—the retail sector and the housing market—are not doing well. I believe that it is correct to put money back into the pockets of individuals who can then spend it as they wish. That boosts retail sales directly and the building and housing markets indirectly. Tax cuts are the most effective way of putting money back into people's pockets and, as such, are entirely justified. They are a very sensible way of helping two sectors of the economy that have been in serious trouble.

However, I do not believe that tax cuts by themselves are enough. We now need substantial cuts in interest rates. Such cuts will not do very much for industry directly—after all, interest rates are at historically low levels and industrial investment decisions are unlikely to be influenced by further reductions in interest rates—but investment decisions are likely to be influenced by demand in the economy for the goods that industry can provide.

I do not believe that interest rate cuts will assist the housing market. House prices are now very low and houses are extremely affordable in income terms. Interest rate cuts will put more money back into people's pockets. They will have the same effect as tax cuts to—increase demand and, in turn, increase investment in industry. They will also increase people's willingness to spend money on their houses.

I should like base rates to be cut by 0.5 per cent. before Christmas, followed by another 0.5 per cent. cut fairly soon after that. I believe that a 1 per cent. cut in interest rates is entirely sustainable and I do not believe that it would adversely affect our exchange rate—particularly as German interest rates are now on a downward trend.

I must, however, mention one or two matters about which I am less happy. The first is the uniform business rate and its effect on London. My right hon. and learned Friend the Chancellor said in his Budget statement that, in parts of the country where rateable values are increasing, the uniform business rate is to be phased in more slowly than originally intended. In London, we suffer from the reverse problem. When the uniform business rate was introduced in 1988, property prices were extremely high. The revaluation that followed was done when property prices in London had come off the peak, and many businesses found that the notional reduction in their uniform business rate was phased in very slowly.

There should be a better balance between the phasing in of increases in parts of the country that are suffering them and the phasing in of decreases in London. Business in London, especially retail business, is in very poor shape at the moment and would benefit enormously from a reduction in rates.

My final argument is more technical. The Budget will lead inevitably to a very complex Finance Bill. There are technical changes in the tax structure that will be hard to put into a short and easily understood Finance Bill. As a veteran of many Finance Bills, and having sat on many Finance Bill Committees, I know the problems that confront the Committee when it has to examine highly technical clauses. There is neither the time to examine them in the detail needed nor, occasionally, the expertise in the Committee necessary to give them the scrutiny they deserve.

That problem should be tackled and there are several ways in which it might be done. The most obvious way, as several of us have suggested for some time, is to separate the technical taxes management aspects from the tax changes and put them into a separate Bill, which might be examined by a Committee that had the time to examine them thoroughly.

Alternatively, expert evidence might be taken on the highly technical clauses. That might be done by a Standing Committee with a dispensation of the House, or the Bill might be passed initially to the Treasury and Civil Service Select Committee to pre-vet those clauses, take evidence if required and produce a report for the Finance Bill Committee to consider.

One thing is certain. The technical clauses in the Finance Bill do not receive the scrutiny that they deserve. We end up returning to them year after year to change what we have passed in the previous years, which is highly unsatisfactory.

The Budget has done what is needed in the economy. I believe that it gives us that wonderful goal that we have searched for for years—sustainable, low-inflation growth. I hope, therefore, that it will lead to greater things in the Budget next year.

8.52 pm

Mr. Denis MacShane (Rotherham)

I joined the Labour party about a quarter of a century ago, and I remember that the first great disappointment of my youthful membership was the introduction of a Budget by one Roy Jenkins, now a Member of another House, which led straight to Labour's defeat in 1970.

From a political point of view, the Budget presented yesterday by the Chancellor smacks very much of the same Treasury orthodoxy—cautious, candle-ends, steady-as-she-goes manipulation of the nation's finances, which, although the orthodox economists at the Treasury may smile about the fact that they have mastered their man, may lead to considerable political dismay in the Conservative party. We were aware of that yesterday, when the only cheer or smile came when the Chancellor announced that he would lift the vehicle tax on Bentleys and Bugattis. For the rest, it was a poor and dull reception indeed.

As we are discussing Mr. Jenkins and one of his successors, the right hon. and learned Member for Rushcliffe (Mr. Clarke), let me turn to another Conservative philosopher, who once said: The whole business of the poor is to administer to the idleness, folly and luxury of the rich, and that of the rich, in return, is to find the best methods of increasing the burdens of the poor. The Paymaster General, a learned graduate of Oxford university—I wish to apologise to him and to my hon. Friend the Member for Edinburgh, Central (Mr. Darling) for the fact that I must leave before the winding-up speeches—will recognise that quotation from Edmund Burke. Would that we had a Burke here today, to flay the creation of a two or even three-nation society, which the Budget will only exacerbate.

Twenty-one new taxes have been imposed since 1992, every one bearing mainly on the poorer members of the community. We are told that the Chancellor's decisions since 1992, reinforced by the Budget, will help to steer the British economy on to a more stable course, yet we are 18th in the world gross domestic product per capita league, having slipped from 13th since 1979.

Inflation here is higher than in the majority of European Union countries, including our main competitor partners. In its latest quarterly report, the Bank of England condemns the decrease in productivity improvements, especially the increase in unit wage costs, and we have the lowest investment witnessed for about 30 years.

That bears down especially hard on my constituents, because I have to see the Budget refracted through the eyes of the people of Rotherham, and not many live in £200,000 houses there. Not many have handsome investment incomes from savings who will benefit from the tax cuts that the Chancellor has made. On the other hand, 12.5 per cent. of the working population are unemployed—12,000 people altogether. One in five people under the age of 25 in Rotherham are out of work, and are now under a new onslaught as the money is taken from them to put into the pockets of the rich.

Is there any hope from the Budget for my constituents? It is a Budget that slashes a dagger at the arteries of investment, with £100 million taken away in grants to housing associations. That means that 35,000 fewer houses will be built this year as a result of those costs, and the construction workers and the small building firms of Rotherham will be left to face bankruptcy and despair. There are cuts of £190 million in the roads programme—another blow for domestic construction and the civil engineering programme.

The business men of Rotherham and South Yorkshire wrote to the Chancellor last week. They begged him for any tax breaks in the Budget to be targeted at industry through increased capital allowances: no hope there. They welcome the private finance initiative, but find nothing in it for South Yorkshire, especially as those business men say that red tape defeats any efforts that they make to try to get the private finance initiative to work.

There is something very strange in the Red Book—a massive discrepancy, not only in the public sector borrowing requirement, but in other sectors, between what we were told last year and what actually happened. The Chancellor collected £1.1 billion less than he forecast last year in income tax, £700 million less in corporation tax than predicted last year and £1.5 billion less in value added tax than he predicted last year. There is an odd contradiction between the mood music that we constantly hear at DTI and Treasury Question Time about the economy getting stronger—indeed, the Prime Minister said in Prime Minister's questions on Tuesday that incomes were rising—and the fact that we are collecting less and less tax.

One reason may be the fact that tax avoidance remains one of the great growth industries in the British economy. As the hon. Member for Fulham (Mr. Carrington) suggested, tax legislation is the most complex legislation that the House passes. In fact, we have much the most complicated tax legislation in the world. Last year Rupert Murdoch made a profit of £960 million, but paid only £11 million in tax. What is the Chancellor's response to the fact that £15 billion to £17 billion has been lost in uncollected tax? His response is to fire 6,000 Inland Revenue employees who might be usefully employed gaining money for the state to help to balance the books.

Then we move on to the nightmare of self-assessment. Here I address my remarks to Front-Bench spokesmen of my own party. I do not know how many hon. Members have examined the nine new complicated forms that taxpayers will be expected to fill in under the proposed new self-assessment scheme, which will cover some 9 million taxpayers, but even at the height of the Soviet bureaucracy, the Soviet citizen was never plagued with a requirement to fill in such complicated forms. The Budget does not address the question of what we mean by and want from taxation; it contains neither innovation nor inspiration.

I welcomed the ideas presented by my hon. Friend the Member for Dunfermline, East (Mr. Brown), the shadow Chancellor, in the run-up to the Budget. He recommended a windfall tax—an appropriate suggestion, given the profits declared today by Yorkshire Water—and taking swathes of people at the bottom of the income scale out of the tax band with his 10p proposal. Here was the beginning of serious, innovative thought about our outdated tax regime. After all, the taxation of our people implies a fundamental relationship with Government.

The Chief Secretary to the Treasury made much of his conservatism. He has been a Fellow of All Souls for many years; I must add that in recent months he has helped to turn his party into a lost cause. He will recall the words of his old mentor Disraeli, who said of conservatism: It offers no redress for the present, and makes no preparation for the future. For my constituents in Rotherham, who live in the "two nations" Britain that the Chancellor and the Chief Secretary have created—people who cry out for redress of present ills and investment in future growth—the only answer is a change of Government.

9.1 pm

Mr. Tim Smith (Beaconsfield)

Notwithstanding what the hon. Member for Rotherham (Mr. MacShane) has said, I wish to defend the Inland Revenue's record on self-assessment. I believe that it will lead to simplification. It simply is not true to say that every taxpayer will have to fill in nine forms; the average taxpayer will have to fill in the main form and one schedule. I have just received the latest pack of self-assessment forms from the Inland Revenue. The Revenue has simplified the system considerably following consultation, and I think that it has done a pretty good job. In the long run taxpayers should save money, and we should be able to ensure that revenue is collected with fewer staff.

Listening to the speech of the hon. Member for Dunfermline, East (Mr. Brown), I wondered whether he had actually read the Red Book. I suspect that he had not. He complained a great deal about the level of investment, but if he had looked at page 30 he would have seen that manufacturing investment is forecast to increase by more than 10 per cent. this year and in 1996.

Similarly, I wonder whether the hon. Member for Rotherham took the trouble to read the Red Book. He, too, complained about the Government's record on investment. On the same page, the Red Book tells us that business investment is forecast to increase by 9 per cent. in 1996. I should have thought that that was a pretty good record.

The hon. Member for Dunfermline, East also complained about the present state of the labour market. If he had turned to page 39 of the Red Book, he would have discovered that the employer survey measure of the labour market shows an increase of 510,000 jobs since the trough at the end of 1992. The labour force survey shows an even higher figure of 650,000 over the same period. That is a pretty good record. It contrasts sharply with what happened during the recovery after the last recession, when employment did not stop falling for about four years following the trough of the recession. It illustrates the current flexibility in the labour market, which now responds much more quickly to changes in demand.

I do not know whether you saw the hon. Member for Oxford, East (Mr. Smith) on "Newsnight" last night, Madam Deputy Speaker. Jeremy Paxman rightly pressed him on why the Opposition refuse to make up their mind about whether they are in favour of reducing the standard rate of income tax by 1p in the pound. Labour Members are going to abstain: they are neither for nor against the proposal. I was interested to observe that the hon. Member for Sunderland, North (Mr. Etherington) clearly feels pretty uncomfortable about that. His feeling is understandable. The position of the Liberal Democrats is at least honest and straightforward: they will vote against it. What do Opposition Front Benchers think about it? Are they for or against it? How can they possibly abstain? It was no surprise to me that the hon. Member for Oxford, East looked so uncomfortable on the television last night.

This is a responsible, prudent and sensible Budget. I particularly welcome the fact that public spending as a proportion of gross domestic product will soon fall below 40 per cent. There is always an interesting table in the Red Book. This year, it appears on page 139, and it shows the record of public spending over the past 30 years. It shows that, in the recession of the middle 1970s, public spending peaked at about 47 per cent. of GDP. In the recession of the early 1980s, it peaked at around 45 per cent. and in the most recent recession it peaked at around 43 per cent. We have been moving in the right direction over the past 20 years, but we should aim, once we have it below 40 per cent. of GDP, to keep it there.

The Governor of Hong Kong, Chris Patten, was quite right—he has learnt a little from his time in the far east—to say that there is a correlation between the proportion of public spending as a proportion of national income and economic growth rates. Countries in the far east spend a lower proportion of their GDP and have higher growth rates. That is a good target. We are making good progress towards achieving it and we should stick with it.

What has led to a higher public sector borrowing requirement for the current year and for next year is not the Government's failure to control public spending, which has been kept under effective control, but rather, as the hon. Member for Rotherham said, that revenues have not come in at the anticipated level. In particular, VAT revenues are down by about £4 billion from the amount forecast, and next year's VAT forecast is lower than that for this year. That may be because of a lower level of consumer spending than was forecast. It is hard to know precisely what has contributed to that. It may not be so much VAT as the duties on alcohol and spirits, because a great deal of alcohol is now imported from France. That may have something to do with it, but revenues are down, and that is the explanation.

It is important that we ensure that public sector borrowing continues on a downward path, which is precisely what my right hon. and learned Friend the Chancellor proposes. It will soon be below the Maastricht level of 3 per cent. Significantly, I noticed that my right hon. Friend the Chief Secretary referred in his speech to capital expenditure, which is running at around £22.5 billion. That is quite a useful yardstick, too. The Government should not borrow more than the amount of capital spending in any particular year. It looks as though the two will coincide next year.

The Budget has also been criticised for not doing anything about investment. The Opposition came up with the tried but failed formula of increasing capital allowances. That did not work last time and it will not work if they ever have the chance to do that again, because it distorts capital spending decisions. What matters much more for investment is a stable economic climate, which is precisely what we have—low interest rates and low inflation.

The PFI has been criticised on the ground that there arc not enough schemes to illustrate precisely what can he achieved. I should like to mention two, both of which will benefit my constituency. The first is a massive extension to Wycombe General hospital, which will cost £32 million. The project was proposed by South Buckinghamshire NHS trust and is financed by the Royal Bank of Scotland. I understand that the developer will he Taylor Woodrow. That is a hard and fast example of a project that will benefit NHS patients in my constituency.

Another good example is the widening of the M40 from three to four lanes between Denham and High Wycombe. It is going ahead under a design, build, finance and operate contract. I hope very much that it will start in the middle of next year. It probably could not have been achieved without the PFI. Those two schemes will go ahead in the next 12 months.

Like my hon. Friends, I welcome the fact that education spending is to be increased. The key is to ensure that the £878 million that my right hon. Friend the Secretary of State for Education and Employment announced finds its way to the schools. I know that it is difficult to ring-fence this money, but we need some examples of how much each school would benefit if its budget were to be increased by 4.5 per cent.

I welcome the fact that the police are to get extra resources, and I understand that an announcement will be made tomorrow. I hope that Thames Valley police will get their share of the additional resources.

My right hon. and learned Friend the Chancellor made a welcome announcement about simpler legislation for Inland Revenue taxes. I echo what my hon. Friend the Member for Fulham (Mr. Carrington) said. It will provide the Procedure Committee with an opportunity to consider how we will deal with the additional legislation. My right hon. and learned Friend has proposed that all Inland Revenue taxes should be rewritten over a five-year period. I think that we should reconsider the idea of dividing up Finance Bills between the main taxation elements and the more technical elements.

The Budget is prudent and sensible and it will benefit consumers, taxpayers and the British economy alike.

9.11 pm

Mr. Robert Ainsworth (Coventry, North-East)

The hon. Member for Beaconsfield (Mr. Smith) talked about the 500,000 jobs that have been created since the trough of the recession. He compared that with the last recession. Whose recession was that? That was also the Tory party's recession. If one picks the starting date and the finishing date carefully for statistics, one can prove almost anything.

Not long after the Government took office they created a solid bottom level of unemployment of at least 2 million people out of work. There is now a wasted generation. The real tragedy is youth unemployment and the Budget does absolutely nothing to deal with that problem. Nationally, 650,000 people under the age of 25 are out of work. In the west midlands region alone, 66,000 people are out of work, and in the metropolitan area the number is over 24,000. In some inner-city estates, it is unusual for a young male to have a job. That has been the case for over 10 years since the first Tory recession that the hon. Member for Beaconsfield mentioned. In my opinion, the Budget did very little that will affect that situation.

The Chancellor usually gives the Budget a name, such as the Budget for jobs, the Budget for Britain and the Budget for investment. He did not seem to give a name to the Budget this time. We thought he might call it the Budget for the Tory party's survival, but according to the reaction of Tory Back Benchers it was not that. It must be the no-name Budget. If the right hon. and learned Gentleman will not give it a name himself, we will. The Queen's Speech was the "smoking out the Opposition Queen's Speech" and the best we can do for the Budget is probably The Sun offering of the "cold kipper" Budget.

The Chancellor is trying to say that it is a prudent Budget, but is it? He has slashed some capital spending, and that is hardly prudent because it only builds up problems for the future.

Mr. Kenneth Clarke

For information, we toyed with the idea of calling it a Budget for lasting prosperity, but the Opposition have given soundbites a bad name so I decided to drop the tradition.

Mr. Ainsworth

The Chancellor would not have got away with "the Budget for lasting prosperity". The headlines would have called him into even more ridicule had he tried to hang that title on his offering.

The Chancellor slashed capital spending. That is irresponsible because it puts off problems until tomorrow. That is exactly what the Government are doing. They plan to cut capital spending on the NHS by 26.5 per cent. over the next five years.

Over time, the party of prudence has incurred a huge increase in debt. Government spokesmen have compared the debts of some Labour-run cities with those of third-world countries and derided them by saying that Birmingham or Coventry, for example, owe more than such and such a place. But the Red Book shows that this country pays £22 billion a year in debt interest, which is more than we spend on defence or law and order and three times what we spend on transport. It is incredible that the Conservative party tries to pretend that it is a party of prudence when it has inflicted pain on people while running up such debts. It is clearly not the party of prudence, as the Chancellor would have us believe.

The increase in petrol prices coupled with the increase in vehicle excise duty are the two measures in the Budget that are causing the most anger in the country. I understand the need to discourage the excessive use of cars, but if petrol prices and vehicle excise duty are to be increased well above the rate of inflation, poor motorists will be punished. The Government have decided to settle traffic and tax problems by driving poor motorists off the road. That simply cannot justified. We should try, over time, to move the burden of taxation from excise duty on to petrol duty so that people pay tax for using their cars, not for having access to a car. In some rural and inner-city areas, people want a car to make themselves economically viable and get themselves into the job market, yet the costs of insurance and vehicle excise duty do not allow them to become car owners.

Conservative Members hold up our car industry as an example of some kind of revival, but all that we have had is inward investment. Nowadays, our car industry, apart from small companies, is completely and absolutely owned by foreign companies. We should not boast about that. I do not knock inward investment as our country needs it badly for the jobs that it brings. But the United Kingdom, Spain and Portugal have had the inward investment in the car industry. Is that the league that we want to put our country into? We boast about inward investment by Samsung in another industry, but the two countries that Samsung has invested in are the United Kingdom and Slovakia. Is that the league that we want to be in?

I agree that we need investment from wherever it comes but, as Conservative Members know, the problem that we have had for a long time is that our indigenous companies have not invested at the rate that they should. To see how that problem developed, we must look at the decline that has taken place throughout this Government's term, back through the previous Labour Government's term to the 1960s. People think that it is a natural decline and that the number of jobs provided by the car industry will inevitably fall. Jaguar, which is in my constituency, is a relative success but, over a period, it has failed to increase the number of jobs that it provides. In 1959, it employed about 5,000 people; it now employs 6,500. Over the same period, BMW has grown from 6,000 employees to 75,000 and it has now bought out the Rover group with another 30,000 employees.

A couple of years ago, Conservative Members derided the German economy and its way of doing business. They said that we would overtake Germany and become the leading economy in Europe, and that we could not have social contracts and works councils because they would ruin the economy. However, those are exactly what have applied in Germany over that 30-year period. That is exactly what applied in BMW over those 30 years. The BMW works council played a significant role in the development of job opportunities and job creation over a long period, and the result has been a tenfold growth in the number of jobs.

We ought to see some investment and some work that helps the car industry, but as in so many other areas what we get is pretence. A short time ago the Department of Trade and Industry issued a press release about the work that is being done along with the Society of Motor Manufacturers and Traders in trying to assist the small businesses that form the supply sector of the car industry. Everybody knows that the growth in jobs will be in that sector and not in the front-line companies and that there will be a need for quality research.

When we look behind the boast about the work that is being done with the SMMT, we see that about 200 companies will be involved and that 12 experts in quality have been taken to Japan for quality training so that they can help those 200 supplier companies. There are 4,000 supplier companies in the car industry and the problem is that our suppliers need a huge improvement in quality to compete on the world market. We are playing games and pretending to deal with those problems.

The country needs a Government who are actively involved in tackling these problems and not a Government who are happy to see a constant 2 million people unemployed—

Madam Deputy Speaker (Dame Janet Fookes)

Order. [Interruption.] I am sorry, but the 10-minute rule is strictly enforced.

9.21 pm

Mr. Nick Hawkins (Blackpool, South)

Unlike the hon. Member for Coventry, North-East (Mr. Ainsworth) I entirely welcome the Budget. The problem with hon. Members such as him is that they often attempt to rewrite history. The hon. Gentleman spoke about problems in the car industry in the west midlands and about the growth of BMW, and he compared the number of employees. But he entirely forgot to mention all the trade union militancy that was supported by so many Opposition Members when I lived and worked in the west midlands throughout the bad old days of the last Labour Government. Opposition Members should remember that it was trade union militancy and Labour apologists when that party was in government who completely wrecked the British car industry.

I want to speak about the reaction of ordinary people to my right hon. and learned Friend the Chancellor's excellent Budget, and I shall start by quoting a clothing and footwear assistant who told the Financial Times that the Chancellor had listened to the small people and thought that it was brilliant news. Those who are responsible for creating jobs in Britain are the people in the CBI. Its director general welcomed the fact that the Government had broadly stuck to the prudent economic line that the CBI recommended. He said the CBI was pleased that the Chancellor appeared to have limited tax cuts to reductions in spending and that he had resisted the temptation to go for excessive tax cuts. That is the kind of welcome that I like to hear.

On BBC 2 a Mr. Len Stone said: My job will be secure. The Budget is good for industry, steady growth and people will buy more vans, especially the contract fleet. The Financial Times stated that the financial markets had to be convinced that the needed combination of tough spending control and economic growth would be delivered, provided that the Chancellor convinced them that he would be able to cut interest rates. I hope that the Financial Times is right about that because that too will help my constituents.

I am particularly pleased that my right hon. and learned Friend listened to submissions by me and by many of my hon. Friends about help for the elderly and especially for those who require now, or may require, long-term care. My constituency has the highest proportion of pensioners of any constituency and I was particularly pleased not only at the measures in the Budget but at the way in which they have been received. In particular, Sally Greengross, director general of Age Concern, is quoted in The Daily Telegraph as saying: Older people who are worried about paying for care will be delighted". Jill Pitkeathley of the Carers National Association said: We are delighted that this will relieve the worries of many families". It is rare that I quote with approval anything said by a general secretary-elect of Unison, but even Mr. Rodney Bickerstaffe was heard to say on BBC Radio 4: Anything that's going to help the elderly is going to be useful. It's a step in the right direction. So far as the poorest earners are concerned, there is something for them". Even if Opposition Members do not recognise it, the country recognises that the Budget has been prudent, sensible and helpful.

I was especially pleased that my right hon. and learned Friend dealt with the difficulty that existed in relation to employee share ownership schemes. As one who, for a long time before coming to the House, supported employee share ownership, the sharing of companies' successes and the involvement of employees in those successes, I was delighted that Gill Nott, chief executive of Proshare, said about my right hon. and learned Friend's measures: This is the best Budget for employee share ownership that we have seen in many years". On public opinion, a Mr. Steve Spurling, a bank employee from Crawley, was quoted on BBC Radio 4 as saying about the Budget: I'm personally pleased with the overall package introduced covering a range of areas. It means to me about £20 a month which is a tangible sum, something I can actually get my hands on". I am especially concerned to ensure that there should be further help for the construction industry and I declare my interest as a consultant to the Building Employers Confederation. In that regard, there has been a broad welcome to the expansion of the private finance initiative. Sir John Banham, chairman of Tarmac, is quoted in the Independent as saying: The Chancellor is on the right track and the measures he has put in place provide the best prospects for the UK building industry". In relation to the housing market, the chief executive of the Royal Institute of Chartered Surveyors is quoted in the Independent as saying: On the housing market, we are pleased that there has been no attempt at a quick fix. We have argued for some time that special help for housing will not work because the problem is not one of affordability but of confidence". I agree with that and I am sure that my right hon. and learned Friend's Budget measures will bring back that confidence.

The chairman of Siebe, Mr. Barrie Stephens, is quoted in the Financial Times as saying: I am very enthusiastic. The Government has looked at the economy dispassionately and sensibly and showed that they are good managers. It is a prudent and balanced Budget. I especially welcome the fact that three steps have been taken towards a 20p basic rate in income tax, which helps both the lower-paid and savers. It is crucial that the Government's economic strategy should benefit the thrifty, especially thrifty pensioners. Income tax cuts that my right hon. and learned Friend has introduced will benefit 26 million people. Now one quarter of all taxpayers pay tax at only 20p.

I am delighted that my right hon. and learned Friend has cracked down on fraud and waste, and that he has helped to provide more provision for schools, for law and order and for health, the same three priorities that I and many of my right hon. and hon. Friends had urged on him.

By contrast, Labour's sums do not add up. The hon. Member for Dunfermline, East (Mr. Brown) had five questions from myself and other hon. Members. He failed to answer a single one in his speech. He cannot answer them because his sums do not add up. Labour cannot oppose the 24p basic rate because it knows that that rate is popular. Its policies are as bankrupt as it would seek to make the country if it were ever unfortunate enough to be in power.

I welcome the fact that my right hon. and learned Friend has not sought to hit the UK insurance industry. We wish to encourage more people to have proper insurance cover. He has rightly recognised the strength and importance of the UK insurance industry and not increased insurance premium tax. The problem with Opposition Front-Bench Members is that they all have backgrounds not in business but in lecturing and legal work. They do not understand the needs of the British people or the British economy. Only my right hon. and learned Friend and his right hon. and hon. Friends have that ability and I strongly support his Budget.

9.29 pm

Mr. Alistair Darling (Edinburgh, Central)

I thought that the Chancellor had a legal background, as indeed do I. I was interested in what the hon. Member for Blackpool, South (Mr. Hawkins) said in praise of the Budget. If he is so confident about the Government's position, one wonders why he is, as I understand, on the lookout for a safer seat, and is joining many of his colleagues on the chicken run. Clearly he does not believe that the Chancellor or the Government have done enough to make it likely that the people of Blackpool, South will return him to the House at the next election.

It was the Conservatives, not us, who said that the Budget was designed to kick-start their political recovery. But the muted cheer when the Chancellor sat down, and the look of despair on the faces of Conservative Members, told us the real story. They knew that if that was the objective of the Budget, it had failed.

I was interested to read in the Independent on Saturday something attributed to the hon. Member for Bridlington (Mr. Townend). I am sorry that the hon. Gentleman is not in his place now, but I expect that he will return. Talking about the amount of money that the Chancellor should give away, he was quoted as saying: At £10 billion I think that we would win the next election, at about £6 billion we could be in with a chance, but if it is only £2 billion or £3 billion we can forget it. Right on cue, the hon. Member for Bridlington has walked back into the Chamber.

It is obvious what has happened today. Conservative Members have had to change their tune. They were led to believe that there would be huge tax hand-outs yesterday, so today they have had to make different speeches, in praise of alleged prudence on the part of the Chancellor.

The Chancellor has not revived the Conservatives' fortunes, because he cannot. In particular, he has failed to revive the country's long-term economic prospects. I was amused, as I suspect others were, when the right hon. and learned Gentleman said that he had half thought of entitling his Budget, "A Budget for lasting prosperity"—but of course, we have all come to admire his sense of humour.

After 17 relaunches, the Tory party is still searching for a solution, and the Budget, like the Queen's Speech, has proved something of a damp squib. As my hon. Friend the Member for Coventry, North-East (Mr. Ainsworth) said, the Queen's Speech was supposed to smoke us out, but instead people saw the bankruptcy of the Conservative party's policies and position.

The Budget is no different. It was supposed to be designed for political purposes and to breathe life into the Conservative party, but it failed to do so. As my hon. Friend the Member for Dunfermline, East (Mr. Brown) said, the Conservatives are prisoners of their own political and economic failure. After 16 years they are running out of ideas and have no sense of direction.

The flagship of the Budget was supposed to be a dramatic cut in income tax, but when it came it was just one penny. The best that the Chief Secretary to the Treasury could say was that it was "plausible". That is not much in the way of praise. Indeed, the right hon. Gentleman's contribution was notable for the fact that he said little about the Budget, contenting himself with making several allegations about our position, which he then had to withdraw.

There we have it—a cut of only one penny, after everything that the Government have said. Seven pence up since 1992, one penny down in 1995. And that comes from a Government who have given us 21 different tax rises since 1992. I notice that over the past three years there has been no word about the money that was taken away in tax belonging to the taxpayers. Today, apparently, only the one penny belongs to the taxpayers, not the six pence that has also been taken from them since 1992.

At the general election the Government promised to reduce taxes year on year. And they promised a recovery that would start the day after the election. No wonder people do not trust the Government, or believe a word that they say. Even after the Budget an average family is about £670 worse off than it was at the last election. What the Government give with one hand they take away with the other, and people know that. They know income tax is down by one penny, and they will welcome that partial relief, but they also know about the increased charges, the increased rail fares caused by the privatisation of British Rail and, as my hon. Friend the Member for Coventry, South-East (Mr. Cunningham) said, increased council tax.

Mr. John Townend

The hon. Gentleman talks about an increase in taxes "equivalent" to 7p in the pound, then compares it with a reduction in the standard rate of 1p in the pound. To be consistent, if he is talking about equivalent tax reductions he should compare them with equivalent tax increases. The figures are not 7p and 1p, but 7p and 2½p.

Mr. Darling

I am surprised at the hon. Gentleman. I thought that he was going to help clarify what he was reported as saying in the Independent on Saturday. I will not repeat it, because he obviously knows what he said to Colin Brown, the paper's chief political correspondent.

Before the Budget, and indeed in the House on many occasions, the hon. Member for Bridlington has made the point that he has felt let down by the Government putting up taxes. The 7p figure did not originate with us. We do not claim authorship of it. It came from the Chancellor of the Exchequer himself. The public know that since the election taxes have risen by the equivalent of 7p in the pound, so the Conservatives cannot really expect gratitude for giving back 1p in the pound in the meantime. [Interruption.]

I want to reply to the many points that were made in the short time available. One point, in respect of—[Interruption.]

Madam Deputy Speaker

Order. There are too many seated interventions.

Mr. Tim Smith

rose—

Mr. Darling

I think that the hon. Gentleman was one of those shouting from a sedentary position. I may give way to him later if I have time, but not at the moment.

I want to deal with a point made by the right hon. Member for South Norfolk (Mr. MacGregor). He was good enough to write to me to say that he could not stay for the entire debate. No doubt he will read what is said. He made the point, as have other Conservative Members, that a number of my Back-Bench colleagues have said things that might be interpreted as a call for further expenditure. He did that having just asked for further expenditure on the roads programme in East Anglia.

The right hon. Member for South Norfolk made that statement quite properly as the Member for an East Anglian constituency. Government Members and the chairman of the Conservative party should think long and hard about the implications of what they are doing. Are they saying that Back-Bench constituency Members cannot make constituency points in support of their constituents' position, advocating certain courses of action, such as the hon. Member for Brighton, Kemptown (Sir A. Bowden), who said that he wanted to do something with VAT on energy efficiency, like the hon. Member for Bridlington, who suggested an increase in VAT—

Mr. Townend

indicated dissent.

Mr. Darling

Yes he did; earlier this evening he suggested an increase of 1 per cent.

Such points are legitimately made by Back-Bench Members of Parliament and it really is disingenuous for the Conservative party to interpret them as being the position that a party might take at a general election, any more than Labour Members would be correct to say that just because one Tory Back-Bencher said something, whether on the Clive Anderson show or in this place, somehow the whole weight of the party is thrown behind it. The right hon. Member for South Norfolk, who is an intelligent man, might want to reflect on the implications of what he said.

Sir Andrew Bowden

Will the hon. Gentleman give way?

Mr. Darling

Yes, but it will have to be the last intervention because I do not want to spoil the Minister's winding-up speech.

Sir Andrew Bowden

Does the hon. Gentleman agree that there is a difference between an individual Back Bencher presenting a case that might have a constituency connotation or a special interest, and an impression given by an Opposition Front-Bench spokesman—without saying so but implying it quite clearly so that the public assume it—that if his party wins, it will spend more money in a particular area?

Mr. Darling

The right hon. Member for Peterborough (Dr. Mawhinney), the Conservative party chairman, has been attributing commitments to the Labour party by listening to Back Benchers. I am sure that the Government would not claim that what the hon. Gentleman said this evening, or indeed what the right hon. Member for South Norfolk said, was Government policy. Unless we expect Members of Parliament no longer to advocate the interests of their constituents in this place—where after all they ought to do it—we should think long and hard about the consequences of the comments of the right hon. Member for South Norfolk.

As my hon. Friends have said, the Government's Budget was no surprise. The Chancellor's room for manoeuvre was restricted. Public borrowing is higher than forecast—this year it is £29 billion and forecast to move upwards in the next three years. There is slower growth and the Chancellor tells us that he thinks that there will be growth of some 3 per cent. in future. No wonder he is straining credibility.

Of course a great deal is perilled on this high growth. If next year the Chancellor is going to be able to mount a giveaway Budget—there will be pressure from Conservative Members on him to do so—that promised growth will have to be delivered. However, the record does not suggest that he is likely to be successful. The Chancellor wants us to believe that next year will somehow be different from past years. We have had higher inflation than the Chancellor predicted and the current account deficit is worse this year than he predicted.

Investment—the future for long-term sustainable economic growth—has of course been cut. There are some things that we do welcome, such as the move to simplify tax, but we think that the Government should do more to prevent tax evasion and to close tax loopholes.

I welcome the Chancellor's move to clarify and improve the position with regard to share ownership. We believe that employees should be encouraged to have a stake in their firm and that such a stake should be open to everyone from the boardroom to the shop floor. However, shares and options should be given as a reward for success. They should not be granted in anticipation of success that may never come, and they should encourage saving.

We shall have to see what provisions there are in the Finance Bill, but it would be wrong for us not to welcome the fact that the Government have moved in a direction that we have advocated for much of the last 12 months. I am only sorry that the Government have done nothing about the abuses that are happening in the boardrooms of the privatised utilities.

We welcome the promotion of saving and what the Chancellor had to say on that. I listened to the Chancellor yesterday and I thought that I was listening to my hon. Friend the Member for Dunfermline, East, who made exactly the same point some weeks ago. We wish to build on the PEPs experience and to create specific instruments that will encourage people to save in the medium and the long term.

We welcome what the Chancellor has done with regard to the excise duty on Scotch whisky. It is, however, to investment and the private finance initiative that I want to return since the Government have set so much store by it. The fact is that the PFI has never taken off. We have always supported the principle of the PFI. The deputy leader of the Labour party, my right hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott), was the first to float that idea before the last general election. He was denounced at the time, and then the Government promptly accepted much of what he had said.

There are two problems with the PFI. First, it has been strangled by bureaucracy and by red tape. Every capital project has been channelled through the system, which has clogged it up. Secondly, the Government have never set a list of priorities. In 1992, the Government published a list that included 78 projects, ranging from the west coast main line upgrading to the car park at Eastbourne hospital. The private sector had no idea where the Government's priorities lay.

Two things are striking about the Government press release that was issued yesterday. First, the Government have accepted that there must be some degree of prioritisation and said that they will publish an illustrative list. In fact, 1,400 projects have appeared today with an A or a B against them. The Government have to do more to indicate their priorities as between projects that have a major strategic interest and those that have a lesser interest in relation to a national strategy. The private sector has told us and anyone who is prepared to listen that the great difficulty is that it has no idea which projects the Government are likely to favour and which they are not.

The Government's attachment to right-wing dogma has meant that they have privatised the decision-making process. It is for the Government to give a lead and then invite the private sector to contribute. If they did that, there would be a better chance of seeing more projects get off the ground and under way. Once we saw some projects get off the ground, more would follow.

The second interesting thing about the Government's press release yesterday is that they promised a further £14 billion of investment by 1998–99. Of course, that includes the £5 billion promised last year. Little of that £5 billion has found its way into agreed projects which have started. We are entitled to take with a degree of scepticism the Government's commitment that the PFI can take the place of public investment. It is planned that Government investment in the public sector will fall by almost 18 per cent. between this year and 1999. That is on top of a cut of 7.2 per cent. in real terms in the past three years.

Government direct investment in the national health service will be cut in real terms by 27 per cent. in three years. Given the lack of progress in the PFI, people are entitled to ask how the Government expect it to take the place of public investment. When the PFI was originally launched, it was suggested that it would represent additional investment. The clear lesson of what has happened in the past few years is that the PFI is not additional investment but a substitute for public sector investment. It is not even that, because little of it is getting off the ground. If the Government prioritised the projects that they would like to see get off the ground and broke down some of the bureaucracy and red tape that is created, some real progress would be made.

Indeed, anyone wanting a clue as to what is going wrong need look no further than a press release put out by the Secretary of State for Education and Employment which said that "too few people" knew how to exploit the initiative to its full advantage. That was why, the release continued, the right hon. Lady's Department had "established a hotline" on the matter. So, the people who brought you the coneline now bring you a new hotline to try to get the project off the ground. The Government really need to do more.

The projects are a matter of choice. In health, the Government are spending £1 billion a year on bureaucrats, and not on front-line care. Why does a hospital need a press officer? In education, the Government have chosen to double the assisted places scheme instead of using the money to cap class sizes below 30.

The hon. Member for Gordon (Mr. Bruce) is not in his place, but it would be wrong of me not to reply to his point about his party's position on the Government's reduction in income tax and how that relates to education. I take with a great big pinch of salt what the Liberal Democrats have to say on this, as in all other matters. They are the people who said that the top tax rate should be 60p, and then said a week later that it should be 50p. They said that a penny should be put on tax for education, but then said that they would consult about it. They later said that they would make that tax increase if it was necessary.

When he was challenged today, the hon. Member for Gordon did not know what his party would do at the next election. I would say to my hon. Friend the Member for Sunderland, North (Mr. Etherington)—who also raised the matter—that even if the Liberal Democrats' position were carried, there is no chance that one penny of that money would find its way back into the education Budget. That option does not lie with the Opposition, only with the Government. We believe that it is quite wrong to impose further taxation on people who are already paying more than ever before by way of tax. The people who would benefit from the education system are suffering now.

The Government's position simply does not add up. They have done nothing about tackling long-term unemployment. In one in five non-pensioner households, there is no work whatsoever, and the Government are doing nothing about that. We have made a firm proposal to implement a windfall tax, which we believe would have a major impact on getting people back to work. The Government's proposals make no economic sense and no social sense. The Budget deserves to be rejected for that reason, and for every other reason advanced tonight.

9.46 pm

The Paymaster General (Mr. David Heathcoat-Amory)

In his speech yesterday, my right hon. and learned Friend the Chancellor set out a Budget for this country's earners and savers, and a Budget that will spend more money on priority services while cutting the cost of government. It is quite clear from today's debate that that is strongly supported by my hon. Friends. It is clear too that the Opposition are in a muddle.

The Opposition are anxious to pose as the taxpayer's friend, and they have announced that they will not oppose the tax cuts—that was the one question answered by the hon. Member for Dunfermline, East (Mr. Brown)—but they will not support them either. They will abstain—at least, most of them will do so. The hon. Member for Sunderland, North (Mr. Etherington), who is in his place, hinted that he would vote against the tax cuts. Old Labour has some principles left, but new Labour will heroically abstain on the central issues of the Budget. Very new Labour may come round to support the tax cuts; the lurch to the right in the Labour party is not over yet.

The confusion and muddle on the Opposition Benches has a simple cause. When a party such as Labour abandons all its traditions, dumps its baggage and disowns its past beliefs and becomes motivated solely by the desire for office, nothing keeps it together. That is why the Opposition's response to the Budget has been so shallow and opportunistic, and why the shadow Chancellor seemed genuinely incapable of answering simple points put to him by my hon. Friends. What was his inflation target? He did not have one. What was the cost of his 10p lower rate tax proposals? He did not know. Would he support our 20p savings rate? He would not say. Would he abolish the insurance premium tax, which he has opposed? He had no idea. Yet Labour claims to be the party of government in waiting.

The contrast between that policy vacuum and the Budget laid out by my right hon. and learned Friend the Chancellor of the Exchequer could not be clearer. We have balanced our tax-cutting proposals with similar cuts in public expenditure, while preserving areas such as health and education.

I agree with my hon. Friend the Member for Brighton, Kemptown (Sir A. Bowden) that the extra money for education must go through to the classroom. He clearly has a similar local education authority to mine and that of my right hon. Friend the Member for Bridgwater (Mr. King)—too much of the money sticks to the local authority and never gets to the classroom.

We have increased priority expenditure by a further drive on waste and on fraud in social security expenditure and by delivering year-on-year cuts in the expenditure of Whitehall Departments. That has been driven through by my right hon. Friend the Chief Secretary to the Treasury and I am pleased that the policy had the strong support of my hon. Friend the Member for Bridlington (Mr. Townend) and others.

The civil service is now more than 30 per cent. smaller than it was in 1979. In the next three years, the cost will fall by a further £2 billion in real terms. As the Government are the largest service industry in the country, it is right on economic grounds alone that they should also be the most efficient. The relentless drive for efficiency over that part of the economy that the Government control is without doubt one reason why the performance of the British economy generally has been so much better in recent years than in the 1970s.

Even employment, which cropped up again and again in the debate, is showing signs of a successful recovery. Unemployment is lower than in Germany, France or Italy, and we have the highest proportion of people in work of any major European economy. Of course, there are regional variations and I listened carefully to what my hon. Friend the Member for South-East Cornwall (Mr. Hicks) said, even though the bulk of his remarks about the distribution of the funding formula were perhaps more accurately directed at my right hon. Friend the Secretary of State for the Environment. He will be listening and has already listened to representations from the west country and other regions.

There were persistent calls for more Government investment—an echo that we heard in the past from the Opposition. They still believe that unemployment can be solved and investment increased simply by spending more Government money. If they should have learnt anything from the sad experiences of the 1970s, it is that a thriving economy is created not by the Government but by a successful private sector.

I shall take one example—the small companies rate of corporation tax was 42p in the pound when Labour left office in 1979, but we have reduced it to 24p in the pound. We have nearly halved the tax rate on those successful companies. That does far more for growth, investment and employment than any of the spending schemes dreamt up on the Opposition Benches.

The hon. Member for Coventry, South-East (Mr. Cunningham) asked what the Government had done for industry, but I say that industry and business generally now have a choice. They will get something from Labour and, indeed, from the Liberal Democrats—the social chapter of the treaty of Rome. The Leader of the Opposition did not seem to understand it when he spoke to the Confederation of British Industry recently, but the fact is that the provisions of the social chapter—its red tape and regulations—could be imposed on us by majority voting. It is no good him saying that he would pick and choose and take only those bits that he liked. That is what Labour offers—the social chapter, and imposed on us if necessary. The choice is between that and what we offer.

We have delivered in this Budget alone a further income tax cut, a cut to the small companies rate of corporation tax, further relief from capital gains tax for those who are retiring, lower inheritance tax and a cut in national insurance contributions—funded from a tax on landfill waste—which alone will be worth £500 million off that tax on employment. We have also given more generous transitional relief for business rates. That is how to promote growth, investment and jobs.

As regards taxation, there was not only muddle on the Labour Front Bench but a persistently expressed resentment on the Labour Back Benches that there should be tax cuts at all in the Budget. That was true not only of the Labour party but of the Liberals. It was revealing yesterday that the right hon. Member for Yeovil (Mr. Ashdown) described income tax cuts as a bribe. Conservative Members do not think that it is a bribe when people keep more of what they earn and save; it is their money. It shows how illiberal and statist the Liberals have become that they think that money belongs to the Government to be dished out as they like.

We are on target for our 20p basic rate and the Budget achieves that for savers. They will pay tax at a basic rate of 20p from April next year. We have also achieved our target for the quarter of all taxpayers who will now pay tax on their income at only 20p in the lower rate band. The penny off the basic rate cuts marginal rates for 18 million people, who have no hope of anything similar from the Opposition.

What did we get from the Opposition'? As my hon. Friend the Member for Blackpool, South (Mr. Hawkins) said, Labour's tax and spending plans do not add up. Right through this debate and the debate on the Queen's Speech, we had calls for more public expenditure. Earlier today, in the social security statement, the hon. Member for Islington, South and Finsbury (Mr. Smith), who leads for the Opposition, spent £1 billion in a few minutes in responding to my right hon. Friend the Secretary of State for Social Security.

The socialist wing of the Labour party clearly believes—and always has believed—in high and rising public expenditure. That is an article of faith. I do not agree with it, but I have some respect for views constantly held and consistently argued. I have no respect for the new Labour pretence that it can all be done without putting up taxes.

I read the shadow Budget of the hon. Member for Dunfermline, East. There was nothing in it about levels of borrowing, expenditure or interest rates and the only thing about taxation was the new 10p in the pound rate for the lower band. It was, of course, not costed—there was nothing so awkward as having to find the money for it.

Mr. Darling

Will the Minister give way?

Mr. Heathcoat-Amory

If the hon. Gentleman will forgive me, I still have some points to answer and only three minutes in which to do so.

As a preface to the shadow Budget, the hon. Member for Dunfermline, East said: I want to see openness and honesty in tax. He could have started by applying those precepts to his own Budget.

The hon. Member for Gordon (Mr. Bruce) is not in his place. He gave notice that he would not be and I will have to send him a message through the Official Report that he is not exempt from a similar criticism. His shadow Budget, his so-called costed programme, for nearly £6 billion of extra expenditure was going to be paid for by "tax changes"—they are called not tax increases but tax changes—of £1.1 billion. Another item was "tax reform" of £990 million. There are no details about the reforms or the tax changes. If one reads "tax increases" for "tax reforms", one begins to realise that the words "openness" and "honesty" take on bizarre meanings in the mouths of Opposition spokesmen.

The central fact is that government is not like that: we are about having to take hard decisions and make difficult choices. We have not flinched from that and the economic indicators are now pointing in the right direction. Inflation is low, growth is up, unemployment is down, borrowing is declining, investment is increasing and taxes have been cut. That may be bad news for the Labour party, but it is certainly very good news for Britain—and there is more to come. As we move towards the introduction of the Finance Bill later in the year, we shall, we hope, find out more about the Opposition's non-proposals.

It being Ten o'clock, the debate stood adjourned.

Debate to be resumed tomorrow.