Budget Resolutions and Economic Situation

HC Deb 03 December 1996 vol 286 cc819-907

[Relevant document: European Community Document No. 9002/96, concerning the Council Recommendation to the United Kingdom with a view to bringing an end to the situation of an excessive government deficit in the United Kingdom, prepared in accordance with Article 104c(7) of the Treaty establishing the European Community.]

Mr. Deputy Speaker (Sir Geoffrey Lofthouse)

I must tell the House that Madam Speaker has selected amendment (d) in the name of the Leader of the Opposition to the first Ways and Means motion. It may be convenient if at this stage I also announce that Madam Speaker has selected the amendment in the name of Leader of the Opposition to motion number 2 on public expenditure which is being debated with the Budget resolutions. I call Mr. John Prescott.

Mr. John Prescott (Kingston upon Hull, East)

I do not mind speaking first, but I think it is the other way about.

4.42 pm

The Deputy Prime Minister (Mr. Michael Heseltine)

The House has been treated to an interesting revelation by the deputy leader of the Labour party, who said that he did not mind speaking first. He will not take the slightest notice of the facts I shall put before the House. He is not interested in the truth of my arguments, because he has a propaganda handout from Walworth road that he intends to inflict upon us. It is kind of him to allow me to put the arguments and facts on the record first.

The House has now been debating the Budget proposals for almost a week, and the debate has shown starkly the difference between the successful policies of the Government and the lack of any credible alternatives from the Opposition. There are two basic reasons why I make such a claim. I shall start with some of the most authoritative independent opinions.

For example, the Organisation for Economic Co-operation and Development says that, because of the Government's programme of structural reforms, we have a more flexible and less inflation-prone economy". The International Monetary Fund says that, in the United Kingdom, recent economic performance has been enviable. I accept, of course, that both the IMF and the OECD are academic economic authorities, so perhaps we should concentrate on the views of the people whose investment decisions are measured in hard terms—the bosses of the world's most enterprising companies.

The chairman of Phillips says that the United Kingdom is the most competitive country in Europe today. The chairman of BMW described the United Kingdom as by far the most attractive place to invest in Europe. The chief executive of Siemens has praised the pro-business environment that exists here. Those are the comments that have been made, not by some member of the Government and not even by citizens of the United Kingdom, but by people who have a totally detached view and are responsible for giving their best judgment and backing it with their money. I accept that those opinions are but quotations, so let us talk about some of the facts.

From every quarter of the globe, the world's great companies are pouring money into the British economy. They are putting money into our economy to bolster tomorrow's industries, whether manufacturing or service. Hyundai has made a £2.4 billion investment in Scotland. Lucky Goldstar has made a £1.7 billion investment in south Wales. Siemens has invested £1.1 billion in the north-east. Fujitsu has invested £800 million in the north-east. Toyota and UPS are each investing some £800 million in the east midlands. BMW and Jaguar are each investing around £400 million in the west midlands.

The City of London is the world's largest centre for foreign exchange. It is larger than New York and Tokyo combined, with more foreign exchange banks than any other city in the world, and a stock exchange that is the world's largest centre for foreign equities.

Other industries tell the same story. The tourist industry pulled in a record 24 million overseas visitors to the United Kingdom in 1995, earning around £12.1 billion and, in the process, it arrested and reversed the decline in market share that had happened over many years. If I may borrow a phrase from one of our most successful privatised industries, we are in truth the world's favourite economy.

The biotechnology industry has sales already in excess of £4 billion, and that figure is set to more than double by the end of 1998. Our aerospace industry, to which the privatised British Aerospace is central, is going from strength to strength, with a 20 per cent. stake in US Air's decision to buy up to 400 airbuses in a deal worth £11 billion. We have an enormous new order for Hawk from Australia.

We have seen British Telecom's price for calls within the United Kingdom fall by 40 per cent. in real terms since 1984. That privatisation led to the deregulation of the industry and the explosion of activity that followed. We are going further. From the end of this month, any company that wants to run international calls in and out of the United Kingdom will be allowed to do so.

Britain is the first country in the world to open its international telephone traffic to anyone who wants to provide a service. The consequences of that were accurately reflected in The Independent recently: In a world where manufacturing (and increasingly service) technology crosses national boundaries in a matter of weeks, achieving a comparative advantage in international telecommunications is the most important thing any government can do. We have done it, and we have done it in the industries of tomorrow.

Every statistic that is published offers growing proof that the British people are responding to the most exciting economic prospects that we have seen for a generation. Unemployment is down by almost 1 million. Housing starts are up. House prices are up. We have heard much from the Opposition about negative equity, but the latest figures show that the number of households affected by negative equity is now down more than 80 per cent. on the 1992 peak.

In the first quarter of 1996—[Interruption.] The deputy leader of the Labour party knows that housing starts have started to rise again. I know that the Opposition are totally uninterested in any facts or figures—[Interruption.] The right hon. Member for Kingston upon Hull, East (Mr. Prescott) did not know that I was going to include this subject in my speech, but he may have time to get the figures before he gets to his feet. Housing starts are on the rise again, as shown in the last quarterly figures published.

We hear nothing now from Labour about negative equity, just as we hear nothing now about unemployment. In the first quarter of this year, the Department of the Environment estimated that about £2 billion of negative equity was outstanding. In the second quarter, that figure fell to £1.5 billion, and I can now tell the House that the latest estimate for the third quarter is that negative equity has fallen to about £600 million. Today's newspapers state that the Halifax building society is reporting that house prices have risen since the last figure was released, with the result that negative equity is now almost a thing of the past.

Mr. John Garrett (Norwich, South)

The Deputy Prime Minister has failed to mention that the Housing Corporation's budget has been cut from £1.8 billion two years ago to £600 million in the coming year. He has also failed to admit that the total number of houses built for rent will be some 20,000 in the coming year, and fewer in later years—despite the fact that the Government's own target was for 60,000 a year.

The Deputy Prime Minister

The hon. Gentleman is fully aware that we have re-created the private rented sector in the teeth of opposition from the Labour party. Today, there is a wide range of privately available homes for people on low incomes who are supported with housing rental subsidies.

We introduced those subsidies in an attempt to change the emphasis of housing support—again, in the teeth of Labour opposition. It is no good for the hon. Gentleman to select one aspect of the housing programme from the whole market. The Government have provided the widest choice of tenure in the housing market seen in this country since the early post-war period. We have been successful in increasing the availability of housing, particularly at the lower end of the marketplace.

It is not surprising that confidence has returned to the housing industry, as it has to the high street. Retail sales figures are up by 4 per cent. on a year ago, and we have the best growth of any major European Union economy. Let no one believe for one instant that these privileges are somehow restricted to a limited section of society. Looking at the effect of the growth in our economy and the spread of wealth in terms of what it has done to provide real opportunities for real people, the figures are startling.

In the early 1980s, 73 per cent. of households had a telephone. Today, the figure is well over 90 per cent. When the Government were elected, only 47 per cent. of the population had a freezer. Now, the figure is 88 per cent. Some 58 per cent. had central heating—it is now 84 per cent.; 60 per cent. had a car—it is now nearly 70 per cent. In 1979, 55 per cent. of dwellings were owner-occupied. By last year, that had gone up to 67 per cent.

We must add to those figures the fast-growing numbers who are taking advantage of new modern technologies. Some 75 per cent. of the population now have a video recorder. Some 64 per cent. have a microwave oven, and 24 per cent. have a home computer—one of the highest incidences anywhere in the world.

These are the irrefutable facts that show the extent to which widely available improvements in living standards have been created by the growth policies achieved by the Government.

Mr. Alex Salmond (Banff and Buchan)

From the way the Deputy Prime Minister talks, one would think that he had installed all that central heating personally. He said a few seconds ago that the United Kingdom's growth rate was the fastest of the major EU economies. Does he accept that—according to the OECD figures for this year—the United States, Australia, the Czech Republic, Finland, Ireland, Mexico, New Zealand, Norway and Turkey all have faster growth rates than the United Kingdom? Does he further accept that the Irish growth rate—achieved by an EU country—is more than three times that of the United Kingdom?

The Deputy Prime Minister

I referred to major European growth economies, and I do not see the point in the hon. Gentleman giving a long list of non-European economies. The European economies are the ones with which it is realistic to compare our performance—for no other reason than the fact that 55 to 60 per cent. of all our trade now goes to the EU. Therefore, we are interlinked with the success of that part of the world trading economy. It is within that comparison that the statistics are meaningful, and it is against the standards of those like economies that the Government's policies have proved to be so successful.

Mr. Matthew Carrington (Fulham)

The only serious economy mentioned by the hon. Member for Banff and Buchan (Mr. Salmond) was the United States, which has a high growth rate and a successful economy because it has deregulated and encouraged private enterprise—just as the British Government have been doing. In other words, the hon. Gentleman was suggesting that we should follow the line of the US, not the line advocated by Opposition parties.

The Deputy Prime Minister

I wholly agree with my hon. Friend; it is the deregulated and low-tax economies with large and vibrant private sectors that have been successful. It is because we have followed our policies—all in the teeth of opposition from the Opposition parties—that we have proved to be such a success.

It is therefore no surprise that next year, taking into account the latest Budget judgments, a family on average earnings will be £1,100 better off than they were five years ago. On the same basis, the average family will receive an increase of nearly £370 in the coming year, after allowing for inflation and tax.

Mr. D. N. Campbell-Savours (Workington)

May I ask the Deputy Prime Minister a question about exchange rates? I do not want to draw him on interest rates, as I am sure that he would have every reason for not answering me directly. Is he worried about the rise in the value of sterling, and its implications for competitiveness in British industry?

The Deputy Prime Minister

One can argue the case both ways. The post-war successes of Japan and Germany have been co-incidental with—or possibly have caused—rising exchange rates. They have invested sufficiently to achieve the productivity to enable the advance to proceed. It can be argued all ways. We know that exchange rates are a reflection of market decisions, and those concerned self-evidently have confidence in the British economy for such an increase to be taking place.

The vital challenge we now face, given the excellence of the circumstances we enjoy, is how to keep this economic recovery in place. Our record of achieving those results, and the alternative policies from the Opposition, are the matters on which the election campaign will undoubtedly he fought.

It is important to ask a simple question. What exactly are the policies of the Labour party? Has anyone known, on any one day in any week in any month during the past few years? An hour or so ago, I heard the right hon. Member for Dunfermline, East (Mr. Brown), the shadow Chancellor, referring to Government changes of policy for "Today", the 1 o'clock news, "PM" and "News at 10". But nothing could more simply describe the Labour party's view than the way in which, by nods and winks, it has sought to produce its policies over the past few years. Any pressure group, any protest, any wandering journalist—implicit commitments to spend money will be made, or a nod given here and a wink there.

Let us have some idea of what it all could lead to. I ask for the figures, and it is up to the deputy Leader of the Labour party to answer factual questions on the commitments that Labour has given to overseas aid.

Mr. Campbell-Savours

Which commitments?

The Deputy Prime Minister

Labour said in "New Labour, New Life for Britain": Labour will start to reverse the decline in UK aid spending … We will strengthen and restructure the aid programme. Labour has also said: In government, Labour will: start to reverse the decline in UK aid spending and: Overseas aid from the Government is slipping … It is a very worrying time and Labour is committed to reversing the trend. Clearly, the implication is that more money will be spent. How much more? Or are those commitments a fiction? Until Labour starts to answer those questions, we will continue to believe that the bills we have published are right.

Let us look at Labour's proposals for the railways. Is this or is this not a commitment: We will give Britain a publicly owned, publicly accountable BR"?

Mr. Campbell-Savours

When?

The Deputy Prime Minister

When? At the Labour party conference a few months ago. The speaker was the leader of the Labour party.

Mr. Campbell-Savours

I was asking when we—

Mr. Deputy Speaker

Order. The hon. Gentleman must settle down and not get too excited.

The Deputy Prime Minister

Thank you, Mr. Deputy Speaker. I can understand the excitement that the hon. Gentleman gets from my speech, and he is right, because over months—indeed, over years—Labour has implied that it will spend money on programme after programme. How can the leader of the Labour party say that he believes in a publicly owned railway, without facing the fact that it costs money to renationalise railways?

We have made it clear that, in our view, the Labour party's commitments are vast. We have published our calculations, and the easy way for Labour Members to deny them is to give the alternative figures that they have worked out; if they have not worked out the figures, they should withdraw all the commitments.

Labour Members clearly believe that Labour Governments can achieve what they want without spending money: they can give teachers sabbaticals and pay for it out of existing resources; they can renationalise the railways—that is what the leader of the Labour party said—for nothing; and they can have a minimum wage and save money by doing it. Perhaps, by adding a lot of people to the unemployment queue, as Labour's deputy leader believes would happen, some money could be saved, but that is a harsh way of doing it.

The Labour party has made 89 spending promises, and everybody knows that, in the end, all Labour Governments put up taxes. We can see why that is the case, as Labour spokesmen make commitments that would lead to higher taxes if ever they got to power. They suggest that—in their language—a windfall tax could pay for their commitments, but that tax is yet another Phoney implied promise. How can cash be taken out of the pockets of British companies without either putting up prices or cutting investment? How can investment be cut without destroying jobs?

New Labour means new taxes—and a lot of them. There is the tartan tax; or has Labour abandoned that? It is committed to a tartan tax, but why should the Scots pay more than the rest of us, for the privilege of trying to buy off the Scottish National party? There is to be a telephone tax, called a windfall tax, and a teenage tax, as child benefit is withdrawn. All those taxes are clearly set out in commitments made by the Labour party.

We were promised details once the Budget was over. The right hon. Member for Dunfermline, East (Mr. Brown) clearly said that he would produce the details, but all we heard was a new commitment to lower the rate of value added tax on domestic fuel. [HON. MEMBERS: "Hear, hear."] I hear the support for that proposal from Labour Members and from the hon. Member for Banff and Buchan (Mr. Salmond), the leader of the Scottish nationalists, who is ahead of the game and knows what I am about to say, because his party made exactly the same proposal in 1994.

At that time, no less a figure than the hon. Member for Edinburgh, Central (Mr. Darling), the shadow Chief Secretary—I hope that I am not offending him, because I quote only from Hansard, which I assume to be accurate—said that the proposal to cut VAT on fuel, which is now official Labour party policy, was a cynical ploy from an increasingly opportunist and desperate party."—[Official Report, 23 January 1995; Vol. 253, c. 49.] That is the shadow Chief Secretary's verdict on the shadow Chancellor, and they are still in opposition. I know that there were plenty of arguments between the leader of the Labour party and his deputy, but this is ridiculous.

Mr. Alistair Darling (Edinburgh, Central)

rose—

The Deputy Prime Minister

No, no, no. Why should we have the monkey when we can have the organ grinder? The hon. Member for Edinburgh, Central is to wind up for his party—perhaps he is wound up—so he will have every chance to speak.

Mr. Prescott

You named him.

The Deputy Prime Minister

Very well, then—I give way to the hon. Member for Edinburgh, Central.

Mr. Darling

I am extremely grateful to the Deputy Prime Minister, who has reluctantly given way. Some people read Hansard, so perhaps I should take the opportunity to set him right.

I accept that I criticised the leader of the Scottish National party in 1995, and I stand by every word of what I said. The House will recall that, at that time, the issue before us was whether to support the Labour amendment to reduce value added tax to 8 per cent.; the success of that amendment depended on getting Tory rebels, which we did. What the nationalists did then was cynical, but we are extending our commitment to protect people who have to pay more VAT on domestic fuel as a result of broken Tory promises.

The Deputy Prime Minister

Any time that I can give way to the shadow Chief Secretary, give me the chance to do so. I have never heard such humbug in my life. It was perfectly all right to try to con the Scottish nationalists and a few Tory Back Benchers in order to pursue some devious device four years ago, but it suddenly becomes totally reprehensible when it is done today. That is new Labour in its starkest, clearest clothing. I dare say that the hon. Member for Edinburgh, Central would not have said what he did, and revealed exactly what sort of shadow Chief Secretary he is, had the shadow Chancellor been here.

The truth is that the shadow Chancellor has gone further in his suggestions about what can be announced by way of policy. He has been quite specific about the 5 per cent. VAT, so why can he not answer the other questions? If he has done the calculations and knows how much he has to allow for by way of lost revenue on VAT, he must know where the balancing figures are to come from. He has done his homework and has the figures, and there is a vast range of subjects on which he could be specific, so why does not he tell us about them?

Perhaps the shadow Chancellor has been talking to the deputy leader of the Labour party, who said that nothing would be announced before the general election—apart from the good news. He was perfectly prepared to announce the 5 per cent. VAT, but any fool knows not to announce the bad news, such as what is to happen with occupational pension schemes, contributions to personal schemes, corporation tax, employers' national insurance and a range of other taxation issues, all of which, I assume, a prudent and cautious shadow Chancellor—as, we are told, the right hon. Member for Dunfermline, East is—must have worked out before coming up with the cynical announcement he made, despite all the vagaries of the shadow Chief Secretary's views.

The House and the country will not be fooled. We all know that every Labour Government increase taxes. Some of my right hon. and hon. Friends were here in 1979 when we went through the Lobbies to force the dying Labour Government to reduce income tax from 34p to 33p in the pound. We have been in power for quite a long time since then, and the standard rate is down to 23p in the pound and falling; today, 7 million people pay only 20p in the pound. Nobody seriously believes for an instant that any of that would have happened under a Labour Government.

I see that the shadow Chancellor has returned to the Chamber. He may be interested to know that the shadow Chief Secretary has just explained why his latest plans to set VAT at 5 per cent. Were described as a cynical ploy from an increasingly opportunist and desperate party."—[Official Report, 23 January 1995; Vol. 253, c. 49.] I believe that he was the shadow Chancellor at the time, so perhaps he will want to have discussions later behind the Speaker's Chair about his future relationship with the hon. Member for Edinburgh, Central.

Between 1974 and 1979, inflation was on average 15.5 per cent. Today, we have the best inflation record for a generation: less than 4 per cent. for more than four years.

Mr. Robert Sheldon (Ashton-under-Lyne)

The Deputy Prime Minister will be aware that, over the past 12 months, the pound has risen by 14 per cent., which has made imports much cheaper and exports much dearer, creating problems for our manufacturing industry. Cheaper imports will obviously reduce inflation and bring down the retail price index. Goldman Sachs assumes that the reduction will be about 1 per cent., so 2.5 per cent. inflation would have been 3.5 per cent. if the Government had not increased the value of the pound. That success has been achieved at the expense of our manufacturing industry.

The Deputy Prime Minister

I am trying to work out whether the right hon. Gentleman is complaining. Is he against the pound being strong? Would he like it to be run down? The simple way to depreciate the pound is to threaten people with a Labour Government. Go back to the old days of high inflation and see what that does to our currency. The statistics we use have been common to all parties, and show that we have the best inflation record for a generation. I know that that sticks in the throat of the Labour party, as do all the figures of success.

Our exports are at a record high, despite the pound's appreciation. Does the Labour party favour that? The shadow Chancellor has had to try to find ways to add to his campaign to undermine Britain's performance. The way in which he constantly seeks to undermine British industrial capability and British service industries is an insult. He has to find the worst conceivable examples of any exceptions.

The other day, he found an extraordinary survey that put our education record 42nd in the world. Some of his surveys are interesting. I have done some homework. The survey he cited shows that Turkey is second for equal opportunities, and placed the policies of the French Government ahead of those of the United States for their grasp of economic realities. So that we do not get carried away, the survey put Britain below China for the openness of national culture.

No serious commentator would take a blind bit of notice of such surveys. The Labour party cannot stand the truth about the success of the British economy. Again, these are not Government statistics, but on my desk yesterday I had some figures from the Chartered Institute of Purchasing and Supply, which has nothing to do with the Government or the Conservative party. It helpfully set out the Government's record, right from start to finish, and that of the previous Government.

The figures show that annual growth in manufacturing output under the previous Government was minus 0.5 per cent.; since 1979, it has been 0.7 per cent.—despite the recession. The annual growth in manufacturing productivity under the previous Government was 1.5 per cent.; under this Government, it is 3.4 per cent. The most important test of competitiveness is enhanced productivity.

The figures then consider annual growth in manufacturing exports—the test of what foreigners think of our products. In 1974–79, it was 2 per cent. per annum; under this Government, it is 4.6 per cent. per annum. That is the clearest possible indication of the success that we have enabled British men and women at work to achieve in the marketplaces of the world, despite the toughening competition that everyone knows exists.

The challenge we face today is to preserve the economic disciplines that enable our economy to grow faster than those of our European competitors and faster than it has characteristically grown in the post-war world, and to pursue policies that will contain inflation and enhance our competitiveness. Everyone who has commented—I mean commented seriously—on the changes of recent years knows that it is the success of our economic and structural policies that has led to our remarkable inward and self-generated national investment.

We now have the highest inward and outward investment, relative to gross domestic product, of any G7 country. Since 1979, business investment has increased by more than 50 per cent. Whole-economy investment under the previous Government grew by 0.3 per cent. a year; it now grows by 1.7 per cent. a year—six times as fast, and faster than any other major European Union country.

That achievement is, of course, greatly reinforced by the remarkable success of the nationalised industries now that they are in private hands. In one case after the other, there have been massive improvements in investment: British Telecom, £27 billion since privatisation; the regional electricity companies, £1 billion a year; and Railtrack, the new success of privatisation, expects to spend more than £8 billion on infrastructure to April 2001.

The answer of the Labour party is to give us a publicly owned, publicly accountable British Rail. The leader of the Labour party said that only a month ago. Nothing is more calculated to restore indifferent services and inadequate investment in the railways than taking them back into public ownership. Of course, we all know that they could not dream of affording to do it. It is only another sop to the unions upon whose support Labour depends.

So the story continues. I have talked about the need to keep the disciplines necessary to preserve our economic success. Equally, in other vital areas of the economy, on which the Budget has concentrated, we must preserve disciplines to improve standards. That is nowhere more true than in respect of our education system.

The Labour party cannot face the simple but inescapable truth that we can improve education only by accepting that the same head teachers, in the same schools, with the same teachers and the same children, have to improve their performance. We have shown that the right, and only, way is to insist upon a national curriculum, testing and the publication of results, and to give teachers and parents maximum discretion over their own budgets.

Of course there are people in the education world who resist the changes; of course the Labour party resisted every one of them. Labour does not like the publication of results, because it foresaw, with precisely the clarity that we did, that, once we let the public in and trusted people with information, the public would insist on raising standards in our schools. That is why standards are rising.

Everyone knows that one in three of our young people today go into higher education, against one in eight when Labour was in power. People know that a record 53.7 per cent. of pupils achieved five or more GCSEs at grades A to C this year, and that the A-level pass rate this year was nearly 86 per cent.—up from 68 per cent. in 1980. But the Labour party proposes to reverse all the proposals that have brought about those changes by putting local authorities back in charge: the very people who presided over the decline in the first place.

Labour wants to abolish the assisted places scheme—one of its most vicious proposals. It is a piece of social engineering in keeping with its decision to abolish choice in education in the 1960s. It thought then that it would benefit the inner cities by closing the grammar schools, some of the best schools in the country. It is little surprise that it did not work. Parents with the ability to choose chose to leave the inner cities and move their children from inner-city comprehensives to suburban ones.

No one knows that better than the leader of the Labour party, because he is the epitome of what happens if one tries to imprison children in schools that their parents believe to be of inadequate quality. Parents take their children away, just as he did; but now he wants to stop other parents doing precisely what he believed to be right.

It is characteristic of the Opposition that, on every gesture and policy, they are hellbent on reversing the changes that have made Britain the enterprise centre of Europe.

They are going to put Labour councils back in charge of the business rates. We all know what will happen: up will go the business rates. They are going to impose new, unwanted, unnecessary costs on local taxpayers and local industries in authorities in Scotland, Wales, London and the English regions.

The Labour party has no concept of the increased global competition to which the British economy and all others are increasingly subject. To meet that competition, we have delivered a Budget that is another courageous step forward in building the most exciting economic prospects that any of us have seen for Britain.

We as a Government deliver what we promise. We said that we would deliver higher standards. As promised, the average family has £700 more to spend after tax and inflation this year than at the time of the last election. We said that we would get inflation down. As promised, the underlying rate of inflation has been below 4 per cent. for longer than at any time in the past 50 years. That has helped us to bring mortgage rates down to their lowest for 30 years.

We said that we would re-create a flexible labour market. As promised, more jobs have been created. We have the lowest unemployment rate of any major European Union economy. We said that we would cut tax on earnings. As promised, we have made progress towards the goal of a 20p basic rate for all. We have increased the 20p band and cut the basic rate by 10p to 23p since 1979. Now one in four income tax payers pay tax at only 20p.

We said that we would control public spending and the size of the state. As promised, public spending as a share of gross domestic product is on a downward trend. It peaked at 47.25 per cent. in the 1970s. We are set to get it below 40 per cent. and keep it there. As promised, we are laying the foundations for five more years of low inflation, rising employment, improving living standards and lasting prosperity, but we will also deliver the essential prerequisite for five more years of success, and that is five more years of Conservative government.

5.21 pm

Mr. John Prescott (Kingston upon Hull, East)

I beg to move amendment (d), in paragraph (c), after "chargeable", insert: other than an amendment for the reduction to five per cent. of the rate chargeable on fuel and power for domestic or charity use". We have heard a characteristic speech from the Deputy Prime Minister. By a generous interpretation, 15 minutes of his 40-minute speech were devoted to his Government's Budget. Naturally, he wanted to ask us what we would do, but I should point out to him that the debate, like the debates that we have had all week, is about the Government's Budget, and we intend to discuss it.

This debate follows the debate on the Chancellor's statement on the ECOFIN meeting. We congratulate the Deputy Prime Minister and the Chancellor on the way in which they appear to have ambushed the Prime Minister today, thereby showing once and for all that the Prime Minister is weak and at the mercy of one faction one clay and another faction another. The facts appear to be correct. We have a Prime Minister who gets pushed from one day to another. That is exactly what we saw from the Chancellor's report on the ECOFIN meeting.

Mr. Peter Luff (Worcester)

Will the right hon. Gentleman give way?

Mr. Prescott

I hope to give way shortly, but I should make a start.

The Deputy Prime Minister and the Chancellor have made clear the Government's case for the Budget. I put it to the House that it is not an honest Budget to help ordinary, hard-working families but an unfair Budget for the few and not for the many. It does not strengthen the economy or equip Britain for the future. On the contrary, it discourages investment. That is the charge that we lay against the Budget. It is based on the old Tory formula—give with one hand and take with the other, mortgaging our future to pay for their economic incompetence. That proves once again to the British people that they are worse off under the Tories.

The Deputy Prime Minister gave a litany of proposals. Why is it that the country at large does not recognise the record that he described to the House? It is not recognised, whether it is put to the test in elections or in opinion polls. People do not believe what the Tories say about the economy. The people of Britain will judge the Government not on one week or five years of government but on 18 Budgets over 17 years.

The purpose of Tory Budgets was set in 1979 by Chancellor Howe in his first Budget. He said that the aim of the Tory Government was to end the relative decline of the British economy. The Deputy Prime Minister has sought to show that they have achieved that. The Chancellor said last week: The British economy is in its fifth successive year of steady, healthy economic growth … These are the best circumstances we have faced for a generation … It is a Rolls-Royce recovery and it is built to last."—[Official Report, 26 November 1996; Vol. 286, c. 154.] That is what he told us, and that is the point that we are asked to debate here today.

The Deputy Prime Minister made a great point of saying how much was paid in overseas aid. If the economy is as successful and strong as he says and we are doing so well, it is a disgrace that the Budget contains even further cuts in overseas aid, which is desperately needed in many parts of the world.

What is the real truth of this matter? On Wednesday the Chief Secretary to the Treasury gave us a selective comparison of unemployment among the G7 countries. It was the only statistic from the G7 that he used. If he widens his horizons, he will find that overall the last Labour Government had a better record on employment and unemployment than the Tory Government, whether the figures are relative to other countries or absolute. That is not a matter that is contested. If the Deputy Prime Minister wishes to contest it, I am prepared to give way to him.

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

As the right hon. Gentleman is interested in history, can he remind me whether any Labour Government ever left unemployment lower than they found it?

Mr. Prescott

I am sorry. I did not hear the right hon. Gentleman.

Mr. Waldegrave

With the exception of the Labour Government in power at the time of demobilisation after the war, there has never been a Labour Government who left unemployment lower than they found it?

Mr. Prescott

As a matter of history, since the right hon. Gentleman is interested in history, the Labour Government were the first ever to sustain full employment in the British economy. We maintained full employment following Tory Governments and sustained it for two decades. The level of employment was always greater under us. Most Governments can claim that because there is an increase in population during their period of office. However, the Tory Government have claimed that somehow unemployment is far lower in Britain than in other countries and that they lead the way in putting people back to work.

We have had mention of the G7 countries. As the Chief Secretary said, we are third out of the seven in terms of unemployment. That may be so, but we are sixth in the European Union and 14th in the 22 OECD countries. That is hardly a good record. That it is middling along is the best that can be said for it. Our position is certainly worse than under the Labour Government, whether one contrasts relative, average or absolute figures.

It is absolute nonsense for the Tories to claim that they have a better record on unemployment, particularly when we have 1 million more unemployed than in 1979, after 17 years of Tory government. So let us hear no more silly nonsense about the Tory Government's contribution to reducing unemployment.

The Chief Secretary chose to point out the G7 figures on the level of unemployment, but if he had chosen inflation, he would have found that we were sixth and falling. We are sixth in terms of interest rates and falling and we are at the bottom in terms of the level of investment compared with the G7 countries. I should have thought that those figures and indices were of equal importance to any successful economy.

If we look at comparisons with OECD or EU countries, we are not in the top part in any way. We are middling or down at the bottom of the tables. So it is not right for the Tories constantly to give wrong information. The Chief Secretary to the Treasury has not always been careful with his language or his information to the House, but on this occasion it is right for us to point out that he did not give us the entire truth.

The Deputy Prime Minister

As we are quoting international comments and the right hon. Gentleman is talking about inflation, it is worth pointing out that the OECD survey for 1979, talking about a Labour Government, said: The most pressing problem is inflation, and its reduction must be regarded as a first priority for economic policy". The OECD now says: inflation performance over the past four years has been remarkably good".

Mr. Prescott

I am quite prepared to admit that, if we look at inflation over a couple of decades, going back to the oil price hike period, inflation is certainly better now. We welcome that—make no mistake, we want low inflation—but if we look at the overall record of the Labour Government elected in 1974, we see that they were successful in reducing high rates of inflation. If we look at the first two years of the Conservative Government elected in 1979, we see that inflation shot up from approximately 7 per cent. to nearly 28 per cent., primarily because they increased the rate of value added tax.

I remind Conservative Members that, in the 1979 election, the Daily Mail listed the 10 lies that Labour was telling, and one of those was that the Tories would increase VAT. Despite their continual denials, the first thing that the Tories did when they entered office was to increase value added tax. They continued to deny it and continued to increase it, and this Budget continues down that road.

We can be selective in our use of statistics. Where there have been improvements, we welcome them—why should we not? If we are achieving lower inflation, that is acceptable; but it is right for us to point out that the price of that is higher unemployment and great difficulty in managing the public finances. That is what the Budget has had to contend with, and I shall deal with that point shortly.

After 17 years of Tory government, we have fallen in the international leagues to which the Deputy Prime Minister has referred. We have fallen from 13th to 18th in the world prosperity league. I know that there are arguments about that point—previously, at Question Time, the Deputy Prime Minister has made the case for saying that, in fact, we have fallen only to 15th place. Okay, I accept that; but our position is poor and we are falling further down the league. Despite all that he has been saying about the past 17 years, we have fallen in that league table from 13th place to 15th or to 18th, whatever the right hon. Gentleman prefers.

We languish at 42nd place in respect of education and training—that is an indictment of Tory policies. On investment, about which the Deputy Prime Minister has spoken at length, we are 22nd out of the 25 OECD nations. We are near the bottom of that international league. Even the Chancellor has clearly admitted that investment has tended to flatten out and that he has not achieved the sort of investment levels—especially in manufacturing—that he had hoped to achieve.

On interest rates, we have fallen from fifth to ninth in Europe, with interest rates twice as high as those in Germany or France. That has been true throughout the lifetime of this Government. Our share of world trade has gone down, not up. It has fallen from 5.4 per cent. in 1979 to 4.8 per cent. today. Those are not the indices and signs of success. We can all agree that the economy faces problems—for decades, Governments have had difficulty with the balance of payments, the balance of trade, inflation and unemployment—but the present Government's claim that there have been major and fundamental changes in the economy is not reflected in international indices. That is our point.

The Tories record must be judged in the light of the massive revenues from North sea oil and privatisation—the equivalent of a quarter of a billion pounds a week, every week, for the 16 years that they have been in office. It was always thought that, when North sea oil came on tap, it would be a major advantage for whichever Government were then in office. We would get the virtuous circle that the Tories talk about, because the money would be used for investment, reducing unemployment and getting the public finances in a proper state.

Where has all that money gone? All we ever hear from the Government is what they have done to cut taxes—I shall talk about that in a minute. That is how they have wasted the money. They have not used it for long-term investment, but given it away to their friends, especially those on high incomes. That is the record of the Tory Government.

I notice that the Budget contains every variety of what the Financial Times called creative accounting and wishful thinking. There is certainly much evidence of the Government doing that to try to delay or conceal the ways in which we will all have to pay for their incompetence. We realise that the privatisation of the student debt and the Army housing leaseback are ways in which the public sector borrowing requirement can be reduced.

The Government's assumption of falling unemployment is unprecedented. No Government have done that before. This Government have said, year after year, that it is impossible to predict what the level of unemployment will be in future years—why have they given a prediction this year? They did it for one very good reason: they made the prediction so as to enable them to make an assessment of savings on social security and unemployment benefit, which can then be fed into the process of balancing the books on public sector financing. That is the sole reason why it was done.

I have to smile because, in last week's debate on the utilities, the Deputy Prime Minister asked, where would the money come from? The money raised in one year from the utilities could be spent over three or four years. When I suggested that it might be possible to save money by paying people who have been given work, instead of having to pay benefits when they are on the dole, I was laughed out of court—but my argument lies at the heart of the Budget's attempt to save £800 million. We know that, going into the next millennium, we will still have 1.6 million unemployed people, which is 60 per cent. more than Labour had in 1979.

Mr. Edward Leigh (Gainsborough and Horncastle)

Will the right hon. Gentleman, as deputy leader of the Labour party, match the Government's commitment to increase spending on health in real terms every year?

Mr. Prescott

Anyone who has read the Budget debate so far will know that that commitment is a contestable point. If it is a promise, I am bound to say that the Government's record on keeping their promises and on predictions of the public sector borrowing requirement and future expenditure is woefully inadequate. I would not believe anything a Tory Government told me about anything. I have to accept statements made in the House, but do not expect me to believe Tory promises—they told us that they would not increase VAT, but they are doing it again. Anyone who looks at the proportion of expenditure that goes to the health service will know that resources have not increased at all.

Let me turn to a measure in which, no doubt, the Deputy Prime Minister played a part—spend to save. That is an interesting term and, from a man who spent a lot of time telling people to delay paying their debts, it is a good term. It is a subject with which the right hon. Gentleman is extremely conversant—spend to save and keep the money going longer.

My right hon. Friend the Member for Dunfermline, East (Mr. Brown) was ridiculed when he argued in favour of closing tax loopholes. Does not spend to save mean the same as closing tax loopholes? The Chancellor called it the politics of "Alice in Wonderland". He said that he was not Santa Claus, but now he is Alice in Wonderland—looking at him now, I have to say that that requires some imagination. The Government have pinched a relevant Labour idea because they are desperately trying to balance the books—something that they have constantly failed to achieve, year after year. I shall come to the public sector borrowing requirement in a second.

Of course, there are doubts about whether it is possible to raise £6.5 billion, which is the figure that the commentators have been writing about. At the end of the day, it all comes down to predictions on public finances, on which the Government's record is poor.

Let us take the public sector borrowing requirement, which is always used when the Government are stating their desire to balance the Budget. In 1992, before the election, they said that the PSBR would be £32 billion in the year to follow; in fact, it was £45 billion. They said that it would be £25 billion in 1993, but it was actually £36 billion. This year, it was supposed to be £6 billion, but it has turned out to be £26.5 billion. The Government may not be especially successful at balancing the Budget, but they are much worse at making predictions—their accuracy is deplorable.

There is a growing fear that the Chancellor will be forced by the markets to raise interest rates to meet his implied inflation figure. The real test of the Budget must be its effect on the real economy.

The Chancellor of the Exchequer (Mr. Kenneth Clarke)

The right hon. Gentleman is criticising our record on the public sector borrowing requirement and referring to the Red Book. Is the Labour party committed to keeping to the spending totals for Departments set out in the Red Book? Is Labour forswearing increasing any of those spending totals, given the right hon. Gentleman's concern about our record on public sector borrowing?

Mr. Prescott

The proper reply would be to say that the answer to that question will be made clear at the beginning of next year. The Chancellor has made a fair point, but even he will recognise that the projections for public spending raise serious doubts about how the money is to be raised. What he promises now may not be achieved after the election—but that is the old Tory trick. What the Tories promise before the election they have to readjust afterwards. But the debts have to be paid. The promises on public expenditure come now, and they must be paid for later.

Every Chancellor has done the same. I must tell the right hon. and learned Gentleman that what he does is not unique. It is almost what has caused the boom and bust in the British economy, as Chancellors have geared themselves to the electoral cycle rather than to the needs of the nation. That is evident from most of the figures in the Red Book.

Mr. Campbell-Savours

Does my right hon. Friend recall the promises made in the autumn statement of 1991—promises that were reversed the following June? A series of promises, covering all Departments, was made, but every commitment on public expenditure made before the election was withdrawn after the campaign was over. We remember.

Mr. Prescott

Yes, I remember. That was the former Chancellor, the right hon. Member for Kingston upon Thames (Mr. Lamont), who fought me in an election in Kingston upon Hull in the 1970s. People in Hull did not believe him then, and we should not have believed his projections when he was Chancellor of the Exchequer, either. No doubt the present Chancellor has learnt all those techniques, and means to deploy them.

Mr. Kenneth Clarke

They are not techniques. If the Labour party wishes to do better than the Government on public sector borrowing, it must either take public sector spending down or put taxation up. It does not even have a commitment to keep public spending down to where it is now. Will taxation be put up, so as to improve our performance on public sector borrowing?

Mr. Prescott

That is certainly a question posed by the right hon. and learned Gentleman's Budget. It is a question that he would face if he were Chancellor after the election, but we do not think that he will be.

There is another option, and we have it here. It is called a utility tax. We can impose a tax on obscene profits and use the resources to put people back to work. We would not have to pay so much to keep people on the unemployment register, and there would be a different order of priorities within public expenditure. I call that the virtuous circle, although it is not what the Government mean by that term.

Mr. John Townend (Bridlington)

The right hon. Gentleman talks about a utility tax. Will he answer a question that the right hon. Member for Derby, South (Mrs. Beckett) refused to answer yesterday? Will he give a copper-bottomed guarantee that the "utility tax" will apply only to companies that have been privatised? If not, does it mean that, if I bought half a million pounds, worth of claret and the price doubled, I would have to pay a windfall tax?

Mr. Prescott

I know that, as an accountant, the hon. Gentleman would like to be accurate about what he thinks the tax would cover. My right hon. Friend the Member for Dunfermline, East (Mr. Brown) made that clear. I do not believe that the hon. Member for Bridlington (Mr. Townend) was here last week when we discussed the utilities under a motion tabled by the Government. We talked about the definition of what constitutes utilities. With regard to privatised utilities, we shall make a judgment at the proper time, talking to the regulators and to the industries.

The idea is not new. I must remind the hon. Gentleman that the 1981 Budget included the banks tax. I think that he was in the House then, and voted in favour. When he voted for that tax he did not ask what it would apply to, or at what rate. He simply agreed to tax an obscene profit—although he would not say that, because Tories would not use those words. He probably said "excess profits". I believe that the Government's description at the time was "fixed fiscal rectitude" or something similar.

None the less, the tax was the same sort of thing. It was a tax on profits. The hon. Gentleman did not ask questions; he simply voted in the Lobby, without knowing. Yet now he is asking us to define something that was not defined when a Conservative Chancellor proposed the bank tax. I shall talk about the utilities tax in a minute.

The important factor in strengthening our economy is increasing the skills of our work force. Everybody agrees that training and education are vital to a modern economy, yet what does the Budget do? The Chancellor has cut the budget for nursery education, for TECs and for capital spending on higher education.

Investment has fallen from 15.5 of GDP in 1990 to 13 per cent. today. Despite all the claims of the Deputy Prime Minister, manufacturing output is still only 2 per cent. higher than in 1990. Productivity has stalled. That is a record not of success but of incompetence—if the Government wish to claim to have had any influence over what has happened.

Even the private finance initiative, which is often mentioned in the House, and which offered such great promise, has come to very little. I believe that, as recorded in last year's Red Book, the Chancellor thought that the private finance initiative panel had identified 1,000 potential projects, worth £25 billion. Yet he now says that the figure is only £1 billion. All the estimates and hopes for the PFI seem to have come to naught.

As the Chancellor knows, I have always been a fan of the idea. Indeed, I was an advocate of public-private partnership before the Government were, and they often ridiculed me for it. I believe that in a document presented by the Deputy Prime Minister when the Cabinet was discussing the financing of the Post Office, the option was referred to as the "Prescott option". It was no surprise that, as I understand it, the right hon. Gentleman led the attack on the "Prescott option". I do not suppose there would have been many votes in Cabinet for such a thing, but—

Mr. Kenneth Clarke

The right hon. Gentleman is right to say that we have often referred to the Prescott option when considering borrowing for capital finance—but we regard what he used to advocate for railway rolling stock and so on simply as borrowing. He could never see why the Government could not just borrow to buy such things.

The private finance initiative is a little more complicated than that. It involves risk transfer from the public to the private sector, in a way far removed from the original Prescott option. Labour Governments were good at borrowing, and no doubt would be again—but the kind of borrowing that the right hon. Gentleman advocates is the kind that gets countries into crisis. Indeed, it is the kind that he was criticising five minutes ago.

Mr. Prescott

It must be said that the present Government are not one characterised by very low borrowing levels, however those are measured. Secondly, perhaps it is because the Government did not adopt the Prescott option that they could not make the system work. I know that the Chancellor himself appointed Sir Alastair Morton to consider the proposals and to break down the resistance of the Treasury. Unfortunately, he could not do that either, so the only claim that can be made for the PFI is to cite it as a reason for increasing public expenditure on hospitals and other things.

I think that everybody agrees that, if some of the Treasury rules were changed, there could be a much more favourable approach. To be honest, I think that the Chancellor is trying to achieve that, or he would not have told us that there were £25 billion, worth of options—although he has been able to secure only £1 billion, worth of those.

I understand that the PFI was to have played a major part in the financing of hospitals, at the rate of one a month. Yet the only hospital that has actually been financed is the one for which the agreement was signed the night before the Chancellor presented his Budget. Clearly there are many difficulties involved, despite the right hon. and learned Gentleman's enthusiasm for the Prescott proposals. I recommend that he reconsiders the old Prescott option, and he might be able to get more of the projects started.

The Government have introduced the PFI in such a way that it fails to boost public services significantly and undermines public servants, and has bemused and frustrated the private sector partners and short-changed the taxpayer. The leasing arrangement for the railway stock in York cost considerably more, because the Treasury got behind it and imposed all sorts of impossible rules. In the end, it would cost much more to do things privately than to borrow from the Treasury, but one could not borrow from the Treasury because it was not prepared to increase taxes or use other ways of raising money to increase revenue.

The Economist described all that as a "dog's breakfast". The much-vaunted plans for a string of national health service projects under the PFI have dwindled down to the single contract that I have already mentioned, and the forecasts have fallen.

I regret the fact that the Government have not been able to use their so-called business acumen, and have turned a good idea into a dismal failure. We could have used that idea to boost public investment and create jobs in a much more ambitious way than has been achieved. I wish the Chancellor well in trying to get something out of it—but there are not many months left for him to do so.

There is one measure that the Chancellor saw fit not to mention in his Budget statement—a proposal dramatically to increase tax on long-life investments. That will especially affect gas, electricity, water and telecommunications companies, because most of their assets will have been in existence for 25 years.

Might that not be a utility tax? It will apply largely to utilities. When the House debated Labour's windfall levy last week, the Deputy Prime Minister became quite upset. I note from Hansard that he said: The fact is that windfall taxes, like any other, must come from somewhere … prices would go up or investment would he cut … There is no loose cash sitting about with no purpose in the pockets of British companies. A windfall tax would affect prices or jobs".—[Official Report, 21 November 1996; Vol. 285, c. 1127.] Will the Deputy Prime Minister explain what will be affected by the utilities tax on long-life investments? Will it be jobs or investment? Did he consider that? Did the Chancellor tell him? While the right hon. Gentleman was in the House of Commons saying all that, the Chancellor was planning his own version of a utility tax.

Unlike the windfall levy on excess profits, the Government's suggested tax will apply directly to long-term capital investments. It will be not a one-off levy but a tax that will increase year upon year, and affect the level of the long-term investment that is at the heart of the problems of the British economy.

On the day when the Chancellor made his announcement, the right hon. Gentleman was apparently encouraging privatised companies to come together to resist the windfall levy, so can he tell us whether he knew of his right hon. and learned Friend's plan to impose that tax on the utilities? Was he concealing that fact from those companies, or was he not told? Will he still host that gathering of the privatised company bosses, his potential cheerleaders, the Heselteenies? I understand that some companies have now declined to join that group. Is that because he did not tell them the truth about the Government's plans?

There was some debate at the weekend about whether the direct tax bill for the average family has gone up since 1992. The Prime Minister still refused to admit the truth during Question Time. How could he do anything else when he has put posters up around the country saying, "As promised, income tax down"? He could hardly change those posters. The Tory party led by honest John would have us believe that direct tax has come down, but honest William has told us otherwise. This week the chief financial secretary to the Treasury—

Mr. Waldegrave

I am the Chief Secretary.

Mr. Prescott

Okay. I am not one for hierarchy. I was not brought up the proper way, as the right hon. Gentleman can tell.

This week the right hon. Gentleman admitted that direct tax has gone up. We all know that his word is his bond. After all, he is the only man to have been subject to a vote in the House of Commons, which—

Mr. Waldegrave

rose—

Mr. Prescott

Wait a minute. He won that vote with a majority of one. That is like someone deciding by 13 to 12 to send good-will wishes.

Mr. Waldegrave

I am glad that I did not spoil the right hon. Gentleman's joke, although it did not go down very well.

The Prime Minister confirmed that what I said was correct: if earnings go up, people pay more tax. The Prime Minister also confirmed today what I confirmed yesterday: if we had made no changes above the legal indexation of the tax system since 1991–92, the average family about whom we all talk would be paying £88 more in tax.

Mr. Prescott

The reality is that taxes are going up. People recognise that, and I am sure that they have made a judgment about it.

Since 1992, direct tax has increased for families earning an average income. I must say to the Financial Secretary—[Interruption.] I mean the Chief Secretary to the Cabinet—

Mr. Waldegrave

I am Chief Secretary to the Treasury.

Mr. Prescott

Okay.

The right hon. Gentleman must feel somewhat raw, because on the one hand he is accused in the House of not telling the truth to it, but when he does tell the truth, he almost gets sacked by the Prime Minister. I will leave the public to make a judgment about that.

On top of the 22 tax increases since the election, the Budget contains one brand new tax and seven further Tory tax rises, as my right hon. Friend the Leader of the Opposition so tellingly exposed within minutes of the Budget statement.

One hidden tax is the rise in council tax—an extra £4 billion will be charged over the next three years. That is equivalent to £200 extra from every family. The Red Book clearly shows that the tax burden as a share of the gross domestic product is set to rise from 35.75 per cent. to 37 per cent. by the year 2000. That is according to the Government's own figures and according to their stated commitment. Over the next three years, the Tories will take back nearly £7 billion more a year in tax, the equivalent of 3.5p on income tax. The truth is that the overall tax burden will be increased by the Budget. The Tory party is a tax-increasing, not a tax-cutting, party.

Mr. Garrett

My right hon. Friend has given examples of the impact of the increases of taxation on ordinary families. Surely the most telling statistic is that in 1975 there were 920,000 children living in homes below the poverty line as defined by the Department of Social Security, and today that figure is 2.9 million. That comparative statistic surely puts into the shade the Deputy Prime Minister's chat about microwave ovens and how many people have freezers.

Mr. Prescott

I am glad that my hon. Friend has made that point, because poverty is one of the key issues of my speech. The council tax will be forced up by £4 billion over three years, but local councils' budget have nevertheless been cut by a further £2 billion, which will threaten essential local services. That will add to the difficulties that my hon. Friend has identified.

The tendency in the Tory party is to attack Labour councils, as the Prime Minister did today. We must accept, however, that Labour local authorities are doing something right, because in 1979 there were 243 Tory councils, and now the number is down to 13. Something must have gone wrong, because there used to be 12,000 Tory councillors, but that number has now been reduced to 5,000. I assume that the electorate did not like Tory party policy whether at national Government level or at local level.

We are concerned about expenditure on health, schools and crime prevention. This is a Budget where one pays more and gets less. That is how it is with Tories—we cannot trust them on tax.

As my hon. Friend the Member for Norwich, South (Mr. Garrett) pointed out, the mark of 17 years of Tory government has been the growing poverty gap. One in five non-pensioner households are without a wage earner. More than 4 million children live in households earning below half the average income—three times more than in 1979. In real terms, income for the poorest 10th of the population has fallen by 13 per cent., whereas the income of the richest 10 per cent. has increased by 60 per cent. We have not heard about that record from the Government.

Several hon. Members

rose

Mr. Prescott

No, I will not give way, because other Members want to speak.

The poverty gap has been brought about because of the Government's policies. Breaking the link between pensions and earnings has caused more poverty among pensioners. More and more people have been driven to means-tested benefits. The abolition of the wages councils has cost the taxpayer more than £3 billion in family credit to support poverty pay. The unemployment rate has twice been allowed to rise above 3 million. How right was the vice-chairman of the Tory party, Mr. John Maples, who said in 1994: The reality is now that the rich are getting richer on the backs of the rest who are getting poorer. The gap between the highest and the lowest paid worker is higher than at any time since records began in 1886. There is one category in which we lead the world—growing inequality. If Ministers and the Deputy Prime Minister would care to look at reports published by the World bank, the OECD and the United Nations Development Programme, they would discover that not only is inequality damaging and wrong for any economy that is concerned about social justice, but that it is bad for that very economy, because it suffers from the consequences of the growing gap between the rich and the poor.

My right hon. Friend the Member for Dunfermline, East (Mr. Brown) has fought a valiant case for cutting VAT on domestic fuel. There is no doubt that that should help to alleviate fuel poverty, as our amendment makes clear.

Social justice means many things, but nothing is more important than a decent place to live. The Deputy Prime Minister made no mention of poverty, and to talk about housing policy as though it is just about negative equity insults the intelligence of many people who have had to face the consequences of Government policy.

Under the Tory Government of many years ago, Prime Minister Macmillan was proud to say that 300,000 new houses a year were built. The Tories often boasted about achieving that. Now just 180,000 houses have been built. The scale of the poverty in this country is revealed by the fact that people do not have decent housing.

Under the Labour Government we built 290,000 new homes a year. For every year of the Tory Government, however, 100,000 fewer houses have been built. Negative equity still affects 1 million people and there are still thousands of evictions a week, but no one talks about building houses. That is bad enough, but negative equity has also been caused by the sale of local council houses. Local authorities were told to sell those houses and between £4 billion and £5 billion is still held in receipts that could be used as part of a phased programme to build houses. That would reduce the unemployment problem faced by 225,000 building workers. Would it not be better to bring jobs and social justice together by taking building workers off the dole and putting them back to work to build houses to meet the greatest level of homelessness that we have seen in this country for many years? That is what social justice is about.

Last week the Secretary of State for the Environment told the House that we need 4.4 million new homes by the next decade. If he is right, and I have listened to the judgments on which he based that assessment, at the present rate of building we will achieve that target not in 10 years but in 30 years, in 2025. That is unacceptable. I want to hear the Government say that it is their priority to get people off the dole in order to build the houses for those who need them. That would improve our quality of life and would have a great influence on the feel-good factor. We must take those facts into account, but we know that the Government's housing policy is deplorable.

We must consider the political context in which the Budget was presented. It was designed to save the skins of the Tory party, not to secure the future of the nation. I noticed that the Chancellor made his Budget address to the nation at 9.30 pm on Tuesday evening. I had a look to see what kind of graphs and statistics he intended to use, because they are usually extremely interesting, and they make me laugh. I noted the irony of the scheduling because that address was immediately followed by "One Foot in the Grave". I do not know whether the right hon. and learned Gentleman watched it afterwards—how appropriate.

The first poll taken after the Budget appeared in the Evening Standard. It found that people did not feel better off and that they thought that it was not fair. Indeed, the Budget was judged a flop within 24 hours of the Chancellor's broadcast. All the analysis since then has confirmed the verdict, including today's ICM/Guardian poll, which found that less than a third of people feel a lot better off. That is what we expect from a Budget for the few, not for the many. Nearly half the people questioned felt worse off, and the people were moving away from the Tory party.

The people in this country know that they cannot trust the Tories on tax or the economy. They know that Labour will be better for jobs, for health, for education and for crime prevention. They know that Labour will encourage the long-term investment that will make the economy strong. They know that they will be better off with Labour, and I assume that the poll result shows that.

The next test will be the by-election in Barnsley, East. I shall now address what I say to the Deputy Prime Minister. There are two forthcoming by-elections— Barnsley, East and the Euro-constituency of Merseyside, West. The people in Barnsley hold the Government's majority in their hands, and they are brassed off with the Government.

I recommend that the Deputy Prime Minister watches the film "Brassed Off", because it is about a community that was destroyed by his coal policy, and the consequential effects in areas such as Grimethorpe and Barnsley. Yes, the electorate there are brassed off, and I believe that, a week on Thursday, they will take the opportunity to finish the Government's majority. That is a real test of what the Deputy Prime Minister said.

On 12 December, the people will make that clear, and it will remove the Government's parliamentary majority. If any further proof were needed that the Government are running scared of the electorate, just look at Wirral, South. Everything was in place. Twenty hotel rooms were booked, party workers were primed and the candidate was wheeled out in a party political broadcast. All the talk was, "Don't worry; on 19 December the people of Win-al will have a chance to give their verdict on the Budget and the Government's competence".

But last Friday, the Tories ran away from holding the Wirral, South by-election on 19 December. Half the Cabinet queued up to shop the party chairman, and the Chancellor told Jimmy Young that the Tory party cannot be led. The Tories ran scared in Wirral, South because they know that the loss of that seat will turn them into a minority Government. That is why they fear the test.

Last Friday, I wrote to the Prime Minister asking him to explain the decision to delay the Wirral, South by-election. I said that the people in Wirral, South were entitled to their democratic say. I wrote: They will want to know whether it is your intention to honour the convention and hold a by-election within three months of the death of Barry Porter, or whether you intend not to hold one and deny voters the chance of choosing a new MP until the general election? The people of Wirral South need representation and they need an answer. The rest of the country also needs to be told. The Prime Minister's reply, dated 2 December, was delivered by hand today. It simply said: Dear John, Thank you for your letter of 29 November. The Christmas pantomime season has clearly started early this year. That is it. That is the answer that the Prime Minister of this country gives to the people in Wirral, South, when all I said was that they had a right to take a democratic decision and that they should have a Member of Parliament to represent them in this place. That is the attitude of the present Prime Minister.

It just goes to show that the Tories are running scared on tax following a Budget that has flopped. They are running scared of one another, with half the Cabinet trooping in to complain to the Chief Whip that the party chairman is bullying them. They are running scared on Europe. Their party is split from top to bottom, behaving like two halves of a pantomime horse walking in opposite directions.

The House will ask, why does not the self-styled Minister of Merseyside show leadership by hopping along to the Wirral and giving the people the election that they are entitled to? He will not, because the Tory party cannot be led and its leader cannot lead. If the economy is in such great shape, why do not the Tories have the guts to let all the people decide in a general election, and end the pantomime of a Tory Government?

6.3 pm

Mr. John MacGregor (South Norfolk)

I was the Chief Secretary to the Treasury who costed the Labour party's programme before the 1987 election, and I want to follow my right hon. Friend the Deputy Prime Minister in his analysis of Labour's continuing lack of credibility on tax and expenditure. Mark you, Mr. Deputy Speaker, it has shifted a bit. In 1987, the Labour party made very many specific commitments, which it had not costed, so members of the party were bowled over when the cost of what they had firmly and clearly committed themselves to emerged.

In 1992, the Labour party tried to avoid the dilemma that it had got into in 1987 by addressing one or two of the tax implications and admitting that there would have to be some tax increases. Labour Members are so conscious that tax is the Achilles' heel of their party's approach that they have shifted the ground. They now criticise the shortfall in public expenditure wherever they wish to do so, and pretend to any pressure group that a Labour Government would put that right, yet they also say from the Front Bench and to City audiences that that is not a commitment. Simultaneously, they criticise every tax increase, giving the clear implication that they would not have done it or might reverse it, and then pretend that that is not so.

Labour cannot get away with that approach. That is very important, and I want to emphasise it.

Dr. Norman A. Godman (Greenock and Port Glasgow)

The right hon. Gentleman mentioned 1987. If the Government had maintained their 1987 share of North sea oil and gas profits, the Treasury would have received an extra £12 billion in tax revenues between that year and 1994.

Mr. MacGregor

Labour's commitment to expenditure per year in 1987 was a good deal higher even than that figure. That is why Labour Members were devastated when the total costing was done.

Where does the Labour party stand now? It has made certain commitments. The first is the windfall tax, which should be known as the pitfall tax because so many pitfalls have been demonstrated. The biggest pitfall is that it is a one-off tax to meet a spending commitment on employment that everyone knows will last for more than a year. There is bound to be a continuing commitment, for which the windfall tax would produce no revenue. The implication is that Labour is making a much heavier spending commitment for the lifetime of a Parliament.

Labour's next specific commitment is to abolish the assisted places scheme and tax relief on health care insurance for the over-60s. I supposed that the Labour party now supported public-private partnership, of which those are both good examples. I go further: it is very damaging that the Labour party has chosen to try to abolish those two schemes.

Perhaps I should declare an interest in the assisted places scheme, in that my wife is a member of the council of the Girls Public Day School Trust, which benefits from the assisted places scheme. I know from her experience and in many other ways that the assisted places scheme has provided enormous educational opportunities for children from less well-off and low-income families. They have been enabled to choose schools with specific qualities—in the case of the GPDST, high academic achievement. Those girls have gained places in universities and pursued well-defined careers thereafter, which would not have happened had it not been for the assisted places scheme.

The Labour party proposes to remove tax relief on medical insurance for the over-60s. I thought that it, too, understood, in view of the enormous and increasing commitments involved in dealing with an aging population, that we need to bring in more private finance to tackle those issues during the next 10 years—yet it proposes to abolish the tax relief.

Those two proposals will not yield much in terms of revenue forgone, but they will be damaging.

It has just been announced that Labour would reduce VAT on fuel. I would like to ask the hon. Member for Edinburgh, Central (Mr. Darling), who I understand is to wind up the debate on behalf of the Opposition, whether Labour, in addition to making that commitment, which would reduce revenue by about £500 million, proposes to claw back previous additional spending on social security and other benefits which were made to compensate those on social security for the increase in VAT. If Labour intends to claw back the additional spending, I do not see the point of clawing it back from those who are least well off; but if Labour does not claw it back, that will be another spending commitment of £500 million.

I want to concentrate on the debate. The game was given away when my right hon. and learned Friend the Chancellor asked the deputy leader of the Labour party a question relating to the public sector borrowing requirement. My right hon. and learned Friend suggested that the PSBR could be reduced by raising taxes or by reducing expenditure, and challenged the right hon. Member for Kingston upon Hull, East (Mr. Prescott) to say what Labour would do. The right hon. Gentleman refused to answer, but one need only read speeches made from the Opposition Front Bench, including his today, to realise that Labour would raise both taxes and expenditure.

The speech of the right hon. Member for Dunfermline, East (Mr. Brown) was without solid foundation—an edifice constructed on quicksand which would collapse within weeks of a Labour Government being returned to power. The entire Labour party approach is intellectually and politically dishonest. The right hon. Gentleman devoted his speech to criticising us for the tax increases in the Budget and those introduced previously. The implication was that each of those increases was wrong, that Labour would not have introduced them, and that Labour would reverse them.

At the recent conference of the Confederation of British Industry, the right hon. Gentleman hinted—perhaps it was more than a hint—that capital allowances should be doubled. That was another clear implication of a further £750 million in tax forgone. The Opposition's approach is to criticise every tax increase, with the implication that they would never have imposed it and would reverse it, but they do not quite say so.

On expenditure, the hon. Member for Peckham (Ms Harman) criticised the changes to the one-parent benefit and the lone-parent premium. The implication was that she would reverse those changes. The right hon. Member for Kingston upon Hull, East today made a clear commitment on overseas aid. When he complained vigorously about pensions being linked to prices rather than to earnings, it was not clear whether that was a commitment by the Labour party to link pensions to rises in earnings. I understand that it is not, but there is a clever innuendo in the right hon. Gentleman's substantial criticism of a measure that was taken some time ago in the context, he said, of hitting pensioners.

Mr. Prescott

Causing poverty.

Mr. MacGregor

The clear impression was given that the Labour party would reverse the measure. I ask the Opposition whether they would do so and, if they would not, what was the point of the right hon. Gentleman's remark?

Mr. Prescott

The measure causes poverty.

Madam Deputy Speaker (Dame Janet Fookes)

Order. If the right hon. Gentleman wants to intervene, he is at liberty to do so.

Mr. MacGregor

As the right hon. Gentleman feels so strongly about the matter, would the Labour party restore the link between pensions and earnings, rather than prices? If not, he is making a bogus point and misleading a great many people.

The issue was most clearly demonstrated in Hansard last Wednesday, 27 November, when my right hon. Friend the Secretary of State for the Environment made his statement on local government finance. The hon. Member for Holborn and St. Pancras (Mr. Dobson) gave the Labour party response at column 343. His first point was a huge criticism that the Government's target for council spending next year was £2 billion short of what councils are spending this year. We all know the debates and arguments about that. The clear implication was that Labour would reverse that and add £2 billion to the local government settlement.

Next, the hon. Gentleman complained that there were no allowances for inflation, pay increases and so on. The clear implication was that Labour would have made such provision. He then suggested that, in education, there should be additional spending of £41 per pupil, which would cost £750 million. The implication was that the Labour party would commit itself to that expenditure.

The hon. Gentleman went on to criticise the capping levels on many authorities, with the clear implication that Labour would remove the capping limit. He referred to massive cuts in the housing investment programme, with the clear implication that Labour would restore those cuts. He criticised the need for other sources of income to enable local authorities to meet their spending commitments, including many charges. The implication was that the Labour party would find, from central Government sources, the income that local authorities were being asked to provide.

There, in one column, was an enormous list of criticisms, with the clear implication to local councils all round the country that the Labour party would not have gone down that route and would add considerably to the grant from central Government to local authorities.

Mr. Darling

Was there not a clear implication at the last election, when the Prime Minister said that he would not extend the scope of value added tax or the rate, that he would not do so? If that was the case, why did the right hon. Gentleman vote with the Prime Minister to increase and extend the scope of VAT?

Mr. MacGregor

After the election, as we moved into the recession, it was clear that certain changes had to be made. We are discussing the economy as it is now.

The message that went out to the massed ranks of Labour local councillors all around the country was clear. Yesterday, in my own county, Norfolk, members of the Norfolk Labour party were extremely critical of the amount of money available for education. They floundered only when they were asked whether it would be any different under Labour. Plainly they were critical because they had listened to what the hon. Member for Holborn and St. Pancras had said, and they believed that matters would be different under Labour.

In his winding-up speech tonight, the hon. Member for Edinburgh, Central must make it clear to the massed ranks of Labour councillors all round the country that he disowns what the hon. Member for Holborn and St. Pancras said last week, and that he will stop the hon. Gentleman criticising the levels of local authority expenditure and encouraging Labour councils to spend more. If he fails to do so, the IOUs will come back from Labour councils if the Labour party is elected at the next general election.

I have given my reasons for believing that tax and expenditure will be a big issue in the coming election. Unless the issues that I have highlighted, particularly those connected with local government spending, are addressed by the hon. Member for Edinburgh, Central tonight, the Labour party's so-called prudent messages to City audiences are not worth the breath used to utter them.

Those messages and the speeches that we hear so often from Members on the Labour Back Benches demonstrate that changing the habits of Labour Members and persuading them to accept vows of expenditure prudence is like changing the habits of rabbits and persuading them to accept vows of celibacy. At least in the past the Labour party was honest about its expenditure programmes. Now it is not.

My right hon. and learned Friend's Budget was sound and unspectacular. That is exactly what we needed. My first point is that it was right to be fiscally prudent and tight, given the prospects for the economy in the coming year. Growth will be up, consumer spending is up, investment is up, additional money is available for consumer spending as a result of building society flotations and other factors, and without doubt there is a feeling of growing consumer confidence. The housing market is improving, as we can see in certain parts of the country, but the improvement is spreading to other parts.

The danger, especially in relation to the housing market, is a return to the excess boom of 1987–88. Everyone agrees that we must avoid that. The Chancellor is right, therefore, to present a fiscally prudent Budget, and to give himself the flexibility on monetary policy and interest rates to take further action, if necessary. That is the right approach, and it is certainly not a give-away Budget before an election.

Secondly, I warmly welcome the steps being taken to bring into balance certain benefits for single parents and married couples. I hope that we will go further in that direction in future Budgets. I pay particular tribute to my right hon. Friend the Secretary of State for Social Security, who has done a superb job of reducing the social security budget over the past four years. I hope that the Government will go further in future Budgets and provide greater tax relief to married couples with children. I believe that we made a mistake in reducing the married allowance, and I would like to see that error redressed.

Thirdly, I welcome the proposals to deal with smuggling from the continent. That is obviously having a serious effect on business—particularly small businesses—and on tax revenues. I recognise that that is one of the effects of the single market, from which we benefit so much in other areas. Ease of communications within the single market and different tax levels in France have tempted many people to try to import large quantities of alcohol and tobacco into this country. The Chancellor has acknowledged that there is a genuine problem and I think that he is correct to tackle the smuggling aspect. If the measures do not work, we must face the fact that we may have to harmonise our excise duties—at least on wine, beer and spirits—with those of other countries in the single market. That could be achieved gradually in future Budgets.

The deputy leader of the Labour party mentioned the Norfolk and Norwich hospital private finance initiative. It is situated in my constituency and I have been closely involved in developments for more than a year. It is a very big contract worth nearly £200 million, which will last for 60 years. Unlike the "Prescott option", the risk transfer is considerable for the Octagon Partnership that will run the hospital. Progress was frustrating at times, and some planning permission and access issues took some time to resolve and were a major cause of delay. It is all very well for the deputy leader of the Labour party to smile, but he knows that a substantial project with major traffic implications involves much planning.

It was inevitable that a big contract like that—which breaks new ground—would take some time. I would have preferred faster progress, but I am pleased that the project is now under way. Norfolk will achieve a state-of-the-art, 21st century hospital of substantial expense and proportions, and the complex contracts that have been agreed will stand as a template for future projects and allow them to develop more quickly.

Mr. Barry Sheerman (Huddersfield)

I thank the right hon. Gentleman, who has been an adviser on the project, for giving way. Although he does not usually give advice free of charge, I am sure he did so in this case. He is a director of Hill Samuel, a food company and so on, and his expertise as an accountant is invaluable. Will he confirm whether the financial deal for the hospital has been signed? As I understand it, it was not signed even last Thursday following the Budget statement.

Mr. MacGregor

I must correct the hon. Gentleman: I am no longer a director of Hill Samuel and I was never an accountant. I provide an enormous amount of advice free of charge, as I did in this case.

The issues delaying the final signing of the contract have been resolved, the major part of the contract has been signed, and I am confident that it will go ahead. The crucial point is that, now that a benchmark has been established, future hospital contracts will now progress more easily. This project, like other PFI projects, is far removed from the "Prescott option" which the right hon. Gentleman and I used to debate when I was Secretary of State for Transport.

The following three points relate to Conservative Budgets in the next five years, when I hope we shall address other tax proposals as the opportunities arise. The first issue concerns long-term savings and capital. I know that my right hon. Friends intend to alter capital gains tax and inheritance tax—but I shall not dwell on that today. I think that we should examine the tax relief for savings as a whole. In view of our aging population, we must encourage people to save at a much earlier stage of life.

I believe that encouragement should be provided through the tax system, as occurs in America with the section 403 retirement provision, which has really taken off. Similar encouragement would assist those who may not have occupational schemes, those who may wish to top up such schemes, or those who may be without work for certain periods. We must think seriously about introducing a "provision for retirement" account that would encourage people to save for their retirement fairly early in their working lives. The tax system must be changed significantly in that regard.

Secondly, I have always been attracted by the Country Landowners Association proposal for rural business units. My right hon. Friend the Chief Secretary, as a former Minister of Agriculture, Fisheries and Food, will agree that agriculture has undergone massive change. Farmers are now diversifying into areas that are far removed from traditional farming. We could encourage that diversification, and hence improve rural employment prospects, through rural business units.

Finally, my right hon. and learned Friend will not be surprised to learn that my one criticism on the public expenditure front relates to the transport budget, particularly the road programme. The Government's roads budget—although much better than the Opposition's proposals—allows for only three or four significant new road schemes per year, including motorway widening. There is no doubt that, as the economy continues to recover and growth remains strong, the demands on our major motorway and trunk networks—and for new bypasses—will grow stronger. I believe that it will be necessary to return to a much bigger road-building programme. I realise that that cannot be achieved this year, but I hope that my right hon. and hon. Friends will ensure that it is given greater priority in future.

My main message is that, although the present Labour policy on tax and expenditure differs from its 1987 approach, tax remains its Achilles' heel. Anyone who studies such matters does not believe that the Opposition have got it right. Above all, a Labour Government would be subject to enormous expenditure pressures, and I simply do not believe that the supposedly prudent approach of the Opposition Treasury team holds any water.

6.27 pm

Mr. Robert Sheldon (Ashton-under-Lyne)

I looked forward to hearing a more critical survey of the Budget from the right hon. Member for South Norfolk (Mr. MacGregor), with whom I have had many dealings over the years. He mentioned the private finance initiative. The problem with the PFI is that it generates excessive expectations. I have no doubt that one can readily justify the use of that initiative in individual cases.

My right hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott) always pressed upon me the advantages of the PFI, which I came to accept. It can be justified in individual cases because levels of skill and management in parts of British industry are superior to those employed by Government Departments on certain projects. That fact is clear. Therefore, an expenditure increase of 1 per cent, or 1.5 per cent.—or sometimes a little more—may be offset by the greater skills and effectiveness of the organisation involved.

The danger is that, as it does not count against borrowing, it is not a "free lunch"—as the Financial Times leader put it. The cost of the arrangement must be anticipated and the risks must be borne by the private companies concerned. We should not have so many projects. Alastair Morton met me to press the advantages of the private finance initiative—which I accept—but they will be rather more limited than the Government assume.

There is a distortion in the annual examination of finance and budgetary matters. In the autumn we have the Queen's Speech and the Budget, followed by the Finance Bill. It all comes together. Thereafter, there are few opportunities to debate these matters. Some hon. Members, for example the right hon. Member for Worthing (Sir T. Higgins), hope for changes in the parliamentary year, with the Queen's Speech in the spring. I accept that there are certain advantages in that, but since the days of James I and Guy Fawkes, the autumn has usually been an acceptable time for the state opening of Parliament. I would be quite happy to see that changed, but I am sceptical about seeing it come to pass. We need economic issues to come before the House rather more frequently, so that they may be subject to scrutiny similar to that which we have had in the past.

The assumptions in the Budget are such that we should wish to examine them more frequently than we are able to do in a normal parliamentary spring and summer. However, next year we expect to see the Budget of my right hon. Friend the Member for Dunfermline, East (Mr. Brown) and the reshaping of our economy, which I look forward to welcoming.

In nearly 18 years of power, the Conservative Government have achieved the management of decline. The United Kingdom has continued to be overtaken by countries that have been behind us since the middle of the 18th century. Unfortunately, investment and the performance of manufacturing industry have fallen disastrously, particularly over the past 18 years, and are still below those of our main competitors. We see the results of that in the Red Book, which shows that the balance of payments is still in deficit. Every year so far this decade, we have been in deficit. This year we have done it again, despite the fact that at this stage of the economic cycle—after five years of recession—we should have been able to clock up at least one surplus.

The trouble is that we have still not taken seriously investment in manufacturing.

Mr. Nigel Forman (Carshalton and Wallington)

Does the right hon. Gentleman not believe that he is—perhaps uncharacteristically—being too gloomy? If he looks at the simple position of this country relative to the global economy, he will discover, in simple figures, that we represent about 1 per cent. of the world's population, about 3 per cent, of world gross domestic product and a little under 5 per cent, of world trade. Does that not show that this country is doing rather well?

Mr. Sheldon

We must remember that our balance of payments is the indicator that we have to deal with, and it shows that we have not been paying our way. In comparison with the rest of the European Community, our manufacturing has suffered: it has declined.

My constituency—I repeat this regularly—used to be an important manufacturing constituency. We had high levels of skill, pay was above the national—let alone the regional—average, unemployment was low, and we were highly skilled in engineering. The years 1979 to 1981 dealt a deathly blow to our prospects. I lost one-third of the companies in my constituency, many of which were highly skilled, and I shall never forgive the Government for that. We lost one third of our companies because of the $2.40 pound and the DM5 pound, which did so much damage to us.

That there should be a relationship between the investment and the life of the asset is true, but it should be a skewed relationship based on the fact that there should be some incentive to investment, and that particularly applies to manufacturing. One or two hon. Members, the Confederation of British Industry and I have long argued for a real investment incentive for manufacturing. The CBI called for 100 per cent, depreciation with a ceiling of £200,000. That is a sensible proposal. The present capital allowances are not an incentive. As I have regularly argued, 25 per cent, is a disincentive. It is less—not more—than the true depreciation of the asset in its first year. Such an incentive should be the major goal of our industrial expansion.

One forecast that I find doubtful is that there is an output gap, which the Chancellor considered was about 3 per cent. That is the basis for his expectation of a 3.5 per cent, rate of growth. The Chancellor relies on this to bring down the public sector borrowing requirement to £19 billion. If capital allowances of the kind that I have mentioned had been given, there would have been greater investment, greater capacity and a greater opportunity to increase output beyond the expected 3 per cent. We could have had a much better chance of achieving the growth that the Chancellor predicted.

The Chancellor rightly draws the connection between the output gap and the prospects for growth. It is a pity that he does not go further and continue the connection to investment and investment incentives. It is indeed a thousand pities that, within the Treasury, the understanding of manufacturing industry is nowhere near as good as it is of the needs of the City of London, which lies just down the road. My right hon. Friend the Member for Dunfermline, East shows a much greater appreciation of that connection, which forms much of the basis for the respect in which he is held by many industrialists.

One further problem for manufacturing industry is the strength of the pound. The trade-weighted index is now 14 per cent. higher than it was a year ago. That means that our exporters find it increasingly hard to sell abroad and imports compete more effectively with our producers here at home. There are two main consequences of that, the first being that our balance of payment equilibrium will be much harder to achieve, and the second follows from cheaper imports. Cheaper imports do, however, have one big advantage for the Chancellor, because there is a relationship between the value of the pound and the level of inflation. Making imports cheaper will effectively reduce the retail prices index.

Some have been puzzled by the Chancellor's optimistic view of the prospects for inflation next year, but the trade-off between an over-valued pound and the level of inflation is one that a Chancellor should manipulate with care. That relationship is well put in Goldman Sachs's UK weekly analysis of 8 November, which says: the rise in sterling, if sustained in the next few months, (as we expect), will have a pronounced effect on inflation next year. On our estimates the rise in the exchange rate during 1996 will knock about 1% off the underlying rate of inflation between mid-1996 and mid-1997. It goes on to say: the loss of competitiveness will hit exports, helping to slow economic activity during the course of next year. Slower growth from this source will also help to curb inflationary pressure in 1998. To a Chancellor who has difficulty in meeting the inflation forecast, the prospect of an over-valued pound—despite its problems for industry—coming to the rescue is appealing. This has been done before and the great sufferer has been our manufacturing industry. An over-valued pound acts as an inducement to importers, some of whom remain players in the field long after the cheap imports have been ended by more sensible policies.

That was the lesson of the 1960s, the 1970s and the 1980s, when an over-valued pound brought imports into Britain that were able to entrench themselves at the expense of our own manufacturers. That, after all, is what happened in 1979–81, to the damage of our industry. Such action makes attainable the same action that destroyed so much industry. Such action—nothing like as much as 1979 to 1981, of course—makes attainable the Chancellor's target of 2.5 per cent. next year.

Mr. John Townend

Does the right hon. Gentleman agree that one reason why the pound has risen in recent months is the growing scepticism in the markets about whether—because of the difficulty and the fudging of the convergence criteria—the euro, when it comes into being, will be weaker than the deutschmark? As a result, because we are seen as a currency that will not join the euro, the pound has risen.

Mr. Sheldon

Interest rates have risen, and they have had the greatest effect on the pound. Because they may rise still further—particularly following the meeting between the Governor of the Bank of England and the Chancellor of the Exchequer—that expectation will push the pound up further.

I must mention an innovation in the Red Book. As my right hon. Friend the Member for Kingston upon Hull, East said, it gives the forecast for unemployment right up to 2000. I recall many years of Treasury excuses that I and others gave for not providing forecasts of the number of people out of work. We do not need to look very far for the reason for changing such a long-standing custom. This exercise is not an excursion into open government. The Chancellor hopes to produce acceptable figures for the public sector borrowing requirement that either are based on optimism or presuppose that the next few Budgets will be introduced by my right hon. Friend the Member for Dunfermline, East.

It may be acceptable to provide forecasts of unemployment for a year ahead, but to presume a knowledge of the labour market, the competitiveness of our industry and the impact of international financial changes suggests not a forecast, but a piece of opportunism so as to produce the required Budget figures.

Much of the Red Book is used for such justification. Its key passages seem designed to meet the objective of a favourable economic assessment. Steps are taken to quantify the different elements to fit that assessment. At the end of it all, we see the doubtful optimism of the PSBR forecast, the future inflation rate, the private finance initiative successes, the levels of unemployment, the level of growth and the large revenues from the "spend to save" policy. So many of those figures are derived from the hopes of a Chancellor facing an early election.

The "spend to save" policy for the revenue departments belatedly echoes the strictures of the Select Committee on Public Accounts over the years. Frequent cuts in staffing are the reverse of that policy, because we have lost the people who could have produced such savings. It is a pity that we have had to wait so long for the Committee's suggestions to be implemented. I look forward to savings being made, but I believe that the assessment has been too generous, and the optimism has been too great.

The Government, like all Governments, must ultimately be judged on how they have dealt with the four central economic policy objectives. Have they succeeded on the balance of payments, prices, growth and unemployment since 1979? They have been unsuccessful, so it is now time to pass the responsibility to my right hon. Friend the Member for Dunfermline, East.

6.41 pm

Mr. Matthew Carrington (Fulham)

It is always a great pleasure to follow the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). His contributions to debates on the economy are always thoughtful, if somewhat gloomy. He manages to paint a picture that is at variance with some of the facts by concentrating on the figures that he decides are capable of a sad interpretation.

I agree with the right hon. Gentleman on the private finance initiative. It is a technical matter, but as he raised it, I shall deal with it in my opening remarks. I am not concerned that the PFI will fail to be a success—I am convinced that, in time, it will be attractive to many private sector investors. My hon. Friend the Financial Secretary is hard at work trying to remove the barriers that prevent the private sector from quoting for PFI projects at a reasonable cost.

I am, however, slightly concerned about the way in which the PFI is reported in the public accounts. The Government are committing themselves to a long stream of payments. It is not traditional for tables in the Red Book to take account of commitments that extend for many years. As the PFI grows, it will be necessary to find a mechanism to reflect the Government's contingent liabilities—the guarantees of future payments—in the borrowing figures. Resource accounting—when it is introduced—may deal with that problem, but the figures will be distorted unless a way is found to reflect PFI commitments in the borrowing figures.

I am grateful to have the opportunity to welcome the Budget and the Chancellor's announcements. As my right hon. Friend the Member for South Norfolk (Mr. MacGregor) said, this is not a spectacular Budget. Indeed, it is better for not being spectacular. It was not intended to be a Budget that would set the world on fire. The tax cuts are welcome, even if all they do is to ensure that the fiscal drag on the economy—the natural growth of the economy, and therefore the natural growth of tax revenues—is returned to taxpayers in some form.

My right hon. and learned Friend's proposal to increase the threshold for paying tax by more than the rate of inflation is particularly welcome. That removes 410,000 more people from tax paying than would have been removed if the threshold had merely been indexed. That will help many people on lower incomes.

This is not a tax-cutting Budget, and it was not designed to be. For some people, it may be a tax-raising Budget, especially if Labour and Liberal Democrat councils irresponsibly raise the council tax. It is clear from the rhetoric that we have heard during these debates that that is the likely plan. It is a vain attempt to blame the Government for the huge rise in council tax. Even before this year's settlement, my council managed to raise the council tax by 40 per cent. in two years, which is well above any figure that could conceivably be necessary, given the sums provided by central Government.

The Budget is finely judged, because, by doing little, it is designed to encourage the economy at a critical moment. The challenge that we face is to prevent inflation from rising, and to ensure that the public sector borrowing requirement decreases, both of which are vital objectives. There are already signs that inflation is on the increase, and that consumer spending is rising. Hon. Members have only to see the volume of sales that are being transacted in the great department stores in London to realise that consumer spending, although not booming, has strongly recovered.

House prices are rising sharply. As in most parts of central London, house prices in Fulham are rising unsustainably fast. It is estimated that they rose by 20 per cent. this year and last year. Anecdotal evidence suggests that, in reality, house prices in central London are rising faster than that. We are seeing the return of gazumping and sealed bids for properties that are then sold for a sum well above the asking price. That may be an inner-London problem, but I suspect that it will filter through to the rest of the economy fairly soon.

M4 is growing at 10 per cent., which is alarmingly fast. There are technical reasons for some of that growth, such as changes in M4 itself, and in the speed of circulation of various elements in M4. Nevertheless, 10 per cent. is well above a sustainable level, and suggests the existence of inflationary pressures. It certainly confirms the anecdotal evidence that there is much more money around. So my right hon. and learned Friend the Chancellor was absolutely correct in not further stimulating the economy now, because that is the last thing that it needs.

It would also not have been right to raise taxes sharply, because that would not have had the possibly necessary damping down effect on the economy. Raising taxes is not a good way in which to control inflation; that is much better done through monetary policy, by raising interest rates.

My right hon. and learned Friend recently made an obvious move towards increasing interest rates when he raised the rate from 5.75 to 6 per cent. That rise is very small, and it is certainly not large enough to take out from the system a large amount of excess money. Such a rise is a good thing, because one of the characteristics of a strong economy, which is noticeable in Germany, is that a very small rise in interest rates sends an—often psychological—signal that has a damping down effect on the economy that goes well beyond the purely monetary effect of an interest rate rise alone.

In Germany, the Bundesbank can produce, by a very small movement in interest rates, a very large change in spending patterns and the way in which the economy moves. Our economy would greatly benefit if we could adopt an arrangement in which a small interest rate change produces a big change in how money is spent and circulates in the economy. Nevertheless, a small rise in interest rates now is vastly better than a large rise later, after we have won the next general election.

The key problem that we face is the public sector borrowing requirement. The PSBR is sharply falling, and I very much welcome the fact that, next year, it will be below the level set by the Maastricht criteria. However, a problem remains from the estimates in last year's Red Book and in the summer economic forecast, deriving from the mysteriously missing value added tax receipts. We are missing perhaps some £6 billion in VAT receipts, although an attempt was made, in the table on page 69 of the Red Book, to account for them. The account is far from convincing. I suspect that the Treasury and, particularly, Customs and Excise do not yet truly know what is happening with VAT, and I strongly recommend that greater efforts be made to produce a more convincing explanation for the gap.

Let me give an example of the size of the gap. This morning, the Treasury Select Committee took evidence from Treasury officials, who could account for missing VAT receipts, as defined in that table, up to a figure of about £2.5 billion, out of the missing £6 billion. That leaves a large shortfall to be explained by other means. However, with the economy, and particularly consumer spending, growing fast, VAT receipts are showing signs of recovering.

There is considerable anecdotal evidence that the gap in VAT receipts is not due to tax avoidance or evasion, and that it is probably not due to companies discovering ways in which to remove themselves from the VAT net. It is much more likely that the gap is a cyclical drop in VAT payment, and that the cycle is out of kilter with Treasury expectations, although it is now starting to recover. Various economic analysts have produced evidence that suggests that explanation.

Mr. Salmond

The hon. Gentleman is saying that the problem with VAT is not structural but cyclical. Therefore, is he not saying that the problem is merely one of bad Treasury forecasting? The missing £6 billion does not inspire confidence about the other forecasts in the Red Book.

Mr. Carrington

Obviously the hon. Gentleman has not read the previous Red Books, or he would know the answer to his question. The forecasts in last year's Red Book and in the summer economic statement were somewhat more optimistic than the eventual outcome. Forecasting is an art and not a science, and there are as many forecasts in the market as there are economists, all of which are different. Any economy that is run on the basis that a forecast is accurate is heading towards disappointment, if not disaster.

Although the chart undoubtedly is partly accurate, I think that some of the missing VAT receipts suggest cyclical change rather than a need for the Government to take urgent measures to remedy the situation.

Mr. Forman

Might it not be the case that a standard rate of VAT, which must now be set at 17.5 per cent., and the relatively narrow VAT base, in which only two thirds of consumer expenditure is covered by VAT, provide considerable incentives for people to take lawful action to avoid it?

Mr. Carrington

There are incentives to take lawful action to avoid the tax. However, I would be much more convinced by that argument were it not for the fact that it is a recent phenomenon. The incentive to avoid VAT was as great when it was 15 per cent. as it is now that the tax is 17.5 per cent. Nothing has changed in people's desire not to pay VAT. That may be part of the explanation, but it is unconvincing as a full explanation.

My right hon. Friend the Member for South Norfolk mentioned the problem of taxes on cigarettes. I raise the issue for a parochial reason, as there is a considerable amount of cigarette smuggling in constituencies that are close to channel ports or to the channel tunnel. Such smuggling is bad in itself, because it denies revenue to the Customs and Excise and to the Exchequer, and I very much welcome the efforts that will be made to try to stamp it out. However, the incentive to smuggle is great because the price differential between cigarettes in France, in Belgium and in this country is so massive.

I would be less worried about the problem of smuggling were it not having such a bad—potentially disastrous—effect on small shopkeepers and newsagents in my constituency. The great problem that they face is that selling cigarettes is the way in which they attract customers into their shops who then buy other goods. If customers find that they can purchase cigarettes elsewhere, they will not come in and make those other small purchases that keep shops profitable and allow them to provide a service to the community.

I am not advocating a reduction in cigarette tax, because of the overwhelming health arguments for keeping cigarettes expensive. I have a daughter who is aged 15, and I think that anything that stops her generation from starting to smoke—price is a big factor—should be done by any responsible Government. I am strongly in favour of a very high tax regime on tobacco products. However, the size of the tax regime is not the problem. The problem is the price differential between the United Kingdom and the rest of Europe. I echo the proposal of my right hon. Friend the Member for South Norfolk that tax on cigarettes should be increased in the rest of Europe.

Many of us find the interfering aspects of the European Union very distasteful, such as when Brussels tries to tell us in detail how to run our affairs. Cigarette taxation, however, may provide an opportunity in which we can use that same mechanism, which we find so distasteful in other areas, to have Brussels force the French—on health grounds, if on no other—to raise the tax on cigarettes. It seems to me that what is sauce for the goose ought to be sauce for the French gander. While we are about it, we could do the same to the Belgians.

The Budget is a sound Budget. It is not a traditional electioneering Budget, because it attempts—successfully—to build on the great strengths of the economy. I do not believe that it will be a popular Budget in the short term, but in the long term, over the next three or four months, it will be seen to be the right measure, a popular measure and a strongly vote-winning measure.

7 pm

Mr. Malcolm Bruce (Gordon)

The hon. Member for Fulham (Mr. Carrington) puts a credible case for a cautious Budget. I am not sure that Conservative voters are quite so enthusiastic. I am sure that there are other Conservative Members who, at least a few weeks ago, were hoping for something less cautious than they got.

In a way, the Budget was a testimony to the failure of the Conservative economic strategy over 17 years. The Government came in committed to cutting taxes, but they have increased taxes and the Budget has added further to the tax increases. The Government used to talk about sound money and prudent financial management, but they have created a mountain of debts and have failed to control public borrowing.

The twin pillars of the Conservatives' economic objectives have been undermined by their performance: we have a mountain of debts, not prudent money; and we have tax increases, not tax cuts. Perhaps it is not surprising, therefore, that the Budget, presented bullishly by the Chancellor last Tuesday, has already unravelled as the commentators have got stuck into it.

Some of the City commentators' challenges summarise how the Budget looks a week on. The Economist wrote on Friday of the virtuous unreality of the Chancellor's Budget. Goldman Sachs wrote of the Clarke conjuring trick and a Budget in which all is not quite as it seems. The Institute for Fiscal Studies pointed out how back-door tax rises wiped out any tax reductions from lower income tax. Schroder probably summarised the Budget best, characterising it as a Budget of smokes and—daily—mirrors.

I criticise the Budget for the extent to which the Government have failed in what they set out to do and in what the Liberal Democrats believe to be the priorities of the moment. It does not have many redeeming features, apart from the reduction in the duty on spirits, which was in accordance with my request to the Chancellor. The hon. Member for Fulham was right, although he would not put it in these terms, to suggest that the Budget was less irresponsible than was expected even a few short months ago. We can consider the Budget arithmetic later and the fiscal tightening included in the Chancellor's claims, but he has avoided the temptation to go for an election giveaway, which would have been an economic and financial disaster.

I was intrigued as to why the Government took until Sunday to admit that fiscal tightening meant that net taxes had gone up. If fiscal tightening does not mean that, I am not sure what it means. It was extraordinary to see the Prime Minister trying to wriggle out of saying it. The Chief Secretary to the Treasury has put the Government out of their misery on that point.

It was not a giveaway Budget: it was a takeaway Budget. We welcome the fact that it was not fiscally imprudent, but it was supposed to contain a triple whammy of lower taxes, lower borrowing and increased spending on key public services. That is not quite how it turned out in reality—it is a confidence trick. The borrowing forecasts are still substantially higher than those in last year's Budget. I cannot agree with the hon. Member for Fulham that they are coming down sharply. They are not coming down in accordance with the Treasury forecast.

If we divide the difference between the total increase in taxation and the decrease in taxation by the number of taxpayers, we find that the average rise per taxpayer from the Budget and the indexation coming through from previous financial measures is £41 for the next full year. The forecasts are dependent on a bizarre decision to boost next year's growth forecast to 3.5 per cent. while cutting the inflation forecast to a mere 2 per cent. from 2.5 per cent. The trouble is that, if that is not achieved—very few people believe that the inflation target will be achieved—much else is in danger. The real spending rises will be slashed and the earnings growth will not come out as forecast.

Outside the Treasury, there seems to be a consensus that the inflation forecast is not likely to be achieved. Of course, I agree that forecasting is an art, not a science, but I question the wisdom of the Chancellor choosing the most optimistic assumption rather than something in the middle of the range.

The boasts on inflation are also not quite as good as they look. We are 12th out of 15 on inflation in the European Union. It is by no means clear that inflation is, to quote the Prime Minister, "in the box". There are signs that it could easily climb out, particularly if the Chancellor's forecasts are wrong. It is a depressing comment on the performance of the British economy, which the Chancellor likes to describe as a miracle, that, of all the countries in the European Union, the only one with higher long-term interest rates than those of the United Kingdom is Greece. That is a fair indication of how the international markets judge the relative credibility of the British economy.

Mr. Forman

May I take the hon. Gentleman back to his remarks about the fiscal stance, so that we can be dear for the record what the Liberal Democrats are saying? He seemed to criticise the Chancellor for tightening the fiscal stance, or for admitting to a tightening some days after the Budget. Does that imply that the Liberal Democrats advocate a loosening of the fiscal stance?

Mr. Bruce

I was not criticising the Chancellor—his position was clear. I was criticising the Prime Minister and other members of the Government for trying to avoid admitting that the fiscal stance had been tightened and what that meant. The Chancellor was quite clear about it. My speech will make it clear that I am not in favour of relaxing the fiscal stance.

The Liberal Democrats have, as every year, produced an alternative Budget. I shall not detain the House with the details—[HON. MEMBERS: "Go on."] Well, I could detain the House with the details. It has been extremely well received in the country. [Laughter.] Oh yes, it has. I am assured that the small print of the latest poll shows that the public's confidence in the Conservatives' management of the economy has gone sharply down since the Budget and their confidence in the Liberal Democrats' economic policies has gone up.

Mr. Salmond

Sharply?

Mr. Bruce

Sharply, but, I admit, from a small base.

We have clear priorities that we believe are right for the country. We hoped that the Government would address them. They pretended to address some of them, but, as I shall point out, did not really do so.

Contrary to Government claims, the Budget does not invest in education and training, bring down long-term interest rates or make a significant contribution to the reduction of the deficit, as we would have liked. I know that the hon. Member for Carshalton and Wallington (Mr. Forman) is fond of asking for the explanation, so I should tell him that it continues to be our contention that the complete independence of the United Kingdom reserve bank, as we would like to call it—the Bank of England as it is now called—would contribute towards bringing down interest rates and consequently reducing the cost of borrowing by a worthwhile amount. We pay a premium for the privilege of allowing politicians to interfere with interest rates on a day-to-day basis.

The Budget does not make any particular contribution to assisting people to get back to work, by reforming the benefit system in such a way that people are not actively encouraged to get back to work, and by not making a serious cut in the tax on jobs, which we would have liked to do as part of our environmental tax switch. Incidentally, the Government claim to have introduced some green taxes, which, in principle, we might support, but we object to their just using those taxes as another form of raising revenue without any corresponding offset to ensure that people's habits are changed. The environment is being used as an excuse for taking more money out of people's pockets.

The Financial Secretary to the Treasury (Mr. Michael Jack)

Does the hon. Gentleman not agree that raising the starting point of tax and, indeed, expanding the range of the 20p band, which, as my hon. Friend the Member for Fulham (Mr. Carrington) adverted to, effectively precluded a further 400,000 people from paying tax, was a contribution to the work incentive?

Mr. Bruce

I am in favour of such a principle. Indeed, the Liberal Democrats' Budget would have taken 750,000 people out of paying tax and financed it entirely by a 50 per cent. tax band on earnings over £100,000. Although, of course, I cannot deny that I regard such an effect as a boost to living standards and assisting people back into work, the Financial Secretary is missing my point.

There is a built-in disincentive for people to move from benefit into work because of the risk, especially if jobs are short-term, of losing benefit while they have to reapply for it. The Government must recognise that that is a real factor for people on low incomes, which makes them very unwilling to take jobs that do not have a real prospect of either substantially better earnings than the benefits that they receive or substantially greater security of earnings capacity. As we proposed in our policy documents, that issue could and should have been addressed.

We are recovering from a deep recession, which is, of course, welcome. There cannot be anybody who does not want recovery and want it to continue. I dispute, however, the Government's claim that the recovery has been an economic miracle. What has happened has been a welcome recovery from a recession. The recovery is not a miracle because of the circumstances that surround it—the biggest and most important being the growth of the national debt. The fact remains that, since the Prime Minister took office, the national debt has increased from £160 billion to £340 billion; it has more than doubled in six years.

Mr. Jack

As a proportion of gross domestic product?

Mr. Bruce

It is all very well for the Minister to say that, but the national debt remains a substantial burden that we have to service; it costs all of us. The public sector debt per taxpayer has risen from less than £5,900 to £13,000 since the Prime Minister took office.

Mr. Carrington

I recognise that the debt has gone up, but the hon. Gentleman must recognise that we are one of the few countries in the European Union that will have a sufficiently low debt:GDP ratio to meet the Maastricht criteria. We shall be one of the few countries, on the Maastricht criteria, which could—if we choose to—join the single currency.

Mr. Bruce

I agree with regard to debt, although we have some difficulty with inflation, interest rates and one or two other aspects of the criteria, including—potentially—current borrowing. The hon. Gentleman's intervention is very complacent, given that his party prides itself on sound money and accuses Opposition parties of irresponsibility if they suggest that there is some room for relaxation. The increase in debt since the Prime Minister has been in office has been exceeded only in Germany, which has had to cope with the consequences of reunification. In such circumstances, our relative performance is not good. The fact that others start from a higher base does not justify our not addressing our own problems.

The Chancellor of the Exchequer himself has described borrowing and debt as deferred taxation. Ultimately, such borrowing has to be repaid. In that sense, there ought to be consensus across the Floor. The shadow Chancellor acknowledges that there is no room for any relaxation of the basic approach to public expenditure, although we may have differences of view about priorities and the ability to deliver public spending cuts. There is a tendency, even for Conservative Chancellors, to put the deeper cuts further into the future and somewhat to massage the figures in the short term to try to reduce the pain, especially when an election is coming down the track.

As I have said on numerous occasions—the Financial Secretary will have been present on several of them in the past week—there is a tendency for both the major parties to try to defy gravity and suggest that it is possible to get borrowing, inflation and taxes down, while increasing public expenditure, especially in the areas that, apparently, people want. That does not ultimately add up. It certainly cannot be achieved unless we sustain growth for a significant number of years, at a level that no Government—Labour or Conservative—have delivered. That is where I take issue with the Chancellor. He has been rather over-optimistic in his forecast, to try to justify his position, to which the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) drew attention.

The Red Book forecasts that the public sector borrowing requirement will be £26.5 billion, compared with last year's forecast of £22.5 billion. It may be down from last year's outturn, but it is up significantly from last year's forecast. For the following year, the forecast is £19 billion, whereas last year that forecast was £15 billion. For the year after that, the forecast is now £12 billion, compared with the previous forecast of £5 billion. That is a significant alteration, to our disadvantage. The Chancellor's wise men and women, the independent forecasters, are slightly less optimistic. [Interruption.] I am talking only about the average. Such forecasts suggest that the Government are still failing to bring public sector borrowing under control.

I particularly want to draw attention to the scale of the failure in tax cuts. The net tax cuts in 1997–98 will be £735 million, but the tax rises will be £1,085 million for tobacco and petrol, and higher council taxes amounting to between £700 million and £900 million a year. It is no good the hon. Member for Fulham and others saying that that is all to do with irresponsible Labour and Liberal Democrat councils—which the public elected because they were so dissatisfied with the Tories—because that is what the Red Book expects the council tax effect to be; it is what the Government have allowed for and what they are acknowledging will pass through the system. They are therefore recognising, presumably, that, without such latitude, local councils would effectively—probably—go bankrupt.

When one takes the package together, the net tax change is a tax rise of £1,050 million on this year's calculation. That is £41 per annum per income tax payer. The Budget is therefore not a tax-cutting Budget, and the Government are not a tax-cutting Government. I am criticising the Government only on the claims that they have made about themselves. Although the Conservative party claims to be cutting taxes, it has increased taxes and, indeed, is forecasting further increases in the Red Book year on year for the next two to three years. That is not very impressive. The Government have not delivered what they set out to deliver or have claimed to deliver.

A headline cut in the standard rate of income tax impresses nobody when people realise that more is being taken back through indirect taxes. My contention is that, whatever the justification for the switch from direct to indirect taxes may have been, it has lost its appeal among the electorate, who have begun to see through it at current levels. Cuts in income tax, paid for by rises in indirect tax, hit people on lower incomes harder than they hit people on middle and upper incomes. That is unfair. The Chancellor has also found that indirect taxes are more avoidable than he thought they would be, and that suggests that income tax is still a useful means of raising money. Income tax is, in fact, still the single biggest contributor to the Exchequer.

The Government are now suggesting that tax and social security contributions, as a percentage of gross domestic product, will rise from 35.8 per cent. of GDP in 1996–97 to almost 38 per cent. in 2001–02. That is an extraordinary proposition for a Government who said that they would bring it down. I do not suggest that that rise is wrong, but it is dishonest and disreputable to suggest that the Government were going to do something different. They have not succeeded in bringing taxes down, and there is no sign that they even know how to do so. That is why they have run out of credibility with the electorate.

Government spending also lacks credibility because it is based on unrealistic inflation forecasts. In those circumstances, we could quickly reach a situation in which spending cuts would have to be much deeper and more real if the Government were to stay within their targets. For the Government simply to say that they hope that the revenues will compensate does not bear out the experience of the past two or three years.

I agree with the deputy leader of the Labour party that the initiative of the Deputy Prime Minister—his "spend to save" wheeze—is exactly the sort of approach for which the Government criticise the shadow Chancellor, but they have now decided to adopt it as a policy in their dying months in office.

Nobody denies that improving tax collection and eliminating fraud is worth doing. It is worth spending some money on that and, indeed, it makes me wonder why so many people have been made redundant in Customs and Excise over the past two years. It: is, however, questionable whether one can justify a projection of £6 billion of revenue from clearing up a fraud that has not yet been identified.

I wish to conclude my remarks on the particular dishonesty of the Government's claims on education. The Government have claimed that there is a notional increase of £875 million in funding for education, including £830 million extra for schools. The increase, of course, is only in the context of the total standard spending for local authorities going up by 2.5 per cent. The Government, by definition, are saying that local authorities must make drastic cuts elsewhere to fund education. But the Government also want local authorities to increase funding for the police, the fire services and care in the community, and the public expect local authorities to maintain basic services such as planning, economic development, leisure, recreation, social services and home helps. It is dishonest to suggest that that can achieved without serious pain or that the increase in council tax is anything other than a small contribution. Local authorities will have to cut essential services and raise council tax to get anywhere near delivering that figure.

It is easy for the Chancellor of the Exchequer to say that he will allow local authorities to spend more—even though it is less than they are already spending—but he will not provide any contribution. In fact, he will give the local authorities less and he will put a cap on what they can tax. He will then claim that he is not responsible for the consequent cuts in services, but the public no longer accept that that is true.

Central Government have a stranglehold on local authorities. The overwhelming majority of local government expenditure comes from Government grants, from taxes paid by the citizenry of this country to the Exchequer. The Government have refused to allow local authorities access to their own revenue and funding, and the consequence is that the Government cannot be held blameless for the effect. The Government wanted tight control over local authorities, and they cannot have it both ways.

As a party, we believe that education is so important that it requires additional investment. In my constituency, in the local authority area of Aberdeenshire, we have rising school rolls and an expanding population. I do not know how we can possibly meet current needs—to build a new academy and expand existing schools—with falling resources. It will not be possible, and the Government fail to take account of the reality in their calculations.

That is why my party opposes putting money into tax cuts. We suggest that the priority is education, and that is why we shall vote against the income tax cuts that are proposed by the Government. We shall divide the House and invite the Opposition to join us, to demonstrate that a credible education policy cannot be funded unless we know where the money will come from.

The proposal to reduce VAT from 8 per cent. to 5 per cent. is not our preferred way to help people with fuel poverty. We believe that the utilities have the resources to do much more than that themselves. Indeed, our calculations suggest that the utilities could reduce the average bill by around £85 a year, whereas the benefit of the VAT reduction would be only about £15 a year. Although the VAT cut is not our policy, we recognise the strong feeling across the House that it would help people on low incomes, and we are prepared to support it for that reason.

This is not the Budget of a successful Government who have delivered on their promises. It is an admission of failure from a Government who, after 17 years, have not been able to cut taxes but have increased them, and have not been able to control borrowing but have given us a mountain of debt. They are a Government of failure and it is time that they went and gave way to a Government who can set the right priorities and explain to people how investment in education will be funded honestly, and not by deceit, smoke and mirrors.

7.26 pm

Mr. John Townend (Bridlington)

The tendency of people in this country to sell ourselves short still surprises me. I am not known as a Member who never criticises the Government, but someone listening to the debate today would think that our economy was in a bad state.

I am a member of the Council of Europe, and I visit Europe a lot on business, and I can tell other hon. Members that many Europeans are jealous of our economic situation. Anybody who has been to France—not only in the past two months but in the past year—or Italy or many other countries will know that they are jealous. They feel that we get the lion's share of overseas investment. They are jealous that we have the most flexible labour market in Europe. They are jealous because we put fewer social costs on our industrialists than anybody else in Europe.

They see us taking their markets, and they are jealous of our level of unemployment, which is lower than Germany's, 50 per cent. lower than in France and half of Spain's. They are jealous of our floating currency, which has restored our economy, and they are jealous of the overwhelming dominance of the City of London. We are a success story, and we must congratulate my right hon. and learned Friend the Chancellor on the part he has played in getting our economy into such good shape.

Like my hon. Friend the Member for Fulham (Mr. Carrington), I think the fiscal balance is about right. The Chancellor must watch the money supply carefully, because it is getting a little high, although we have seen in the past that the Chancellor is prepared to put up interest rates. In judging the Budget, I start from the premise that, first, the Government are borrowing too much—on that point I agree with the hon. Member for Gordon (Mr. Bruce). Secondly, the Government are spending too much, and thirdly, the Government are taxing too much.

The Budget, like the curate's egg, is good in parts. Not surprisingly, the Chancellor has made significant progress in dealing with borrowing. He plans to eliminate the budget deficit by the turn of the century, which is a very good effort, on which he should be congratulated. Like the hon. Member for Gordon, I passionately believe in the benefit of the balanced budget.

I used the phrase "not surprisingly", because the Chancellor has set about the problem of getting rid of excessive borrowing with much more enthusiasm than he has shown on excessive spending or taxation. Could that enthusiasm be connected in any way with the Chancellor's desire to see Britain meet the Maastricht guidelines and enter a single currency?

Hon. Members will not be surprised that I now turn to the subject of public spending. I was disappointed by the Budget statement in this respect. I would have liked spending to be cut by between £5 billion and £7 billion, but the stark fact is that, despite the control total in the Red Book being reduced by £1.7 billion, there has been no real cut in public spending.

That £1.7 billion has been arrived at by the use of mirrors, and is covered by £700 million from the sale of the armed forces married quarters and over £1 billion from the sale of the Student Loans Company. I have estimated that at £1 billion because, interestingly, the Government have not published the figures. Such creative accountancy is no different from France cutting its deficit to fudge entry into the euro by transferring pension funds from France Telecom.

With the Government being so successful in reducing unemployment and in making the economy grow, I would have expected total public expenditure to drop. Frankly, it seems to me that the Government have lost their appetite for reducing public spending. I know that we have a much lower level of public spending than Germany and France, but those countries are making a real effort to cut public expenditure in real terms.

This year, we must admit that the feudal barons from the big-spending Ministries have succeeded in fighting off Treasury attempts to reduce their Budget. [HON. MEMBERS: "What about Portillo and Lilley?"] Actually, the Ministry of Defence reduced spending by a little last year—although the figure will be increased in the current year.

Like Oliver, many of the Departments have asked for more. But unlike Oliver, many have received more. We are spending another £830 million on schools, but I hope that nobody thinks that that will solve our educational problems. Nobody can really believe that our poor educational performance is due to a lack of funds. It is due to the wrong policies in teacher training colleges, the insistence on dropping traditional teaching methods, and a lack of discipline.

I am sure that the hon. Member for Gordon (Mr. Bruce) will not mind if I remind him that, although we spend considerably more on education per head of population in Scotland than in England, a recent survey of the performance of Scottish children in science and mathematics exams found that—despite that extra expenditure—Scottish children came out much lower than English children.

We are spending another £1.6 billion a year on health. I attended yesterday's debate, and I was amused that my right hon. Friend the Secretary of State for Health—the last of the big spenders—was boasting of the extra £1.6 billion for the health service. He chided the Opposition, and asked whether they would match or increase that figure. I could not believe it, as the fiscal prudence of Labour Front-Bench Members was supreme. They said that they would not increase it, and would not even undertake to match it.

Transport has received another £420 million.

Mr. Sheerman

Did the hon. Gentleman find it ironic that we listened yesterday to the Secretary of State for Health—the man whose inept performance in March caused some £1.3 billion to be spent on BSE—talking about the need for more money for health?

Mr. Townend

That is the most fatuous intervention I have ever heard. Is the hon. Gentleman accusing the Secretary of State for Health of going round with a hypodermic, injecting animals with BSE? It is absolute nonsense. We are spending £600 million on social security and £730 million this year on BSE, and, in total, BSE will cost the taxpayer £3.3 billion. One cannot help but sympathise with the Chancellor, who has to meet expenditure that has nothing to do with him. One must ask whether, in 20 or 30 years' time, people will feel that the money spent on BSE was necessary.

In looking at spending this year, my mind goes back to the Budget before the last general election. At that time, we could have been accused not of trying to get back into power by promising tax cuts but of spending our way back to power. We heard no criticism from the Opposition at the time, although they used to accuse us of starving the NHS of money. Within two years, we increased public spending to 4.5 per cent. of GDP. I do not think that we won the last election because we spent more, but because of the shadow Budget produced by the late John Smith, the then shadow Chancellor, who undertook to increase taxes on the middle classes.

I have the disadvantage as a politician of finding it difficult not to tell the truth. The Government cannot be proud that, as a result of that increased spending, they created an unsustainable deficit. More than any other factor, that deficit has undermined the Government's reputation for sound management.

I must be fair—not all the problems were caused by spending, as revenues dropped significantly because of the recession, and because of our membership of the exchange rate mechanism, which drove us into a far longer and deeper recession than was necessary. The reason that we have not been able to reduce spending this year is that every Department seems more or less to have got away without paying back the full amount saved as a result of inflation being lower last year than was budgeted for. They have not paid back the savings made on administration and better working methods.

If we were really serious about cutting expenditure, we would have wielded the axe in certain areas. For example, there was no reduction in bilateral overseas aid. We have seen how much aid is wasted and how much has been used to feed the people who are committing genocide in Rwanda. Clearly, a lot of money is wasted in that area.

There has been only a nominal reduction in national heritage spending, despite the fact that enormous amounts of money have gone from the lottery into sports and the arts. We have not yet taken the axe to legal aid, which is turning this country into a suing society like America, at an enormous cost to the taxpayer, the Government and industry. The recent reports that schoolchildren will be given legal aid to take out cases against their schools because they failed their examinations are sheer nonsense. All that will do is to reduce education resources.

We have not made any significant attempt to bring expenditure per head of population in Northern Ireland, Wales and Scotland down to the level spent in England. Because we failed to cut spending, the Chancellor had room for only a minimum reduction in the overall tax burden of £700 million. He was absolutely correct to do that, as it would have been wrong to cut taxes if we did not cut spending. Most of the tax cuts that have been made will have to be paid for by compensating tax increases.

There are a number of measures in the Budget that I welcome, including the anti-avoidance measures with which we hope to reduce the amount of tax avoided by multinational companies and others who use sophisticated means. I welcome also the action taken on social security fraud, and the restrictions on profit-related pay.

Those measures have paid for the reductions in the standard rate, the important widening of the 20p rate, and the lifting of personal allowances. They will help the low-paid, will help people back into work and will create incentives to work. I very much welcome the reduction that small businesses will receive from changes to business rates. I believe that, if Labour were to put its policies into operation, business rates would go up.

As one of only two wine merchants in the House, I am aware of the problems facing the alcohol industries from cross-border shopping and smuggling. It is particularly worrying—I can tell the House this from my own experience—that smuggling is growing, and has increasingly been infiltrated by organised crime. While the reduction in duty on Scotch whisky was welcome, I find it strange and disappointing that the Chancellor did not also reduce the duty on beer and wine.

The distillers are not much harmed by the illegal trade, because they distil and bottle their product in Scotland and export it to Calais, from where it comes back to the United Kingdom; but the brewers suffer because nearly all the beer that comes in is brewed in France. I understand that the most popular brand of beer in Kent is St. Omer, which is not legally exported to this country.

The problem is costing jobs in breweries and pubs, and is putting people out of business, so I was disappointed that my right hon. and learned Friend, who is so keen to get us into an integrated Europe, was not more active in dealing with it. We do not have the money to deal with it in one year; to make any impression, we would have to follow the Danes' example and bring down the differential between our duties and those in France by at least 50 per cent. I would have liked the Chancellor to set out a five-year programme to deal with the problem, helping the industry and undermining the smuggling.

As one who speaks for and is interested in the tourist industry, I have some reservations about the doubling of passenger duty. I also think that the time is coming when we must think again about the automatic increase of the duty on petrol by more than the rate of inflation.

I know that we all have to appear green these days, but I represent a country constituency, so I know that people do not stop using their cars, or use less petrol, when the price is increased; they simply spend more on petrol and less on other things. We are a car society, and, especially in rural areas, however much we spent on public transport it will never be as convenient as cars.

Mr. Salmond

I understand that some Opposition Members will force a vote later this evening on the specific question of increased petrol and DERV duties. Will the hon. Gentleman join us in the Lobby?

Mr. Townend

I would be loth to join the hon. Gentleman in the Lobby for anything that he proposed. If I voted against the increases, that would automatically put up the public sector borrowing requirement. I am not saying that I oppose the increases, but we should consider carefully whether we should continue imposing them year after year. It would be most irresponsible for anyone who believed in sound finance, as I do, to vote to put up the PSBR.

I feel great regret when I see the table showing that the overall tax burden will continue to go up, on present policies, over the next four or five years. One cannot escape the fact that the burden of direct taxation has been significantly reduced, but as a Conservative I want the overall burden to be reduced.

Regrettably, the Government at the moment believe that priority must be given to spending, especially on education, health and law and order; of course there are good arguments for that, and I should have thought that, on that basis, the Opposition would welcome the Budget, because the Government are doing everything they have asked for: more and more spending, and not much tax cutting. The Opposition are in a strange position, because we all know that a Labour Government would spend more and tax more, and that the public sector unions have been waiting 17 years for their pay-off. The Labour party wants to do away with assisted places and spend the money elsewhere in education, but it forgets that the children with assisted places still have to be educated; if the assisted places grant is removed and the parents have to remove the children from the private schools and put them into state schools, far from a saving, costs will increase.

The windfall tax will hit customers and shareholders, and it will hit pensioners, because the shareholders are mainly pension funds.

The Budget has been a missed opportunity for my party. I had hoped that we would use it to put some clear blue water between ourselves and the Opposition, to set out distinctive long-term plans for reducing the burden of the state on the individual by reducing spending and taxes, and to set out long-term plans for slaying the albatross of the social security budget, which has done enormous damage to our social structure, as the hon. Member for Birkenhead (Mr. Field) has made clear, by creating benefit dependency and encouraging the massive growth of single mothers and one-parent families.

The tax system has done nothing to encourage marriage and the nuclear family. In fact, because of the increase in benefits and the freezing of marriage allowance, a single-parent family on the same wage as a married couple with the same number of children is better off; that cannot be right.

It has been said that the Government should not use the tax and benefit system to encourage morality; I disagree: if the Government can, on health grounds, use taxes to discourage smoking, they can use them to encourage people to get married, to stay married and to bring up the nuclear family.

I welcome the belated change in the Government's policy in unfreezing the marriage allowance, but it has been increased by only £6 a year. I welcome the eventual elimination of the single parent advantage for new single parents, but that is some time in the future. At least that is an area of difference between us and the Opposition, as I believe that they want to abolish the marriage allowance altogether. In the long term, I should like a greater commitment to marriage and a move to a transferable allowance.

By setting out a programme for the abolition of inheritance and capital gains tax over the next three or four years, we would have put down a marker, and I would have liked such proposals to be in the Finance Bill, so that the Opposition would have had to stand up and be counted. Regrettably, that has not happened, but I sincerely hope that the Government will take note of what I have said; then perhaps some of my suggestions will appear in our manifesto.

7.46 pm

Mr. Giles Radice (North Durham)

I am delighted to follow the hon. Member for Bridlington (Mr. Townend), with whom I served on the Treasury Select Committee, although I did not agree with much of what he said. I share his concern about the state of public finances, and I want to speak about that.

As for continental envy, other countries in Europe do not envy our policy towards the European Union, because they think that it is extremely foolish; I absolutely agree with them. Our negative policy isolates us in Europe.

This is my first opportunity to speak on economic affairs since leaving the Treasury Select Committee, on which I was fortunate enough to serve from 1987 until the end of 1995. That experience gives me a good perspective in which to set the Budget.

I know that it will not help the Chancellor much, but I must confess to a sneaking admiration for him. His robust style, of which we have seen a lot over the past couple of weeks, is sometimes a breath of fresh air after the ambivalent platitudes of some of his colleagues; and, as the House well knows, I share his views on the single currency.

However, the more closely one examines the Budget, the more disappointing it becomes. The day before the Budget, The Independent published the advice of four ex-Chancellors, two Labour and two Tory, and they all advised caution. I was particularly struck by the words of Lord Jenkins of Hillhead, for whose chancellorship even Lady Thatcher has had words of praise. He said: I think it will be more responsible than any other member of the Cabinet would produce, but it will not meet the needs of the moment". I think that he has been proved right.

I accept that, when the Chancellor took up his post in 1993, he had a difficult inheritance: the economy was burdened by a vast public sector deficit of nearly £50 billion, as estimated in the Red Book at the time, I believe. I see that the Chancellor has entered the Chamber. I said some warm words about him a little earlier, although I am not sure that he would be pleased about that.

The Chancellor had a bad inheritance, because of the vast public sector deficit. The deficit was not a bolt from the blue, but the result of gross macro-economic mismanagement by the Chancellor's predecessors. First, the Lawson-Thatcher boom of 1986–88, with its monetary splurge and tax cuts, sent the economy out of control. The policy response to that was the Major-Lamont squeeze of 1989–90.

I should point out that the interest rate hike started well before we entered the exchange rate mechanism. Unfortunately, the Government relied too much on a one-club policy of high interest rates, which clobbered business and the housing market and led to 10 quarters of falling manufacturing output—the longest recession since the war. It directly caused the public sector borrowing requirement problem with which the Chancellor has had to wrestle, because it increased the social security budget and reduced the tax take.

In the run-up to the 1992 general election, we had the fiscal irresponsibility of the right hon. Member for Kingston upon Thames (Mr. Lamont), which has been mentioned already, which was sanctioned by the Prime Minister and the Cabinet. The Government went for tax bribes and massive spending commitments to win the 1992 general election.

To give the present Chancellor his due, the strategy that he set out in his November 1993 Red Book, which I have just examined, was to put the public finances on a sound basis so that the economic recovery … can be sustained over the medium term". That is why he introduced further tax increases in November 1993, adding to the earlier 1993 Budget of the right hon. Member for Kingston upon Thames, who repented of his sins soon after the general election. That amounted to the biggest single-year tax increase since the war. The Chancellor, politically unwisely though with attractive honesty, admitted to me, while being questioned by the Select Committee, that it was equivalent to 7p on the standard rate of tax. Nobody has allowed him to forget that.

The Chancellor, to be fair, stuck to his guns for nearly two years before succumbing to electoral pressure. In last year's Budget—in response to the clamour from his Back Benchers, who were worried about their seats—he gave away £4.6 billion in tax cuts. This year, he has given away a further £600 million net.

As my right hon. Friend the Leader of the Opposition said in his brilliant Budget speech—and to follow the Chancellor is the most difficult speech in politics, although this time my right hon. Friend had some prior warning that is not always available—the Chancellor's tax cuts do not begin to compensate for the tax increases introduced since the last general election. However, they significantly add to the PSBR deficit, which is still far too large, especially when measured against four years of economic growth, albeit modest growth. According to Keynesian economic principles, it is precisely when the economy is growing that it is most sensible and easiest to reduce public sector deficits.

Let us compare the PSBR forecasts of the November 1993 Red Book with those in this year's book. The 1993 forecast said that the 1996–97 deficit would be £21 billion. It is £26 billion, most of which is accounted for by the tax cuts of this Budget and last year's Budget. The 1993 forecast for the 1997–98 deficit was £12 billion, but it will be £19 billion. If the Chancellor had not cut taxes in the past two Budgets, he would have hit his 1993 Red Book targets. By playing to the electoral gallery, for which I do not altogether blame him because of the pressure from his Back Benchers, he has failed to reduce the deficit in line with his 1993 plans.

Mr. Forman

Surely the hon. Gentleman realises that the PSBR has always been the residual element, after taking account of huge movements on either side of the public accounts. As I suggested earlier from a sedentary position, the Red Book projects a forecasting error of £11 billion. Whether the Budget arithmetic is plus or minus £1 billion is neither here nor there.

Mr. Radice

I am merely pointing out that, if the Government had not been pressed to go down the tax-cutting road by their Back Benchers, they would have hit their targets.

There are further grounds for disquiet, some of which were mentioned by other hon. Members. The new Chairman of the Treasury Select Committee pointed out that several devices used this year make the PSBR figures look shaky. They include defining the sales of service married quarters and student loans as negative public spending. That adds up to £2 billion, I think. Unemployment has been forecast for the first time. We often used to ask for that on the Treasury Select Committee, only to receive a dusty answer, but the forecast reduces social security budget plans by an estimated £2 billion.

After rubbishing my right hon. Friend the hon. Member for Dunfermline, East (Mr. Brown) for so long for his ideas for closing tax and spending loopholes, the Chancellor has undergone a deathbed conversion. I have not worked out how much that is intended to bring in. I have seen a figure of £3 billion over three years, but the Chancellor suggested £6.7 billion in his speech. I am not clear what it is; it would be interesting to learn.

The most serious question is whether, as the Chancellor claimed in his Budget speech, inflation is really under control. As Gavyn Davies and Tim Congdon pointed out in evidence to the Treasury Select Committee, and as the Chairman of the Select Committee mentioned, there are worrying signs that are all too reminiscent of 1987–88. Monetary aggregates are increasing; house prices are rising far too fast and unsustainably, especially in London and the south-east; labour markets are tightening; and consumer expenditure is going up fast.

As several commentators suggest, it looks as though we are experiencing a good old consumer boom, which are well-known before general elections. We had the Maudling dash for growth, the Barber boom and the Nigel Lawson boom. I hope that this will not be called the Clarke boom. The right hon. Gentleman will be judged by history. It will be interesting to see what will happen.

The trouble with this consumer boom is that it is rapidly closing the output gap, although we do not know how big that is; the Red Book shows that it is widening the balance of payments deficit; it could well increase inflation. It is unwise for the Chancellor to talk about a Rolls-Royce recovery, because the Bank of England's inflation report—and, in successive meetings with the Chancellor, the Governor of the Bank—have warned about the prospects for inflation.

In November, the inflation report concluded: Some further rise in interest rates is likely to become necessary". We shall see what happens when the Chancellor meets the Governor. It is to the Chancellor's credit that we all know what happens, because he introduced the openness that the Select Committee urged.

It is essential that, in the months running up to the general election, the Chancellor does not play politics with inflation. It is a question not only of the general election or of the inheritance that will be left, but of how he will be judged. He knows well that the key to sustained industrial growth is stable economic and monetary policy. There should be no short cuts, booms or dashes for growth. Despite what Ministers say, there are no miracle cures, and there are no economic miracles.

I am certain that the measures which are necessary to increase efficiency and growth are long-term measures. Ever since the election, my hon. Friends have been underlining the need to strengthen the supply side of the economy. That was always laughed at by Conservative Members, but it is interesting that they are beginning to borrow some of our ideas.

We need to strengthen that supply side, so that we can break once and for all out of the stop-go cycle and keep the economy expanding. Hence the case for capital allowances to encourage investment, measures to improve education and training, and measures to bring the long-term unemployed back into the economy so that their skills and talents can be used. I am confident that my right hon. and hon. Friends will have the opportunity to put these measures into operation. I wish that I could say that I was as confident about the economic legacy that they will inherit.

8 pm

Mr. Nigel Forman (Carshalton and Wallington)

I am grateful to catch your eye, Madam Deputy Speaker, and to have the chance to make a brief speech to another packed House of Commons.

It has been a pleasure to listen to the debate so far. I much enjoyed the opening speeches, which I found entertaining, by my right hon. Friend the Deputy Prime Minister and by the right hon. Member for Kingston upon Hull, East (Mr. Prescott), who should have the political equivalent of a preservation order slapped on him because he is an essential part of the British working constitution and we love to hear from him.

I shall make three brief and rather general points. They are all designed to bear upon aspects of what I thought was a sensible and well-crafted Budget—a timely Budget from my right hon. and learned Friend. I commend him for the way in which he has sought to keep on course not just the recovery but a sustained period of economic growth over more than four years since the depth of the last recession. I hope that he will continue to do that for many years to come.

I touched on the first point on which I wish to focus in the debate on the Queen's Speech. I make no apology for repeating it, because it bears repetition. I welcome the Government's continuing commitment to sound public finances. That is not just a phrase: it is a cardinal aspect of any good macro-economic policy. That is being achieved principally by reinforcing the downward path of public borrowing, a point on which many hon. Members on both sides of the House have touched today.

It is worth recalling that the public sector borrowing requirement was £45 billion in 1993–94 and is forecast to fall to about £26.5 billion by the end of this financial year, within an economy which is about £750 billion in size. It is always worth reminding our constituents of the overall size of the economy. People forget the dizzy proportions of the numbers and, therefore, that a PSBR of £26.5 billion in the current year—if it turns out at about that level—within an economy of £750 billion, although obviously still too high in ideal circumstances, is moving in the right direction.

The figure of £26.5 billion represents about 3.5 per cent. of GDP. I believe that the combined effect of public expenditure control by my right hon. and learned Friend the Chancellor, ably assisted by my right hon. Friend the Chief Secretary to the Treasury, and his determination to safeguard the revenue which is such a prominent feature in this year's Budget, is likely to restore the public finances to balance by the end of the century. I applaud that aspiration.

I looked at the Red Book earlier and saw that we managed to achieve three years of public sector debt repayment from 1987 to 1989, earlier in the lifetime of this Government. So what we did before, we can presumably do again. However, I gently chide my right hon. and learned Friend, on the assumption that he will be in his post for many years to come, that there is something Augustine's about the policy of returning to balance in the medium term or by the millennium or some other grand phrase. Hon. Members will remember St. Augustine's famous remark, "Please God, make me chaste, but not just yet." There is a slight hint of that here.

I hope that my right hon. and learned Friend will use all his great authority, which was amply demonstrated this afternoon in his masterly performance at the Dispatch Box when he was discussing the complicated negotiations at ECOFIN. I commend him for that, even though I was not able to catch Madam Speaker's eye to say something along those lines. I urge my right hon. and learned Friend to give high priority in the next few years to returning to a genuinely balanced Budget and rediscovering the virtues of public sector debt repayment.

My second point is on the overall total of public expenditure. It is obvious that there has to be firm and continuing control of that overall total if we are to keep a grip on the economy. However, I am delighted to see that, within that overall total, Treasury Ministers—no doubt strongly lobbied by my right hon. Friend the Health Secretary, who is a very effective Minister—have found it possible to increase spending on patient services, which are what matters, in the national health service next year by about £1,600 million, or just under 3 per cent. in real terms. For my constituents in particular, although I am sure for those of other hon. Members, too, this is excellent news.

Experience shows that the British people, throughout the social and economic scale, want a generously funded NHS and are fully prepared to pay fair levels of taxation to finance it. That is a view which attracts no criticism throughout the country. One has only to go abroad, as we all do from time to time, to see that the two facets of our society which are most generally admired are our system of justice, with all its shortcomings, and our national health service. Long may we retain those two pillars of our society.

From a more parochial point of view—I have to speak at this stage of a constituency interest—I am determined to see that my constituents get their fair share of the extra expenditure which has been allocated to patient services. So far, the official figures that I have seen, which have been provided to me by the Department of Health, suggest that a mere 1.64 per cent. real increase in the public funds available for the purchase of health care in the Merton, Sutton and Wandsworth district health authority area, which covers my constituency, is likely to be made in the next financial year.

I want to say to the House and anyone else who is interested in health expenditure that I hope very much that it will be possible to supplement that rather modest real increase in funds for patient services in my part of the world with an adequate proportion of the extra national funds that have been allocated to certain specific purposes. Those purposes are notably boosting primary care, easing hospital bottlenecks, further spending on essential mental health services and more training places for doctors and nurses. All those are part of national allocations which have been earmarked by my right hon. Friend the Health Secretary, and to which he referred in yesterday's debate.

I am keen to see that hospitals such as St. Helier hospital in my constituency get a fair share of the extra resources. I hope that, at regional and national level, people who are responsible for allocating health funds in the public expenditure sphere will pay attention to the points that I have made. It is vital that we get the right decisions in order to ensure that all parts of the country benefit fairly from the extra expenditure.

The House will know that there are technical aspects of the allocation of health funds related to what are called inter-regional and intra-regional RAWP. It is all somewhat technical, but it means that, unless we are vigilant in constituencies such as mine in suburban south London, it is always possible to lose out not only to other parts of the country in the midlands or the north but, within the south Thames area, to the coastal areas such as Chichester, Eastbourne, Brighton and so on. I shall be vigilant in seeing that we get our fair share of the funds because I know of the excellent work that is done in hospitals such as St. Helier, where, incidentally, my right hon. Friend the Prime Minister was born. So we owe it for that as well.

My third and final point relates to tax policy. As I said earlier, I welcome the prudent and well-judged form of tax cutting in which my right hon. and learned Friend engaged in the Budget by cutting the standard rate of income tax by only 1p—the right amount on this occasion—and by simultaneously widening the band of personal income that is taxed at 20 per cent. As has been noted before, approximately 7 million people in this country now pay income tax only at 20 per cent., and that is definitely a step in the right direction. I say that with some feeling, because it means that we are now truly moving—slowly, but surely—towards our strategic objective of a 20 per cent. basic rate of income tax. I commend the Chancellor for making progress on that.

Of course, I should like more progress to be made in that direction in the new Parliament, in which I confidently expect my right hon. and learned Friend to be doing the job that he is currently doing so well. I was therefore especially gratified to read paragraph 1.12 of the Red Book, in which was adumbrated something rather rare in Red Books these days—a statement of principle and of theoretical policy. It said: The Government's objectives for the tax system have long recognised that low tax rates go hand-in-hand with a broad tax base, and that while special reliefs and allowances have a role in certain circumstances, they can have distortionary effects on business decisions. That principle applies pari passu to both taxation on expenditure and personal taxation.

In that context, I shall conclude by drawing the House's attention to a well-kept secret—an interesting little document called "Single Rate Tax: the path to real simplicity". It happens to have been written by that distinguished old buffer, the hon. Member for Carshalton and Wallington, and sets out clearly how in a future Parliament—preferably in the first Budget of the new Parliament—the whole tax system could be sensibly and intelligently reformed.

Simplification, in the tax sphere, is not simply a matter of the language of tax—it is essentially a matter of getting the structure of taxation right. I shall not weary the House with the details, but in my pamphlet I suggest that, in the first Budget of the new Parliament, it would be a fantastically radical leap, but one well worth consideration, to move to a single rate of income tax of 20p in the pound; eliminating all the allowances and reliefs currently allowable against income tax, except for a single personal allowance of, say, £5,000—which is far more generous than the current allowance—and making that transferable between spouses, so as to have a little in-built support for marriage and to enable families in which there is only one breadwinner to benefit from the allowance of the partner who stays at home to care for the children.

For the benefit of those hon. Members who are interested, according to Treasury estimates, the cost of that proposal would be somewhere between £4 billion and £12 billion in the first year, but that takes no account of the dynamic effects of making such a radical and worthwhile tax change.

I realise that I am springing this proposal on the House rather late in the evening, at a time when no one has had time to consider it, but it is worth thinking about further. Such ideas are not only put forward by the so-called flat-tax freaks in the United States, but commend themselves to people who have thought seriously about the tax system throughout the area of the Organisation for Economic Co-operation and Development.

I conclude my brief speech by commending my right hon. and learned Friend the Chancellor for the way in which he is managing our economy. Long may he stay in his post.

8.13 pm

Mr. Barry Sheerman (Huddersfield)

It is always a pleasure to follow the hon. Member for Carshalton and Wallington (Mr. Forman). He is right about one aspect—that future Chancellors will draft Budgets and make decisions on taxation levels in a rapidly changing environment; and that radical approaches to the whole nature of taxation and deciding what sorts of taxation are bearable in a democratic society may be needed. All parties have to look with clear vision at how that rapid change will affect how politicians work and how Chancellors operate.

I am never sure why we have Budget debate. It is an anachronism—other countries do not have these set-piece occasions. One analysis that I have read suggested that they are harmful to the economy, rather than helpful. Like my hon. Friend the Member who has just spoken—I have forgotten the name of his constituency—

Mr. Radice

North Durham.

Mr. Sheerman

It has changed—it used to have a posher name.

Mr. Radice

Chester-le-Street.

Mr. Sheerman

My hon. Friend the Member for North Durham (Mr. Radice) is absolutely right to say that the current Chancellor should never be underrated. Like my hon. Friend, I have known the Chancellor for a long time and he is not only a thoughtful and able politician, but something of a wily bird. He is often underestimated—under that bluff exterior lies a sharp character, as most hon. Members know.

As the right hon. and learned Gentleman sat down after giving his Budget speech, I thought to myself, "He'll never get away with this." A week later, however, I suspect that he has got away with it. I am sure that he picked up The Guardian today—whether he was in Brussels or on the plane—and read the poll published in it with a slight smile, because, ironically, it provides proof that he has got away with it. He did not want to produce a popular Budget. He did not want a Budget of which people said, "It's an election Budget." He wanted the effect of the Budget to be felt over the next six months. He did not want any instant acclaim.

However, I agree with many of the hon. Members who have spoken today, including the hon. Member for Bridlington (Mr. Townend), who have pointed out that, if we look closely at the Budget statement, we see that there are no public expenditure cuts in the Budget—none at all. Indeed, much of what we see is the careful orchestration of a real pre-election boom.

The hon. Member for Fulham (Mr. Carrington), the Chairman of the Select Committee on the Treasury, waded in on that subject very effectively. He gave the example of inner London, where property prices rose 20 per cent. last year and more than 20 per cent. this year. There is every sign in various sectors of the economy that what the Chancellor did a year ago was to set up a boom that has now arrived. The dangers that it poses in respect of interest rates and inflation are present in our minds.

The fact remains, however, that, at the moment, the Chancellor has got away with his Budget in the eyes of the general public. A review of the press in the past week, apart from the comments of the Financial Times, will enable the right hon. and learned Gentleman to think that he has achieved his objective. It was a very clever Budget and an unscrupulous one, designed to win the Tories the next general election.

I represent a constituency in a part of the country that still has a fair amount of manufacturing capacity. After three years of pain and recession, we have, since the last Budget, been witnessing the beginning of a mini-boom—but those three years cannot be forgotten. They were three years of broken promises, tax rises, mortgage misery, repossessions, bankruptcies of many good small and medium-sized companies, and negative equity. The Chancellor's mission, which he set himself at this time last year, is to achieve an environment in which some balm is applied to the national psyche.

Disposable incomes are rising fast as a result of this potentially inflationary boom and low interest rates. The feel-better factor is the Chancellor's objective. His real intention is to wipe clean the collective memory of the pain, insecurity and misery of those three desperate years. But how could even a very clever politician achieve that, when the fundamental economic situation was inappropriate for the measures that he needed to take?

We have all seen what the right hon. and learned Gentleman has done, with his cleverly disguised measures. All knowledgeable opinion is aware of the damage that an overtly liberal Budget would do to inflation and interest rates, let alone to investment in the medium and long term. The strategy then was to introduce a Budget that stoked up the consumer-led boom, while posturing as a responsible Chancellor who was giving us a virtuous Budget.

Apparently, we have a virtuous Chancellor introducing a virtuous Budget. Never have I seen the word "virtuous" used more often—

Mr. Kenneth Clarke

Once

Mr. Sheerman

I am talking about the press comments. The word "virtuous" struck a chord. But beneath the surface the Budget is not virtuous at all. It will fuel a boom that will last until the election, after which a Labour Chancellor will have to pick up the pieces.

To frame the Budget, all the Chancellor's skills were necessary, and it is interesting to see where he learned those skills. We have to look back at the kind of creative accountancy that became well known in the 1980s—the sort that would have interested Robert Maxwell and Asil Nadir when they presented their companies in an amazing light, although fundamental problems were clear to the practised eye.

The accounting methods used in the Budget are suspect, and extremely worrying. The Chairman of the Public Accounts Committee, my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) put his finger on that fact. Those methods may impress the Asil Nadirs and the Robert Maxwells, but they do not impress the Institute of Fiscal Studies or the Financial Times, which got it right when it said: A combination of creative accounting and wishful thinking have suffused this Budget". In one sense, the feeling that the Chancellor is getting away with it rests on the view that evidence such as that in Tuesday's poll in The Guardian is just what he wanted to see. We see not a welcomed, popular Budget, but the long-term effect that he was so keen to achieve.

Surely one of the clearest examples of that clever mixture of subtlety and dishonesty is the proposal to "spend to save". That is fascinating. May I be entirely sexist and say that any woman heading for the sales would tell us, as my wife tells me, that the real point of going there is to spend to save? Apparently it is a marvellous way of saving the family budget, because she will get so many good bargains.

I have never believed that. But now we hear the Chancellor introducing his new philosophy—that he, too, will spend to save. I was fascinated to learn from the press that "spend to save" was the Deputy Prime Minister's idea. Those of us with a background in the fair city of Swansea always knew the right hon. Gentleman as a "Swansea Jack"—that means a spiv, Madam Deputy Speaker. Indeed, I have always thought of him as the king of spivs.

So the Deputy Prime Minister came to the Chancellor, or met him over lunch, and said, "I've got this marvellous idea that you could add to your Budget: spend to save." It is a wonderful concept, which I have examined in some depth, and according to the Treasury press release and the Red Book, it will save £6.7 billion.

That is an awful lot of money to save by spending an extra £800 million over three years on the civil service—the Customs and Excise and the Inland Revenue. I have always been interested in Napoleon's description of this country as a nation of grocers, and an updated version of that would be a description of us as a nation of accountants.

Some of us deplore the fact that accountants seem to rule British industry; others applaud the fact that our accountancy skills bring so much revenue and business to the City and the rest of the country. There is no doubt that, if someone wants a good accountant, they should come to the City of London and the great practices in this country. Indeed, all our big cities are the same. Leeds is now Britain's second city in that respect, with much financial expertise and some great accountancy partnerships.

All those accountants and all that expertise are bought in by companies, perhaps as members of staff in-house, or perhaps out-sourced, or as consultants. If the Chancellor thinks that he will gain £6.7 billion by spending £800 million, he is pursuing an illusion. All those clever business accountants will not roll over and say, "It's a fair cop, guv. Here's the £1 billion. We'll hand over the cash."

That is an illusion. We will not save £6.7 billion. I approve of the principle of having more staff to ensure that we bring in the full amount of taxation, but the idea that we will save that sum by spending £800 million, when we have the cleverest accountants in the world, is incredible.

There is a dangerous downside to all that. If we give the Revenue and the Customs and Excise extra staff and money and say, "Pursue these villains; get the money,, they will probably find that the real villains who contribute to the shortfall in tax are the clever big people who have the accountants and the expertise, and can manage to avoid paying the money.

What will the civil servants in the Revenue do when they cannot pursue the hard targets? They will pursue the soft targets, and I can see the £800 million and the new staff doing just that—pursuing the small and medium-sized enterprises in the manufacturing sector, the companies that must grow over the coming years if our economy is to be wealth-creating and successful. There is a grave danger that the expectation may not turn out quite as we wanted.

I shall not speak for much longer, but I have two more points to make. First, I echo the views that have already been expressed on the private finance initiative. I have come across the PFI both as a governor of the London School of Economics and as someone interested in the higher education sector in general. My right hon. Friend the Member for Ashton-under-Lyne got it right when he said that the problem with the PFI is that everybody is in favour of it but no one can find out how to work it.

I can tell the Chancellor that the university sector would love to use the PFI. Universities have been undernourished and underfunded for 18 years, the staff are poorly paid, and the previous Budget crippled university finances. The strange situation resulting from this year's Budget is that, having been severely bashed in last year's Budget, we have now been given some slight help. It may be a mere £200 million, which does not make up for last year's bashing, but the university sector still finds it difficult to complain about its treatment. I believe that the university sector has been badly treated in the past 17 years, and extremely badly treated by the Chancellor. That sector would like to use the PFI, but it is not appropriate.

Every time that initiative has been pursued, it has not worked out. Last year the Chancellor talked about £25 billion that would be generated as a result of it, but the likely figure is about £1 billion. When I pushed the right hon. Member for South Norfolk (Mr. MacGregor) about the famous hospital that will be built in his constituency through the PFI, we found out that the big announcement that was made the day before the Budget was not a true announcement because the deal has still not been signed. Whether one is talking about hospitals, universities or whatever, the PFI does not emerge as the opportunity that it was talked up to be.

This could have been a Budget for jobs and for the manufacturing sector. It could have been a Budget that got rid of the rotten stench of poverty from our land. It is none of those things. When we look at this so-called virtuous Budget it is clear that it is not virtuous at all because it does not tackle any of our long-term problems. It represents a lurch back to all the worst excesses of pre-election boom Budgets with which we are so familiar. I guarantee that, from Christmas into the new year, we will see signs of rising inflation and rising interest rates. Those signs will mean that the economy is getting out of control as a direct result of the Budget. I believe that that is a sad comment on the Chancellor, who could have gone down as one of the best of the post-war world. In fact, he will go down as one of the worst.

8.31 pm

Mr. Peter Luff (Worcester)

This has been an interesting debate, and there have been some thoughtful speeches, in particular those of my hon. Friends the Members for Carshalton and Wallington (Mr. Forman) and for Fulham (Mr. Carrington). It has also been a slightly confusing debate; there has been a chorus of praise for my right hon. and learned Friend the Chancellor of the Exchequer from Opposition Members such as the hon. Members for North Durham (Mr. Radice) and for Huddersfield (Mr. Sheerman). I want to associate myself with that chorus of praise. We have a Chancellor who believes that good politics, good economics and good theatre go hand in hand. He is right.

I have been confused also because I am not sure whether the Opposition want us to believe that the economy is crawling out of a recession or is in the middle of a dangerous boom. We have heard both messages from them. Of course, the truth is that the economy is on an even and steady course, which is a great tribute to the successive Budgets of my right hon. and learned Friend.

I want to speak about three basic themes. The first is the kind of tests that we should apply to the Budget; the second is parochial, and concerns the specific benefits that the Budget will bring in my county; and, if I have time, I should like, thirdly, to refer briefly to the local authority dimension.

There are three tests that I want to explore. The first is the Liverpool test, the second is the Dunfermline, East test and the third is my own tripod test.

First, the Liverpool test. Last week, I attended the national prayer breakfast at the Queen Elizabeth II conference centre. David Sheppard, the Anglican Bishop of Liverpool, gave the address which, in many respects was unexceptional and entirely appropriate for a bishop. He applied a test to the Budget and said that we must ask how it helps the poor at home and overseas. I agree that that is a major test for a Budget. It was entirely proper for a churchman to draw that thought to our consideration, but he went beyond the bounds of what the Church should do when he added that the Budget failed both tests.

I am afraid that that just is not right. In my judgment, it is the bishop who failed the test, not the Budget, because although I firmly believe, that it is his business to bring a Christian insight to the problems of society, he cannot bring such an insight to the solutions. I do not think that there is any great gospel authority about what level the deutschmark should be set at against the pound sterling. In the absence of any such authority on the very fundamental questions about our economy, it is difficult to see how the gospel has specific solutions to suggest on other aspects of our economy.

The Bishop of Liverpool was also wrong factually when he said that the Budget had failed the poor overseas. I disagree. He reduced the argument to a simplistic one about aid. I should like aid to be set at a rather higher level, and I should like to see us make progress towards achieving the 0.7 per cent. of GNP target. I was delighted, however, that, according to the Budget settlement, bilateral aid—the most efficiently delivered aid—has been protected. I must remind the bishop that the United Kingdom is the sixth largest donor in the world. I also believe that our aid is some of the most effective in the world. More important, the bishop should have given credit to the Chancellor for the work that he has done in leading the world in debt reduction initiatives. That is of huge importance for the developing world. I believe that he should have given more credit to the Government for their enthusiasm for free trade, because free trade will enable developing countries to trade out of poverty.

The bishop should also have paid great credit to the Government for their peacekeeping activities around the world. Those activities have been funded from the Government's military budget—a budget that many Opposition Members would cut—and they have done much to bring stability to developing countries.

The bishop is wrong about the poor overseas. The Budget will protect their interests and build on the Government's proud record of looking after the developing world. He is also wrong about the poor at home. I do not believe that Budgets should be just about the poor. They should be about the average family, too, and those who generate wealth by running the big enterprises that create jobs.

A family on average earnings, which is about £21,000 a year, will be £120 a year better off after all the tax changes in the Budget, including the council tax changes. With earnings increases, and after tax and inflation, a family on average earnings will be £370 better off next year. They will be £1,100 a year better off next year than they were in 1991–92 and £100 a week better off than they were in 1979. That is the real measure of the success of this Budget and preceding ones.

What about the poorest members of society? Is this a Budget for them? Just this week, an interesting document was published by the Department of Social Security entitled "Households below average income. A statistical analysis 1979–1993/94". It shows that there has been an increase in inequality—something about which the right hon. Member for Kingston upon Hull, East (Mr. Prescott) spoke at great length and with great indignity during his tirade. Of course inequality has increased; it had to. Incentives had been squeezed out of the system under the Labour Government, and they had to reinstated. An increase in inequality is inevitable and desirable to help bring about improved living standards for everyone.

I shall let document speak for itself. It states: All economic status groups"— in households below average income— have shown increases in average income since 1979. All of the in-work groups and those aged 60 or over showed large real increases of the order of 40–50 per cent. The unemployed showed a small rise in average household income of around 8 per cent. after housing costs and more before housing costs. 'Other' non-employed average income was up significantly, by around 30 per cent. The document then states that the results from the bottom 20 per cent. of households were not quite as good, but still showed some real increases. It states: Income of the bottom 20 per cent. of unemployed showed a slight increase before housing costs on central estimates, but was lower after housing costs. That is a subject to which I shall return later.

The document concludes: Households' standard of living will be influenced by their possession of consumer durables. Access to consumer durables in the lower half of the income distribution has generally increased faster than for the whole population; The bottom decile of the income distribution has higher median expenditure than the second decile, suggesting that the bottom income deciles are not the most constrained in their living standards". It is also interesting to note that the document states: The rise in housing costs over the period from 1981 has been accompanied by a rise in quality. That should be welcomed by hon. Members on both sides of the House.

The document shows that everyone has got richer as a result of Conservative stewardship of the economy, and, interestingly, that the poorest 10 per cent. spend more than their income suggests that they can afford. Moreover, it makes no allowance for the public services that benefit the poorer members of society disproportionately—health and education, spending on both of which has increased in this and previous Budgets.

The bishop was wrong about the poor, but it is right that the unemployed did least well, as the document shows. The real test of any Budget is how it will get people back into work. Unemployment creates poverty, not the Government's failure to create a dependency culture. The Government and the Budget are getting people back into work.

Bizarrely, and uniquely, the Labour party is approaching a general election with specific promises that everyone knows—I believe that "any damn fool knows" were the words of the right hon. Member for Kingston upon Hull, East—will increase unemployment. Labour promises a minimum wage, the social chapter and windfall taxation on successful companies.

Mr. Eddie Loyden (Liverpool, Garston)

I do not wish to defend the Bishop of Liverpool—he is quite capable of doing that himself—but if the hon. Gentleman was as involved as the Bishop of Liverpool in the interests of the people of Liverpool, he would understand the bishop's compassion for the unemployed, for example, in whom he has taken a great interest over the years.

I do not believe that the bishop is a card-carrying member of the Labour party. His responsibility may not be in the world of politics, but he has an overview of many of Liverpool's social problems. The House should praise the bishop's comments, which reflect real social problems that have not been tackled. I am sure that, on reflection, the hon. Gentleman would not want to condemn the bishop for looking after his flock.

Mr. Luff

I am afraid that I shall disappoint the hon. Gentleman. I would wish to condemn the Bishop of Liverpool for suggesting that he has insight into the solutions to the problems. However, I agree with the hon. Gentleman about the bishop's compassion, his identification with the problems of his flock and the practical work that he does to help them. The problem is that his solution is wrong. The test that he set for the Budget is the wrong test. The best way to help the people of his diocese is to create jobs. That is what a free market economy does, against the type of economic background that the Chancellor of the Exchequer has successfully created.

What of the second test, the Dunfermline, East test? The shadow Chancellor wanted us to judge previous Budgets by their effect on unemployment. I suspect that he would like us to forget that test now. Now he wants to judge this and preceding Budgets by the number of tax increases that he alleges the Conservative party has introduced.

The scale of the dishonesty is breathtaking. Labour Members allege that there have been 22 Tory tax rises since 1992. The alliteration is what they are working for. In reality, there are not 22. Some of the alleged 22 are not rises, but failures to index taxation. That is not a rise; it is a failure to give a reduction. Some taxes, such as insurance tax, are counted four times. Looking at it objectively, there are probably about 10 genuine tax rises in the list, not 22, but even if we accept 22 as the figure, on the same basis we have managed 25 reductions in the past two years—a net gain of three to us.

What really matters, and the test that the right hon. Member for Dunfermline, East (Mr. Brown) should apply, is personal disposable income; I gave the figures for that earlier.

If the Labour party is so anxious about tax increases, what public expenditure would it have cut to avoid them? I regret the tax increases that we have had to impose, but it was the thing for a compassionate Government to do, and I entirely support that policy.

My fears are compounded by the Labour party's dishonesty. We saw a very impressive document produced by my right hon. Friend the Chief Secretary to the Treasury; I think I got that right, unlike the deputy leader of the Labour party. The Labour party wants to increase spending by £30 billion; we have seen it itemised. We have vague hints about reductions in taxation. Reducing VAT on fuel would cost £500 million. Changes in upper-rate tax thresholds would cost £1.4 billion. A 10 per cent. starting rate of tax would cost £8 billion.

The increased borrowing that all that implies—spending up £30 billion, taxes down £10 billion—is £40 billion. We cannot take lectures on the lack of financial rectitude from Labour Members if they propose to increase borrowing by £40 billion. Either they mean it or they do not. I am afraid that I am forced to the conclusion that they are trying to be all things to all people, saying to interest groups, "We shall give you what you want, don't you worry," and hoping that they will not notice the grand total that is building up. All the little pledges mount up—and the shadow Chancellor is desperately trying to control any pledge on spending and will not give a pledge on what I regard as one of the most important issues: expenditure on the health service.

If we had been discussing a Labour Budget today, there would have been no tax reductions. A windfall tax, whether it raised £1.5 billion, £3 billion, £5 billion or £10 billion, would go nowhere near meeting the bill of a new Labour Government. The right hon. Member for Dunfermline, East is as wrong as the Bishop of Liverpool.

We should test the Budget as though it were a tripod, because three-legged objects are the most stable. A Budget should take as little as possible of our money as fairly as possible—one leg. It should maintain excellent public services—the second leg. Thirdly, it should create the conditions for economic success. The Budget passes all those tests with flying colours.

First, the way in which the tax cuts were introduced—thresholds as well as the basic rate—ensures that the first leg is strong. The 20p rate is effectively the basic tax rate now, given that it is now the top rate of tax for 7 million people.

Secondly, the priority for health, education and law and order exactly reflects what my constituents are asking of the Government. I am delighted that those sectors receive priority in the Budget.

Thirdly, the reduced borrowing profile and general prudence offer the guarantee of continued economic success. That can be seen in the international judgment of the foreign exchange markets and international economic analysis day after day.

All three legs together will help the poor most, because they will combine to create the conditions for falling unemployment. The Chancellor is right to remember with nostalgia the unexciting Budgets of his childhood—modest, sensible Budgets, set against a strong economic background. That is what we have now.

The aspect of the Budget that I most welcome is what is not in it, the so-called windfall tax—or is it a utilities tax? I am confused about the nomenclature. We hear a different definition every time a Labour party spokesman—the right hon. Members for Derby, South (Mrs. Beckett), for Kingston upon Hull, East or for Dunfermline, East—opens his or her mouth. There is a spectacular lack of detail. Sometimes they seem to imply that the tax will be imposed in one year only. I do not understand how they can sustain that against their spending commitments.

Will the tax be imposed on utilities or on all privatised companies? Is British Airways a utility? Is British Telecom a utility? Perhaps it is. Is the British Airports Authority a utility? Is Cable and Wireless a utility? I do not know. I wait to hear from the Labour party which is and which is not.

I predict that, if ever we had the misfortune to have a Labour Government, the European Court of Justice might become almost popular with Conservative Members as the windfall tax was tested there. I do not believe that the tax will stand that test. One thing is clear: ordinary people will pay it—in increased prices, job losses or pension fund losses. It will impact on ordinary people.

I do not often draw the attention of the House to remarks of Labour prospective parliamentary candidates, but the Labour prospective parliamentary candidate for Worcester has called on 'fat cat bosses' to bear the brunt of his party's proposed windfall tax on privatised utilities. I quote from an article by Shaun Connolly in the Worcester Evening News. The prospective candidate says: There is no reason to believe it will be passed on to customers. People have seen the salaries being paid to fat cat bosses and are not happy about them. They have seen the cash literally pouring out of the taps and going into Severn Trent Water. I draw only one conclusion from those remarks—that the prospective parliamentary candidate for the Labour party in Worcester believes that the fat cat bosses will pick up the bill personally.

I have done some calculations. By the end of 1994, we had privatised about 42 companies. Each company had an average of five executive directors—210 directors in all. If the shadow Chancellor wished to raise £1.5 billion from them, he would have to send a personal tax bill of £7,140,000 to each of them. At £3 billion, the tax bill would be £14,280,000. At £5 billion, which we believe is the correct figure, it would be £23,800,000. If the figure of £10 billion is correct—still only one third of Labour's spending plans—the tax bill would be £47,600,000. That destroys the preposterous claim that there is magic money there, waiting for Labour to get hold of it.

There are only three ways of paying for a windfall tax: increased prices, with a heavy burden falling on those with low incomes, who depend on the utilities disproportionately and spend a disproportionate amount of their household income on them; reduced investment in the utilities—Labour claims to want to increase investment—with a fall in employment in the industries that would have helped to provide the investment; or reduced balances and increased borrowing by the companies, leading to a reduction in share values, a reduction in pension funds and so a reduction in pensions. That is the choice: price increases, job losses or falling pensions. That is how a windfall tax would be paid for.

I shall briefly draw attention to the impact of the Budget on my constituency and county. First, I should like to single out the increase of £1.6 billion in health funding. That significant real-terms increase, as promised by the Chancellor, will give the best guarantee that our new district general hospital will be built, using the private finance initiative.

Secondly, I welcome the increase in expenditure on the police, which has not received enough attention locally or nationally. The West Mercia constabulary will get a 4 per cent. increase this year, on top of a 5.9 per cent. increase last year. An extra 41 officers were recruited this year, even though there was funding for only 21. With funds allocated to enable the force to have 42 extra officers next year, perhaps the number it will be able to recruit will be nearer 60. That increase in the number of police constables was promised by the Prime Minister and is being delivered.

On a more parochial note, may I express one caveat about the Budget? I should like a significant continuing investment in local bypasses. I hope that the Department of Transport budget can afford that. The Wyre Piddle bypass is a priority in my constituency, and I hope that the money for it will be forthcoming.

The education settlement for the local authority is generous and should protect budgets for schools fairly and adequately. Even modest efficiency savings by the county council, which it never seems to want to work towards, could allow a real increase in school budgets.

In summary, the economy is the success story of Europe. The Budget is achieving the impossible: low inflation, export-led sustained growth and, as promised, falling unemployment, rising living standards, support for public services and increased consumer confidence. We have heard nothing from new Labour—no alternative policies beyond irresponsible spending and tax pledges: the same old failed policy of tax and spend. I make one Budget prediction: thanks in large part to the sensible Budget from our Chancellor, come the election, it will be the same old result—a good Conservative majority.

8.52 pm

Mr. Alex Salmond (Banff and Buchan)

The speech of the hon. Member for Worcester (Mr. Luff) was enlivened by his reference to Sean Connery. I perked up my ears, expecting some of that gentleman's wisdom to be dispensed to the Chamber, but the hon. Gentleman moved away from the subject.

It is true, as the hon. Gentleman said, that Opposition Members have made some favourable comments about the Chancellor. I do not want to spare the Chancellor's blushes; in his absence several hon. Members said how much they admired various aspects of his policies. I shall begin by offering the Chancellor my congratulations on a limited aspect of his Budget—VAT repayment—then I shall tell him what I really think of his policies.

I was rather pleased by the Government's U-turn on the disparity between the reclaim date for repayment of VAT by the taxpayer and by Customs and Excise. Three years for both is fair. As the Chancellor knows, I have pursued the issue for several months, and despite earlier Government claims that the three-year limit would apply only to the taxpayer, I was not surprised by the climbdown, in the light of the substantial evidence that the previous proposal was in breach of basic European law. It seems that the Government have climbed down before they were pushed down by both the British and the European courts.

Although the Government may have saved themselves one embarrassing defeat by their policy reversal, I must warn the Chancellor that there is considerable legal opinion suggesting that their overall proposals on VAT repayments may still be in breach of European VAT law. For example, European law demands the use of transitional periods to protect the principle of legal certainty, whereas the Government are in fact acting retrospectively. They will be challenged through the courts on the matter, and should let the House know the Chancellor's assessment of that threat and the potential loss.

I urge the Government to continue their new-found flexibility on the issue and to negotiate further with industry to ensure that the proposals that finally become law are not found wanting in the courts, do not treat individual taxpayers differently and do not introduce retrospective taxation. I seek an assurance from the Chancellor that the proposals in the Budget are not yet set in stone and that, although they are a sensible advance on the previous position, they will still be considered in the light of representations from industry and others.

I was struck by the number of references in the Red Book—we have heard such references in the debate as well—to the United Kingdom economy performing better than the other major European Union economies. When one examines that comparison and remembers that 10 of the 15 EU states are small states with populations of less than 10 million, it turns out that the Chancellor is comparing the UK with only four other countries—Italy, Germany, France and Spain. In a comparison that roams somewhat wider than four countries or further in time scale, the economic miracle that the Chancellor claims for his and his predecessor's policies does not bear close inspection.

Since the Conservative party came to power in 1979, the UK economy has grown by an average of less than 2 per cent. a year. The EU average, without the windfall of oil, has been marginally higher at 2 per cent. Among our major competitors, Britain's growth performance over that period has been worse than that of Australia, Austria, Canada, Finland, Germany, Greece, Iceland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Turkey and the USA. The economies of all those countries have grown faster than the UK's over the period since 1979. If that is an economic miracle, I should not like to see a disaster for which the Government were responsible.

Even if we give the Chancellor the benefit of the doubt—if we acknowledge that he has not been responsible for managing the economy since 1979, and note that he is not on the most intimate terms with his immediate predecessor—and relieve him of collective responsibility over that period, an inspection of more recent history shows a similar decline. Projections from the Organisation for Economic Co-operation and Development for 1996 show growth in the UK economy, during the enormous recovery hailed by the Chancellor, lagging well behind the USA, Australia, the Czech Republic, Finland, Iceland, Ireland, Mexico, New Zealand, Norway and Turkey. Many economies in the wide world are doing rather better than ours. Since 1979, the United Kingdom economy has performed below the European Union average—despite the fact that Norway was the only other economy in Europe with the benefit of an oil revenue endowment.

In 1979, the standard of living in Italy was 6 per cent. behind that of the United Kingdom; now it is 6 per cent. ahead. Norway was 8 per cent. ahead of the United Kingdom in 1979; now it is 26 per cent. ahead. Luxembourg was 32 per cent. ahead of the United Kingdom in 1979; now it is 68 per cent. ahead. Portugal was 86 per cent. behind the United Kingdom; now it is 42 per cent. behind. Ireland was 58 per cent. behind the United Kingdom in 1979; now it is only 10 per cent. behind. According to the Library, Irish gross domestic product per capita will overtake the United Kingdom average by 2000 and Ireland will be more prosperous per head of population than either England or Scotland. That is a dramatic change in Irish economic circumstances.

So when the Chancellor claims that the United Kingdom is the fastest-growing major economy in Europe, he conveniently forgets the small economy off our western shores that has grown almost four times as fast as the United Kingdom economy in the past year or so. To cap it all, nominal debt in the United Kingdom has doubled in the past five years, which means that the Chancellor will have some difficulty sustaining Britain's economic performance and reducing the public sector borrowing requirement and national debt totals.

Earlier this evening, when the deputy leader of the Labour party claimed that the endowment effect of oil and privatisation proceeds combined totalled £250 million per week during the Government's period in office, I noticed the Chancellor and the Financial Secretary making frantic calculations in an attempt to ascertain whether the figure was accurate. Of course it is correct. Privatisation proceeds and oil revenues combined have created an endowment effect—which the Government have enjoyed since 1979—of roughly £1 billion per month, £12 billion per year and £250 million per week.

I do not believe that the Treasury team understands the extent of that endowment effect. Last week, the hon. Member for Amber Valley (Mr. Oppenheim), the Exchequer Secretary—there seems to be a proliferation of such posts in the Treasury team—gave the House his assessment of the impact of oil on the United Kingdom economy. He said: In the last year of the Labour Government, oil receipts in real terms, in today's prices, were close to £1.3 billion; this year they are expected to be close to £1 billion. In the past three or four years, they have cruised at around £300 million to £500 million. The only time at which they were briefly higher than in the last year of the Labour Government was in the mid-1980s, for three or four years. Let us hear no more of this myth of the great wasted oil revenues. They never existed".—[Official Report, 26 November 1996; Vol. 286, c. 225.] I have seen the table depicting oil revenues since 1978–79, and it bears no relation to the claims of the Exchequer Secretary. In the last year of the Labour Government, oil revenues totalled £1.7 billion. According to the Red Book and at 1996–97 prices, if one projects to next year, oil revenues collected by the Government were less than their level in the last year of the Labour Government in only three of the past 19 years. They peaked at £20 billion, in today's prices, in 1984–85. According to the Red Book, they are now rising rapidly once again and are expected to total more than £4 billion by 1997–98.

Only this Government and their Treasury Secretaries could be so ignorant of the extent of the endowment effect of oil revenues in that period. Some £140 billion, in today's prices, flowed to the Exchequer during that time. If the Government believe that the "great wasted oil revenues" are a myth, why can we not have them in Scotland? Why can we not add those revenues to next year's Scottish budget? The Exchequer Secretary says that they are not worth anything, so the Chancellor should not mind adding them to the Scottish total.

During the great stone ceremony in Edinburgh on Saturday, I saw a poster which said, "Thanks for the stone back; how about the oil revenues?" The Exchequer Secretary says that they are not worth anything, so perhaps the Chancellor could be nice and kind to Scotland in his summing up and say, "Let's give away these worthless oil revenues which have nothing to do with our economic success and progress over the past 17 years."

I shall support the amendment on VAT on fuel standing in the name of the Leader of the Opposition I shall explain why the amendment is important because, remarkably, I do not think that the arguments in its favour were deployed earlier in the debate. Fuel poverty affects an estimated 800,000 households in Scotland—one in three Scottish households—and those on low incomes tend to spend a greater proportion of their incomes on fuel costs than do wealthier households. A 1993 study estimated that households in the lowest income quintile spent more than 13 per cent. of their total weekly expenditure on fuel, compared with 5 per cent. expenditure by the highest quintile.

In general, it is more expensive to heat the homes of those compelled to live in poor housing conditions. To top it all, we know in Scotland, from work carried out and questions asked by my hon. Friend the Member for Moray (Mrs. Ewing), that it takes 23 per cent. more fuel to heat a home in Glasgow than an identical one in Bristol; that in Edinburgh, it takes 28 per cent. more fuel; in Dundee, 32 per cent.; in Aberdeen, 41 per cent.; in Lerwick, 53 per cent.; and in Braemar, 66 per cent. That justifies the requirement for a geographically based cold climate allowance. The issue of VAT on domestic fuel is of great importance to Scotland and to low-income families in all the countries of these islands. A move from 8 to 5 per cent. would be very welcome indeed.

The words "cynical ploy" will be marked across the political grave of the hon. Member for Edinburgh, Central (Mr. Darling). The next time the Deputy Prime Minister pokes fun at him for not supporting a reduction from 8 to 5 per cent. some two years ago, I suggest that the correct way to deal with him is to stand up and say, "Yes, our policy has changed. In January 1995, the Labour party did not support the reduction. Now we have changed our policy and we do support the reduction." He should challenge the Deputy Prime Minister to say that the Tories have not changed some of their policies.

The hon. Gentleman should not describe—four times in a short speech—the Scottish National party's amendment as a cynical ploy, as though the Labour party never entertains cynical ploys in the amendments that it tables in the House. It looks ridiculous and disables the argument for putting VAT on domestic fuel down to 5 per cent. now if he continues to defend his abstention in January 1995, which clearly was a mistake and a significant embarrassment to the Labour party. It would be much better to come clean than to continue to defend the indefensible and to allow the Deputy Prime Minister to ridicule him. Despite the fact that it is a Labour amendment, the SNP will be proud and happy to vote for 5 per cent. VAT on domestic fuel.

The hon. Member for Worcester (Mr. Luff) said that Budgets should not just be about the poor. I think that I quote him correctly. One difficulty with Conservative Budgets is that they never seem to be about the poor. Even when the Chancellor has choices to make, in terms of his modest tax reductions in the Budget, he makes choices that are not aimed at the lowest-income families.

I asked the Commons Library to do a comparison between taking 2 per cent. off the lower rate of tax and taking 1 per cent. off the basic rate. In a full year, those options are very similar in terms of overall effect on Budget revenues, but they would make a substantial difference in terms of their effect on families at different income levels.

For example, a part-time shop worker on £6,000 a year would benefit by £40 a year from 2 per cent. off the lower rate of tax. He or she would not benefit at all from 1 per cent. off the basic rate. A hairdressing trainee on £8,000 a year would benefit by £82 a year from 2 per cent. off the lower rate. One per cent. off the basic rate does not benefit such a person. A researcher, perhaps in the House of Commons, would benefit by £82 from 2 per cent. off the lower rate of tax and by £68 from 1 per cent. off the basic rate. A Member of Parliament would benefit by £82 a year from 2 per cent. off the lower rate and by £179 from 1 per cent. off the basic rate.

Mr. Kenneth Clarke

The hon. Gentleman is making a rather selective comparison between the lower rate and the basic rate. I assume that he is comparing one change by taking it off the 20p rate instead of the 25p rate. I hope that he has not overlooked the fact that one of the key things that we have done is to raise the threshold of personal allowances. There is absolutely no income tax payer who does not benefit from this Budget by way of a reduction in income tax. We deliberately raised the thresholds precisely so that every income tax payer, including the lower-paid, gets some benefit.

Mr. Salmond

I have not overlooked the fact about raising thresholds; I am talking about the direct comparison between the choices of 2 per cent. off the lower rate and 1 per cent. off the basic rate. I would not vote against raising the thresholds. I shall vote against the option off the standard rate. The Chancellor will see from the Order Paper that I have tabled an amendment to take 2p off the lower rate, reducing it to 18p. I used that figure because the cost to the Exchequer would be similar.

The choices that benefit the lower-paid are more valuable than the ones that benefit those with significant incomes. In view of the impact that the Government's policies have had on the poorest sections of the community in the last 17 years, a decrease in the lower rate would have been the right choice for the Chancellor to make.

We shall vote against a cut in the standard rate of tax. That is not our policy: we want to concentrate help on the lower-paid. We will vote against the petrol increases. The Chancellor would do well to remember that we are now in a period of stabilising, indeed rising, oil prices.

The combination of rising oil prices and a 5 per cent. real increase in petrol duty is having a substantial effect on rural economies and, potentially, on rural industrial units, because of increased transport costs. I plead with the Chancellor to consider that problem, because it is a double whammy aimed at rural communities.

We shall vote against the increase in airport duty. The Deputy Prime Minister said that tourism was booming. The Budget imposes an unnecessary doubling of that charge, which will inevitably hit hardest the island communities of Scotland where air travel is often the only serious option. That is particularly unfair, and the Chancellor should be a little ashamed of himself for having done that. Perhaps he will see the light before he finishes his summing up.

9.10 pm

Mr. William Ross (East Londonderry)

I agree with much of what the hon. Member for Banff and Buchan (Mr. Salmond) said, especially about air travel and oil prices.

In such debates, I always express my concern about the sheer size of the public sector borrowing requirement. My concern is not lessened by the fact that it is coming down rather more slowly than was hitherto expected.

I am concerned about a subject that has not been mentioned, but will come into the equation before the year is over, and may prove inflationary. Some of us voted against the 2p cut in income tax in the 1986–87 Budget. That was accompanied by a general freeing of the money supply, which created an enormous number of problems, not least when MIRAS was extended to cohabiting couples so that both of them could claim it until August. I am concerned about the £16 billion that will allegedly appear in the economy in the next year or so as a result of the demutualisation of the building societies. That money will not go overseas in public sector debt repayment, but is all home-grown money. Did the Chancellor take that factor into account when he did his Budget sums?

The slow growth in tax revenues is tied to the globalisation of business. Given the amount of money that is floating around the world between the various sectors of large companies, we may be driven, slowly but surely, towards a globalisation of tax rates.

We have not discussed in depth the fact that the Government are not spending a reasonable proportion of the huge revenues that derive from motorists in one form or another on new roads or on the maintenance of existing structures. That will have to be paid for some day, and will cause a future Chancellor enormous difficulties, because the money will have to be found.

Revenue is lost every year as a result of tobacco smuggling. The Chancellor will have received the brief from Gallaghers in Northern Ireland, which points out that six out of every 10 packets of hand-rolling tobacco that it produces are smuggled back into the United Kingdom, and are on sale at various markets within a week or 10 days from leaving the factory in Northern Ireland. The end result of tobacco smuggling is an annual loss of £600 million to the Exchequer.

Although I understand the concerns expressed by the hon. Member for Fulham (Mr. Carrington) about the medical costs of cancer and other diseases, it would be a wasteful exercise of the Chancellor's powers to raise tobacco taxes now, because I do not think that there is any possibility, even with the new task force, of stopping smuggling.

The hon. Member for Banff and Buchan has already mentioned the tax on air travel. We have no real alternative to air travel in Northern Ireland. Furthermore, there is a real cut in the block grant to Northern Ireland. It may be that the Government think that cutting expenditure in that manner and tying the diminished expenditure to terrorist activity will put community pressure on the IRA. Government spokesmen in Northern Ireland have said, "The bomb went off in Lisburn. One went off here, there or somewhere else, and the damage has to be paid for. It will have to come out of the Northern Ireland block grant. A school has been burnt down. That will have to be paid for out of the block grant." That concept is entirely wrong.

The IRA want to ensure that Northern Ireland fails. Therefore, whenever Government spokesmen say to the IRA, "You are hurting Northern Ireland," all they are doing is encouraging the IRA to continue committing its violence, bombing and murder and imposing its costs. When the Chancellor considers the block grant for Northern Ireland and Treasury Ministers consider expenditure of the grant in Northern Ireland, I hope that they will keep that thought in the forefront of their minds.

We have real need in Northern Ireland, and expenditure must be related to the real needs of the place and not to an imagined buy-off with the IRA, which some people think is possible. Terrorist organisations are not bought off—they can only be defeated.

9.16 pm

Mr. Alistair Darling (Edinburgh, Central)

I shall not deal with the issues raised by the hon. Member for East Londonderry (Mr. Ross) now, although I shall do so in the course of my speech.

As we conclude the debate on the Budget, it is clear that it will be judged on two matters. It will be judged first in straightforward political terms—whether it will save the Conservatives at the next general election—which is the primary concern of Conservative Members. At the previous general election, the Tories fought and won on one central proposition: that, year on year, they would cut taxes. They said that they would not increase VAT or national insurance and, in fact, accused Labour of wanting to do so. Their central promise was that they would not increase taxes, but they cynically broke all their promises. Therefore, I think that we are entitled to judge the Government not only on what they have done during this Parliament but on what they said at the previous general election and on what they did subsequently.

Based on that judgment, we are entitled to form a view on the credibility of the Government's current promises. It is interesting that, when the Deputy Prime Minister spoke today, he spent less than 10 minutes of a 40-minute speech on the Tories' Budget proposals. Instead, he spent most of his time talking either about Labour's proposals or about proposals that seem to have been drawn from the land of fantasy. He certainly had very little to say about the 22 Tory tax rises that have been implemented since the previous general election. If the Conservatives broke the promises on tax, spending and borrowing that they made at that election, why should we believe them again? Cutting taxation was their promise—their "one-club" approach—at that election, and it was broken.

Secondly, the Budget will be judged in economic terms and on what it will do for the country and our long-term prospects. The Tories tell us that Britain is now the enterprise centre of Europe, and that it has been so since last year. We are entitled to ask, "What about the previous 16 years?" If one examines the Tories' approach to the economy, one will notice that they use the same starting point with tax. They will say anything and do anything to try to convince people that their stewardship of the economy has been a success.

The Government repeatedly say that, since last year, Britain has been the enterprise centre of Europe. But they are the Government who would invite us to ignore what happened in 1981, and the savage cuts implemented by Lord Howe. They are the Government who would have us believe that 1988 never happened, when the then Chancellor, Lord Lawson, stoked up an unsustainable boom. We do not hear much about who was Lord Lawson's Chief Secretary to the Treasury at that time, or who succeeded him as Chancellor—the man who is now Prime Minister. All that is to be forgotten. Instead, we are invited to judge the Government on what has happened in the past 12 to 24 months. We are to forget about what happened in September 1992.

The Tories' claims about Britain as an economic centre in Europe do not stand up. We hear Ministers say day after day that we have the best prospects for a generation, but we find that Britain has fallen from 13th to 18th in the world prosperity league. We find fears of higher inflation and interest rates. Higher mortgage rates are already beginning to show.

We are told that we are in an era of low inflation. We are just coming out of one of the deepest recessions that the country has ever had, but comparing Britain's record not with that of the Tory Government in the past but with the rest of Europe shows that we are 11th out of 15 in the European inflation league. One of the problems is that, because the Tories have so weakened our industrial base and our economic capacity, whenever we have a recovery there is the fear of rising inflationary pressure that may become unsustainable. The only way to achieve the sustained low inflation and stability that we all want is to ensure that there is investment, and the conditions to encourage investment, in skills, technology and infrastructure.

We are told that we have low interest rates. We are 11th out of 15 in Europe on that. We are told that unemployment has come down, but what do we find? One household in five have no one in work. What an indictment of the Government. Although the figures for those entitled to claim unemployment benefit are coming down, many of the new jobs created since 1990 have been part-time or casual jobs. That is an option that many people like, but for many others, they are the only jobs on offer. Many people are simply disappearing from the count. We do not know what is happening to them.

We are told that living standards are up, but we know that, because of the 22 Tory tax rises, the typical family is worse off by £2,120. [Interruption.] Conservative Members do not like the figures, but they are true. Conservative Member after Conservative Member uses the phrase "22 Tory tax rises" because they know that it is true.

We are told that we have the fastest growth rate in Europe, but—this is an indictment of the Government—judging the Government on their entire time in office shows that growth has averaged 1.9 per cent., which is lower than the growth achieved by the last Labour Government. Their claim to have made Britain the enterprise centre of Europe does not stand up to close examination, just as their claims to be prudent with the public finances and to be a tax-cutting party do not stand up.

Sir Wyn Roberts (Conwy)

As I understand it, the Labour party is committed to reducing VAT on fuel to 5 per cent. That will cost between £450 million and £500 million. How will Labour finance that? I am told that Labour may well abolish the relief on private medical insurance, but that will produce only about £120 million. How will the gap be filled?

Mr. Darling

The right hon. Gentleman has not been present in the Chamber all evening, but he has an opportunity to join us in the Lobby in 40 minutes if he would like to do something for his constituents. I shall explain the point that he has raised later. The right hon. Gentleman is in no position to lecture us on tax until he answers the central charge against the Government: on all elements of taxation, they made promises in 1992 that they could not keep. We shall judge the Government on their record for the whole Parliament.

Mr. Kenneth Clarke

rose—

Mr. Darling

If the right hon. and learned Gentleman will resume his seat, I shall certainly give way to him in a moment. When he stands up, perhaps he will explain why, as a member of the Cabinet in the previous Parliament and as a prominent member of the Conservative party, he promised the country that he would not extend the scope of value added tax. Why did the Conservatives make that promise and then break it immediately after the election?

Mr. Clarke

I like the way in which the hon. Gentleman promptly changes the subject to something that he has just thought of the moment that it looks like he is going to be intervened on. I personally have no recollection of giving a promise not to extend the scope of value added tax. That can be returned to in just a moment.

I intervene because I thought that I heard the hon. Gentleman say to my right hon. Friend the Member for Conwy (Sir W. Roberts) that it had been made clear where the shortfall of revenue would come from. I apologise to the hon. Gentleman for not having been here throughout the debate to hear the speeches, but I have not heard anybody make anything clear on that subject. Could he remind both my right hon. Friend and myself where the shortfall in revenue will come from? I see that he is asking his right hon. Friend the Member for Dunfermline, East (Mr. Brown). Could they between them answer that one question on calculation?

Mr. Darling

We have made clear that the shortfall will be met by removing the relief from private medical insurance, closing the loopholes on inheritance tax on chattels and making certain changes to the corporate tax regime.

People in this country will be staggered to hear that the Chancellor has no recollection of the promise on VAT. Was he not around for the last general election? Does he not remember the promises that were being made at the time? How on earth can the Chancellor stand at the Dispatch Box or speak in the coming election campaign and ask us to believe him on tax when he said that he has no recollection of the promises made in 1992?

Mr. Clarke

rose—

Mr. Darling

I am going to make some progress, if the right hon. and learned Gentleman does not mind.

Mr. Clarke

rose—

Mr. Deputy Speaker (Mr. Michael Morris)

Order. The hon. Member for Edinburgh, Central (Mr. Darling) has the Floor.

Mr. Darling

The right hon. and learned Gentleman really must learn to contain himself. He said a few minutes ago that he had no recollection of the promise on VAT being made. If he stops trying to interrupt me, he will have ample opportunity in his winding-up speech to explain that away.

Let us look at the Tory's record on income tax. The Prime Minister said in 1992—the Chancellor probably has no recollection of this either—that the Tories would reduce income tax year on year. The Prime Minister is saying on posters up and down the country—at least his glasses are saying it: As promised. Lower income tax. What is the truth? The truth is that people pay more tax now as a proportion of their income than they did in 1979. We know that that is true from Treasury figures, which show that direct taxation—that includes income tax—has increased during this Parliament. We know that from the Red Book because we can see that the proportion of tax taken has risen not only since 1979 but throughout this Parliament. As if that was not enough, a report in today's edition of The Daily Telegraph says that the Prime Minister is angry because the Chief Secretary to the Treasury told the truth about tax on Sunday when he said that tax was going to go up.

I was not particularly enthusiastic when I was told that I had to appear on "Dimbleby" with the Chief Secretary on Sunday. It was a long way to go for 50 minutes—but it was 50 minutes well spent. Time and time again, as I shall show, the Chief Secretary shed some light on what the Tories have been doing and what they plan for the future.

Mr. Waldegrave

Will the hon. Gentleman give way?

Mr. Darling

I promise that I will in a minute. I have not finished referring to the right hon. Gentleman.

Mr. Dimbleby asked whether the tax taken on income tax meant that people were worse off than they were in 1992. The Chief Secretary said: I think that's broadly right. He of course went on to mention national insurance contributions, which have been increased. Does he have no recollection of saying that? The transcript of the programme is available.

The Chief Secretary said more when it came to the subject of value added tax. He was asked whether the Tories had promised that they would not extend it. What did the right hon. Gentleman say? He said: Heh, well, the … what we're saying, and it's true, is that our first priority, as we can return overall to a … position where we can begin to look again at tax cuts, is to relieve the pressure on income tax. There's no secret that the Conservatives, right back to 1979, have always said, 'We prefer to take tax off, direct taxation off income tax and to put it—if you have to put it—on indirect … all the other taxes'". In other words—here we have it—that is an admission not only that VAT has gone up but that the Conservative party's intention is to carry on transferring tax from income tax to value added tax.

Mr. Waldegrave

Will the hon. Gentleman give way?

Mr. Darling

By all means.

Mr. Waldegrave

That was feeble. Will the hon. Gentleman now acknowledge that his party's poster, which says that people are £2,000 worse off and about which he was cross-examined by Mr. Dimbleby but had no answer, is completely false because it is the language of living standards? The hon. Gentleman knows well that his bogus tax calculations still leave out the fact that people are better off by more than that, if all taxes are taken into account. That poster is therefore completely false.

Mr. Darling

If there is any judgment on what we both said on that programme, the right hon. Gentleman will find that he comes off slightly worse than anyone else who appeared. I have made my position clear and I stand by it—because of the taxes that the Government have put up, the typical family is £2,120 worse off. That is true. [Interruption.] Right hon. Members on the Treasury Bench may shout and bawl as much as they like, but people know that taxes have gone up under the Conservatives when they promised that they would not.

I return to the point about value added tax. We were told at the last election, despite the fact that the Chancellor does not recall it, that VAT would not be extended in scope. In 1979, the Tories said that they would not increase VAT, but in their first Budget the then Chancellor, Lord Howe, doubled VAT. In 1992, they said that they had no plans or need to extend the scope of VAT. What did they do? They put VAT on gas and electricity. The Chief Secretary, in his interview on Sunday, made it clear that the Conservatives' preferred option is to transfer taxes from direct income taxes to VAT. We will ask, just as Mr. Dimbleby asked, about the Government's intentions in the future. Will they give a similar undertaking on VAT? If they do, frankly no one will believe them.

The position on national insurance is the same. What did the Government say in 1992? They said that they would not increase national insurance, yet they did and national insurance went up to 10 per cent. They still say that we can trust them on tax. My right hon. Friend the Leader of the Opposition asked, on the day that the Budget statement was made, how we can trust the Conservative party when we see what it said during the general election in 1992. As my right hon. Friend pointed out, a year after the election the Prime Minister gave an interview in the Los Angeles Times. He was asked: a year later, you find yourself under fire. What happened? The Prime Minister said: I said … the day after we won the election, with a number of people around me: 'Within the next 12 months the government will be the most unpopular we have seen for a long timer!'"—[Official Report, 26 November 1996; Vol. 286, c. 177.]

Mr. Forman

Will the hon. Gentleman give way?

Mr. Darling

The hon. Gentleman stood on the same manifesto as the Prime Minister. How was it that, the day after the election, when the recovery was supposed to be starting, the Prime Minister knew that the Conservative party would be unpopular, if not for the fact that he knew full well that taxes would have to go up and that the Tories would have to break every promise they had made on tax at the general election?

Mr. Forman

I am trying to follow the hon. Gentleman's argument as well as I can. If he is so concerned about the overall burden of taxation and national insurance taken together, and if he intends to be taken seriously as a potential member of a future Labour Government, will he give his pledge to the House of Commons tonight that his Government would not seek to raise the overall level of tax and national insurance as a proportion of GDP?

Mr. Darling

As we have made repeatedly clear, before the election we will make clear what we intend to do. That is an important point, because it touches on the matter raised by the right hon. Member for South Norfolk (Mr. MacGregor), who made the same point 12 months ago. Unlike the Tories, we will not promise anything unless we know that we can deliver it, whether on spending, borrowing or levels of taxation. The Conservative party must now rue the day when such reckless promises were made on tax, borrowing and spending, because they were not sustainable. One of the reasons why people do not trust the Conservatives is that they made promises at the last election which they could not keep.

Mr. MacGregor

Will the hon. Gentleman give way?

Mr. Darling

Perhaps in a minute. The right hon. Gentleman referred to the ludicrous claims made by the Conservatives about alleged promises made by us. Despite his many commitments, I am sure that the right hon. Gentleman has time to read the newspapers and to look at the television. He must know that every one of the 89 allegations made against us about spending commitments was proved to be false. The allegations were not true, and they have no more substance than did the same allegations made about us in 1992.

The Conservatives must know that, no matter what they say on tax, spending, borrowing or our promises, no one believes them. The evidence is there—no one believes the Tories any more, and it does them no good to keep repeating the same things. Repeating them does not make them any better.

Mr. MacGregor

Will the hon. Gentleman give way?

Mr. Darling

If the right hon. Gentleman will forgive me, I will not, because I think that I have answered his point. I know that the Chancellor will be keen to reply to the Budget debate.

Mr. Kenneth Clarke

indicated dissent.

Mr. Darling

The Chancellor shakes his head—he does not want to reply to the debate. No wonder, because he has a lot of explaining to do not just on tax, but on spending.

On the Government's spending proposals, looking at what has happened since 1979, there are one or two interesting points. First, the Government promised to cut the share of national income taken by the state. In fact, it is virtually the same now in percentage terms as it was in 1979. It is interesting that the burden of public spending has moved from those services that invest in the country, such as education, to those elements that are concerned with rescuing the damage done by economic failure. For example, the social security budget has increased dramatically—not because the Government have been generous in terms of benefit, but because we are paying the price of economic failure.

We are asked to believe that tax is coming down and spending is going up this year, but let us look at some of the areas concerned. On transport, I refer to a document produced by the Department of Transport on spending plans, some of which have been referred to tonight. The civil servant who wrote the document was candid and said that they had had to cut many of the proposals. Much of the discussion, it seems, was not on what roads were to be built but on how to manage the bad news. The writer said that the proposal would inevitably be perceived as 'bad news and added that, last year, we took great pains to issue the results on Budget Day, and with considerable success: the Department … was not blamed for the very substantial cut-back. That is an interesting insight into how the Government regard public spending, with the main effort being directed into covering up the Government proposal.

We have been promised that, despite this tough spending round, more money would be spent on health. But, a year after the general election, we find that spending on health is set to be reduced in real terms. [HON. MEMBERS: "No."] It is abundantly clear in the Red Book that public spending on the health service is due to be reduced in real terms. Let me be helpful to Conservative Members. The Government have said that the money is to be transferred in respect of care in the community to the Department of the Environment, but the budget for that Department is to be cut as well. If more money is to be spent in that area, it must come as a result of cuts in other services or an increase in council taxes.

In education, we find the same thing. Again, the Chief Secretary was illuminating on this matter on Sunday, because he was asked where the extra money was coming from and whether it was a real increase. As we have pointed out, the Government are simply increasing the authority of local authorities to spend on education—in fact, it is £73 million less than they are currently spending. The Chief Secretary was illuminating—he will probably get another row from the Prime Minister—because he said that the Government were allowing local authorities to spend more, not that there would be more money. He said: what we talk about is spending power … horrible jargon … but the capacity to spend. It is not new money, but simply "the capacity to spend".

It comes as no surprise that council taxes are set to rise this year. The Government may claim that they are reducing the basic rate of income tax, but everybody knows that taxes are going up elsewhere. Last year, the Chief Secretary was again helpful. He told the Treasury Select Committee that council taxes would rise by 8 per cent. When asked on Sunday by Mr. Dimbleby what he was going to say this year, he replied I'm not going to say it. No wonder he does not want to say. [Interruption.] That is what he said, and I recommend that every member of the Cabinet reads a transcript of the programme, because they might find it illuminating.

On tax, spending and borrowing, the Conservatives' record does not bear scrutiny; their promises cannot be kept because they have not been able to run the economy so as to create the sustainable growth that will generate the wealth we need.

Let us consider the Government's record on growth, investment, tax and spending. The truth is that we cannot trust the Tories. Never mind what is said or believed in the House, the public know what is happening with schools and with hospital waiting lists; they know that one in five households have no one in work, and they can see the second generation growing up without any experience of work. That is why they have had enough of the Conservatives.

The Chancellor does not trust the Prime Minister on Europe; that is why he tried to stitch him up yesterday on the radio. The Prime Minister does not trust the Chief Secretary on tax; he and the Deputy Prime Minister say that taxes are down, and on the same programme on the same channel on the same day, the Chief Secretary says that they are up. There is drift and disarray. No one believes the Conservatives, and the country has increasingly had enough of the Government. People know full well that they will be better off with Labour.

9.40 pm

The Chancellor of the Exchequer (Mr. Kenneth Clarke)

This is the last speech of the debate on the Budget, but at times in the speech of the hon. Member for Edinburgh, Central (Mr. Darling), as in those of many Opposition Members, one could almost have forgotten that we were talking about that Budget.

The Budget was delivered against a background of growth and of economic prospects that the country has not seen for many years. It will help to make Britain and the people of Britain better off, and it will secure our prosperity for many years to come.

The hon. Member for Edinburgh, Central had the nerve to suggest that my right hon. Friend the Leader of the Opposition had devoted the minority of his speech to the Budget—[Laughter.]—I meant to say, my right hon. Friend the Deputy Prime Minister. He spent a greater proportion of his speech talking about the Budget than did the hon. Member for Edinburgh, Central. I have never heard a more desperate high-speed rant, going through all the slogans, clichæs and statistics with which the Opposition have tried to obscure their approach to the Budget and to distract the public from the good news that it contains.

My right hon. Friend the Member for South Norfolk (Mr. MacGregor) and my hon. Friends the Members for Carshalton and Wallington (Mr. Forman), for Worcester (Mr. Luff), for Bridlington (Mr. Townend) and for Fulham (Mr. Carrington) all dealt with the Budget, and reinforced the good message that we are sending to the country.

Even the hon. Members for North Durham (Mr. Radice) and for Hudclersfield (Mr. Sheerman) had something to say about the Budget in their thoughtful speeches, which included grudging praise, perhaps not entirely unconnected with the fact that I occasionally appear on the same platform as the hon. Member for North Durham, and that I bought the book written by the hon. Member for Huddersfield—and read it.

Those speeches were far more to the point than the evasions, slogans and downright misleading statistics that we heard from the Opposition Front Bench. One statistic that Opposition Members have not been able to escape throughout the debate has been our assertion that, since the equivalent year before the previous election, the effect on the average British family—that family first identified as a statistical average by the Opposition—of all the tax changes, inflation and movement of earnings that they have experienced, has been to make them £20 a week better off in today's money.

That is why we hear all this nonsense and all the peculiar extracts from the Red Book.

Mr. Radice

It is the Government's Red Book.

Mr. Clarke

Our Red Book, used properly, is an extremely informative book, which should strike some concern into the Opposition, and remind them why they will stay in opposition.

The one figure that the Opposition have not been able to shake, or attempted to shake, is our assertion that the average family is £20 a week better off, after all tax changes both up and down over the past four years, and after inflation. That is not the result only of individual Budget measures, Budget after Budget, but of a combination of policies: the way in which we have handled the public finances and the control of inflation, and created a climate for an enterprise economy.

It is the success of British industry and commerce, and the men and women who work in them, and the climate that we have created, that have made people £20 each week better off in today's money than they were before the last general election. The British public know that we will continue to build on that as long they stick with the economic management that the Government are providing and can look forward to at least five more years of Conservative Budgets, and keep out of power people who produce speeches on that prospect that are merely combinations of sound bites, peculiar statistical extractions and fantasy league tables.

Mr. Rhodri Morgan (Cardiff, West)

If the Chancellor wants his measure to be taken seriously, he must say what is the bite of the increase in the tax burden, and consider the difference between people's earnings gross, before stoppages. The only comparable measure would be that for the same stage in the previous trade cycle. If he could produce his £20-a-week-better-off statistic in relation to the same stage of the previous trade cycle, it would be a fair point, but he cannot. I can see that he does not even understand what the trade cycle is. That is his problem. If he did, he could be taken seriously.

Mr. Clarke

The idea that all the improvements of the past few years are purely cyclical and that the Government have stood aside and allowed things to happen is preposterous. I defy the hon. Gentleman to find a time in any stage of any previous trade cycle when the average family was better off than it is now. [Interruption.] I am making comparisons with the equivalent time before the last general election, which are frequently made by the Labour party. With all its statistics, it cannot wriggle away from the fact that the average family is £20 a week better off. The hon. Member for Cardiff, West (Mr. Morgan) should have a word with his Front-Bench colleagues on the trade cycle.

I shall not waste too much time on league tables, because I have little time left. It has been pointed out repeatedly that one of the ways in which the Opposition fiddle even the more credible league tables they produce is by taking 1979 as a base year—a year in which we went into recession. If we take figures from peak to peak and from trough to trough, we do not get the sort of league tables that the Opposition use against us.

Let us take other things that have never been challenged by the Labour party throughout the debates on the economy and the Budget. The economy is well into its fifth successive year of economic growth; that is incontrovertible. I have forecast 2.5 per cent. growth this year and 3.5 per cent. in 1997. I pray in aid the fact that the International Monetary Fund and the Organisation for Economic Co-operation and Development expect the United Kingdom to be the fastest growing major European economy both this year and next.

As the hon. Member for Banff and Buchan (Mr. Salmond) said, I am comparing Britain with similar major economies in western Europe that we are outstripping. That basic, important assertion has never been addressed or denied. The Opposition have never posed an alternative. The extraordinary footnote searching that they have gone in for is designed to obscure that undeniable fact, which is supported by the OECD and the IMF.

Mr. Gerald Bermingham (St. Helens, South)

Does the Chancellor agree that honesty in fiscal matters is terribly important? Does not the Government's decision on 19 July—I declare an interest—to cut to three years the period in which one can claim for overpayment of VAT contravene the European Court ruling? We should bear in mind the comments of the Advocate General. Is that not another example of the Government being cheapskate and taking money that they should repay to ordinary taxpayers?

Mr. Clarke

Had the hon. Gentleman rejoined our discussions only about an hour earlier, he would have heard the hon. Member for Banff and Buchan make exactly the same point. First, as far as I understand it, everyone welcomes my decision to make three years the period for reclaiming tax, both for Customs and for the taxpayer.

I assure both hon. Gentlemen that the proposals do not breach European law. We have looked into it, and we are satisfied that they do not. They have been modified to take account of industry's views. We have met the points in both the Advocate General's opinion and the Walbraeck opinions, which I think is what the hon. Gentlemen were referring to.

Lawyers may challenge the measures if they wish, but we are satisfied that we are within the law. The measures protect many millions of pounds of revenue, and they should be welcomed by the House. They reinforce the credibility of the figures in the Red Book on borrowing and revenue on which Opposition Members try to cast doubt.

Mr. Radice

The Chancellor's Red Book gives the taxes and national insurance contributions as 34.25 per cent. of GDP for 1992–93 after the Lamont Budget and 36.25 per cent. for 1997–98. That is an increase in tax take.

Mr. Clarke

The hon. Gentleman has to be careful when using the Red Book on his feet. He had to choose the right figures in the right places. I saw his finger moving up and down the page to choose the correct base year. We have chosen comparable base years—the year before the last election and the year before the next election. In so far as the hon. Gentleman detects an increase in the overall tax and NICs, it is because there are fewer people unemployed and more people in work. People are earning more and going into higher tax brackets.

When Opposition Members suddenly get hold of the Red Book and look at the years ahead, they should bear it in mind that they will see that pattern in all the Red Books if they look at the years ahead before any tax adjustments are made in the subsequent Budget. Sometimes it is called fiscal drift. It is the fact that one assumes that, in years ahead, present tax levels will be merely indexed; that wages will go up faster than inflation, which they undoubtedly are doing; that unemployment will fall; that the number of people in work will increase; that the amount they earn will go up. So one shows projections of increases in the tax and NIC take.

It is prosperity that Labour Members are describing as an increase in the tax burden. It happens to be the case that people pay more when they earn more. I repeat, because Opposition Members do not like it, that, after people have paid all their taxes and had all the benefits of the tax cuts and all the burden of the tax increases, the overall effect is that they have £20 each week more in their pockets if they are a family.

I do not know what interests the electors in North Durham, but I know that what interests people in Nottinghamshire and Rushcliffe is the overall effect of economic policy on their family's well-being. They are not impressed by crawling through the footnotes in the Red Book and trying to prove that what they know is a very prosperous country in which they are doing better is somehow being damaged by the Government.

Mr. Salmond

It's the way the Chancellor tells them. Is it not reasonable to suppose that, even if by some enormous mischance the Government were to win the election, the Chancellor would not be long for that Dispatch Box? I watched the faces of those behind him. They put up with him now because they cannot afford not to. Is it not the case that, whether the Conservatives win or lose the election, the Chancellor will pay the price of his pro-European views? Is it not true that he will be cast away like an old pair of hush puppies?

Mr. Clarke

I warn Labour Members: listen to the Scottish National party already predicting the first Conservative reshuffle after the election. We will take our chances on the reshuffle—it will not be in the hands of the hon. Member for Banff and Buchan, but, because of our improving economic position, nor will it be in the hands of the Labour party.

From the exchange of statistics that has bewildered the British public for the past week, let me extract another incontrovertible fact—the fall in unemployment. I have heard the occasional Labour Member saying that somehow there is something wrong with the figures, but they tend to retreat when the realise that we are talking as much about the labour force survey figures as about the claimant count. The fact is that unemployment has fallen to its lowest level for more than five and a half years. It has fallen by nearly 1 million since December 1992; it will shortly drop through the 2 million mark; and it will go on falling.

We have had five or six days in which no Labour Member has commented on those unemployment figures. They have merely expressed mild queries about our assumption of continued falls in unemployment over the next two or three years. That is the reality of economic performance—it is what this Budget will help Britain to produce, and it is more relevant to the considerations of people in the real world outside.

Consumer confidence is at its highest level for more than eight years. Is any Labour Member prepared to gainsay that? Is any Labour Member prepared to deny that it shows a feeling of growing confidence in improving family incomes? I have stated my expectations—I have said that consumer spending will rise by 3 per cent. this year and by 4.25 per cent. in 1997. I have heard no alternative—I have heard no one say that those figures are over-estimates. How can that be, if Labour Members are trying to persuade us that people out there are crushed by a burden of growing taxation that is making them £2,000 worse off than they were in 1992?

That is not even the right allegation. It was the clichæ that the hon. Member for Edinburgh, Central got wrong. It is a peculiar conglomeration of apparently aggregate sums of extra tax paid over the four years since 1992, taking account of rising wages—as though that is some extra penalty—but somehow indexing the tax levels that we had in 1992.

Business investment is increasing. It is expected to rise by 6 per cent. in 1996 and by more than 9 per cent. next year. In ways as yet undescribed, the Labour party occasionally hints that that might improve, if we had a Labour Government—but I have heard little to convince me of that.

Let me lay to rest a few myths about Britain's investment performance, because it is our current investment performance that gives us hope for the continued growth with rising prosperity that we expect. Since 1979, whole-economy investment has grown faster here than in any other major European country. For the benefit of the hon. Member for Cardiff, West, over the past economic cycle it has grown three times as fast as it grew in the 1970s.

As any business man knows, the quality of investment is just as important as the quantity. If we were only bothered about the quantity of investment, the economy of the former Soviet Union would now be one the triumphs of the world; but in Britain, not only do we have a greater quantity of investment than we used to have, but its quality is infinitely better.

The OECD has said that Britain is the only major industrial country where business investment has become more productive since 1979. Our exports are rising strongly, and contributing to our best overall trading performance for nearly 10 years. That is what we should have heard about, and I do not believe that slogans and selective statistics are any answer to that.

Mr. Malcolm Bruce

Will the right hon. and learned Gentleman give way?

Mr. Clarke

I cannot. I apologise for not giving way, because the hon. Gentleman usually makes a contribution of greater substance than anything from the Labour Front Benchers. With his agreement, let me comment on that lack of substance.

If there was any contribution to be made, it should have been on what Labour would do. The deputy Leader of the Opposition was critical of our borrowing performance, but gave no indication of what his party's intentions. If they think that they can do better, how would Labour's Front Benchers tackle the borrowing performance? How would they improve on our spending plans? I asked the right hon. Gentleman whether he would stick to the spending totals in the Red Book, or, if not, whether he would adjust them upwards or downwards. His answer was two minutes of incomprehensible gobbledegook—he had no reply. That is not surprising, because, as my right hon. Friend the Chief Secretary has pointed out, the Labour party is committed to £30 billion-worth of extra spending. [Interruption.] The hon. Member for Edinburgh, Central seems to deny that. We are trying to have a sensible debate with him.

Our figures are all taken from statements by the Labour party, costed as best we can. If they are wrong, the hon. Gentleman can simply correct the figures and give us the real ones. We will act on the promises. When we add to the £30 billion the nods and winks that the Labour party has given to every lobby group, and when we consider its incredible claims on taxation, it is clear that it has no answer.

This Budget will make Britain better off. The Labour party has no answer to it—and the Labour party is the major threat to continued prosperity for many years to come.

Question put, That the amendment be made:—

The House divided: Ayes 312, Noes 317.

Division No. 18]	[9.59 pm
AYES
Abbott, Ms Diane	Bradley, Keith
Adams, Mrs Irene	Bray, Dr Jeremy
Ainger, Nick	Brown, Gordon (Dunfermline E)
Ainsworth, Robert (Cov'try NE)	Brown, Nicholas (Newcastle E)
Allen, Graham	Bruce, Malcolm (Gordon)
Alton, David	Burden, Richard
Anderson, Donald (Swansea E)	Byers, Stephen
Anderson, Ms Janet (Ros'dale)	Caborn, Richard
Armstrong, Ms Hilary	Callaghan, Jim
Ashdown, Paddy	Campbell, Mrs Anne (C'bridge)
Ashton, Joseph	Campbell, Menzies (Fife NE)
Austin-Walker, John	Campbell, Ronnie (Blyth V)
Banks, Tony (Newham NW)	Campbell-Savours, D N
Bames, Harry	Canavan, Dennis
Barron, Kevin	Cann, Jamie
Battle, John	Carlile, Alex (Montgomery)
Bayley, Hugh	Chidgey, David
Beckett, Mrs Margaret	Chisholm, Malcolm
Beggs, Roy	Church, Ms Judith
Beith, A J	Clapham, Michael
Bell, Stuart	Clark, Dr David (S Shields)
Benn, Tony	Clarke, Tom (Monklands W)
Bennett, Andrew F	Clelland, David
Benton, Joe	Clwyd, Mrs Ann
Bermingham, Gerald	Coffey, Ms Ann
Berry, Roger	Cohen, Harry
Betts, Clive	Connarty, Michael
Blair, Tony	Cook, Frank (Stockton N)
Blunkett, David	Cook, Robin (Livingston)
Boateng, Paul	Corbyn, Jeremy
Boyes, Roland	Corston, Ms Jean

Cousins, Jim	Hoyle, Doug
Cox, Tom	Hughes, Kevin (Doncaster N)
Cummings, John	Hughes, Robert (Ab'd'n N)
Cunliffe, Lawrence	Hughes, Roy (Newport E)
Cunningham, Jim (Cov'try SE)	Hughes, Simon (Southwark)
Cunningham, Dr John	Hume, John
Cunningham, Ms R (Perth Kinross)	Hutton, John
Dafis, Cynog	Illsley, Eric
Dalyell, Tam	Ingram, Adam
Darling, Alistair	Jackson, Ms Glenda (Hampst'd)
Davidson, Ian	Jackson, Mrs Helen (Hillsborough)
Davies, Bryan (Oldham C)	Jamieson, David
Davies, Chris (Littleborough)	Janner, Greville
Davies, Denzil (Llanelli)	Jenkins, Brian D (SE Staffs)
Davies, Ron (Caerphilly)	Johnston, Sir Russell
Davis, Terry (B'ham Hodge H)	Jones, Barry (Alyn & D'side)
Denham, John	Jones, Ieuan Wyn (Ynys Môn)
Dewar, Donald	Jones, Jon Owen (Cardiff C)
Dixon, Don	Jones, Dr L (B'ham Selly Oak)
Dobson, Frank	Jones, Martyn (Clwyd SW)
Donohoe, Brian H	Jones, Nigel (Cheltenham)
Dowd, Jim	Jowell, Ms Tessa
Dunwoody, Mrs Gwyneth	Kaufman, Gerald
Eagle, Ms Angela	Keen, Alan
Eastham, Ken	Kennedy, Charles (Ross C & S)
Etherington, Bill	Khabra, Piara S
Evans, John (St Helens N)	Kilfoyle, Peter
Ewing, Mrs Margaret	Kirkwood, Archy
Faulds, Andrew	Lester, Miss Joan (Eccles)
Field, Frank (Birkenhead)	Lewis, Terry
Fisher, Mark	Liddell, Mrs Helen
Flynn, Paul	Litherland, Robert
Forsythe, Clifford (S Antrim)	Livingstone, Ken
Foster, Derek	Lloyd, Tony (Stretf'd)
Foster, Don (Bath)	Llwyd, Elfyn
Foulkes, George	Loyden, Eddie
Fraser, John	Lynne, Ms Liz
Fyfe, Mrs Maria	McAllion, John
Galbraith, Sam	McAvoy, Thomas
Galloway, George	McCartney, Ian (Makerf'ld)
Gapes, Mike	McCartney, Robert (N Down)
Garrett, John	McCrea, Rev William
George, Bruce	Macdonald, Calum
Gerrard, Neil	McFall, John
Gilbert, Dr John	McGrady, Eddie
Godman, Dr Norman A	McKelvey, William
Godsiff, Roger	Mackinlay, Andrew
Golding, Mrs Llin	McLeish, Henry
Gordon, Ms Mildred	Maclennan, Robert
Graham, Thomas	McMaster, Gordon
Grant, Bernie (Tottenham)	McNamara, Kevin
Griffiths, Nigel (Edinburgh S)	MacShane, Denis
Griffiths, Win (Bridgend)	McWilliam, John
Grocott, Bruce	Madden, Max
Gunnell, John	Maddock, Mrs Diana
Hain, Peter	Mahon, Mrs Alice
Hall, Mike	Mallon, Seamus
Hanson, David	Mandelson, Peter
Hardy, Peter	Marek, Dr John
Harman, Ms Harriet	Marshall, David (Shettleston)
Harvey, Nick	Marshall, Jim (Leicester S)
Hattersley, Roy	Martin, Michael J (Springbum)
Henderson, Doug	Martlew, Eric
Hendron, Dr Joe	Maxton, John
Heppell, John	Meacher, Michael
Hill, Keith (Streatham)	Meale, Alan
Hinchliffe, David	Michael, Alun
Hodge, Ms Margaret	Michie, Bill (Shef'ld Heeley)
Hoey, Miss Kate	Michie, Mrs Ray (Argyll Bute)
Hogg, Norman (Cumbernauld)	Milbum, Alan
Home Robertson, John	Miller, Andrew
Hood, Jimmy	Mitchell, Austin (Gt Grimsby)
Hoon, Geoffrey	Moonie, Dr Lewis
Howarth, Alan (Stratf'd-on-A)	Morgan, Rhodri
Howarth, George (Knowsley N)	Morley, Elliot
Howells, Dr Kim	Morris, Alfred (Wy'nshawe)

Morris, Ms Estelle (B'ham Yardley)	Simpson, Alan
Morris, John (Aberavon)	Skinner, Dennis
Mowlam, Ms Marjorie	Smith, Andrew (Oxford E)
Mudie, George	Smith, Chris (Islington S)
Mullin, Chris	Smith, Llew (Blaenau Gwent)
Murphy, Paul	Smyth, Rev Martin (Belfast S)
Nicholson, Miss Emma (W Devon)	Snape, Peter
Oakes, Gordon	Soley, Clive
O'Brien, Mike (N Warks)	Spearing, Nigel
O'Brien, William (Normanton)	Spellar, John
O'Hara, Edward	Squire, Ms R (Dunfermline W)
Olner, Bill	Steinberg, Gerry
O'Neill, Martin	Stevenson, George
Orme, Stanley	Stott, Roger
Paisley, Rev Ian	Strang, Dr Gavin
Parry, Robert	Straw, Jack
Pearson, Ian	Sutcliffe, Gerry
Pendry, Tom	Taylor, Mrs Ann (Dewsbury)
Pickthall, Colin	Taylor, Matthew (Truro)
Pike, Peter L	Thompson, Jack (Wansbeck)
Pope, Greg	Thumham, Peter
Powell, Sir Raymond (Ogmore)	Timms, Stephen
Prentice, Mrs B (Lewisham E)	Tipping, Paddy
Prentice, Gordon (Pendle)	Tounig, Don
Prescott, John	Trickett, Jon
Primarolo, Ms Dawn	Turner, Dennis
Purchase, Ken	Tyler, Paul
	Vaz, Keith
Quin, Ms Joyce	Walker, A Cecil (Belfast N)
Radice, Giles	Walker, Sir Harold
Randall, Stuart	Wallace, James
Raynsford, Nick	Walley, Ms Joan
Reid, Dr John	Wardell, Gareth (Gower)
Rendel, David	Wareing, Robert N
Robertson, George (Hamilton)	Watson, Mike
Robinson, Geoffrey (Cov'try NW)	Welsh, Andrew
Robinson, Peter (Belfast E)	Wicks, Malcolm
Roche, Mrs Barbara	Wigley, Dafydd
Rogers, Allan	Williams, Alan (Swansea W)
Rooker, Jeff	Williams, Alan W (Carmarthen)
Rooney, Terry	Wilson, Brian
Ross, Ernie (Dundee W)	Winnick, David
Ross, William (E Lond'y)	Wise, Mrs Audrey
Rowlands, Ted	Worthington, Tony
Ruddock, Ms Joan	Wray, Jimmy
Salmond, Alex	Wright, Dr Tony
Sedgemore, Brian	Young, David (Bolton SE)
Sheerman, Barry
Sheldon, Robert	Tellers for the Ayes:
Shore, Peter	Mrs. Jane Kennedy and
Short, Ms Clare	Mr. Eric Clarke.
NOES
Ainsworth, Peter (E Surrey)	Biffen, John
Aitken, Jonathan	Body, Sir Richard
Alexander, Richard	Bonsor, Sir Nicholas
Alison, Michael (Selby)	Booth, Hartley
Allason, Rupert (Torbay)	Boswell, Tim
Amess, David	Bottomley, Peter (Eltham)
Ancram, Michael	Bottomley, Mrs Virginia
Arbuthnot, James	Bowden, Sir Andrew
Arnold, Jacques (Gravesham)	Bowis, John
Ashby, David	Boyson, Sir Rhodes
Aspinwall, Jack	Brandreth, Gyles
Atkins, Robert	Brazier, Julian
Atkinson, David (Bour'mth E)	Bright, Sir Graham
Atkinson, Peter (Hexham)	Brooke, Peter
Baker, Kenneth (Mole V)	Brown, Michael (Brigg Cl'thorpes)
Baker, Nicholas (N Dorset)	Browning, Mrs Angela
Baldry, Tony	Bruce, Ian (S Dorset)
Banks, Matthew (Southport)	Budgen, Nicholas
Banks, Robert (Harrogate)	Burns, Simon
Batiste, Spencer	Burt, Alistair
Bellingham, Henry	Butcher, John
Bendall, Vivian	Butler, Peter
Beresford, Sir Paul	Butterfill, John

Carlisle, John (Luton N)	Hague, William
Carlisle, Sir Kenneth (Linc'n)	Hamilton, Sir Archibald
Carrington, Matthew	Hamilton, Neil (Tatton)
Carttiss, Michael	Hampson, Dr Keith
Cash, William	Hanley, Jeremy
Channon, Paul	Hannam, Sir John
Chapman, Sir Sydney	Hargreaves, Andrew
Churchill, Mr	Harris, David
Clappison, James	Haselhurst, Sir Alan
Clark, Dr Michael (Rochf'd)	Hawkins, Nick
Clarke, Kenneth (Rushcliffe)	Hawksley, Warren
Clifton-Brown, Geoffrey	Hayes, Jerry
Coe, Sebastian	Heald, Oliver
Colvin, Michael	Heath, Sir Edward
Congdon, David	Heathcoat-Amory, David
Conway, Derek	Hendry, Charles
Coombs, Anthony (Wyre F)	Heseltine, Michael
Coombs, Simon (Swindon)	Hicks, Sir Robert
Cope, Sir John	Higgins, Sir Terence
Cormack, Sir Patrick	Hill, Sir James (Southampton Test)
Couchman, James	Hogg, Douglas (Grantham)
Cran, James	Horam, John
Currie, Mrs Edwina	Hordem, Sir Peter
Curry, David	Howard, Michael
Davies, Quentin (Stamf'd)	Howell, David (Guildf'd)
Davis, David (Boothferry)	Howell, Sir Ralph (N Norfolk)
Day, Stephen	Hughes, Robert G (Harrow W)
Deva, Nirj Joseph	Hunt, David (Wirral W)
Devlin, Tim	Hunt, Sir John (Ravensb'ne)
Dicks, Terry	Hunter, Andrew
Dorrell, Stephen	Hurd, Douglas
Douglas-Hamilton, Lord James	Jack, Michael
Dover, Den	Jackson, Robert (Wantage)
Duncan, Alan	Jenkin, Bernard (Colchester N)
Duncan Smith, Iain	Jessel, Toby
Dunn, Bob	Johnson Smith, Sir Geoffrey
Durant, Sir Anthony	Jones, Gwilym (Cardiff N)
Dykes, Hugh	Jones, Robert B (W Herts)
Eggar, Tim	Jopling, Michael
Elletson, Harold	Kellett-Bowman, Dame Elaine
Emery, Sir Peter	Key, Robert
Evans, David (Welwyn Hatf'ld)	King, Tom
Evans, Jonathan (Brecon)	Kirkhope, Timothy
Evans, Nigel (Ribble V)	Knapman, Roger
Evans, Roger (Monmouth)	Knight, Mrs Angela (Erewash)
Evennett, David	Knight, Greg (Derby N)
Faber, David	Knight, Dame Jill (Edgbaston)
Fabricant, Michael	Knox, Sir David
Fenner, Dame Peggy	Kynoch, George
Field, Barry (Isle of Wight)	Lait, Mrs Jacqui
Fishburn, Dudley	Lamont, Norman
Forman, Nigel	Lang, Ian
Forsyth, Michael (Stirling)	Lawrence, Sir Ivan
Forth, Eric	Legg, Barry
Fowler, Sir Norman	Leigh, Edward
Fox, Dr Liam (Woodspring)	Lennox—Boyd, Sir Mark
Fox, Sir Marcus (Shipley)	Lester, Sir Jim (Broxtowe)
Freeman, Roger	Lidington, David
French, Douglas	Lilley, Peter
Fry, Sir Peter	Lloyd, Sir Peter (Fareham)
Gale, Roger	Lord, Michael
Gallie, Phil	Luff, Peter
Gardiner, Sir George	Lyell, Sir Nicholas
Garnier, Edward	MacGregor, John
Gill, Christopher	MacKay, Andrew
Gillan, Mrs Cheryl	Maclean, David
Goodlad, Alastair	McLoughlin, Patrick
Goodson-Wickes, Dr Charles	McNair-Wilson, Sir Patrick
Gorman, Mrs Teresa	Madel, Sir David
Gorst, Sir John	Maitland, Lady Olga
Grant, Sir Anthony (SW Cambs)	Major, John
Greenway, Harry (Ealing N)	Malone, Gerald
Greenway, John (Ryedale)	Mans, Keith
Griffiths, Peter (Portsmouth N)	Marland, Paul
Grylls, Sir Michael	Marlow, Tony
Gummer, John	Marshall, John (Hendon S)

Marshall, Sir Michael (Arundel)	Soames, Nicholas
Martin, David (Portsmouth S)	Speed, Sir Keith
Mates, Michael	Spencer, Sir Derek
Mawhinney, Dr Brian	Spicer, Sir Jim (W Dorset)
Mayhew, Sir Patrick	Spicer, Sir Michael (S Worcs)
Mellor, David	Spink, Dr Robert
Merchant, Piers	Spring, Richard
Mills, Iain	Sproat, Iain
Mitchell, Andrew (Gedling)	Squire, Robin (Hornchurch)
Mitchell, Sir David (NW Hants)	Stanley, Sir John
Moate, Sir Roger	Steen, Anthony
Monro, Sir Hector	Stephen, Michael
Montgomery, Sir Fergus	Stern, Michael
Moss, Malcolm	Stewart, Allan
Needham, Richard	Streeter, Gary
Nelson, Anthony	Sumberg, David
Neubert, Sir Michael	Sweeney, Walter
Newton, Tony	Sykes, John
Nicholls, Patrick	Tapsell, Sir Peter
Nicholson, David (Taunton)	Taylor, Ian (Esher)
Norris, Steve	Taylor, John M (Solihull)
Onslow, Sir Cranley	Taylor, Sir Teddy
Oppenheim, Phillip	Temple—Morris, Peter
Ottaway, Richard	Thomason, Roy
Page, Richard	Thompson, Sir Donald (Calder V)
Paice, James	Thompson, Patrick (Norwich N)
Patnick, Sir Irvine	Thornton, Sir Malcolm
Patten, John	Townend, John (Bridlington)
Pattie, Sir Geoffrey	Townsend, Cyril D (Bexl'yh'th)
Pawsey, James	Tracey, Richard
Peacock, Mrs Elizabeth	Tredinnick, David
Pickles, Eric	Trend, Michael
Porter, David	Trotter, Neville
Portillo, Michael	Twinn, Dr Ian
Powell, William (Corby)	Vaughan, Sir Gerard
Rathbone, Tim	Viggers, Peter
Redwood, John	Waldegrave, William
Renton, Tim	Walden, George
Richards, Rod	Walker, Bill (N Tayside)
Riddick, Graham	Waller, Gary
	Ward, John
Rifkind, Malcolm	Wardle, Charles (Bexhill)
Robathan, Andrew	Waterson, Nigel
Roberts, Sir Wyn	Watts, John
Robertson, Raymond S (Ab'd'n S)	Wells, Bowen
Robinson, Mark (Somerton)	Wheeler, Sir John
Roe, Mrs Marion	Whitney, Ray
Rowe, Andrew	Whittingdale, John
Rumbold, Dame Angela	Widdecombe, Miss Ann
Ryder, Richard	Wiggin, Sir Jerry
Sackville, Tom	Wilkinson, John
Sainsbury, Sir Timothy	Willetts, David
Shaw, David (Dover)	Wilshire, David
Shaw, Sir Giles (Pudsey)	Winterton, Mrs Ann (Congleton)
Shephard, Mrs Gillian	Winterton, Nicholas (Macclesf'ld)
Shepherd, Sir Colin (Heref'd)	Wolfson, Mark
Shepherd, Richard (Aldridge)	Yeo, Tim
Shersby, Sir Michael	Young, Sir George
Sims, Sir Roger
Skeet Sir Trevor	Tellers for the Noes:
Smith, Sir Dudley (Warwick)	Mr. Timothy Wood and
Smith, Tim (Beaconsf'ld)	Mr. Michael Bates.

Question accordingly negatived.

Main Question put and agreed to.

Resolved, That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—

1. (a) for zero-rating or exempting a supply, acquisition or importation;
2. (b) for refunding an amount of tax;
907
3. (c) for varying any rate at which that tax is at any time chargeable; or
4. (d) for any relief, other than a relief which—
5. (i) so far as it is applicable to goods, applies to goods of every description, and
6. (ii) so far as it is applicable to services, applies to services of every description.

MR. DEPUTY SPEAKER then, pursuant to paragraph (3) of Standing Order No. 50 (Ways and Means motions), put forthwith the Questions necessary to dispose of the further motions.

2. SPIRITS, AND WINES OF EQUIVALENT STRENGTH (RATES OF DUTY)

Resolved, That—

1. (1) In section 5 of the Alcoholic Liquor Duties Act 1979, for "£19.78" there shall be substituted "£18.99".
2. (2) In Part II of the Table of rates of duty in Schedule 1 to that Act, for "19.78" there shall be substituted "18.99".
3. (3) This Resolution shall have effect as from 6 o'clock in the evening of 26th November 1996.

And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.