§ 5.2 pm
§ Mr. Gordon Brown (Dunfermline, East)
This afternoon, the Secretary of State for the Environment has confirmed yet another tax rise that will result from yesterday's Budget: the Government-imposed rise in council tax for every family in the land.
I want to start my examination of the Budget by looking at the ground on which the Conservatives have always chosen to fight: taxation. I want to go through the Government's statements in the Red Book, to see what has happened to people's tax bills as a result of the Budget. My argument will be that, although yesterday Britain needed a Budget that would equip us for the future, with measures for investment, measures to create jobs for young people and the long-term unemployed and new policies for education and industry, to ensure sustainable growth, the Chancellor gave us a Budget that does not even begin to make amends for the broken taxation promises of the past.
Let us consider the detail that emerged when we looked at the Red Book. The rise in insurance tax will mean extra taxes of £325 million—£455 million in a full year. The airports tax means that it will cost £80 for a family of four to travel to America. It means extra taxes of £120 million in the first year and £385 million in a full year. The extension of value added tax to new items means extra taxes of £160 million to start with and £235 million—a quarter of a billion—in a full year. Petrol tax will mean extra taxes of £850 million and tobacco duty extra taxes of £335 million. The first five tax rises of the Budget will cost British taxpayers more than £2 billion in a full year. Extra bills and new charges for ordinary families on insurance, holidays and VAT, plus today's council tax rise, wipe out the 1p cut in 365 income tax and the other changes in rates and allowances, and cannot undo the damage done by previous tax increases.
There is a tax rise to come: the loss of tax relief on profit-related pay. When that change is finally made, someone on the basic rate who earns £20,000 a year might lose up to £920 a year—£18 a week. That is a Tory tax bombshell for ordinary employees. Next year, £100 million will be taken; the year after, £700 million; and in 1999, £1.7 billion; that is £4 billion more in taxes overall. All that is from the Government who encouraged, lured and enticed companies and employees to embark on profit-related schemes. The Government must now explain to the 3.75 million employees, many of whom are low paid, why that tax relief is being withdrawn.
Given all the evidence of tax rise after tax rise that was announced yesterday, it is already hard to remember that the Budget was supposed to solve the tax problem for the Tories; it was supposed to restore the Conservative party's reputation as a tax-cutting party and wipe out in one afternoon the memory of its 22 tax rises since 1992. I remember that over the past year Tories used to tell us from the Back Benches, "Just wait and see. We shall be tax cutters again." After the Budget, in one bound, free from all the broken promises, they were going to be free to fight the election. This, the last Budget before the people's verdict, was to set the seal on the Conservative years. The imposition of tax increases that had been justified because of the recession was to be replaced by tax cuts in a recovery.
What has happened with the last chance to undo the damage of 22 tax rises since 1992 and to reduce the extra £2,000 tax bill that people pay? What happened after the Chancellor said in his Budget speech that the Conservatives were again to be the tax-cutting party? What has happened on the central issue on which the Conservative party asked to be judged by the people at the previous election? Let us be clear about the facts of yesterday's Budget. Not only have the Government given with one hand and taken with the other—that we already know—but they have once again taken more from the British people than they have given.
§ Sir Terence Higgins (Worthing)
The right hon. Gentleman keeps chuntering on about 22 tax rises, which include many items that no one in their right mind would regard as a tax increase. The most that he could accumulate by way of an increase was a total of something like £2 billion. Would the windfall tax raise more than that or less?
§ Mr. Brown
The windfall tax is not a tax on ordinary families. VAT is a tax on ordinary families; national insurance is a tax on ordinary families; withdrawing mortgage tax relief is a tax on all this country's families; cutting the married couple's allowance is a tax on ordinary families. If the right hon. Gentleman, for whom I have a great deal of respect from his days in the Treasury Committee, would like me to do so, I should be happy to read into the record the 22 tax rises since 1992.
As a result of the Budget, the tax burden has risen, not fallen. When people throughout the country understand that that is the truth, they will never trust the Tories again. One does not need to look in Labour's press releases to find that out. All one needs to do is look at the Red Book 366 itself—what the Chancellor published yesterday afternoon. Page 147 of the Red Book shows taxes up at £1,085 million and taxes down at £735 million, giving a total tax rise of £350 million. That is all on pages 146–47 of the Red Book. I know that the Chancellor did not read the Maastricht treaty, and he is now looking at the Red Book. I shall be happy to give way to the Chancellor later, if he wants to point out that what I have said is not the truth.
§ Sir Peter Fry
If one follows the right hon. Gentleman's argument thus far—that the Budget includes many tax increases—it appears that, if he were being totally honest, he should advise his hon. Friends to vote against the reduction in income tax that the Chancellor announced yesterday.
§ Mr. Brown
I will not, and nor will any Labour Member, take lessons on honesty on taxation from Conservative Members. I am grateful to the hon. Gentleman for intervening, because it gives me the chance to remind him of something that his constituents will remind him of at the next election—what he said in his election manifesto. I shall quote it because he may want to repeat it, on the ground of honesty, in his 1997 manifesto. It said:John Major Promises: … tax—no increase in VAT".When the Chancellor has read page 147 of the Red Book, perhaps he will also look at page 80. The total tax burden for this year is 37.7 per cent. Will it rise or fall next year? It will rise to 38 per cent., to 38.1 per cent. the year after that and to 38.5 per cent the year after that. And this is the Government who promised to cut taxes year on year. This Budget, which was to restore their reputation as tax cutters—
§ Mr. Waldegrave
I think the right hon. Gentleman has the wrong page—he means page 88. If he looks at that page, he will see that it confirms that the tax and national insurance contributions burden, going into the next election, will be lower than the tax and NIC burden going into the previous election.
§ Mr. Waldegrave
The right hon. Gentleman has now changed the base year. The comparison used by the leader of the Labour party was the year going into the election, which was 1991–92.
§ Mr. Brown
I do not know whether the right hon. Gentleman remembers the circumstances in which we 367 fought the previous election, but the Government announced their Budget before the election. For 1992–93, they announced their position on total taxes and national insurance—I shall use the other table now—which was that 34¼ per cent. of national income would be taken in tax. What is the position next year? The table shows 36¼ per cent. Once again, we see a Government who say at the election that they will cut taxes and who then eventually raise taxes. We now find that last year's Budget, which was in truth a tax-cutting Budget, was merely the interval between one tax-raising Budget and another. The Government raised taxes in recession and blamed the recession: they are now raising taxes in recovery, but who will they blame this time?
§ The Chancellor of the Exchequer (Mr. Kenneth Clarke)
About five of the 22 tax increases that the right hon. Gentleman mentioned are increases in tobacco taxation, to which we are committed. Some of our future commitment to raise taxation is a commitment to continue to raise the tax on tobacco in real terms. The Labour party supports that—I think—or has it not yet made up its mind? Perhaps tax on tobacco is like the windfall tax and eventually we shall get a decision on it.
§ Mr. Brown
I am grateful to the Chancellor for intervening and allowing me to explain the 22 tax rises listed in our document. It might pay the Conservatives to look at that document, because they will see the full damage of what they have done. The allowances and taxes affected include personal tax allowances; married couple's allowances; fuel duties; mortgage interest relief; VAT on domestic fuel; insurance tax, at 2½ per cent.; airports tax; and supplementary budget increases. Are not those taxes that hit ordinary people?
§ Mr. Clarke
I shall not try to get the right hon. Gentleman to say which of those he would repeal or how many of the allowances he would restore, but I asked him about tobacco taxation. He knows that many of the tax increases that he is complaining about are increases in the tax on tobacco, and he knows that the future projections include a commitment to a real terms increase in the tax on tobacco. Half his party complains about the inadequacy of the tax that we are imposing on tobacco. What is the right hon. Gentleman's position on that and why is he complaining about it?
§ Mr. Brown
That is interesting to hear from the Chancellor. I read out the list, which does not include tobacco duties, and he then stands up and says that it does. I shall tell him: it does not include tobacco duties. He asked me whether the list included any tax that we would reduce and I shall tell him. We will bring down VAT on fuel.
After yesterday's Budget, what will Conservative Members, very few of whom have dared to appear after yesterday. tell—
§ Mr. Brown
The hon. Gentleman allows me to remind him of what he said to his electors at the previous election, for which he will have to answer. We have made the situation clear on our utilities tax. We will consult the regulators and we will announce the details in a Labour Budget and, after yesterday, the sooner we have that Budget, the better. The hon. Gentleman might have a more difficult time explaining himself to his electors at the next general election. He should be reminded of what he said in his election manifesto, because he will have to answer for it. He said: "Taxes will be reduced." Some 22 tax rises later, what will he say to his local newspapers and his constituents in Brentford and Isleworth?
Let us remember the commitments on which the Conservatives entered the general election campaign. They said—I quote the Prime Minister—There will be no VAT increase."—[Official Report, 28 January 1992; Vol. 202, c. 808.]What happened? The Government did not cut VAT yesterday. They actually extended it to travel insurance and television rental insurance, to raise hundreds of millions of pounds more.
Let us remember the argument that was used when the Conservatives introduced VAT on fuel. They said that it had to be introduced because of the unforeseen consequences of recession. We are now in recovery, as the Chancellor keeps telling us. He had the chance to mitigate the damage that had been done and to undo at least some of it. But when Conservative Members waved their Order Papers yesterday to applaud the Budget, they were applauding a Budget that chose to leave VAT on fuel at 8 per cent., and that is the most unpopular and unfair tax in the country. They were also applauding a Budget that will extend VAT again.
So there is no doubt about the public's suspicion of a Chancellor and a Government who repeatedly said before the general election that they would not extend VAT, but who continued even yesterday to do so by hundreds of millions of pounds. The Chancellor will have to go into the election explaining his personal views that he would like to see VAT imposed on food, on travel, on books and newspapers and on children's clothes. That is the Chancellor's personal position, and that is what he will be asked about throughout the campaign.
Let us remember the campaign that was fought on national insurance at the previous election. The Labour party's tax bombshell was that we would remove the national insurance ceiling. Labour, the Conservatives said, would raise national insurance charges for those earning above £20,000. What happened? What did the Conservatives do? They raised national insurance for everyone. The Prime Minister's promise was that he 369 would not raise the rate of national insurance, and then he increased it to 10 per cent.
Those increases are not slips, unfortunate accidents or unforeseen consequences that can be wished away as lapses. They are part of a systematic deception of the British public. The Conservatives' promise on national insurance was broken, as was their promise on VAT, because they did not create an economy that was sufficiently successful to deliver the lower tax burden that they promised.
The House may remember the Government's "help for families". The Chancellor talked about families yesterday, and mentioned the married couple's allowance. The Conservatives fought the 1987 election saying that Labour would abolish it, but which party will go into the election as the one that cut the married couple's allowance? Not Labour—it is the Conservative party. The Chancellor confirmed yesterday that, after the Budget, the married couple's allowance will stand at 15 per cent—another Tory tax rise.
What of mortgages? The Tories say all the time that Labour would cut help with mortgages, but which party did so in this Parliament? None other than the Conservatives. The House should remember their manifesto commitment—the Prime Minister said that they would maintain mortgage tax relief. But after yesterday's Budget, mortgage tax relief will still be withdrawn. Once again, the Conservatives will go into the election having cynically broken a promise.
What of the overall tax burden since 1992? The Chancellor—who has intervened in the past few minutes on this—went round the television studios this morning, and was asked a fairly innocuous question on GMTV. "Is the ordinary family taxed more than in 1992?" he was asked. I heard him say, am not sure." With all the authority of the Treasury and its briefing documents behind him, he said that he was "not sure".
Later, the Chancellor went on "Today", and seemed to quote me all the time. He was asked by Mr. Humphrys whether tax had risen since 1979. He replied that it depends on whether people smoke, how big a car they have and how far they drive. Then, I gather, he said at a Treasury press briefing at 10.30 am that the question was a "preposterous irrelevance". It is not a preposterous irrelevance that the people of Britain were told that they would have tax cuts year on year and were then let down.
Let me tell the Chancellor about the overall position. Taxes in 1978–79–34.25 per cent. Taxes next year—36.25 per cent. Whichever way one looks at it, taxes have risen under this Government. They have tried to perform the conjuror's trick of drawing attention to the things that they want people to see, while concealing what they do not want people to see. That is the Tories as they are all the time. Before the election, they raise expectations. After the election, they raise taxes.
§ Mr. Kenneth Clarke
Such a speech does not help the general public understand economic policy in the slightest. As the right hon. Gentleman is carrying on with his three-card trick, can we identify the individual cards? He knows that we shall go into the election with a total tax burden that is no higher than it was in 1991–92, before the previous election. When he comments on 1992, he should remember that 1992 contained two financial 370 years—1991–92 and 1992–93. He is falling about and shifting from one to the other, depending on which comparison and point he wants to make.
The tax burden is the same overall as it was before the previous election. It is no higher, and it is not true for the right hon. Gentleman to say that it is. The burden actually includes all the increases in tobacco duty—I am still waiting to hear whether he objects to them. Is he complaining about them? Will he say that the tax burden is the same as it was before the previous election, as that is the truth?
§ Mr. Brown
The Chancellor seems obsessed with tobacco. I do not suppose—whichever way one looks at it—that I can smoke him out on those matters. But I must tell him that tobacco is not included in our list of 22 tax rises. He is now telling us that the only reason the tax burden is the same as it was in 1992 is because of tobacco. That is astonishing. Had it not been for tobacco, we could have forgotten VAT, national insurance, the married couple's allowance, mortgage tax relief and insurance tax. It is all a result of tobacco.
I can remind the Chancellor and the House of one of his forecasts in which people will believe. In an unguarded moment in Washington in October, the Chancellor said that the public "would be deeply suspicious" of any tax cuts. Why did he say that? He said that because:They remember we promised tax cuts last time and weren't able to deliver them.His judgment on that issue has been proved to be absolutely right, and the public are right to be suspicious.
The Chancellor seems to want to wish away the Conservative manifesto for the previous election.
§ Mr. Clarke
I should not allow myself to be provoked by this nonsense. The right hon. Gentleman knows perfectly well that I gave an explanation in Washington of why I would make only tax cuts that could be afforded by prudent policies. Will he express an opinion on whether the tax cuts that I made yesterday can be afforded by prudent policies? Last year, he could not make up his mind. He did not vote either way, and abstained. Can we talk about the Budget? Will he take up the phrase that I used in Washington and tell me whether the tax cuts that I announced yesterday can or cannot be afforded as a result of prudent policies? Which way will he vote? Will he vote?
§ Mr. Brown
I will come to that in a minute, as I will to the Chancellor's new-found interest in tax loopholes as a way of raising money. I remind him of one of the tax cuts that Labour believes should have been made, and which I think he will regret not having made—that of VAT on fuel. That is what a Labour Government will do.
I have here the manifesto on which the Conservative party fought the previous election, and the one for which the dwindling band of Back Benchers now supporting the Treasury team will have to account when they come to the election. I venture to suggest that the Conservatives got only one word wrong in most of the statements that it contains. The manifesto stated that the Conservatives would maintain mortgage tax relief, when what they meant to say was that they would not maintain mortgage tax relief. On page 8, the manifesto states:We will abolish Stamp Duty on share transactions".371 What they might have said was that they would not abolish stamp duty on share options. The manifesto said that the Conservatives would continue to reduce taxes, when it might have said that they would not continue to reduce taxes.
The Conservative campaign during the summer was that Labour says one thing and does another, but that is the truth about the Conservatives. They say one thing in their manifesto, and they do another in government. In every library in Britain, the 1992 Conservative manifesto should be re-catalogued today as a work of political fiction and put alongside the other work of Jeffrey Archer and his friends.
§ Mr. Geoffrey Robinson (Coventry, North-West)
Will my right hon. Friend confirm that, far from delivering tax reductions year on year, the Conservatives have in fact delivered the biggest tax increase since the second world war?
§ Mr. Brown
We have had the biggest tax increase in our peacetime history, and that is why Conservative Members are so fearful of facing the electorate. They will not be able to defend themselves, because they made tax the central issue at the last general election, as they did at the three previous elections. The electorate are entitled to judge the Conservatives on their central promise.
What of the other promises in the Conservatives' 1992 manifesto? They promised to balance the Budget—again, a broken promise. Yesterday might have been an attempt to eradicate the Conservative party's reputation for high borrowing, but let us remember how it all started. In 1988, the Prime Minister—the then Chief Secretary—said that the Government would balance the Budget every year. Then, as Prime Minister, he said that they would balance the Budget on average over the cycle. He then said that they would balance it in one year in the cycle; then, that they would move towards balance during the cycle. Yesterday, we heard the truth—the Government will balance the Budget. It is in the Red Book. But when? They will balance the Budget in the next century. The Conservative party is not the party of balanced Budgets—it is the party that has doubled the national debt. The Conservative party is the party of the unbalanced Budget.
We must look at exactly what happened in 1992, to explain why we are right to be suspicious of every figure in the Red Book. The Government said in 1992 that borrowing would be £32 billion in the year to follow; it was £45 billion. They said that in the year after it would be £25 billion; it turned out to be £36 billion. They said that it would be £19 billion in the third year; it turned out to be £32 billion. This year, it was supposed to be £6 billion, and it has turned out to be £26.5 billion. The Government were out by £66 billion. That is why the national debt has doubled.
The Government misled the electorate in 1992 about the true state of public finances. The electorate must not be misled again, because all that we have this time are promises about good behaviour in the future. Are we not entitled to judge the Government by their record rather than their promises?
Now the Chancellor tells us that he will balance the Budget, not primarily by growth or by spending cuts, but by what he has discovered in the past few days: loopholes. 372 That is where his new figures come from. I remember his previous references to tax loopholes: he said that they would be as good as brass washers. He made a thing of it in all his speeches, and he said in the House that loopholes did not exist and that we were proposing the economics of "Alice in Wonderland". The Chancellor said that our proposals to close loopholes werenot serious options for revenue raising. This Government have never been a friend to the tax avoidance industry."—[Official Report, 8 December 1994; Vol. 251, c. 474]Now, two years later, the Chancellor admits that the Government have been a friend of that industry all along. He said in 1994 that he had done work to study tax loopholes and had rejected them; but he now accepts as worthy of further investigation the very loopholes that we identified and that he scorned: the abuses in leasing arrangements, in controlled foreign companies, in offshore trusts, in special dividends, and in share buy-back schemes.
Yesterday, the Chancellor said thatbig, sophisticated companies seem to pay so little taxand spoke ofcompanies being 'economical with their tax'."—[Official Report, 26 November 1996; Vol. 286, c. 163.]How has it taken the Government 17 years to find out what we have been telling them all along? If he had devoted his energies to pursuing tax avoidance rather than to knocking down our case, the Chancellor would have raised money far beyond what he proposes to raise in future years.
The Chancellor denied that there were loopholes until the day before the Budget, and now he sees them as his economic salvation. How much money has he lost the country in the past few years by his failure to act? First, the Government let the loopholes happen; then, despite warnings, they ignored them; then they derided anyone who wanted to close them; and now the Chancellor finds, as he tries to reduce the borrowing requirement on the eve of a general election, that they are his last hope of salvation. The Chancellor's statement yesterday was an admission that he had lost the country millions. If only the Government had taken our word, they would not have had to impose VAT on fuel.
If the Chancellor has taken our advice on loopholes, it is about time that he also took our advice on the windfall tax on the utilities. The Conservative party in the past few weeks has become the friend of the privatised utilities, running debates for them in the House of Commons, as if it were a sponsored Conservative party. I gather that on Monday night the chairman of United Utilities—North West Water as was—invited Members of Parliament to a drinks party to celebrate on the eve of the Budget the fact that the Conservative party would not impose a windfall tax. The Conservatives should take the advice of the chairman of the 1922 Committee, who said last year that they should impose a windfall tax on the utilities.
Promises have also been broken on spending. Despite all the promises about settlements above inflation, year on year, the figures show that the Department of Health budget for the second year is falling. Can the Chief Secretary deny that capital expenditure on the health service is being cut by 10 per cent? Can he deny that, of all the projects for the private finance initiative that were to be announced month by month, only one contract has been signed, and that it was signed on the day of the 373 Budget? What are we to make of Ministers who go round promising hospitals in marginal seats and never deliver them? Unless they take action now, they will be building castles in the air, not hospitals on the ground.
§ Mr. Waldegrave
The right hon. Gentleman is creating a good deal of confusion—inadvertently, I am sure—about the falling baseline for the Department of Health in the second year. That is nothing to do with the national health service, but represents the transfer of money to local authorities in a ring-fenced grant for community care. There is a real-terms increase for the national health service in each of the years.
§ Mr. Waldegrave
That is in the local authority settlement. I think, from memory, that the figure is about £300 million, but I shall write to the right hon. Gentleman.
§ The Exchequer Secretary to the Treasury (Mr. Phillip Oppenheim)
He has just explained that.
§ Mr. Brown
No, he was explaining another table, which shows a 0.8 per cent. fall in real terms in the Department of Health budget in the second year, which he now says is accounted for by a £300 million transfer to the Department of the Environment, which is certainly absent from the Department of the Environment figures.
The figure for Department of Health spending in 1998–99 is £35.38 billion and the Chief Secretary is talking about £300 million. Let him explain table 5A.5, which is absolutely clear, and shows that spending on the national health service will be £32.9 billion in 1997–98; £33 billion in 1998–99, an increase of 0.1 per cent.; and £33 billion in 1999–2000. Where is the real-terms increase year on year if spending is frozen between 1998–99 and 1999–2000? Perhaps the right hon. Gentleman can explain that.
§ Mr. Waldegrave
I shall set out the figures in my speech, but I can say now that there is a real-terms increase each year for the national health service, and if one includes the private finance initiatives, there is a bigger real-terms increase.
§ Mr. Brown
We already know that capital expenditure in the national health service is being cut; next year's cut will be 10 per cent. Will the Chief Secretary—I am giving him another chance—explain why the figure for the NHS in 1998–99 is £33 billion, and remains the same for 1999–2000? If there is to be a real-terms increase every year, why is the figure frozen?
§ Mr. Waldegrave
Let me give the hon. Gentleman the exact figures, in all the different forms in which they can be cited. The total NHS plan on plan is a 2 per cent. increase in the first year, then 0.25 per cent., then 0.1 per 374 cent. in the third year. The figures if PFI is included, which is reasonable, are 2.3 per cent. in the first year, then 0.6 per cent., then 0.4 per cent. The patient care figure within that represents a 2.9 per cent. increase in the first year, as my right hon. Friend the Secretary of State said.
§ Mr. Brown
The House will judge from the Minister's figures how small is the Conservatives' commitment to the health service. Table 5A.5 shows that it is planned to spend £33 billion on the health service in 1998–99 and only £33 billion in 1999–2000. What does that suggest? Perhaps the Chief Secretary will devote a considerable proportion of his speech to answering questions from my hon. Friends about what is happening to the health service, because everyone knows that, as on education, one cannot trust the Conservative party.
The Government failed to solve the problems in 17 years, so who would expect them to solve them in the 18th? I know how the trick works, because it was the same with the roads programme. The Government flood people with detail on the day of the Budget, to obscure the real position, and when it comes down to it, one finds that there are cuts far beyond what they announced. Let me tell the Chief Secretary—[Interruption.]
§ Mr. Giles Radice (North Durham)
On a point of order, Mr. Deputy Speaker. Could we adjourn for half an hour so that Treasury Ministers can look at their figures and give the House an authoritative account?
§ Mr. Brown
We can see how it all works from the roads programme that was leaked the day before the Budget. The leak shows how civil servants advised on how to go about things. It said that they were going to cut the long-term transport programme. [Interruption.] The hon. Member for Dover (Mr. Shaw) should listen, because his constituency has a road in the programme, but it is about to disappear—along with him.
§ Mr. David Shaw (Dover)
Does the right hon. Gentleman accept that there is a contingency reserve over the next three years of £15 billion? He clearly has not read the Red Book, because that reserve can more than pay for the increase to which we are committed on health and for the roads programme, which includes the benefit to my constituency. It can more than meet all the Government's needs over the next three years.
§ Mr. Brown
I am giving the hon. Gentleman information to which he should listen. The Dover loop is scheduled to be reconsidered in the long-term programme. Unfortunately, the Selby bypass is more likely to be reprieved because the document says of it:Very popular scheme locally. M Alison MP supports strongly.375 It is a pity that the hon. Member for Dover is not mentioned as defending his road.
§ Mr. Brown
I often give way to the hon. Gentleman. He will be able to speak later, and I am sure that the House will enjoy every part of his contribution.
Let us consider the argument about what has happened over the past 17 years. The Government said that they entered power with one mission in mind. The first Budget of Sir Geoffrey Howe was intended to stop the relative decline of Britain. Now, as we have been saying for the past 12 months, we find that in the world prosperity league—[HoN. MEMBERS: "Oh, no."] They do not like it. It is okay for them to talk all the time about the enterprise centre of Europe, but not for us to mention the truth: that we have fallen behind Italy after falling behind France; fallen behind Hong Kong and Singapore; and fallen from 13th to 18th in the world prosperity league. They should face facts and do something about it.
We know what has been happening to the economy. Over the past 17 years, there has been under-investment in education, in industry and in creating the employment opportunities that are necessary for us to get people back to work, reduce social security costs and get public borrowing under control. Can anyone doubt that the cracks are starting to appear in the Chancellor's story about what the Prime Minister described to the Conservative conference as the economic miracle? Interest rates and inflation are rising and manufacturing investment is falling. The Chancellor had to report yesterday that manufacturing output is stagnating. The balance of trade deficit has started to worsen again, especially in manufacturing.
Under the Conservatives, everyone fears that we face the return of the old stop-go economic cycle, where a consumer expansion is allowed for a time, but because it is not underpinned by the necessary industrial investment, it eventually leads to inflationary pressures that threaten to derail a recovery. However, because we are near to a general election, we get the usual Conservative story. The Conservatives say that the problems are solved, prospects are brighter than for a generation and Britain is the envy of the world. The economic miracle is declared in 1996, as it was, wrongly, in 1988. Every time with the Conservatives, we find that, after a general election, the picture looks quite different.
The Chancellor failed the country most in that his Budget did not equip Britain for the future. He failed because there was no new measure to get new investment in the high-technology industries in which small and medium-sized businesses are trying to expand. He failed to take up our proposals for education—in the classroom, in a university for industry and in new chances for people after school. He failed, and continues to pay the price of high borrowing, because he did not take the measures necessary to get the young and the long-term unemployed back to work.
There is a figure that should haunt the Government as they face the general election. Whatever they say about the official statistics for unemployment, the truth is there 376 for every community to see: in 20 per cent. of working-age households, no one earns a wage. That is far worse than in France or Germany, almost twice as bad as in the United States of America, and on a par with Spain. The Government fail to act on that because they do not begin to admit that it is a problem. If they do not take action, we shall continue to slide down the world prosperity league.
We have already fallen below the average for national income per head in Europe. We have fallen further away from the top countries in Europe on that. The big challenge that faces the next Government will be to equip the country in education, in investment and in creating new employment opportunities for our future. In doing so, we shall tell the country the truth about what is happening to borrowing, spending and the state of the economy.
Let us sum up the election pledges that were made by the Conservatives in 1992 and see how they will have to account for themselves after their last Queen's Speech and Budget. The pledge to balance the Budget was broken. They said that their commitment to the environment was beyond doubt, but they cut the environment budget: promise broken. The pledge to maintain mortgage tax relief for home owners: broken. They said that we would be the best housed nation in Europe, but homelessness has doubled: promise broken. They promised to introduce legislation to deal with cartels and monopolies, but none was introduced: promise broken.
In 1992, the Conservatives promised to increase the number of nurses; they promised that 80 per cent. of young people would have qualifications by the end of the Parliament; they promised the biggest investment in transport infrastructure in Britain's history. All those manifesto promises were broken. People will remember most of all the promises on VAT, national insurance, mortgage tax relief and home insurance. All the promises on taxation have been cynically broken. Their promises broken, their record exposed, and their repeated failures made obvious so that they cannot be trusted again, they should face the truth. They should face the electorate. They will have to face the consequences: a change of Government.
§ The Chief Secretary to the Treasury (Mr. William Waldegrave)
I do not think that I will be contradicted if I say that that was a vintage performance by the right hon. Member for Dunfermline, East (Mr. Brown). It was characteristically witty and full of bombast. There was only one problem: he found no time to mention the Budget. That may be because he has not made up his mind about it. A good example of that was the way in which he dealt with profit-related pay.
My right hon. and learned Friend the Chancellor of the Exchequer has set out plans for running down and removing the tax privilege for profit-related pay. The right hon. Member for Dunfermline, East made a tremendous to-do about how terrible that was, how people would lose and what it would cost employers, but he did not say what his attitude was. If he were in government, would he maintain that tax privilege? Would he ignore the advice of officials in the Department, and from wise advisers outside, that, having needed pump-priming to get PRP going, it is advancing so swiftly that it will knock a large hole in the Government's receipts unless action is taken? 377 He did exactly what he and his hon. Friends always do, which is to address the lobby and say, "We're really on your side on this. These wicked Tories are taking away the tax relief on PRP." But he did not say, and will not say, whether he will reinstate it.
That, I suspect, is what the right hon. Gentleman will do on all the principal issues in the Budget, as he did last year. After much bombast throughout the week and a terrific number of pre-buttals and post-buttals, with the hon. Member for Hartlepool (Mr. Mandelson) being much engaged in the lobbies, and so on, Labour will bravely decide to abstain on all the principal issues.
Having had an entertaining time doing that for a bit in his usual way, the right hon. Member for Dunfermline, East then went back to what is even more natural for him: good old doom and gloom. The fundamental problem that the right hon. Gentleman faces is that he wants bad news, but he cannot find it. He knows very well that he cannot deny the strength of the British economy. Take inflation: he knows that the OECD was right when it said that our inflation performance during the past four years "has been remarkably good". In fact, Britain's inflation record is our best for 50 years.
With rather unseemly hope, the right hon. Gentleman grasped at the October inflation figure. At last, he hoped, there was some really bad news for him to celebrate. But even that crumbled in his hands, as commentators pointed out that the October inflation performance was the fourth best since the war, and the apparent rise derived from the fact that the year before had the best October performance since the war. There was no inflation increase in October over September.
§ Mr. Stephen Timms (Newham, North-East)
Will the Chief Secretary confirm that the UK's inflation performance was the 11th worst in Europe?
§ Mr. Waldegrave
We have joined the main pack of low-inflation countries. The hon. Gentleman should remember that the best that a Labour Chancellor could do on inflation in a similar situation in the run-up to the 1979 election was to find one month's rate, annualise it and then claim that inflation was running at 8.4 per cent., when actually it was running at more than 20 per cent. So let us not have any lectures from Labour on inflation.
§ Mr. Alistair Darling (Edinburgh, Central)
Will the Chief Secretary now answer that point? Are we not llth out of 15 in terms of inflation in Europe, and why is that?
§ Mr. Waldegrave
We are now with the low-inflation group in Europe. That, as my hon. Friend the Exchequer Secretary to the Treasury helpfully points out, is quite different from what happened when Labour was in power, and quite different from what would happen if Labour was in power again, for reasons to which I shall come later.
§ Mr. Waldegrave
No. I am sure that the hon. Gentleman will think up another intervention later. Perhaps he would like to intervene on the next subject.
On growth, the right hon. Member for Dunfermline, East cannot deny that we are now in our fifth year of non-inflationary growth and that the International 378 Monetary Fund and the Organisation for Economic Co-operation and Development expect us to be the fastest growing major European economy in 1996 and 1997. Perhaps the hon. Member for Workington (Mr. Campbell-Savours) wants to intervene on that. He does not find anything to object to in that—quite rightly.
§ Mr. Campbell-Savours
Perhaps the Chief Secretary will now give a clear answer to the question that he was asked two minutes ago. Are we the 11th highest inflation country in Europe—yes or no? Can we have a factual statement? We are or we are not.
§ Mr. Waldegrave
We are now among the group with low and permanently low inflation, and there is every reason to think that the inflation target of my right hon. and learned Friend the Chancellor will be hit. For Labour to think that it can compete in low inflation is rather childish.
§ Mr. Nicholas Budgen (Wolverhampton, South-West)
Does my right hon. Friend intend to devote a passage in his speech to monetary policy?
§ Mr. Waldegrave
I can devote a passage to monetary policy if my hon. Friend would like me to, although that is more a matter for my right hon. and learned Friend the Chancellor than for the Chief Secretary. What I will say on monetary policy is this, and I hope that my right hon. and learned Friend will endorse it: I know what is worrying my hon. Friend, which is that some of the monetary indicators are at the top of their ranges—
§ Mr. Waldegrave
—and one of them is above. Those ranges are among the things that my right hon. and learned Friend looks at extremely closely when he comes to set up his monetary policy. There are some special reasons put forward by the technicians—
§ Mr. Waldegrave
—as my hon. Friend says, there always are—as to why we should be careful not to over-interpret those figures. But my right hon. and learned Friend will take the necessary action, in time, to hit his inflation target. That is the proper guarantee to give in relation to monetary policy.
On trade, the right hon. Member for Dunfermline, East knows that, as a result of British industry's hugely improved performance in the 1980s and 1990s, the sustained growth that we are getting is not running us into a balance of payments crisis, as so often before.
During the past three years, export volumes have risen by 30 per cent., and income from overseas investment is running at record levels. The results are seen not only in industries where we have always been strong, such as service industries, chemicals and aircraft, but in areas that are new for Britain, or new in modern times for Britain. 379 We are now Europe's biggest exporter of computers, televisions and microchips, and car exports have risen by nearly a third in the last year alone. Our overall trading performance is the best for nearly a decade, with the current account improving to the point of being nearly in balance after five years of steady growth.
We have had further good news today. Figures released this morning provide further confirmation of the good trade performance. They show a trade deficit on a narrowing trend with continuing strong growth in exports in quarter three of 3 per cent. over quarter two, and 7.5 per cent. up over a year before.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
The danger is surely, though, that the increase in interest rates, which has come recently and is likely to come again, has increased the value of the pound to a level higher than it has been for the past two and a half years. Will that not have some serious effect on our exports, as well as on our imports?
§ Mr. Waldegrave
The right hon. Gentleman's intervention gives the debate a certain symmetry with last year's debate. At about this stage in my speech last year, a Labour Member—I do not think that it was the right hon. Gentleman—intervened to say what a disgrace it was that the pound at that time had gone down a little. I shall give the same answer to the right hon. Gentleman, who is learned in these matters: we do not have a target for the exchange rate and it would be wrong to do so. My right hon. and learned Friend will take that into account, along with other monetary indicators, when he comes to set his monetary target. I do not believe that my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) would want us to set an exchange rate target. If he does, we would be unwilling to do so.
§ Mr. Budgen
But my right hon. Friend has not answered the point of the question. It was asserted that the pound had gone up as a result of higher interest rates. There is no necessary connection between the two, is there?
§ Mr. Waldegrave
My hon. Friend is entirely right. In so far as there is any connection between an expectation of rising interest rates and a rising pound, that is one reason why my right hon. and learned Friend has set a Budget that is fiscally tightening. That will give him more room for manoeuvre in the way that he sets his monetary policy.
§ Mr. Waldegrave
This is becoming an interesting seminar. It may have been the hon. Gentleman who complained last year about the pound going down.
§ Mr. MacShane
Certainly the steel industry, with which I am connected, is concerned about the rocketing rise of the pound. After the right hon. Gentleman's last answer to the hon. Member for Wolverhampton, 380 South-West (Mr. Budgen) can he tell us where he thinks the pound will be in three or four months' time? [Interruption.]
§ Mr. Waldegrave
My disrespectful hon. Friends are making various suggestions, one of which is that the hon. Gentleman may wish to go on holiday and buy his currency in advance. I do not think that the hon. Member for Edinburgh, Central (Mr. Darling), my opposite number, or the right hon. Member for Dunfermline, East would want to give a target for the pound three months ahead, and I shall certainly not do so.
However, as the hon. Member for Rotherham (Mr. MacShane) is a learned Member, I shall ask him to look at one piece of research which was published recently by the Treasury—he may already have read it. It shows that the United Kingdom's improved trading performance in the 1980s, when, for the first time in decades, we held our share of world trade, cannot be explained in terms of devaluation, of competitiveness provided by the pound. It shows that that better trading performance results from the fact that our goods are better made, are of higher quality and are winning markets on their merits. That is an encouraging conclusion.
§ Mr. Geoffrey Robinson
Will the right hon. Gentleman confirm, in regard to the fiscal tightening which he said was a major aspect of the Chancellor's stance on the Budget, that, far from being a tax-cutting Budget, the total tax take has increased yet again, from 35.75 per cent. of GDP to 36.25 per cent? In other words, it is another tax-increasing, not a tax-decreasing, Budget.
§ Mr. Waldegrave
I am not sure what point the hon. Gentleman is making. We had an unproductive discussion earlier about the fact that, if one considers the same base years, the tax burden on the economy in the approach to this general election is the same tax burden as before the last election. But putting up taxes is not the only way of tightening the fiscal position: the fiscal tightening in this Budget comes in part from expenditure cuts which, I guess, the hon. Gentleman and his hon. Friends will vote against if they get the chance, seriatim. They will then claim to be a responsible party with respect to spending control.
§ Mr. Waldegrave
No, I must proceed.
The right hon. Member for Dunfermline, East is fond of using a league table. Let me give him another, on a subject that he does not seem to find so attractive—the league table on jobs. I shall give him the latest figures for the Group of Seven countries. The figures are not exactly up to date; they would probably be a little better if they were, but they are the latest figures we have which allow us to compare all the G7 countries on the international standardised definitions relating to unemployment.
The best is still Japan, by a long way. As most hon. Members probably know, Japan has an unemployment rate of 3.3 per cent. and falling. The second is the USA, with 5.2 per cent. unemployment and falling. The third—this is the first time in decades that we have been in clear third position on international standardised definitions—is the UK, with 8.1 per cent. and falling.
381 Next comes the group of countries that are taken as the models in Labour's economic policy—the social democrat and Christian democrat interventionist economies. In fourth place is Germany, with 9 per cent. unemployment and rising. Fifth is Canada, with 9.8 per cent. and rising. Sixth is Italy, with 12.2 per cent. and rising. Seventh is France, with 12.5 per cent. and rising. That is a league table which, for some reason, the right hon. Member for Dunfermline, East does not often produce.
§ Mr. Waldegrave
The Netherlands is not a member of the Group of Seven.
We do not hear many comparisons of productivity and investment from the right hon. Gentleman. Jobs are being won because, unlike the position in the 1960s and 1970s, when we regularly were bottom of the table for productivity growth, we are now at the top. Our growth in manufacturing productivity has been almost three limes that of Germany since 1980. That is because of good business investment, which is up by a third in real terms since 1979. Investment in plant and machinery alone is up by 50 per cent. The right hon. Gentleman made much of investment figures last year, which were indeed disappointing, but the run since 1979 shows that business investment has transformed the UK, and the figures for next year are likely to be good again.
Whole economy investment has grown faster since 1979 than in any other major European Union country and at about double the average rate for Britain in the 1970s under Labour, when our investment growth was much lower than the EU average at that time.
§ Mr. Waldegrave
No, I want to make progress.
Our business investment is now in line with that of the other G7 economies. There are healthy predictions for business investment this year and next, not just from the Treasury but from the Confederation of British Industry and the National Institute for Economic and Social Research.
Because of our better investment performance, there has been a dramatic closing of the gap in manufacturing productivity between the UK and Germany. That, in the long term, is the most encouraging development of all. In 1979, the gap was 50 per cent.; it is now 10 per cent. As the hon. Member for Coventry, North-West (Mr. Robinson) will know, from his former connections with the motor industry, productivity in automotive components is now reckoned to be higher in the UK than in Germany. If that had been predicted 15 or 20 years ago, it would have been considered very optimistic indeed.
Our improved performance is not restricted to capital goods. There has been a huge improvement in the investment in people. One in three are now in higher education, as opposed to one in eight in 1979. Employers spend £10.5 billion every year on training. I am happy to say that 95 per cent. of manufacturing firms are planning to maintain or increase that level next year.
The right hon. Member for Dunfermline, East, for all his wit, has not been an effective spreader of gloom. Ever since he took over his job, everything has got very much 382 better for the British economy. Unemployment has fallen month by month. Foreign investment has flooded in, particularly to the right hon. Gentleman's native Scotland. The total last year for the United Kingdom was £14 billion, and this year looks like being another record breaker. Our trade performance has improved and our inflation has fallen.
I am sorry, therefore, that I must correct the classical reference made yesterday by my right hon. and learned Friend the Chancellor. He referred to Cassandra. She made correct predictions, which no one believed. The right hon. Member for Dunfermline, East makes predictions that are not correct, but no one believes them anyway, so it does not much matter.
§ Mr. David Shaw
My right hon. Friend will have noticed that there was a prediction that would damage the possibility of Dover getting its A2 road if Labour ever got into office. Will he confirm that not only has Dover got the dualling project in the road programme under the Budget, but there has been a £100 million improvement in the past few years to the A20 from Folkestone to Dover, and the Sandwich to Dover road has been improved under the Conservative Government? The Conservative Government back Dover, whereas Labour gets very angry and wants to do down Dover.
§ Mr. Waldegrave
I would not want to get involved in the issues affecting Dover, about which my hon. Friend is much more learned than I am. He is a doughty fighter for Dover. It sounds as though a great deal of money is being spent on roads in and around Dover, and I am sure that that is a good thing.
§ Mr. Campbell-Savours
Will the Minister take his copy of the Red Book and turn to page 88? Let us clarify a particular prediction. Will he look at the sixth figure from the bottom on the left, for 1996–97, in the column headed "Total taxes and NICs" as a percentage of money GDP? Is it true that it reads 35¾ per cent? For the year 1997–98, does the figure read 36¼ per cent? Will the Minister advise me on these matters? Is that an increase or a reduction? If it is an increase, does it not mean that taxes are going up? May I have a simple answer to my elementary question?
§ Mr. Waldegrave
The hon. Gentleman knows the answer to his question perfectly well. I was answering a slightly different question earlier, but also an important one. I was making a modest correction to the point made by the right hon. Member for Sedgefield (Mr. Blair), who said that the tax burden when we went into the last general election was lower than the tax burden now. In fact, it is about the same, or a little lower.
§ Mr. Waldegrave
I do not deny, nor does my right hon. and learned Friend the Chancellor, that this is a fiscally tightening Budget. That is right and it is why the Budget is well received. The right hon. Gentleman must answer a fundamental question: does he accept the Budget judgment? Does he accept that there should be fiscal tightening?
§ Mr. Brown
Will the Chief Secretary now bring himself to use the words that the Budget raises taxes, 383 rather than lowers them? All obfuscation on his part must cease. He has acknowledged what the table shows. Will he confirm that taxes are to rise next year? He asked us what our policy was on individual taxes. Let me make that clear: we will pledge in our manifesto to cut VAT on fuel. The Conservatives promised that they would never extend VAT on fuel. Will the Chief Secretary make a similar promise in the Conservative manifesto to cut VAT on fuel?
§ Mr. Waldegrave
The answer to the second part of right hon. Gentleman's question is no; I think that that would be extremely unwise. If Labour were to return to power, the right hon. Gentleman would find that he had made a very unwise pledge. For example, he would find it difficult to ensure that the small tax cut was returned to anyone in the form of lower prices.
The tax take has to do not only with tax rates but, as my right hon. and learned Friend said, with filling tax loopholes and securing the tax base. That is the correct thing to do. The right hon. Gentleman crows and says that he urged us to take that action. I accept his argument in some respects: we have taken some of the steps that he suggested, but we have also instituted a wide range of other measures that did not occur to him. They are sensible proposals which should be supported on both sides of the House.
I turn now to living standards, because they are at the centre of the Budget. The right hon. Gentleman has a problem: he cannot find the bad news that he is looking for, so he says that there was a recession—which occurred in this and in every other country. During that recession, we had to raise tax to look after public services. The right hon. Gentleman cannot argue that he would have done anything differently. Would he not have protected the health service or education when the tax base was diminished by recession? The question is not what action we took during the recession, but whether we took the right action to secure a long-lasting recovery. The answer is a resounding yes.
Tough spending measures, almost all of which were opposed by Opposition Members in the years after my right hon. and learned Friend became Chancellor, and unpopular taxation measures put this country back on track for a long-lasting, low-inflation recovery. We are now beyond the point where we need to use the word "recovery", because, in its fifth year, it stops being a recovery and becomes steady low-inflation growth. That has protected and enhanced the living standards of the British people.
The direct tax cuts that we made yesterday and the raised thresholds mean that the average family will be about £20 a week better off next year than at the time of the last general election. It is true that many of our constituents faced a tough time and that things remain tough in the high-spending, highly regulated economies of France and Germany, for example. However, the measures that we took laid the foundations for solid, reliable and continuing rises in our standard of living.
The right hon. Gentleman looks, in search of doom, to the public finances. That takes a certain amount of preposterous cheek on his part because, even at the peak 384 of the recession when borrowing was at its greatest, the debt burden was less than in the best year of the last Labour Government.
§ Mr. Kevin Hughes
Will the Chief Secretary confirm that this Budget increases the tax burden? If he cannot, will he tell us which part of the word "yes" he has difficulty understanding?
§ Mr. Waldegrave
I have no difficulty confirming that the Budget tightens the fiscal situation. Opposition Members may vote against it if they wish—let us see whether they do. I suspect that, with huge determination and courage, they will abstain. I do not think that the people of this country would find this debate edifying, but if they were present they would be astounded to learn that, after all the sound and fury, Opposition Members shall make no judgment about the Budget's central proposals. That is quite extraordinary.
We have halved public borrowing since its peak: it will fall below £20 billion next year and be in balance by the end of the decade. That has been achieved through extremely tough decisions on spending, to which the Budget contributes. If Labour wanted a faster reduction in borrowing, which spending would it cut more—or perhaps it would put up taxes? We will get no answer to that question.
Opposition Members voted against virtually every spending cut and they have no credibility whatsoever when they criticise us for not cutting the public sector borrowing requirement sooner. Everyone knows that, if Mr. Kinnock had won the last election, spending and taxes would be higher than their present levels. Spending is on course to reach 40 per cent. of gross domestic product next year and then drop below it, putting Britain in the group of countries—with Japan and the United States, whose unemployment figures I cited earlier—that spend less, grow faster and have lower inflation.
The debt burden was higher in every year the last Labour Government were in power than in every year of this Government. The average PSBR level under Labour was double its average since 1979. The right hon. Gentleman's problem is acute, but he did not solve it today. He is faced with the fact that my right hon. and learned Friend has done the right thing in this Budget—and the right hon. Gentleman knows it.
Labour's only response is to erect flashing signs in Piccadilly—and to do the equivalent in the Chamber in the form of the right hon. Member for Dunfermline, East—declaring that the Government have raised taxes 22 times since the last election. That is a completely bogus line of attack. On the same basis, we could say that we have cut taxes 25 times in the last two Budgets. As I have said repeatedly, the tax burden is the same as we go into this election as it was at the last election. We have cut the basic rate of tax by 2p, increased personal allowances and widened the 20p band so that fewer people pay tax now than in 1991–92. Everyone is paying income tax at lower rates.
The fact is that, taking tax, inflation and everything else into account, people will be £20 a week better off next year than they were before the last election, and £100 a week better off than in 1979. My right hon. and learned Friend has pointed out that, under the last Labour Government, people gained about £1 a week—that was the most that Labour could achieve.
385 On public spending, we have increased money for health—and not just in the first year, as some have claimed. I gave detailed figures to the House today. I think that I heard the Leader of the Opposition say on the Today programme this morning that he would do better—we await the numbers with interest. We have also found big money for education, as my right hon. Friend the Secretary of State for the Environment explained to the House earlier today. We have found money for the police and prisons and we have protected defence. In a difficult round, we have found money for other priorities too—for example, trunk roads have an additional £50 million in the public expenditure survey period.
§ Mr. Don Foster (Bath)
When the Chief Secretary says, "We have found more money," to whom does the "we" refer? Is it central or local government?
§ Mr. Waldegrave
It is both, as the hon. Gentleman probably knows. There will be some contribution—as is quite proper—from local taxpayers and a major contribution from central taxpayers. There is something odd about Labour's attacks on that point. I am not familiar with the Liberal Democrats' policy in this regard, but the Labour party's attitude to local government—as set out in its policy document—is that a shift in the burden towards local taxpayers would be good for local democracy. I am not sure what Labour was complaining about earlier. I suspect that it is another example of how Labour runs one policy for one audience and another policy for another audience.
§ Mr. Waldegrave
I am always tempted by the hon. Gentleman, but I think that I have succumbed enough to temptation today. It is always enjoyable, but I will not give way.
We have taken difficult decisions in relation to social security. I suspect that Labour Members will vote against them—although they will then tell the Daily Mail that they do not really mean it and that they will be tough on social security when they are in power. However, they will vote against our decisions now. As Chief Secretary, I do not apologise for the fact that we are applying tough pressure to all the spending Departments. We do not go up and down the country promising billions in extra expenditure: we find the money for our priorities through taking difficult decisions.
There is no such thing as painless spending control. We have found the figures for our priorities, and when, for example, the 5,000 constables are in place, 20,000 more policemen will have been added to the fight against crime since 1979. Such things can be done—in a period when we have had to absorb large and unexpected costs, for example, for bovine spongiform encephalopathy—only with very tough pressure on other Departments. I make no apology for that.
It is part of the "all things to all men" line of the right hon. Member for Dunfermline, East that he could not really, for all his sound and fury, deny that Labour has very large spending pledges. He and his friends, the spin doctors, had three contradictory responses. The first, in their so-called rebuttal document, was that it would all 386 come either from the windfall tax or from savings in other programmes. Never mind that they have not found any savings and that the windfall tax is looking a bit sick.
Then the leader of the Labour party came along and said that they were not pledges but aspirations. That is not what Mr. McAvoy said of the pledge on school sabbaticals. He said:I think it has been a commitment of David Blunkett's for some time".And why not? That is what anybody listening to that speech would have thought.
The hon. Member for Cunninghame, North (Mr. Wilson) had quite another explanation on "Newsnight". I have read the transcript, because I was interested in what he said. It said:What they say about us, of course, is that we have aspirations. It has been made crystal clear by Gordon Brown, again tonight, in every speech, in every interview, that any part of policy commitments which are not those that we specifically costed out of existing resources, that they will be paid for out of"—and then the transcript said "unclear", so I had to get the video to find out what the word was. The word over which he stumbled—because, according to the hon. Member for Hartlepool, it is what is known as "off message"—was "growth". We are right back to square one, the old Croslandite idea, which really is the road to ruin—spend first and it will all be paid for out of growth that will magically come along.
The truth is that the extra spending would come from tax and borrowing, as the right hon. Gentleman well knows. He is incorrigible. Just last week he was speaking to the CBI. As always, I read his speeches with attention. I would not say that it was a good speech, but it was interesting. He could not resist making another big spending pledge. He said:The Chancellor should double capital allowances for one year for new investment.That costs £750 million—
§ Mr. Waldegrave
That may well be so, but I just want to find out whether it is still this week's pledge. It is only £750 million—very little between friends. I presume that the right hon. Gentleman would put up taxes to pay for it, but he has not yet had the courage to tell us whether that is so. Is it an aspiration or a pledge? Perhaps he would like to intervene. It was very nice to cheer up the audience of the CBI, but is it a pledge? Is it an aspiration? Will it be paid for out of growth? Will it be paid for out of savings, or what?
§ Mr. Gordon Brown
As the right hon. Gentleman is quoting from my speech, will he just read the section to the House?
§ Mr. Waldegrave
I have the whole speech here, but I know exactly what the next sub-paragraph says. It says that the right hon. Gentleman will come along and say whether all this can be afforded in due course. That is the skill of the operation. He goes to a great audience, makes the centrepiece of his speech that he thinks that capital allowance should be cut, which, of course, is what they have all been lobbying for, so they all go away saying, "He's a very fine fellow, he's going to cut capital 387 allowances." There is a bit that he goes rather swiftly over, like the hon. Member for Cunninghame, North, which says, "We'll look into it later and see whether we can afford it." All around the country, the special interest lobbies are dealt with in that way. I do not believe that that is a sensible way to proceed.
§ Mr. Waldegrave
It seems to have about the same status as the right hon. Gentleman's aspiration—it happens to be half as expensive—to have a 10p tax band. That is not a competition in which he would involve himself. I suspect, however, that after looking at a Conservative party that cuts taxes and delivers over time a lower share of GDP, as taken by the Government, people will believe us about aspirations on tax cutting more than they will the Labour party, because the right hon. Gentleman's party has aspirations that start with about £30 billion on spending before it talks about taxes at all. I have read the speech with attention.
Let me say why it is right to press Labour on this point, and I cannot use better words than the leader writer in today's Evening Standard:Today, we see a Tory government struggling with immense difficulty to contain public spending without increasing taxation, while giving extra funds to the public services the public cares passionately about—health and education. How on earth is Labour, with its far more ambitious ideas about spending our money, going to do any better? It is simply not good enough, to suggest that it can all be financed by soaking the privatised utilities in a windfall tax. Not only is such a measure dubious in principle, it will hardly suffice to fund the petty cash, once the bills start to come in for devolution, ambitious new health and education plans, and all the many and various forms of political correctness that will sweep the land under a Labour government. Mr. Clarke may have provided little new cheer to voters in his Budget yesterday, but he deserves full credit for refusing to give false comfort. The onus now lies upon Labour and Mr. Gordon Brown, to confront our grave fears that under Labour, those in work will not only get precious little comfort, but a wagonload of new financial burdens as well.I cannot say that any comfort was offered today. We heard nothing from the right hon. Gentleman to answer these fundamental points. We heard nothing about his view on the Budget judgment. We heard nothing except hints that Labour would abstain on all the crucial issues. We heard no vision of an alternative economy. In that same CBI speech, there was a very telling paragraph in which he said:We should not be taken in by deregulation dogma.That is the division between us. There we have it. My right hon. and learned Friend the Chancellor believes in a free market liberal approach to the economy. To the right hon. Member for Dunfermline, East, that is deregulation dogma.
Although they are sometimes compared, the fact is that there is a fundamental difference between my right hon. and learned Friend and the right hon. Gentleman. My right hon. and learned Friend is jovial on the surface, but his record shows him to be seriously committed to the long-term future of the economy of this country. The right 388 hon. Gentleman is gloomy and responsible on the surface, but underneath he is consistently frivolous, as he was again today when asked the big questions about the management of the economy, his spending plans and his tax plans. That is why the House should back my right hon. and learned Friend's Budget and dismiss Labour's carping. That is why the British people should thank my right hon. and learned Friend for a Budget that builds a secure and stable future for our country.
§ Mr. Jim Cunningham (Coventry, South-East)
The Chief Secretary to the Treasury has confirmed that this is a Budget of myths and illusions, which he and the Chancellor are trying to peddle and con the British people into believing. We heard the Government's myths surrounding the latest electioneering gimmick—the myth that our economic problems cannot be blamed on the Government's so-called policies and, once again, the myth that they are a Government of low taxation.
What we hear less often are the hard facts about this year's Budget. This is just another example of the problems that our economy faces. The Budget does nothing to help people caught in the benefit trap. It does nothing to help our pensioners. The people of Coventry, like many others in Britain, have seen at first hand the effects of previous Budgets.
Having listened to the debate that has taken place not only in the House but throughout Britain, I believe that the Budget offers no solutions to tackle the old problems of this old Government. Britain is ninth out of 15 in the European prosperity league. We have fallen from 13th to 18th in the world prosperity league. Our share of world trade is less than that of France, Germany, Italy, Japan and the United States. We are now near the bottom of the European inflation league, in ninth place. In the world education league, Britain has slid to 42nd, just six places off the bottom.
The people of Coventry have suffered much at the hands of the Government, whose record in Europe is second only to the rest of Europe. In the past four years, the number of hospitals in Coventry has been halved, from four to two. Indeed, the long-term future of one of the remaining hospitals, the Coventry and Warwickshire, remains in doubt, because the Secretary of State for Health refuses to tell the House whether the additional money that he secured from his Cabinet colleagues will be spent on patient care or, as is customary with this Government, on red tape and administration.
The Government's flagship policy, the jobseeker's allowance, has gone the way of every other flagship policy that they have produced, such as the exchange rate mechanism and VAT on domestic fuel; it has run aground on misadministration and poor planning. Indeed, the parallels between the jobseeker's allowance and the Department of Social Security's other recent economy drive in the form of the Child Support Agency are becoming apparent.
Both the allowance and the agency were introduced in an effort to convince the electorate that the Secretary of State had some idea of how to reduce his Department's budget. Both policies have failed to deal with the underlying problem in the system, which is that people are being caught in the benefit trap. Both policies have become a shambles, leading to more bureaucracy, not less as had been promised.
389 Only last week, the Department of Social Security was forced to apologise to one of my constituents. My constituent, who has had three heart attacks and is a chronic asthmatic, was told by the Department that he was fit for work. Since then, however, following pressure from people in Coventry, including me, the Department has had a rethink or, in the Government's language, it has done a U-turn.
As a result of their economic follies following the 1992 general election, the Government have been forced to break their election promises to those who have given the most to our country—pensioners. The Government's desperation to save money to enable them to finance tax cuts has resulted in hardship for millions of pensioners. Among those who have been singled out are war widows, who have given so much to our country during a century of strife so that we may enjoy the life that we have today. They have been singled out by a heartless Government because they are now vulnerable.
Labour is determined to help all pensioners who have suffered. My party has already proposed a far-reaching package of measures that is designed to give them back a decent standard of living. We will cut VAT on fuel. We will ensure that the universal state pension—which the Tories want to means-test—is secure. The pension will remain the foundation of security for retirement. We will end the scandal of long-term care for the elderly, which leads to 40,000 pensioners having to sell their homes each year.
In contrast to the Budget that we heard yesterday, the Labour party has offered a comprehensive and practical set of measures to help the people of Coventry and the nation as a whole. Under the Tories, we have suffered the two worst recessions since the war. Stability is essential to sustain economic growth. Our priority is a stable, low-inflation economy and an end to the boom-bust policies that have so damaged it.
Since the Government were elected, Britain has had the lowest level of investment of any of the 24 OECD countries. We need to invest in our future, but the Government have failed to encourage or support investment. The Labour party's proposals to bring together public and private finance to invest in major infrastructure projects has been greeted with widespread support from the business community.
Government policies have led to one in six people being dependent on benefits. Youth unemployment now costs my constituency over £7 million every year. We must break the cycle of economic inactivity by providing education and training opportunities for all, not only the lucky few. Labour's proposals offer these opportunities. Yesterday's Budget only confirmed the fear of many of my constituents that the Government are complacent about education, about the drop in spending of over £70 million and about the drop-out rates among students. Most damning of all, they are complacent about the fact that more than 30 per cent. of primary school pupils are in classes of over 30 children.
The Chancellor of the Exchequer has failed to deliver the extra resources that he himself admitted education needs. Of the extra £633 million for schools, local education authorities will have to raise £581 million themselves. There is no new money for our schools. Parents will be forced to pay for their children's education through higher council tax bills. We have a Government 390 who give with one hand and take away with the other. My constituents were promised a 4.4 per cent. increase in education spending, yet the Government's grant increased by only 1.4 per cent. Sadly, neither I nor my constituents were surprised by this trickery. After the past four Budgets, we have all become far too familiar with the Government's trickery.
Despite the Chancellor of the Exchequer's electioneering, the simple fact is that people are still paying £600 a year more now in taxation than they were in 1992. We, the Opposition, believe that a Government must have the trust of the country on economic matters. This Government do not have the country's trust. Instead, it has placed its trust in the pledge of my right hon. Friend the Member for Dunfermline, East (Mr. Brown) to reduce VAT on fuel to 5 per cent.
What would the Budget offer the people of Coventry and the country as a whole if the Conservative party were to win the next election? Exactly the same tax promises that the Tories offered in 1992: tax increase followed by tax increase followed by tax increase. We know that 30 new taxes have been introduced in four Budgets, leading to the average family having paid an extra £2,100 in taxation. If the Treasury's present policies are pursued, taxes will continue to rise each year until the end of the millennium. That is the real millennium monument that the Government have left the people of Britain.
§ Mr. David Heathcoat-Amory (Wells)
I have some proprietary interest in the Budget that my right hon. and learned Friend the Chancellor of the Exchequer delivered yesterday, but I claim none of the successes in it because any Budget speech is very much the Chancellor's own possession. All the important judgments in it are his. I would therefore like to congratulate my right hon. and learned Friend on a Budget that is skilful within the constraints under which he must operate. It is a formidable constraint still to be borrowing, on average, about £500 million a week.
Within the narrow range of options that inevitably are available to my right hon. and learned Friend, I strongly applaud his decision to take another penny off the standard rate of income tax. However tight our external constraints, it is vital that we continue the long march to a 20p basic rate of income tax. In my view, that must take precedence over any other desirable tax reductions or abolition, including that of capital gains tax or inheritance tax.
There is no substitute for, and nothing better than, relieving the burden of direct taxation on the mass of ordinary working people. That is a founding principle of the Conservative party that must be a guiding aim of any Conservative Government. If we consider the classical factors of production, which we were all taught at school or later—land, labour and capital—it is still labour that is taxed too highly.
I would have preferred an approach that concentrated entirely on cutting the basic rate of income tax. The widening of the 20p band and increased tax allowances are, in my view, something of a confusion of aim and a dispersal of effort that may soon be forgotten, particularly as these supplementary income tax measures cost nearly £1 billion a year and are financed partly by increases in indirect taxes.
391 I shall say a word or two about indirect taxation. I favour a gradual switch from taxing income to taxing expenditure. We have done that over a period of years. But I have a warning. The European single market and, more generally, the liberalisation of world trade means that, as a country, we are in a tax competition. Business activity, investment and expenditure are all mobile, and they migrate towards the low tax regime. Conversely, the high tax country is penalised. That is a good thing, because virtue is rewarded: socialism is destroyed and conservatism is rewarded. The United Kingdom is the beneficiary of that system because most of our taxes are, by international standards, low. They are particularly low when compared with the taxes of our near continental neighbours. We get the business and we get the inward investment.
Excise duties are an exception, because they are historically high. They compensate to some extent for the wide range of consumer expenditure that is subjected to a zero rate of VAT. For whatever reason, our excise duties are out of line internationally.
My right hon. and learned Friend the Chancellor has wisely responded by freezing alcohol duties and reducing them again for spirits, but this year not only has he put through his usual 3 per cent. real increase on tobacco: he proposes to increase the duty by 5 per cent. in real terms. Most Chancellors have found the powerful combination of undoubted revenue needs and an undoubted health case irresistible.
There comes a point when the market, which is so often our ally, punishes us. We will face a serious erosion of duty or, worse, an increase in criminality from illegal sales and large-scale duty frauds if we do not respond to the pressures and developments that I have described, and which exist despite the valiant efforts of Customs and Excise, for which I was privileged to be responsible for two years. So I have a word of caution for my right hon. and hon. Friends. Indirect taxes—excise duties in particular—must be treated with respect, because they cannot bear too heavy a burden.
On VAT, I note the important measures against tax avoidance proposed in the Budget. I recognise some of them: I saw them in an earlier form—they are the daily grind of a junior Treasury Minister. The House should not be surprised to know that another founding principle of the Government is to keep taxes as low as possible, and on as wide a base as possible. Tax avoidance erodes that base and increases the burden on everyone else. I agree with the increased efforts that the Government propose to make against avoidance of VAT, provided that they are undertaken fairly and responsibly. That matter will be examined in Committee.
The Opposition's pledge to reduce VAT on fuel and power is a mistake. I am still not clear whether it is a pledge, a promise, a commitment, a hope or an aspiration. From what the Opposition spokesman said, it sounds as though it is moving up into the harder spectrum of new Labour promises. It is wrong because fuel should be taxed for environmental reasons alone. All other countries with VAT, or an equivalent system, tax fuel and power, mostly at their standard rates. Falling energy prices are the product of privatisation. Electricity and gas prices are cheaper now, even with 8 per cent. VAT, than they were 392 a few years ago, so the social case is extremely weak. It is irresponsible and unwise for an Opposition party with a long list of expenditure commitments to make that promise.
The general outlook for the economy and the background to the Budget is undeniably favourable. That is not an accident: it is due to our determined control of public finances combined with supply side reforms, privatisations and the flexible labour market that we have created. The reforms are the long-term guarantee of prosperity: far more so than any expenditure and tax changes made in any individual Budget.
Let us remember that all the reforms were opposed all the time by all Opposition Members. Their sudden mass conversion to the merits of a free and open market is breathtaking and insincere. I believe that that conversion is only Front Bench deep. Even some Opposition Front Benchers are patently insincere about their supposed ideological conversion. The fact is—and the country knows it—that we drove through the reforms in the teeth of opposition day in day out, night in night out. All Opposition parties have now adopted them as if they were their own.
We have gained the triple crown of good economic growth, falling unemployment and low inflation. Of the three, the one about which I want to strike a note of caution is low inflation, because it causes me some concern. Consumer expenditure will grow by at least 4 per cent. next year. That is a good thing in itself—after all, we run an economy to deliver benefits to consumers—but if we add to that the fact that the money supply is growing well above its monitoring range, some amber lights at least must start to flash. Although monetarism is an uncertain guide to short-term economic management, it is difficult to ignore the long-term connection between money and prices.
I listened carefully to what my right hon. and learned Friend the Chancellor said in his Budget statement about the outlook for inflation. Cost pressures are undoubtedly subdued, and producer input and output prices are still very low, but the dragon of inflation is never dead: it is only sleeping. We must continue to establish a culture of price stability. We will need such stability if we ever make the mistake of going into a single European currency. We will need it even more if we are to remain and prosper outside any continental currency entanglement.
I hope that the Government will continue to use interest rates where necessary, including the option of raising them if those amber lights start to flash red. I would have liked a tighter fiscal stance in the Budget, especially if it could have been achieved by further cuts in public expenditure.
I realise that to talk about further cuts is much easier than to achieve them. No one outside the Treasury can appreciate the sheer dynamism in the public expenditure system. That is one of the enduring memories of my time in office. Expenditure does not simply lie there to be increased or reduced: it erupts on us if we take our eyes off it for a moment. My right hon. Friend the Chief Secretary has done an outstanding job in containing the pressures. He has imposed an acute discipline on the gigantic undertaking that is modern government. Most of the drift away from our deficit target has been on the revenue side—for which I was partly responsible—rather than on the expenditure side, which is his preserve.
393 In due course, we must return to some of the big expenditure programmes, especially social security. A national consensus is developing on the need for further restructuring of the social security system. The founders of the welfare state would have been surprised if they had been told that, well before the end of the century, the country would be spending £100 billion a year on social security.
I am pleased that space was found for the priority expenditure items—education, health and the police—and I endorse what others have already said. We shall be watching closely to see which local authorities pass the extra money for education to schools. Last year, disgracefully, my county, Somerset, having received more than £7 million extra, passed some £4 million to education, of which only £1.5 million reached schools. The council is, of course, Liberal Democrat controlled.
§ Mr. MacShane
Is the right hon. Gentleman aware that, if my constituency of Rotherham received the same funding as Westminster, we could have 1,100 more teachers? Will he ask his Front Bench to share the central Government expenditure allocated to metropolitan boroughs and other local authorities equally?
§ Mr. Heathcoat-Amory
We all look very closely at the distribution formula, and we in Somerset look particularly eagerly at the area cost adjustment to ensure that it does not disadvantage our areas. As for Westminster, we heard earlier today that the so-called over-provision for that borough has been reduced under the present Government.
§ Mr. David Nicholson (Taunton)
May I say something about Somerset, while taking my right hon. Friend back to one of the important revenue points that he made earlier? Is he interested to know that our neighbour, the right hon. Member for Yeovil (Mr. Ashdown), said in his speech yesterday:The Budget should have taken a much larger step towards … increasing tax on the things we want less of, such as pollution, energy and the use of finite natural materials."—[Official Report, 26 November 1996; Vol. 286, c. 185.]That presumably means that the right hon. Gentleman's party cannot possibly object to taxation on petrol—indeed, his party wants more of it—but does it not also have implications for VAT on fuel?
§ Mr. Heathcoat-Amory
It does indeed. We all know that the Liberal Democrats are the major high tax party, and I think that we have just heard confirmation of that stance from the hon. Member for Bath (Mr. Foster).
The electors of Somerset are already delivering a message. The acute intervention of my hon. Friend the Member for Taunton (Mr. Nicholson) reminds me that, a month ago, in the city of Wells, the Conservative candidates captured both a district and a city council seat from the Liberal Democrats in a by-election. Already, the 394 people whom I represent are delivering their verdict on mismanagement by the Liberal Democrats who control both county and district government.
§ Mr. Foster
I am grateful to the hon. Gentleman for giving way. He asked me to explain the position; let me try to help him.
Liberal Democrats do indeed believe that the price of petrol and other fuels should be increased. We believe that we should change the tax system so that, the more a person uses his car, the more he pays, but the offsetting tax that we would introduce is a reduction in vehicle excise duty, which would make those who drive economical and efficient cars that reduce pollution and energy consumption financially better off, even if their mileage was up to 35,000 miles. As the right hon. Gentleman would be very pleased for that to happen in a rural area, perhaps he will want to support our proposal.
§ Mr. Heathcoat-Amory
In fact, the hon. Gentleman has delivered a terrible warning to the rural motorists of Somerset. Given their comparatively high mileage, they would find themselves paying the extra tax on petrol, for which any reduction in vehicle excise duty would not begin to compensate. I am grateful to the hon. Gentleman for confirming yet again that the Liberal Democrats are the high-tax party.
Let me end my brief speech—the first that I have made from the Back Benches for some time—by making an observation which, although it concerns the Budget, may be seen in a wider European context. My right hon. and learned Friend the Chancellor has created his success by using all the economic instruments at his disposal. In particular, he has not hesitated to use interest rates. As the Red Book confirms, it remains his policy to use monetary measures to counter any inflationary tendency.
The point about the interest rate moves is that they have been used to adjust policy to suit the very particular requirements of the British economy, which is substantially different from other economies on the continent. That is why we must never embrace the single European currency. There are other arguments, connected with loss of sovereignty, but I shall not go into them now. On strict, narrow economic grounds, it would be an enormous mistake for us to impose on ourselves a single monetary policy and a single interest rate set by and for the wider single currency zone, which would almost certainly be entirely unsuitable and inappropriate to the particular requirements of the British economy.
I want to keep my right hon. and learned Friend the Chancellor and his colleagues in charge of the British economy, so that he and they can continue to exercise their unfettered judgment on what is right, proper and good for the British economy—with the successful results that we see today.
§ Mr. Don Foster (Bath)
I hope that the right hon. Member for Wells (Mr. Heathcoat-Amory) will forgive me it I do not attempt to pick up many of the points that 395 he made in his interesting speech, in which his direct experience in the Treasury shone through. Because of that experience, the House will pay particular heed to his warning about future inflation rates—a point to which I shall return shortly.
Anyone observing our debate closely will have been somewhat surprised, especially by the opening speeches. The Chief Secretary to the Treasury rightly chided the shadow Chancellor for having spent most of his speech not making much reference to the Budget. It is slightly odd, therefore, that the Chief Secretary himself then spent most of his time responding to the shadow Chancellor, and that he too made little reference to the Budget. Equally odd was the battle of semantics. Challenged time after time, the Chief Secretary refused to admit that this was a Budget in which taxes would rise. All that he was prepared to do was to use that bizarre euphemism "fiscal tightening"—which, for the benefit of anyone who does not know, means that taxes overall will rise.
We also saw the strange battle of the league tables. When the shadow Chancellor attempted to explain the position of this country's economy in the world economic league tables, the Chancellor said from a sedentary position what many schools would like to be able to say—"Oh, no, not the league tables; don't let's have the league tables." Interestingly, the Chief Secretary refused to comment on our position in Europe in relation to our inflation rate, yet spent much of the rest of his speech using one set of tables after another to try to illustrate the various points that he was attempting to make.
Perhaps the most bizarre aspect, from the point of view of those paying close attention to the debate, was the battle over predictions. We heard reference to Cassandra, and we were reminded that Cassandra made correct predictions, to which no one listened. No one made the point that the Chancellor himself is in perhaps the rummest position of all in relation to predictions: he is the one person I know who makes predictions that even he does not expect to become reality.
Just over a year ago, in his 1995 Budget speech, the Chancellor made it absolutely clear that he was keen not to be over-ebullient about, for example, the public sector borrowing requirement. He said:I have therefore been cautious and prudent this year in setting out the latest projections for the PSBR."—[Official Report, 28 November 1995; Vol. 267, c. 1057.]We all remember that, in the 1995 Budget, he was projecting a PSBR for 1997–98, for example, of £15 billion. As we all know, yesterday he announced that he had not been cautious or prudent enough, because he is now saying that the PSBR will be £19 billion.
My concern about the Chancellor's predictions caused me to prick up my ears when the right hon. Member for Wells started mentioning his concerns about inflation. We all know that the recovery that undoubtedly is taking place is fairly fragile, and that it will depend very much on the three key factors of the inflation rate, the borrowing rate and the Chancellor's growth predictions. There will be real cause for concern if any of the three factors is reduced. Given the Chancellor's success in predictions, I do not have a great deal of confidence in his predictions in last year's Budget statement.
It would, however, be unfair not to point out that there are one or two measures in the Budget that I hope that all hon. Members will welcome. Some of those measures 396 have already been mentioned, with both sides of the House trying to claim credit for them. I shall simply say that it is important that we crack down on benefit and tax fraud, and I welcome the Chancellor's measures on those matters—particularly his statement that, this time, additional staff will be made available to make that work possible. However, I think that his belief that spending £1 will bring back to him £8 is a little over-optimistic. Nevertheless, I welcome the measures.
Although they are very small, I welcome the Chancellor's measures to reduce the burden of the uniform business rate on small business by imposing a freeze. The measure will be helpful in my constituency, and I welcome it on behalf of the small businesses in Bath. I also welcome—although I do not believe that it goes anywhere near far enough—the small respite offered in the additional funding for education.
Overall, however, it was an extremely disappointing Budget. It was a tired Budget from a tired Government, and it really missed so many golden opportunities to do something and to ensure that the recovery was made sustainable. It could have been a Budget that truly made an investment in education and training. We kept hearing the right words from those on the Treasury Bench, but, if—as I shall in a moment—one analysed the figures, the words rang very hollow.
It could have been a Budget in which, for the first time, we said that we would remove the possibility of short-termism and fiddling around with the inflation figures at short notice, and take interest rates out of politicians' hands by establishing a UK reserve bank, as my party would like to do. We could have had real measures that would have started to create jobs by providing a proper and effective benefit-transfer system and reducing significantly—not in the small manner done in the Budget—taxes on jobs as part of an environmental tax-switching exercise. We could have had much more effective measures to start to reduce the debt mountain.
My key point—it is important that it is made very clearly—is that I worry enormously about the way in which the Chancellor seems almost to believe that he has got away with it for a second year running through slick presentation. Words have been used about the "Houdini Chancellor". Yesterday the Chancellor performed magic tricks, but, unfortunately, they were much more of the style of Frankie Howerd's magic tricks. As the debate has progressed, we have seen what lies behind the tricks, which have begun to unravel before our very eyes.
The Chancellor has pretended—he should not be allowed to get away with it this year—that he has managed to do a number of things: to reduce taxes, to reduce borrowing and, at the same time, to raise spending on essential services. In all those areas, that simply is not the case. I shall briefly take the example of local government—as we are meant to be concentrating predominantly on the issue of local government in this debate—to explain why I believe that that is so.
The first matter to consider is the three factors that I mentioned earlier. As I said, the fact is that borrowing forecasts are much higher than they were even in the previous Budget. We also now know—regardless of the language of "fiscal tightening"—that the total tax package in this Budget will mean a tax increase. I think that most people would now accept the estimated tax increase next year of £41 for the average taxpayer.
397 Those who believe that there will be real spending increases on essential services are relying on smoke and mirrors, because there is no justification for such beliefs. It is like a parent saying to his child, "I'm going to increase your pocket money by £5 a week," the child looking excited and then being told that the parent will not fund the increase. That is what is happening in local government. The hon. Member for Sheffield, Hallam (Sir I. Patnick) laughs.
§ Mr. Foster
I recommend that the hon. Gentleman looks at yesterday's press release from the Department of the Environment—do not worry about the Red Book, tables or anything else; there is only one table that he needs to consider—because it will tell him the whole story.
Let us consider education. The Secretary of State for Education and Employment issued a press release stating that there will be £633 million more for schools. She also stated that, in subsequent years, she will cut money for education—but we will leave that point aside for now. After the announcement of £633 million more for schools, the hon. Member for Hallam looked excited, because that money will be shared between my constituency and every other hon. Member's constituency.
Where will the money come from? The Department of the Environment's table, under the heading, "Table 2—Aggregate External Finance" shows that, in real terms, which is the amount of money that central Government will make available to local government, the estimated outturn for 1996–97—the current financial year—is £35.23 billion. How much will the figure be next year? Will it be more, to make up for that £633 million increase for education and for some of the other increases that we have been promised? No, it will not; it falls to £35.07 billion—a real-terms cut in the amount of money that will be made available by central Government to local government.
Therefore, how can there be £633 million extra for education? The fact is that there is no additional money. The hon. Member for Hallam should therefore rethink whether my analogy was correct. It was absolutely apposite. The only thing that I did not do in my analogy was to say that the parents were increasing the amount of pocket money but reducing the amount of money that they were giving to the child. There is no additional money for education—[Interruption.] I shall happily give way to the hon. Member for Hallam. However, he is clearly not prepared to engage in the debate on this issue.
§ Sir Irvine Patnick
The hon. Gentleman admits that his analogy was incorrect. The analogy was the cause of my laughter.
§ Mr. Foster
If the hon. Gentleman is saying that my analogy did not go far enough and that I did not paint the picture as black as I should have done to show the truth of what the Chancellor said, I accept that I was in error. I am grateful to the hon. Gentleman for pointing out that error.
The point—I hope that it will be clear to the House—is that the Chancellor and the Secretary of State for Education and Employment cannot tell the House that 398 more money will be available for education and spending on our schools. More money can be spent on our schools only if local councils reduce expenditure on the other hard-pressed services on which people depend, further raid money from already depleted reserves or impose a massive hike in levels of council tax. That is the hidden tax that the Chancellor was not prepared to mention. Not even the Chief Secretary was prepared to use the words, instead using that emotive language of "fiscal tightening"—which, as I said, means tax rises.
§ Mr. David Nicholson
I am puzzled as to how tightly capped local education authorities will be able to pass on to council tax payers the education spending increase that the hon. Gentleman speaks about.
The hon. Gentleman speaks about the frailty of the economic recovery; he is worried about the borrowing requirement. He argues for higher spending on areas outside the industrial sector. He wants certain taxes to be reduced—national insurance or whatever—yet the Liberal Democrats will vote against the main tax reduction in the Budget. How does he square all that?
§ Mr. Foster
It is relatively simple. I was taking advice from the right hon. Member for Wells, who has great experience in such matters, and who a few minutes ago told the House that he was worried about the Chancellor's inflation predictions. I was arguing that, if his inflation figure is wrong, the Chancellor will have considerable difficulty in delivering the economic package that he promised us in his Budget.
The hon. Member for Taunton (Mr. Nicholson) knows me well enough and knows that I shall say to him, "We have said openly and honestly that, if necessary, we shall increase income tax to deliver those improvements, especially in education and training, that we believe are vital for the economic future of this country." We shall vote against the tax-raising package in the Budget as it will not give us a sustainable economic future because it does not invest in education and training and does not introduce some of the measures that I mentioned. I hope that that is a fairly clear and straight answer.
The hon. Member for Taunton still does not believe that he is being conned by the Chancellor of the Exchequer. One can see it in his face. He still believes that the Government are magicking more money for his local education authority to give to its schools. If he believes that, he is wrong.
Many organisations have expressed to us misgivings about the Budget. Perhaps my favourite example came from the British Chambers of Commerce. I spoke to one of its groups just before the Budget announcement. In its submission stating what it hoped would be in the Budget, it said:The Government should not consider tax cuts while the PSBR remains so high … we cannot see any scope for tax cuts in the Budget. The higher priority should be to reduce current levels of borrowing. Any money which can be found … we would like to see channelled into spending on education (and transport).The British Chambers of Commerce urges the Chancellor to make education spending priority.I entirely agree.
Sadly, we did not get that from the Chancellor. As a result, the Chancellor's Budget statement reminded me of George Orwell's comment 50 years ago: 399political language is designed to make lies sound truthful and murder respectable and to give the appearance of solidity to pure wind".
§ Sir Peter Fry (Wellingborough)
The hon. Member for Bath (Mr. Foster) seemed to say that it was impossible for resources to be moved from one form of county council spending to another. He appeared to assume that every last economy had been made. If one allows for alterations due to the nursery voucher scheme, Northamptonshire's standard spending assessment shows an increase of 3.6 per cent. this year. I would agree with the hon. Gentleman if I felt that every penny spent by the Labour-controlled Northamptonshire county council, abetted by the Liberal Democrats on that council, had been wisely spent, but let me list a few things that it has done in the past year.
First, the council produced a leaflet on sexuality for all teachers, to protect any homosexual or lesbian person who came out. Secondly, it introduced a new policy on tackling poverty in Northamptonshire. There may be something in it for some people in Northamptonshire who are not as well off as others, but it is a waste of public money; it will not relieve absolute poverty.
Thirdly, the council has spent enormous amounts as a result of allowing early retirement, which it need not have done. That is a heavy charge against the council tax payer. Fourthly, it has allowed an enormous increase in mileage allowances, especially in the social services department, which has meant that many members of that department spend more time at conferences than they do sorting out the affairs of elderly people who require long-term accommodation. I could go on.
The argument that there are no savings to be made in local government, especially by councils controlled by the Labour party and the Liberal Democrats, is obviously nonsense. I suspect that all my colleagues could find similar examples to those that I have cited.
I have not always been known as the most ardent admirer of the tax proposals of my right hon. and learned Friend the Chancellor of the Exchequer, but I admit that I believe that, in this year's Budget, he has achieved a balance between ensuring the country's continued prosperity and competitiveness and continuing the policy of gradually introducing the tax reductions on which my party was proud to fight the previous general election, and will be proud to fight the next.
One must be realistic. As my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) said, if too much had been given away in tax cuts, inflation might have reared its ugly head. That would have caused a sharp increase in interest rates, which would not have been welcomed by the many millions of mortgage payers. It would have been ludicrous to give away much more today and find, in a couple of months, that the increases in mortgage payments would be greater than the tax reductions, which would not be received until April 1997.
I applaud the way in which my right hon. and learned Friend the Chancellor presented his Budget, which shows not only a cautious control in directing an improving and expanding economy, but a deal of political wisdom. There are many good ideas in the Budget; some were mentioned earlier. Every hon. Member in whose constituency there 400 are small businesses will welcome the freezing of the uniform business rate. It was important to take another large chunk of lower earners out of the taxation system, and the widening of the 20 per cent. tax band now means that 25 per cent. of all taxpayers pay income tax only at 20 per cent. That is a big step towards the day when all modest earners pay no income tax.
Nearly every right hon. and hon. Member will welcome the extra money being made available for health, education and law and order. I am very pleased with the extra money that has been provided for the Northamptonshire police authority. But—there is always a but—no world is ideal and I have one or two reservations. It will not be news to the Government that I am disappointed by the decision to delay any change in the area cost adjustment. The Secretary of State for the Environment well knows that the hon. Members representing Northamptonshire have argued strongly for a reassessment of the ACA. We believe that we partly convinced the Government of the need to set up an inquiry, which they eventually did, under Professor Elliott. His report may not have been perfect in everyone's eyes, but the implementation of its recommendations would have removed some of the inequalities that are visible to all.
It is ludicrous that the county of Bedfordshire can have more than £100 per pupil extra because of the way in which the area cost adjustment works, when the neighbouring counties of Cambridgeshire and Northamptonshire have to make do on much less. It has been particularly disheartening to learn that one of the major reasons for the failure to make that reform was the strong opposition of the Labour-controlled local authority organisations. It is distressing that no progress has been made on moving towards a better allocation of local authority funds. I understand why a total change to the Elliott ideas was difficult, but I believe that we should make a gradual move towards a better system. I want to make it clear to all the people of my county that the opposition of the Labour councillors in the various local authorities was one of the major reasons for us not getting a better deal.
In welcoming the Chancellor's increase in funds for education, I also echo the comments about local authorities refusing to pass on all the money that has been made available for school governors. Last year, despite having screamed and complained about how school budgets were being cut back, my county council withheld almost £2 million that it could have passed on to school managers. It would be disgraceful if the Labour county council tried to do that again in the next financial year. We know perfectly well that it will say that money is short and will blame the Government for it.
It was rather disappointing to see that Wellingborough borough council's SSA has been reduced by 3.2 per cent. It is one of the few councils in the country not controlled by the Opposition. It is almost unique—it is certainly unique outside London—in making no charge for its services. In fact, it supplements the county's precept. I hope that the policy pursued by my right hon. and learned Friend the Chancellor will not be continued in a way that could be seen to penalise authorities that have done very well, and end up as a penalty on thrift.
One aspect of the Budget that has caused me concern—I do not think that it has been mentioned so far—is the increase in diesel duty and the effect that that will have 401 on road haulage. I entirely accept that road vehicles should pollute less and should be encouraged to be more fuel-efficient, but I am perturbed by the aspect of the Budget that puts another considerable increase on the costs of that industry.
The facts are reasonably clear. The United Kingdom has the highest rate of duty in the European Union and the highest rate of vehicle excise duty. Even before yesterday's increase, UK duty was much greater than those of our continental partners. The duty here is 25 per cent. higher than that in France, 33.3 per cent. higher than that in Germany, 100 per cent. higher than that in Greece and 30 per cent. higher than the European average. That difference in fuel duties means that many continental hauliers can come to this country with full tanks and compete with our industry, perhaps buying no fuel—or very little—at the rates that our hauliers have to pay.
I accept that my right hon. and learned Friend has brought forward some welcome measures to encourage the use of cleaner fuel, but that will not help in the immediate future. Any new investment requires healthy profits, but studies of growth in the industry over the past few years have shown pre-tax profits running at only 3 per cent. I therefore urge the Government to adopt a more helpful approach to the haulage industry's difficulties.
Some will ask whether that matters, supposing that the situation will merely encourage a greater transfer of freight to rail, resulting in fewer lorries, less traffic and, probably, a little less pollution. I should like to respond quickly to anyone who holds that view.
The road haulage industry is carrying almost 90 per cent. of internal freight in this country. It is a highly competitive industry that has had to keep its costs down. If it has to put its charges up, the prices of many products in the shops and in industry will be affected and that will have an eventual effect on the retail prices' index.
It is a fallacy to believe that it would be easy to transfer from road to rail. The Government have already carried out much excellent work in encouraging new freight terminals and giving grants to help transfers. Last week, I heard a Railtrack spokesman admit that the economic distance for the transfer of goods from road to rail had gone up to 450 miles. That covers virtually every internal journey in this country.
That fact illustrates the importance of the industry. Continual tax hikes on the industry, together with its low levels of profitability, can result in poor prospects for many small companies that are struggling. The problems of the industry deserve more sympathetic attention in future Budgets. I am certain that there will be a new leader of the road haulage industry before the next Budget. I suspect that he will be vocal on the subject.
After more than 20 years as joint chairman of the parliamentary road study group, I have a special interest in the roads programme. I congratulate my right hon. Friend the Secretary of State for Transport on having been able to retain a £6 billion programme for next year. I am sorry that many long-term schemes have had to be removed. It is time to think about the longer-term implications. I would like more design, build and maintain schemes, although I appreciate that very few of those announced last year have made much progress. I am still waiting eagerly for an announcement that the A6 bypass at Rushden will come into operation before too long.
402 We must realise that we are talking against a background of increasing road traffic. That traffic will inevitably increase further as national prosperity rises. We still have to improve public transport to a level at which it becomes more attractive and available to the motorists whom we are trying to persuade out of their cars.
Any major transport infrastructure that we decided on would probably need 15 years or more before it came into being. Even if we started today, it would be well into the next century at the earliest before we could meet some of the increased demand. The problems will continue. Instead of calmly cutting investment in transport infrastructure, a move that is always tempting when there is competition for spending from education, health and law and order, we must ask what the situation will be when roads such as the M25 become car parks for two or three hours of the day.
We cannot turn the country into a swathe of concrete or tarmac, but many useful improvements could be made to deal with the worst pinch points in our transport network. Road widening schemes and local bypasses can make a great difference. That should be the direction of our road building policy in the next few years. We should not sit back and do nothing because of the environmental opposition. Many people wish to travel, and until we provide an adequate public transport alternative—particularly in congested areas—they will not stop using their cars. The alternative must come first; otherwise, people will continue to drive.
As I listened to the speech of the right hon. Member for Dunfermline, East (Mr. Brown) I became increasingly concerned, not about the confidence trick that my right hon. and learned Friend the Chancellor was playing on the country, but about the bigger confidence trick by the Opposition in the House and wherever they go. Although they cannot oppose the tax cuts, they appear to oppose some of the tax changes. They seem to want to spend more money in various ways, but they are terrified of saying how they would pay for any increase in expenditure, because they know in their hearts that they will have to increase taxation.
The right hon. Gentleman spent months travelling around the country making spending pledges, deploring Government spending cuts and giving the impression that the election of a Labour Government would mean Christmas for 365 days a year. Now that some of those pledges have been costed, the Opposition have started to run away and say that they were not promises at all. So we have a modern riddle: when is a promise not a promise? The answer is: when it is a Labour party pledge.
As the weeks go by, the nation will see increasingly that the Opposition have given us only a number of gloomy prognostications. In my view, the biggest danger to the growth of the feel-good factor in Britain is seeing the gloomy face of the right hon. Member for Dunfermline, East on television night after night. It is enough to make one want to go to the cinema or read a good book. A party that seeks to obtain power by inciting everyone to be miserable about the future will not be attractive to the electorate.
Labour's long-term dance of the 22 veils is rapidly coming to an end. It will have to reveal each of those veils. Whatever else public opinion polls reveal, it is becoming increasingly clear that British people do not trust the Labour party not to increase taxation. When they 403 come to cast their votes, they will remember not the knockabout comedy of the Budget debate, but the fact that the Government have gone through a difficult recession and presented not a general election giveaway Budget, but a responsible Budget that provided encouragement by a further march forward in reducing the standard rate of income tax.
§ Mr. Neil Gerrard (Walthamstow)
I shall concentrate on two main issues: first, the effect of the Budget on local authorities, particularly education services, which have been mentioned a number of times this evening, and secondly, its effect on housing, and particularly housing capital.
It is quite clear that the Budget will result in increases in council tax. Spending has been shifted, and the cuts in income tax will be balanced by rises in council tax. That is open Government policy; it is no secret that the Government have made a positive decision to shift the burden of spending on to council tax. If the spending plans in the Budget continue unamended, council taxes will probably increase by between 15 and 20 per cent. over a three-year period. It is a significant shift.
Councils will be unable to resolve their financial difficulties by using reserves or making efficiency savings. Many local authorities simply do not have the reserves. District auditors are now telling many local authorities that they should have bigger reserves and that they have run down their reserves too far. Some reserves are required for specific projects that require matched funding. Certain projects require local authorities to have money available in the event of a successful lottery bid, for example.
The right hon. Member for Wells (Mr. Heathcoat-Amory) said that he was in favour of cutting public expenditure. I understand that attitude, although I do not agree with it. At least I know where I stand when someone stands up and says that we should be cutting public expenditure. It is an honest position. The Budget, however, gives us a lot of myth.
It has been repeated again tonight that an extra £633 million will be made available to be spent on education. That sounds as if the Government were providing the money. I looked up the figures from the local authority statement last year. Total Government support to local authorities in revenue support grant and business rates is down by £143 million this year, so where is the extra £633 million? We all know that putting money into the standard spending assessment is different from actually providing the funds.
Let me explain by referring to my local authority. Today, Waltham Forest was told that the education standard spending assessment for next year, after allowing for the nursery vouchers, will be £2 million higher than it is this year. So Waltham Forest has an extra £2 million in its education SSA. That is great, but where will the money come from?
This year Waltham Forest is spending just below the capping limit. Next year, the capping limit will be lower than this year's limit plus inflation. The combination of revenue support grant and national non-domestic business rate next year will provide £1 million less than this year, 404 so it appears that Waltham Forest is supposed to spend £2 million extra on education while making an £8 million cut in its overall budget and increasing the council tax by 10 or 11 per cent.
§ Mr. Gerrard
It may be easy, but the figures do not make sense.
The only way in which Waltham Forest will be able to spend an extra £2 million on education—it has protected the schools budget every year for the past two or three years—is by cutting £2 million somewhere else. That is not a unique position; it is no different from that of hundreds of local authorities up and down the country.
If the money is not provided in the education budget, we know what the consequences will be for class sizes, and particularly the non-statutory parts of the education service. We have now reached the point at which discretionary grants have virtually disappeared in many local education authorities. Every time the education budget comes under more pressure, non-statutory parts of the budget, such as discretionary grants, adult education services and youth services are the parts that have to go. Such services will be hit even harder again this year.
There is absolutely no pretence at all of growth in housing. Earlier this week, the Secretary of State for the Environment made a statement about what is needed in housing, although he described it in terms of household growth and household projections over the next 10 to 15 years. The Department of the Environment estimates that, by 2016, there may be up to 4.4 million more households in the country than in 1991. It says:The projections play an important part in the calculation of the nation's future housing requirements.Having read that on Monday, it was very strange to see what happened to housing in the Budget on Tuesday. Approved development programmes for housing associations this year are running at just over £1 billion—£1,063 million. In last year's Budget, the approved programmes for 1997–98 were predicted to be £940 million, yet the figure announced yesterday for 1997–98 was £650 million—a cut of £290 million.
What will such a cut do to the housing programmes? The housing associations' first guesstimates are that, instead of starting 40,000 units in 1997–98, they will start 18,400. The programme has been more than halved because, of course, some of the money has to go to finishing off programmes that have already started.
The DOE claims that the numbers will not be quite so bad, but nobody can understand how they will get better unless the housing associations' grant is cut yet again and rents are forced up, or the mix of housing is changed in order to go for less permanent and more temporary housing. At the same time, local authority credit approvals have been cut from £775 million in 1996–97 to £489 million for next year, so there is no possibility that local authorities will be able to make up the shortfall for the housing associations.
I talked today to a housing association that is working jointly with the local authority in my constituency—exactly the sort of thing that the Government say they want. It told me that the programme that it is in the middle of is seriously at risk for next year because it believes— 405 probably justifiably—that the Housing Corporation may have no other option than to revise some of its existing commitments in order to meet cuts.
One other very nasty, vicious little change in the housing benefit regulations was announced in yesterday's Budget. At the moment, somebody under the age of 25 who lives in the private rented sector is eligible only for housing benefit up to the equivalent of a single rented room in shared accommodation. That eligibility is to be extended to everyone under the age of 60.
Let us imagine the consequences of that for someone in their 40s or 50s, for example, who may have lived in the same private rented flat for a number of years and happens to lose their job. How will they pay the rent when, suddenly, they do not receive the housing benefit that they have been getting for years?
I had a telephone call today from a constituent who had seen the change in the press, who asked: "What will happen to me when I lose my job?" The person has the type of job that is likely to be transient. Plenty of people, such as those in the building trade or actors in the theatre, are in work for a period and then out of it.
Those periods out of work may well be long enough to justify making a new claim for housing benefit. They will be told that they cannot have housing benefit any more for the flat in which they have been living, and that they will have to find a single rented room in shared accommodation. What sort of country are we living in when people up to the age of 60 have to get out of the place where they live?
I have absolutely no doubt about what is going on in the Budget. The income tax cuts are window dressing. Underneath, some very nasty cuts will be implemented, especially in local government. I am beginning to despair of what has happened to local government over the past 15 or 17 years. There is nothing new in this Budget in that respect.
I spent 17 years serving on a local authority from 1973 to 1990, and I cannot imagine anybody who has started serving on a local authority in the past three or four years wanting to do that. People have had enough after three or four years; they do not want to be councillors any more. It is more and more difficult for all parties to find enough people willing to fight some of these seats. People are being ground down, which is bad for the services and the whole system of local government. The one penny off income tax will be of very little consequence to people who next year will not have homes to live in as a result of some parts of the Budget.
§ Sir Irvine Patnick (Sheffield, Hallam)
I do not propose to travel the route taken by the hon. Member for Walthamstow (Mr. Gerrard). I consider that yesterday's Budget—commentators admit it—was one of the most balanced for the creation of prosperity, growth and higher living standards. In particular, it is a helpful Budget; it helps business. The rate of corporation tax on small business was reduced to 23 per cent. In conjunction with the rural rate relief currently going through the House, business rates will be frozen for small businesses, which will be of enormous benefit to them. The Budget will help keep them competitive, and many of them in business.
The value added tax registration threshold has been increased to £48,000, the employers' national insurance contribution has been reduced, and I am delighted that my 406 right hon. and learned Friend resisted the temptation to impose—as some of the pundits inform us he will every year—VAT on newspapers. That will be of enormous benefit to all our newsagents and their customers. The reduction of duty on spirits, together with the extra 100 Customs and Excise officers, will greatly help our licensed retailers—mainly small businesses—by helping to counter cross-border smuggling.
The Budget also helps taxpayers by reducing the basic rate of income tax to 23p—another step towards a 20p basic rate of tax. Personal allowances have been raised, tax margins have been increased, the married couple's allowance has been increased, and the benefit position of lone parents and couples with children has been equalised.
The Budget helps not only families but taxpayers, and has been welcomed by the Conservative Family campaign. It delivers a balanced tax package that has cut the basic rate of tax to its lowest level for six years. There has been more spending on the public services that people care about; and, what is more, the national health service will be able to spend an extra £1.6 billion next year. The police will have extra spending of £450 million next year, and education will have extra spending of £875 million.
I raised with my right hon. Friend the Secretary of State for the Environment the fact that I could not see a mechanism for ensuring that money given to councils for education is spent on education. My hon. Friend the Economic Secretary and myself were members of Sheffield city council, and we well know the skulduggery that has gone on in Sheffield. The council has kept cash allocated for education from the local education authority, and then blamed the Government for not giving it more. Last year, we gave the council more, and still it held back.
There will also be a reduction in spending overall, and lower public spending. As a result of those measures, the loss of revenue will be only £735 million in 1997–98, despite an impressive reduction in income tax worth £3.4 billion in a full year. The Budget will actually produce a net increase of nearly £1 billion and it is tighter than all the pundits would have us believe. [Interruption.] Does any hon. Member wish to intervene? That is an old Whip's trick.
The Budget would allow interest rates to remain about the same and could even prevent any further significant increases. [Interruption.] I will give way if hon. Members—even one of the Whips—wish to intervene.
§ Madam Deputy Speaker (Dame Janet Fookes)
Order. I think the House will know the views of the Chair about sedentary interventions. They are to be deplored, especially from any Front Bencher.
§ Sir Irvine Patnick
I am obliged to you, Madam Deputy Speaker, for your protection. [Interruption.] Do hon. Members wish to intervene?
§ Sir Irvine Patnick
If economic growth continues to accelerate, another quarter point should be sufficient, and increases to 6.5 or 7 per cent. are extremely unlikely.
407 The Government have taken their drive on fraud up another gear. My right hon. and learned Friend is right to close tax avoidance loopholes, because that is something we all pay for. Today's press reaction has been favourable. I shall quote a few sources. The chairman of GKN said:This is an appropriately prudent Budget which is good news for business.The Confederation of British Industry said:the positive measures include the 1 per cent. reduction in small firms Corporation Tax.The Institute of Directors said:The Budget is good for Business and helps companies to thrive and create jobs.The Forum of Private Business said:The best budget in a decade for owner-managed firms.The chairman of ICI said that the Budget is one for economic growth and that itshould enable the economy to continue to expand without giving rise to undue risk of inflation.The chairman of BP said that the Budget shouldkeep the economy stable and predictable".The chairman of the Siebe Engineering Group said:I rejoice for our UK employees.The chairman of Dixons said:It was very sensible and professional".I could quote more.
The private finance initiative has obviously had its birth pangs, and I was delighted that the PFI contract for the Norfolk and Norwich hospital scheme has been signed for £200 million. I trust that it will not be long before the PFI contract for the replacement of Jessops hospital by Stone Grove in my constituency will also be signed.
The Budget means that a family on average earnings will be £370 better off next year, bringing the total rise since the last election to more than £1,000 a year. By next year, a family on average earnings will be £100 a week better off than in 1979 after tax and inflation. But what about Labour? Over the period of the last Labour Government, net income for a family on average earnings rose by only £1 a week at today's prices, or 0.5 per cent., over five years. The debt burden has been lower every year under the Conservatives than in any year under Labour. Our worst year for debt is better than the best year that the last Labour Government ever managed.
Part of our debate is about the growth in road traffic. The transport of goods by road is playing an increasing part in our modern economy. Many people recognise the advantages of road transport, but concern has been expressed about its impact on the environment. Road transport has expanded opportunities for jobs, increased the number of goods in our shops, improved the efficiency and effectiveness of our industry, and allowed people mobility, a wider choice of where they live and shop, and enjoyment of their leisure time. But it has also brought congestion, noise and pollution to many towns, damaged landscapes, and contributed to the threat of climate change.
Some see transport as a major threat to sustainable development. Traffic growth highlights the question, therefore, whether the aim of widening choice, improving 408 the effectiveness of our economy and protecting the environment—all central to Government objectives—can be reconciled. My right hon. and learned Friend's Budget has gone a long way to meeting those concerns. It should encourage fuel efficiency, a point that was recognised by British Gas, the Retail Motor Industry Federation and Vauxhall Motors. The ultra-low-sulphur diesel is cleaner than ordinary diesel, and I am delighted that my right hon. and learned Friend has been able to reduce the duty on the former.
In my Adjournment debate on 14 November, I called for a switch to cleaner gas power. Hey presto, less than a fortnight later, the Chancellor reduces the duty on road fuel gases by a further 25 per cent. When that is added to his reduction of £500 in vehicle excise duties, from 1998, for lorries that meet stringent emission standards, I begin to wonder whether my right hon. and learned Friend reads all Adjournment debates so clearly and carefully. As the Chancellor reminded us, the Budget combines healthy economic growth with a healthy environment.
Last week, the House debated the windfall tax, when I quoted Yorkshire Electricity as an example of a company that is concerned about it. It advised me that, before privatisation, it paid £41 million in tax. Since privatisation, it pays around £90 million in tax a year, and its prices have reduced in real terms since 1991 by 25 per cent. That is an example of privatisation working, and it is clear from its reaction to the debate last week that the Labour party just does not understand.
This is a Budget for our living standards. It gives a balanced tax package and cuts the basic rate of income tax to its lowest for 60 years. It is a Budget for our services, with more spending on the public services that people in Hallam care about, including education, law and order—there is a planned increase of 120 police officers in South Yorkshire during 1996–97—and the national health service. All those have been highlighted in our canvas surveys.
In Sheffield, more in-patients have been treated than ever before, and the extra cash in the Budget will ensure that even more people are treated. It is interesting to consider the statistics for people treated in Sheffield as ordinary admissions and day cases. In 1993–94, the figure was 148,641; in 1994–95, it was 154,084; and in 1996–97, it was 159,511. The out-patient situation is also interesting. In 1993–94, 604,412 patients were treated, and in 1994–95, 632,753 patients were treated. In 1995–96, the figure was 678,610. As the Prime Minister has said, there are year-on year increases in NHS funding—something about which we have heard nothing from the Opposition.
This is a Budget for our future, and will provide a healthy economy, lower public borrowing and sustained growth with low inflation. The Chancellor has been prepared to take tough decisions to keep the economy on track. Yesterday, he highlighted the success of the Government's economic record and pointed to the perils posed by whatever the socialists want to call themselves. We know, however, that they remain the pedlars of doom, gloom and despondency.
§ Mr. Alan Simpson (Nottingham, South)
Not long ago, I was driving through a village that was clearly in the middle of its own environmental campaign. Along the road on the outskirts of the village, and in front of a large 409 copse of trees, was a row of placards and posters that proclaimed with ironic innocence, "Save our Trees—they break wind". Having listened to the Chancellor yesterday, I became aware that the trees were not the only ones to do so. The Chancellor painted a picture of hot air and self-acclaim that was in stark contrast to the realities of the country and the economy that he has created.
Nowhere was the contrast starker than when the Chancellor claimed to be the architect of a recovery that was built to last. I think that the phrase he used was "a Rolls-Royce economy". I ask the House to consider this. If we genuinely have a Rolls-Royce recovery, why can pensioners not have Rolls-Royce pensions? As my hon. Friend the Member for Walthamstow (Mr. Gerrard) pointed out, we shall face a housing shortage of some 4.5 million homes. Why can we not have a Rolls-Royce social housing programme? The country is facing 50,000 excess winter deaths each year, of people living in fuel poverty. Why can we not afford a Rolls-Royce home insulation programme?
A homeless person sleeping in a doorway probably feels that he has as much chance of getting a home of his own as of owning a Rolls-Royce. Is it really a Rolls-Royce recovery when students today face Rolls-Royce debts, rather than Rolls-Royce grants? One in three children are growing up in asthmatic childhood and in poverty—in the shadow of Rolls-Royce exhaust fumes. Is it a Rolls-Royce recovery when there are probably shorter waiting times to buy a Rolls-Royce than to get a routine operation? But perhaps that is the Rolls-Royce recovery to which the Chancellor referred—a society in which more people can buy a Rolls-Royce. If that is what he meant, it was probably true.
In analysing the impact of the Budget this morning, the Institute for Fiscal Studies said that the top 10 per cent. of the population would probably be 1 per cent. better off, while the bottom 10 per cent. would be 1 per cent. worse off. That must be added to the position when the Chancellor rose to make his speech yesterday afternoon. From 1979 to 1996, the poorest 10 per cent. of the population have become 13 per cent. worse off, and the richest 10 per cent. have become 65 per cent. better off. Those who earn more than £100,000 a year receive an annual tax handout from the Chancellor of £15,000. That is not enough to buy a Rolls-Royce, but it is certainly enough to put down a healthy deposit on one.
Yesterday's Budget took place in the middle of the International Year for the Eradication of Poverty. It is worth asking ourselves in what way the Chancellor will have contributed to that initiative. Sadly, the answer is, "Probably not one jot." As he tinkered about with tax rates and bands, it is worth pointing out that marginal tax rates hit no one harder than the working poor. The marginal tax rates of those in work, on low pay and having to interact with the benefit system are at least 97p in the pound. If the person is really unlucky and is on passported benefits—entitling him or her to access to free school meals—he or she can lose 1 My in clawback on every pound earned. Taking 1p off the basic rate of tax will not impact in any way upon the harshness of this tax and benefit claw back regime, which hits the working poor most cruelly.
Any sensible and objective analysis must begin by recognising the need to return to a reform of the benefit system that rediscovers the virtues of platform, universal benefits, at the expense of the obsession with increasing means-tested benefits. The tax cut that the Chancellor 410 came up with will not turn out to be the wind of change for the working poor. At best, it will turn out to be the wind of small change. But for most households in Britain, it will mean the wind of less change in their pockets than they had the previous year.
Would that be ameliorated by the macro-economic situation—the analysis against which the Chancellor pitched his policies for the medium and long term? Sadly, the answer is again no. That would have to be consigned to the category of "all PSBR and wind".
The Chancellor painted a rosy glow on that, and referred to the economy asthe strongest industrial economy in western Europe".-[Official Report, 26 November 1996; Vol. 286, c. 154.]He failed to mention that the Government have become dependent upon privatisation receipts, which, for the past decade and more, have amounted to an income of more than £5 billion a year. The Government now depend on those receipts just to balance the books.
§ Mr. Simpson
No. I hope that the hon. Gentlemen will forgive me. I wanted to intervene earlier, but was utterly unsuccessful. I wish to proceed and to try to get through my speech.
The Chancellor also failed to mention that the economic recovery was based largely on our withdrawal from the exchange rate mechanism, and the benefits that that gave to Britain. If the Chancellor has his way, he will repeat that experiment, with knobs on, by taking us into a European single currency.
The Chancellor did not mention that the economic growth next year, to which he referred, will be predicated largely upon a consumer boom that will be driven by the £20 billion windfall handouts from building societies to their customers as the societies try to convert to banks. That will have an impact upon consumer-driven spending in the economy, and will push up consumer spending by 4 per cent. That in turn will impact mainly on prices, inflation and the balance of payments, but not on domestic production.
Sadly, the goods that the Chancellor and the Chief Secretary have been singing the praises of are not ones in which we necessarily retain a strong production base. Britain has been transformed into a screwdriver economy, assembling units for export, but our pitifully low fixed capital investment in manufacturing is one of the worst in the western world.
§ Mr. Simpson
No, I would hate to be unfair to the hon. Members for Finchley (Mr. Booth) and for Brentford and Isleworth (Mr. Deva). If I am going to be unfair, I shall be unfair to hon. Members on both sides of the House.
By any economic comparators, the United Kingdom's economic performance has been poor, and its prospects are worse. The Library was kind enough to draw up for me some of the basic comparisons that we ought to be making on the Government's record. On inflation, not 411 only is the UK's inflation rate now higher than the EU average but, at 2.7 per cent, it compares pitifully with the 0.2 per cent. of Japan.
On interest rates we do no better. The current rate of 8 per cent. is higher than the European Union average of 7.7 per cent., twice the rate in Japan, and higher by about a third than that in the United States. Throughout the Government's period in office, investment in fixed capital formation—in our manufacturing future—has been lower than the European average and never higher than 60 per cent. of the rate of investment in Japan.
The Chancellor has been building an economy on borrowed time and on borrowed money. The gifts in the Budget are in fact debt bombs set to go off in someone else's future. Worse still, the debts will be palmed off on to other people's laps.
The national health service bonus of 3 per cent. on patient services next year, about which the Chancellor so proudly boasted, is a one-year-only commitment, to be followed by two years in which growth will be 0.2 per cent. and 0.1 per cent.—well below the rate of inflation. It is also predicated on a 10 per cent. cut in capital spending in the NHS.
To give a local example of what that means, Queen's medical centre in my constituency, which is fairly typical of hospitals that had capital programmes and have had to dip into them to fund revenue commitments arising from improvements to patient treatment services, said:Using capital to support revenue is another option which … Queen's has had to exercise in the past. However, this is only a short term solution and can not be sustained in the long run. When Queen's became a Trust 80 per cent. of its equipment had exceeded its useful life. Continued capital investment, at the highest possible level, is therefore essential to continue to provide a safe, modern service.Yesterday's Budget provided not capital investment but cynicismat the highest possible level".The partnership deal for local authorities was no better: the local authority bonus will simply pass on a 7 per cent. increase in council tax charges that will fall on local people. The Chief Secretary said that "we" would raise extra revenue. When he was pressed on that, it became clear that that "we" meant that the Government would take the decision and that "they"—local authorities—would pick up the bill. When council tax payers discover that they are paying increases at twice the rate of the tax cuts, the Government cannot expect much in the way of gratitude.
The bitter pill was tarnished even further by the Budget's invitation to councils to sell off their tenants. The £70 million package to get councils to sell off tenancies was a way not of tackling the backlog of housing disrepair but of palming it off on someone else.
Finally, there was the debt bomb of the insulation bonus. Those hon. Members who were part of the campaign last year to try to avert the then proposed cut of £30 million from the home energy efficiency scheme budget will remember that successive Ministers promised that it would be put right in this year's Budget. They will also notice that it was not. The £20 million to be put back into the Energy Saving Trust over three years is not in any way a replacement for the £30 million cut from the home energy efficiency scheme in one year.
412 There was no commitment that, as was suggested last year, the rate of value added tax on home insulation materials would be reduced so that we taxed energy saving no more heavily than energy using. Many Conservative Members who were active last year in the campaign to bring that change about were bought off then by promises that the matter would be put right in this Budget. The deep sense of cynicism and abandonment that I understand them to feel is well founded. The one comfort that I can offer them is that I have tabled an amendment that would allow the House to make the decision to reduce VAT on home insulation products to no more than the rate charged on energy consumption.
I want to finish on a positive note and not to be entirely critical of the Government or mean-minded about the Chancellor. We should all pay tribute to one aspect of the Budget; it is in many ways a tribute to the Chancellor's remarkable personal qualities. Many people know about his humour, his love of jazz and his engaging earthiness; but not many people know that in Nottinghamshire he is also regarded as a politician with the most consummate ability to stay one step ahead of his cock-ups. As he moved from the Home Office and from the Departments of Health, of Education and Science and of Trade and Industry, he was not so much a hard act to follow; merely a nightmare.
I hope that when shadow Ministers rise to respond to the debate, they will find an opportunity to pay their own tribute to this goodbye Minister, soon to be a Chancellor gone with the wind that he has lived by.
§ Mr. Nirj Joseph Deva (Brentford and Isleworth)
I am grateful to be able to speak in this debate. I follow most excellent speeches by my hon. Friend the Member for Sheffield, Hallam (Sir I. Patnick), my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) and the hon. Member for Walthamstow (Mr. Gerrard), and a rather windy speech by the hon. Member for Nottingham, South (Mr. Simpson), who seemed rather obsessed with motor cars.
I congratulate the Chancellor on a personal tax cutting Budget. Earlier this evening, the right hon. Member for Dunfermline, East (Mr. Brown) reminded me when I intervened—I congratulate him on his assiduity—of what I said in my 1992 election manifesto. I said that, once elected, we would cut taxes. The shadow Chancellor has made a mantra of tax cuts; they were all he talked about this afternoon.
The tax cuts that I promised my electors have now begun to happen. Certainly they did not happen in the first year; it took us four years to keep our promise. In demanding immediate tax cuts, the shadow Chancellor was also demanding hospital and school closures and cuts in social services and social security. Is that what he wanted? Has the so-called new Labour party become so uncaring about the poor, the sick, the disabled and pensioners, so unconcerned about the quality of education, so thoughtless and so mean that the only people it is now concerned about are the very rich?
I am pleased that taxes were not cut as I had promised my electorate three years ago, that funds were raised and that money was spent on social security, social services, the unemployed, the sick, the environment, the disabled and education. If we have a choice between cutting taxes, 413 which the Labour party screams about and accuses us of not doing sooner, and looking after those who cannot look after themselves, I would rather do the latter than follow the mean-minded, selfish policies of so-called new Labour.
In any case, I do not believe a word of all this nonsense about tax cuts. The Labour party has never cut taxes. Let us consider its new expenditure policies. Should it ever get elected, it would have to spend about £30 billion more, and put up taxes so phenomenally that it would cripple the country—as it did in the 1970s.
§ Mr. Deva
Let me make some progress.
I am privileged to represent Brentford and Isleworth, where there are some extraordinarily good national and multinational companies. On the A4, along which I am sure you have driven, Madam Deputy Speaker, there is a stretch of road called the golden mile. I am proud to represent the world headquarters of large companies such as Samsung Electronics, which has recently arrived in my constituency, Bull Information Systems, SmithKline Beecham, Gillette Industries and many other companies and institutions, including the British Standards Institution.
In the past three years, the rate of unemployment in my constituency had decreased by 150 per cent. and some 4,000 new jobs have been created. That is a proud record, for which I commend the Government. Since 1992, some 750,000 new jobs have been created right across Britain—more than in the entire European Union. In ward investment alone has created some 60,000 new jobs.
When I hear the Opposition talk about the British economy, it sometimes crosses my mind that they are talking about another country, a country that I know not. They talk about the economy and the country as they wish them to be, not as they are. We have one of the lowest inflation rates in the world, and our growth rate is the highest in Europe. Those facts should be supported by all hon. Members. We need to talk Britain up, not down. The trouble with the Opposition is that they constantly try to talk the country down.
§ Mr. Deva
In a minute.
We need to create more jobs and more confidence and attract more investment to create an economy of which we will all be proud.
When the country voted at the last general election, the Conservative party received the largest number of votes that a party has received in British political history. We were in the midst of a bad recession in Europe and around the world, but still the country voted for us. That was not a mere act of faith; it reflected certainty in the ability of the Conservative party—and the Conservative party alone—to turn the country around. That expectation has now been met; the Government have delivered.
When the votes were cast in 1992, growth in gross domestic product, because of the world recession, was minus 0.5 per cent.; today it is 3 per cent. and growing. Interest rates were 10 per cent. and climbing; now they 414 are about 6.5 per cent. and steady. Inflation was about 5 per cent.; today it is steady at 2.8 per cent.—below the European average. In 1992, 750,000 more people were out of work; today, 750,000 more people are in work and supporting their families. In each of the past 32 months, unemployment has fallen; in my constituency, it has fallen phenomenally. I am proud to say that my area is prospering. We have a trade surplus. British overseas investments are spreading joint venture projects across the world. Last year, we earned nearly £30 billion from our overseas investments. It is indeed a proud record.
I want to say well done to the Chancellor and the Government, for producing a Budget that has started cutting personal taxation. In 1995, personal allowances were increased by £240; age-related personal allowance was increased by £280; the lower rate band was increased to £700; the basic rate limit was raised by £1,200; the basic rate of income tax was reduced to 24 per cent.; tax on savings income was cut to 20 per cent.; the capital gains tax retirement relief age limit was reduced; the inheritance tax threshold was raised to £200,000; insurance benefits were exempted from tax; and duty on beer, wine and cider was left unchanged. Spirits duty was cut by 4 per cent., fortified wine duty by 6.7 per cent., pools betting duty by 6 per cent., and general betting duty by 1 per cent. The small companies rate of corporation tax was cut to 24 per cent.
This year, the Chancellor has gone further. He has said that there is room for further manoeuvre. The Budget cut the basic rate of income tax to 23 per cent., and personal allowances were raised by another £200. The lower rate band was raised by another £100 and the inheritance tax threshold by £15,000. Business rates were frozen. I can say with the utmost confidence that that has helped many small business people, including small shopkeepers. There are some 250,000 small retail businesses—many in the Asian community—and about 700,000 people depend on those family businesses. They welcome the freezing of business rates. I hope that the Chancellor will in future be able to do something to alleviate some of their recent difficulties.
The duty on ultra-low-sulphur diesel has been cut, as has road fuel gas duty. The small companies rate of corporation tax has been cut to 23 per cent. It is a Budget that we should all be proud of. It is an honest Budget by an honest Chancellor in an honest Government.
Yes, my right hon. and learned Friend the Chancellor could have sought, had he wished in an election year, to woo the voters, but he did not. Why not? Because, unlike the Labour party, he believed that the economic interests of the country were more important than the electoral interests of the Conservative party. Labour has yet to learn that, in government, it is always important to put the national interest first. It has consistently failed itself, never mind the people of this country, by always putting its party interest first. Good news for Britain is bad news for the Labour party. Good news for the people of Britain means gloomy faces across the Floor. That is why the country has praised this extraordinarily good and sensible Budget.
This morning, I listened to some of the comments that the Labour party was spinning in the media. I understand that it is in the nature of politics to oppose. By opposition, one questions, and by questioning one elicits for the common good knowledge that can make policies work better. To mislead the country and paint a picture that is 415 not true is not to oppose but to spin yarns. Spinning yarns is not the traditional role of the Opposition. To spin yarns in the media is to mislead the public and the business community. Yarn spinning wrecks confidence in the country; it makes the country look inadequate and international investors become suspicious. To spin yarns is not clever. It is too self-interested and too self-serving. When the election comes, the electorate will not be fooled.
I want to put on record some of the comments made this morning about the Budget by members of the wider business community. The director general of the Institute of Directors said:The Budget is good for business and helps companies to thrive and create jobs. By emphasising the need for maintaining stable growth rather than agreeing to irresponsible tax giveaways, the Chancellor has given the business sector the best support.The Forum of Private Business, reported in The Times, said:The best budget in a decade for owner-managed firms.The chairman of GKN said:This is an appropriately prudent Budget which is good news for business.The City, reported in The Guardian—of all places—said:Don't you just love it? Within the constraints he has had to operate, this was a well-judged, and well-delivered piece, just what the City wanted and difficult to attack politically.The Times said:So he has taken the sensible political decision that low interest rates are more important than tax cuts. This is also the best decision for the economy.I could go on for a long time recording the praise that was heaped upon my right hon. and learned Friend the Chancellor by the wider community.
We have come to a point in our economic development which requires us to understand what is happening globally. A party which does not understand what is happening globally, such as the Labour party, so fixated on talking down the country, would, if ever elected, destroy the base that has been created after 17 years of Conservative government.
I remember when I was a student and Labour was last in power. Travelling around the world, I was embarrassed to be British. I was embarrassed when the Chancellor of the day had to beg money from the International Monetary Fund. I was embarrassed when he told the media that he had to ask the trade unions what to do before presenting the Budget. We should never be embarrassed again.
I have a rather long speech here, but my colleagues are anxious that I move on. We must look at the Government's record to understand the scale of their success in turning the country round since the last general election. No wonder the Labour party is trying to imitate us. It can imitate us by all means, but the more it imitates us, the more it flatters us, and the more it flatters us, the more the country will understand that it will be better to vote for the tutor at the next election than the new and untried student.
We on the Conservative Benches are all old hands at managing the economy well. Labour's record, throughout its history, is of economic mismanagement that has been utterly disastrous. One cannot teach an old dog new tricks; 416 we can try, but in the end it reverts to its own traditions. Each party has an imbued culture, an underlying foundation, and its own ethos and values. In the case of the Labour party, it is a pervasive socialism which, try as Labour might, will never go away.
Along with that all-pervasive socialism comes the desire to intervene, which is a polite word for meddling. The Labour party wants to meddle in people's lives, in business, in how our children are educated and in how people support their family. That desire to meddle, and Labour's belief that it knows what is good for us, comes from the party's socialist roots. That is why the Labour party is, and always will be, socialist.
Without the need to meddle, and without its socialist roots, the Labour party will be left without a philosophy. Without a philosophy, it will be nothing as a party. It will believe in nothing and stand for nothing—other than a determination to obtain power. It will then become nothing—the ultimate nihilistic experience. The party will implode, smiling sanguinely, as some hon. Members are doing now, with a stiff upper lip to the last, behind its facade.
Original thinking, like original sin, is unbecoming in the modern Labour party. The Labour party's modernity is entirely based on its unoriginality. The modern Labour party does not think; it copies. It does not innovate or develop; it merely reflects, like a mirror, our policies.
§ Mr. Denis MacShane (Rotherham)
I have enjoyed the debate immensely, especially the speeches of the hon. Member for Brentford and Isleworth (Mr. Deva) and the hon. Member for Sheffield, Hallam (Sir I. Patnick), who, like me, has the honour to represent a South Yorkshire constituency.
At the beginning of the debate, I had to pop out to take part in a video-link conference with Rotherham's business community at the excellent studios at the Department of Trade and Industry in Victoria street. The only serious question, consistently repeated by several members of the business community up there, concerned the tax rise on diesel fuel.
I confess that I said that, on the whole, I thought that that increase was a good thing to steer people away from using diesel fuel as much as possible. But there was great disgruntlement on that issue, inasmuch as that can be measured on a video link. The only response was that the cost would be passed on to the consumer by bumping up prices. That is the considered response to the Chancellor's Budget.
A little over 24 hours since the Chancellor made his Budget statement, it has disappeared into thin air. Of far greater import was today's statement on the swingeing rise in council tax that every council tax payer will face next year. That is the hallmark of Conservative philosophy since 1979. If, as the hon. Member for Brentford and Isleworth claimed, the Labour party is reshaping part of its philosophy, it must be said that the Conservative party has never once reshaped its philosophy. To them that hath shall be given, from them that hath not shall be taken away. My hon. Friend the Member for Nottingham, South (Mr. Simpson) made some of those points clearly in his speech.
In shaping my remarks today, I have sought to try to discover what makes the Chancellor tick. Many of us admire his bonhomie and his robust rumbustiousness at 417 the Dispatch Box. There is no doubt about that. The Chief Secretary made some ad hominem remarks about him saying that he was frivolous on the top, but serious underneath. I have considerable difficulty in finding the underneath.
Last night, I had the chance to be in bed with a Trollope. As I was reading "The Prime Minister", I found a remarkable quote from the Duke of Omnium, trying to identify political philosophy. The good duke says:It seems to me that many men … embrace the profession of politics not only without political convictions, but without seeing that it is proper that they should entertain them.What are the Chancellor's convictions? On Europe, I think the House will agree that he has convictions. But Conservative party consideration obliges him to equivocate to an extent that one can read the uncomfortableness as he is harried and chivvied by the Europhobe minnows and would-be anti-European piranhas behind him.
What does the Chancellor stand for? He has been on the Front Bench since Sir Edward Heath appointed him more than 20 years ago. Perhaps that long period on the Front Bench explains why, underneath the blokiness, he is one of the most desperately out-of-touch Finance Ministers in the modern world. In every office that he has held, he has left his area of responsibility in a worse state than before.
The Chancellor was briefly Secretary of State for Education. Measured on any international index, our children's education is lamentable. One has only to read the cries and protests of Mr. Chris Woodhead to understand the disastrous state of education that the Chancellor left behind. He was briefly in charge of the NHS. The total chaos at the British Medical Association that every doctor reports is testament to his stewardship. Before he became Chancellor, he was the Home Secretary. We have witnessed the biggest rise in crime this century. With that record of achievement, where does the Conservative central office jobcentre send him, but to be Chancellor?
What has the Chancellor produced? On the whole, he has stayed on the tramlines laid down by his predecessor. After the disaster of ERM ejection, we are in a classic Tory boom. The disastrous state of public finances is exemplified by the national debt, which, far from coming down, has doubled since the Prime Minister entered office in 1990. We are paying back £25 billion a year in interest alone—interest that is rising—or about £1,000 a year per taxpayer to pay for Tory economic incompetence.
There are three economic indices that are rising. First, inflation is going up. The hon. Member for Brentford and Isleworth would not take an intervention from me. I simply wanted to ask him to name a European Union country where the inflation rate was higher than in the United Kingdom. Monetary policy is out of control.
Secondly, interest rates are going up. We are supposed to be in the middle of a sustainable boom, but the Chancellor raises interest rates. They will have to go up again, as the right hon. Member for Wells (Mr. Heathcoat-Amory), the former Treasury Minister, said in his interesting intervention. Why must interest rates go up? Because both the labour and housing markets are out of control. There is an immense red-hot surge in house prices in London and the south-east. Nothing much is moving in South Yorkshire, which the hon. Member for Hallam could confirm, were he still in the Chamber.
418 We are experiencing the classic problem of rising wages. The chief executive officers of our leading companies are now paying themselves 51 times the wages that they pay their employees. Directors' and top managers' wages are way ahead of inflation, and the housing market is out of control.
The third economic index that is shooting skywards under the Chancellor's stewardship is the exchange rate. I asked the Chief Secretary to give us some guidance on that, but he laughed me away. He is a classical scholar, not an economist. One cannot hope for too much from him. There was a time when Eton produced great economists like Keynes, but that time has long passed.
As the exchange rate crept above DM2.40, above DM2.50 and now stands at DM2.55 to the pound, there is not an exporting firm in South Yorkshire or, I am sure, in the rest of the country whose orders are not crumbling away. That process is not stopping. A high interest rate economy becomes a high exchange rate economy.
Let me be blunt. In contrast to the right hon. Member for Wells, I wondered whether it would not be wise to re-enter the ERM when the pound was sweet and low, to build in a competitive advantage for our exporters. I put that question in written form to the Chancellor during the summer, but it was brushed away, because it is unthinkable for the Tory party leadership, who are terrified of their Europhobe Back Benchers, to take decisions that would protect British exporters. So we have inflation, interest rates and an exchange rate that are shooting up.
The Chancellor made much of international comparisons. The Chief Secretary prayed in aid the Evening Standard—not a newspaper that I usually quote, but on Monday its city editor pointed out:if you want a country with an inflation rate currently lower than Japan it is easy to find one. Unfortunately for the Tories, it is our old Falklands adversary Argentina, where the inflation rate is currently negative and the growth rate 5 per cent.That is twice ours. The article continued:Britain lags way behind that country on both measures, though I doubt this will be mentioned in the Budget speech.One can pluck countries from all over the world. The OECD—
§ Mr. Oppenheim
I am glad to have wandered in at this opportune point in the hon. Gentleman's speech. I would not have missed it for anything. Can he tell the House what sort of economic policies Argentina is following?
§ Mr. MacShane
Those inherited from a military junta, which is no doubt the guiding philosophy of Conservatism. The Minister has a new noble title—"Budgetmaster" or "posthorn general" or something—in his new Front-Bench job.
According to the OECD, which the Chancellor and the Chief Secretary prayed in aid, growth in the UK in the past 12 months, as measured by the OECD, was behind that of Australia, Japan, the Netherlands, Spain and even the United States, where, under the leadership of President Clinton, a raft of what might loosely be called new Labour 419 policies are being applied, including raising the minimum wage, introducing parental leave and increasing public spending, and the economy is booming.
In his interesting speech, the Chief Secretary referred to Cassandra—a classical allusion, because, of course, he is a classical scholar. He might remember the famous demand of the Emperor Augustus to one of his generals: "Where are my legions?" The question that we must put to the Chancellor is: where is his tax?
Page 80 of the Red Book shows a Budget profile that would not be acceptable in any privately run firm. Every forecast is wrong. There is a huge gap in income tax, VAT and corporation tax, yet the economy is booming. Unemployment is coming down. Where are the taxpayers in this booming economy? What has happened to them? Where is the missing money? Why has the Chancellor had to bring in new taxes? I approve of closing loopholes, but if he is determined to turn the screw on small business, I wish him well as he goes around the Rotary clubs of Great Britain.
The answer is that the jobs created are not those that pay real tax. From summer 1995 to summer 1996, more than 90 per cent. of all jobs created were part-time. According to the Inland Revenue's assessments, a part-time employee pays just £277 in tax per job, compared to £3,626 for a male full-time employee. Although unemployment has come down—helped to a certain extent by the £3 billion in welfare benefits now paid to those in work, a huge taxpayer subsidy—the jobs created are part-time and pay such low wages that they contribute nothing to tax revenues.
The Budget fails to address the structural weakness in our economy: a weak economy is becoming weaker. Investment has not reached its 1990 levels and will be weakened further by cuts to public investment in the transport and construction sectors. This afternoon, I received a most depressing fax from Mr. Tony Stacey, chief executive of the South Yorkshire housing association. He told me that the number of homes that he planned to build next year would be slashed by two thirds. That will be devastating for the people who were counting on those new homes and founding family life on the assumption that the Government would honour last year's promises this year. It means misery for the firms and the workers that might have been employed in that industry. The revenue will come from the humble taxpayer—an extra £20 at least on band D taxes in Rotherham, and more from every ordinary council tax payer in the country.
What is so detestable about this cynical Budget is the fact that it provides no help to the family. Families need good, well-paid jobs that will take them off benefit. Families in this country face a deplorable, if not disastrous, situation. One in three children are born outside marriage, one in five children live in a home where the natural father is absent, and one household in five have no working parent. A family that is without employment-based income faces immense difficulties.
That is a direct result of the "me first" culture—the instant gratification of the individual that was woven into the presiding economic philosophy of the past decade. The first step in undermining the family was its elimination from the tax system when child tax 420 allowances were removed and replaced by child benefit—unlike the situation in Europe where most countries have both benefits. That gave the Government the green light to go ahead and discount families.
§ Mr. MacShane
Perhaps I did not speak slowly enough. If the hon. Gentleman had listened carefully, he would have heard me say that 90 per cent. of jobs created in the past 12 months were part-time.
§ Mr. MacShane
Every survey shows that the majority of those seeking full-time jobs resent it when they are obliged to take part-time work. Where is the tax revenue? If one walks 10, 20 or 30 yards from this place, one will stumble across beggars, and there is poverty in poorer areas that shames the rich nation about which the Chancellor spoke.
In refusing to support the family since 1979, the Treasury has sent out a clear signal that the social structure in which children develop best—the two-parent family—does not interest Ministers. In 1956, a two-child family in which one person worked paid just 3.3 per cent. income tax. This year, the same family will pay 22.3 per cent.—seven times as much taxation. A married couple in my constituency have kept detailed taxation records for nearly 20 years. They show that, in 1979, they paid 9 per cent. of their combined income in tax and, by last year, that figure had nearly doubled to 17.1 per cent. Those figures show clearly that the focus on the individual and on getting everyone into work—even into the lowest of low-paid jobs—has done much to undermine family life. I put my Front-Bench colleagues on notice—because we must try to solve the problem in future—that the issue will concern more and more people in our country.
The most squalid proposal in the Chancellor's announcement—the measure that will hit every family travelling overseas—is the doubling of airport tax. The hon. Member for Amber Valley (Mr. Oppenheim)—the "posthorn general"—is in his place and he must defend the airport tax on children in the Standing Committee. He probably thinks that an airport tax is something that he pays on his Gucci shoes when he buys them duty free. He will face tremendous resentment from families who must pay extra to take their children to Orlando, Cyprus or Europe. The Chancellor is not Santa or Scrooge but the Herod of family taxation, who makes our children's lives more miserable and does nothing to help families—the bedrock of the society that Baroness Thatcher said did not exist.
Trust is the core of this Chancellor's last Budget before he goes into political retirement for a long time. By the next election, a typical family will have paid an extra £2,120 in taxation as a result of the 22 tax rises. Whatever the Budget gives away with one hand, it takes away more 421 with the other—there are rises in insurance premium tax, a doubling of airport tax, council tax rises, increased prescription charges and the extension of value added tax to travel insurance. Chancellor "Bloke" is absolutely untrustworthy. He has done his best, but the message to the country to clear: "You will never be able to trust the Tories on tax, on the economy or with the stewardship of our country."
§ Mr. David Nicholson (Taunton)
The one point in the speech made by the hon. Member for Rotherham (Mr. MacShane) that I would take up is his professed alarm at the rise in exchange rates. I draw the opposite conclusion to him: we would be very rash to tie ourselves at any stage to the ERM—I say that as someone who favoured our joining the ERM a decade ago—or any more fixed arrangement. I remember exporters saying some 10 years ago, "We can't cope with an exchange rate of more than DM3 to the pound." As the hon. Gentleman will know, we tried to hold the rate at DM2.90 to the pound, after which it came tumbling down to, I think, below DM2.20; it is now up to DM2.45 or higher. There is no certainty in these matters; there are advantages and disadvantages to a high pound or, indeed, a low pound, and the market has to adjust to that, assisted by sensible monetary policy.
I praise the fact that, over the past four years, particularly during the chancellorship of my right hon. and learned Friend, we have had a sustained economic recovery, enabling, in this Budget and the last, modest tax reductions to be made. Those tax reductions resulted from a conjunction of the policies of growth that have been followed and of the tightness of the spending round. As my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) pointed out from his experience, public spending reductions are not achieved merely by wishing them: one has to work hard year in, year out, month in, month out. I congratulate my right hon. Friend the Chief Secretary on what he has achieved this year and last year.
Various references have been made to reactions to the Budget. I repeat the quote from the Forum of Private Business:The best budget in a decade for owner-managed firms".That organisation has often been pretty critical of the Government's policy on small businesses, so its reaction is good news. It has responded to the business rate freeze in the Budget, among other things, because in my constituency and elsewhere, as I know from speaking to my hon. Friends, there is concern about the impact of business rates. We should not stop with the freeze this year. We must work on the effect that business rates have on small firms, particularly small shops, because the burden on them has been crippling. We must keep up the pressure.
The hon. Member for Rotherham referred to a red-hot surge in house prices in London. That was a fantastic and ridiculous remark. We are, fortunately, experiencing a recovery in the housing market, which is having various beneficial economic effects. That is why the Bradford and Bingley building society remarked that this was avery good Budget for house buyers … good for budding societies, good for builders and good for homeowners.422 Mr. Christopher Haskins, chairman of Northern Foods, who, I believe, is a supporter of the Labour party, also commented on the Budget. He is the brother-in-law of Mr. Jefferson Horsley, the Liberal leader of Taunton Deane borough council, so in a sense I am getting blasts from both barrels. Mr. Haskins said:This has been a sound budget for business … A tight fiscal policy is preferable to higher interest rates.That is why the Budget has been so widely welcomed, and why it will, I think, be welcomed in my constituency.
My constituents, and particularly the Conservative voters, do not share the rather extravagant hopes that exist, perhaps, in other sections of the Conservative party, or in other parts of the country, for dramatic cuts in direct taxation. In fairly substantial surveys that I have conducted over the past 18 months, Conservatives and non-Conservatives alike have put not risking inflation, not risking rising interest rates and not risking the stability of the economy before cutting direct tax.
Of course there will be a welcome for a modest cut in direct tax. Unlike my right hon. Friend the Member for Wells, I welcome the combination that the Chancellor adopted—taking 1p off the standard rate while helping those at the lower end of the income scale. I hope that the Conservative party will never forget that many of our supporters—indeed, many of our potential supporters—particularly in rural areas, are relatively low paid, and the idea that one can draw a line across incomes and say that most people above the line are Conservative supporters and most people below it are supporters of the Opposition is wrong: there are rich socialists and there are rich Liberals.
There is a large number of retired people in my rural constituency, many of whom vote Conservative and are interested in the social justice of fiscal policy. Furthermore, those who work in agriculture, retailing, public service or the health service—at least some of whom, I hope, will remain Conservative voters—expect the Government to take a reasonable attitude to fiscal policy. That is why I made my slightly controversial remarks in the debate on the Queen's Speech a few weeks ago about excessive low pay. I do not want a minimum wage, but excessive low pay should not be disregarded by the House.
In the context of the spending round, I welcome what has been done for the police in Avon and Somerset. I am grateful to my right hon. Friend the Minister of State, Home Office for sending me a letter, as he has to other hon. Members, in which he says that he hastried to cut through the complicated standard spending assessment terminology.It was sad that my right hon. Friend the Secretary of State for the Environment was not more successful in that respect this afternoon.
My right hon. Friend the Minister of State points out that the Avon and Somerset constabulary will receive an increase in spending power of 3.9 per cent., or £6 million over this year, building on an above-average increase for the current year of 4.6 per cent. Information from the Avon and Somerset constabulary indicates that the total number of police officers should increase by 35 during the current financial year. Under the proposals, it will be able to recruit a further 57 police constables during the coming year. That I welcome, because we need extra police constables not to be sunk into Bristol but to police the towns and villages of Somerset.
423 I am glad to see that the hon. Member for Bath (Mr. Foster) is in his place. Despite the difficult education spending settlement of two years ago for Somerset and elsewhere and the rather better settlement last year—as my right hon. Friend the Member for Wells has said, however, only £1.5 million of the total increase of £7.5 million went into the schools—despite those resource difficulties, the latest GCSE results show that Somerset took 14th place in the list of national results, doing better in terms of A to C GCSE passes than Devon and Wiltshire, and better also than counties such as Kent and Essex, which receive the area cost adjustment.
I do not, of course, disregard the importance of resources. I hope that the resources that we receive this year will substantially go into our schools. As for the argument over the area cost adjustment, I do not think that it is sensible to make a comparison with what goes on in the private sector. Public sector pay is determined on a different basis from pay in the private sector. I do not believe that authorities that receive the area cost adjustment have to pay over the odds for their teachers or other staff. I know that many in the House agree with me that we must make a vigorous onslaught on the area cost adjustment in future.
It has been claimed that the education settlement can be financed or funded only by a disproportionate increase in council tax. As I said to the hon. Member for Bath earlier, that is not sustainable in local education authorities that are already capped, but let us consider what happened last year to the districts. For example, Taunton Deane, which is Liberal-controlled, achieved—I refer to column 320 of written answers in Hansard on 14 November—a 135.7 per cent. increase in band D council tax. The only other authority in the south-west that approached that increase was Salisbury, Wiltshire, which is also Liberal-controlled. We shall see this year how the various authorities respond to perhaps a tight spending settlement.
As my right hon. Friend the Member for Wells is in his place, I am pleased to say that I listened with interest to what he said about the single currency. As I said at the start of my speech, I think that, in addition to political sovereignty and other arguments, there are enormous economic difficulties in our expecting to go down the single currency route in the foreseeable future. I hope that that will become clear within the Conservative party, and from the leadership of the party. My right hon. Friend the Prime Minister is right to keep all his cards in place, but the matter must become clear, for the reasons that my right hon. Friend has given in various pamphlets.
I shall study carefully the Single European Act, which was passed before I entered the House. The Conservative party's desire for universal free trade and its worship of the great god Mammon probably persuaded most of us to accept the Single European Act without looking at its regulatory and other implications. Perfect free trade in an entity has implications for exchange rate stability in that entity. It also has implications for social costs and the levels of excise taxation on some of the commodities to which my right hon. Friend the Member for Wells referred. I hope to return to those matters at an appropriate time.
§ Mr. Michael J. Martin (Glasgow, Springburn)
I shall try to be brief, because other hon. Members want to speak.
Two municipal by-elections will be held tomorrow in London. If Conservative Members are so confident that this is a good Budget, they should watch the results of those by-elections, because they will provide an important opinion poll. I think that the Conservative party will be rejected.
The Budget is not good news for people who are lucky enough to be in a job but have to drive a car. The Conservatives have hammered transport and local authorities. People nowadays need a car on the road if they have any distance to go for their jobs. The rise in car tax and petrol tax is not good news, and Conservatives Members are kidding themselves if they think it is.
My hon. Friend the Member for Rotherham (Mr. MacShane) mentioned airport tax. British Midland Airways and Air UK provide the city of Glasgow with an excellent shuttle service to and from London, which I use. One of the biggest complaints from the business community is about the extra tax, and now we have another one. Ten pounds on a ticket for one of the most expensive domestic flights in Europe—perhaps in the world—is not good news for the business community.
Every time a trade union leader says anything. Conservative Members say that they want to hear from the membership. They have said that employers' associations welcome the Budget, so let us hear from their memberships. I shall be hearing from the membership in my constituency and in my native city.
I no longer need to defend tobacco, because there are no tobacco jobs left in the city of Glasgow, which was famous for its tobacco industry. In a sense I am glad of that, because, although that industry was a good employer, I hate the idea of a product that causes emphysema, lung cancer and bronchitis.
It is silly and demeaning that tobacco products are smuggled in from the continent. Our excellent Customs officers must stand by and watch, because the Government have not given them the resources to stop that smuggling. If tobacco is smuggled across the channel, it must be easy to obtain the heroin and other drugs that we are all worried about.
Concern has been expressed about small shopkeepers. Newsagents that sell tobacco legally—so that the proper rate of tax goes to the Exchequer—are appalled that, within walking distance of their shops, smugglers are selling ill-gotten goods openly in railway viaducts. The privatised railway company ScotRail gives premises to people who smuggle goods. That is ridiculous. Those small shopkeepers are obeying the law—all of us are worried about small businesses that are trying to keep their heads above water—while, just down the road, smugglers are able to sell their goods in broad daylight.
As my constituency contains Tennents brewery and United Distillers, I welcome both the fact that no further tax has been applied to beer and the cut in tax on whisky. The whisky industry brings not only direct but indirect employment to my constituents. Advertisers, the printing industry and those who make containers benefit from it. In the old days, the Scotch whisky industry could take the sale of its product very much for granted, but now there is heavy competition. People are buying other products, including those from Japan and other parts of the world.
425 I am disappointed that prescription charges have risen again. It is sad that people should pay more than £5 for one prescription, when we know that, when a doctor calls, he will not necessarily hand out just one prescription. That hits the weakest members of the community.
I plead with the Minister to look at the provisions relating to local government. In areas of high unemployment such as mine, local government is a good employer of labour. Every time we hit local government, we damage employment prospects for men and women. There is no point in saying that we shall spend more on law and order, while telling local authorities that they must close their community centres. The police will tell us that the best places for youngsters are community centres—and, indeed, at night, schools can be used as community facilities. There is no point in closing such facilities as a result of local government cuts, and saying that more will be given to the police: that just does not make sense. We must ensure that all the services are there. I welcome spending on the police, but, as I have said, we must ensure that every service is there.
§ Mr. Hartley Booth (Finchley)
The fact that, along with others, I am speaking during the last few minutes of the debate gives new meaning to the phrase "time-sharing agreement", but I welcome the chance to add my few thoughts.
We heard a farrago of distortion from the hon. Member for Rotherham (Mr. MacShane), who, I felt, somewhat lowered the high standards of our debate with his personal remarks about my hon. Friend the Minister's shoes.
§ Mr. Booth
I do not know what we are supposed to make of that sedentary intervention, but the point was made. The hon. Gentleman went on to demonstrate that he was still keen to ensure that the Labour party introduced control—Labour is always the party of control—over the economy.
From the hon. Member for Nottingham, South (Mr. Simpson) we heard the litany of small points to which we are accustomed. We are used to hearing privatisation berated. It is never said that, now that privatisationhashappened,itisproducing £50 million-worth of taxation for us all to spend on good things every week. The hon. Gentleman also referred to homelessness, waving his arms, but he did not say that for every homeless person there are five empty homes; nor did he say fairly, as he should have, that we are now lowering unemployment. The hon. Member for Glasgow, Springburn (Mr. Martin) should know that, even in his region in Scotland, unemployment is falling.
I was interested when the right hon. Member for Dunfermline, East (Mr. Brown) said that our unemployment was far worse than the rate in France. He has been presented as a man of probity and one who gets his facts right, but nothing could be further from the truth. We are miles ahead of France. Our unemployment rate is down to 8.1 per cent., whereas the European average is 11 per cent., and the situation in France is even worse. So much for his probity and accuracy.
I was surprised that the right hon. Member for Dunfermline, East did not say that, every time Labour comes to power, people do well—in France, Germany, 426 Italy and in all our competitor countries. Our tax rates are pushed up and spending goes through the roof in this country every time Labour comes to power, and we are made uncompetitive abroad.
I should like very quickly to make a couple of points, because I know that time is running out. This debate has shown that the Chancellor is not going for the short-term fix; he is there for the long term. There is no cynicism in his Budget. The tax receipts from his many tax changes—such as taxes on profit-related pay, capital allowances on long-life assets, corporation tax on drilling and capital allowances on fixtures—will come in and benefit us in 1998, 1999 and 2000, not this year. So much for claims of a short-term, cynical fix for short-term benefits. The Budget has demonstrated the fact, once again—as my hon. Friend the Member for Brentford and Isleworth (Mr. Deva) said—that the Conservative party and the Chancellor major in honesty.
The two other points that I should like to make both concern the colours of the lateral thinking that we should hear expressed in the debate. This summer, I had lengthy correspondence with the Chancellor and his office—I was probably being a nuisance to him—about the black economy, which he agrees probably now stands at £50 billion. He has tackled part of that problem by telling us that the compliance that he will achieve through provision of 2,000 extra customs officers will bring in £6 billion, doubling the compliance improvements that have already been achieved by officials at the Inland Revenue. That demonstrated his lateral thinking, common sense and prudence.
In 1987, when I was an official in the Treasury, the white economy—the income that comes from all those good charities, foundations, companies and people who give from their own back pockets for good causes—stood at £12 billion, and it is probably now about £18 billion. That economy has been boosted on 32 occasions in the Government's 18 Budgets.
This morning, I heard a noble prelate speaking at an event on the other side of Parliament square—the hon. Member for Newham, North-East (Mr. Timms) might also refer to that speech, because he was there—and that prompted me to speak in this debate. He said—many people will not understand it unless I put it into context—that we have forgotten entirely about Overseas Development Administration funding and that we have not properly dealt with it. That funding is rising. We can be proud if we consider that funding, with the huge help that we have given to the white economy and military aid for humanitarian causes around the world.
I support this sensible Budget, in all its colourful aspects—dealing with the red account, tackling the black economy, widening the white economy and boosting the blue economy. The blue economy will continue to govern after the next election.
§ Mr. Stephen Timms (Newham, North-East)
I appreciated the colourful contribution by the hon. Member for Finchley (Mr. Booth). I am grateful to him and to my hon. Friend the Member for Glasgow, Springburn (Mr. Martin) for leaving me time to contribute to the debate.
As I listened to the Chancellor yesterday, I wished that I could introduce him to my constituent, a young man who visited the House of Commons for a meeting two 427 weeks ago; he asked to see me and we went for a cup of tea. He was a bright and engaging character in his mid-20s, and I asked him what he did. With some embarrassment, he told me that he has been unemployed. He had left school in 1987 and had not had a single job since. That is a disgrace. There was nothing wrong with him—no reason why he could not contribute to our economy. We are throwing away the talents and energies of a generation. We cannot afford to carry on in that way.
After the long debate in recent weeks about whether the Budget would be a moderately tax-cutting Budget or a swingeingly tax-cutting Budget, we have a tax-increasing Budget, as shown by the Red Book and our earlier exchanges. That is an extraordinary turn of events.
Although taxes have increased in the Budget, the public investment picture is bleak. Yesterday, the Chancellor again announced cuts to public sector capital investment. That investment totalled £20.7 billion in 1994–95 and £20.6 billion last year. The Chancellor now estimates that it will be £19.7 billion this year, £18 billion next year and £17.7 billion the year after that. It is an alarming decline. We are cutting when we need to invest in our infrastructure and lay the economic foundations for our future.
The Chancellor tells us that there is not a problem, because the decrease in public sector investment is compensated for by the private finance initiative, but the figures that he published yesterday show that that is not the case. Even allowing for the PFI, the total amount of publicly sponsored capital spending will fall this year and next year.
As Paul Shepherd, chairman of the Building Employers Federation, said last night:The worry is that cuts in public spending are real while PFI reflects hopes and expectations which in reality may not replace this lost work.The PFI is not bridging the gap. Public investment, including the PFI, continues to fall. The Government are not doing enough on investment.
I shall make two specific detailed criticisms about the way in which the information on the PFI has been presented in the Red Book. They both relate to differences in the basis used for presenting the figures for, on one hand, the amount of capital investment being made under the PFI and, on the other, the future revenue costs of paying for it.
First, the Red Book presents the figures in a way that maximises the capital value of the PFI programme, but minimises the apparent future revenue costs. That is misleading, and it is distressing that the Government are not being frank. Secondly, the figures on future revenue commitments are not broken down by Department. That makes parliamentary scrutiny harder.
I am pleased that information has appeared on the PFI. The Red Book shows that £15.9 billion of Government spending is already committed between now and 2025 to fund PFI projects that have been signed, and that includes £1 billion every year in the first five years of the next century. But that is the tip of the iceberg. The figures that have been published apply only to signed contracts and most have not yet reached that stage.
I make two specific proposals. First, the Treasury should publish expected revenue commitments under deals that have been agreed as well as those that have 428 been signed. Ministers are using those "agreed" figures when talking about capital investment, as in table 5.5 of the Red Book; they should be consistent and use the same definition for the revenue commitment figures. I ask the Minister: will the Government publish those figures, too? Secondly, the Treasury should give a departmental breakdown of forward revenue commitments. That would allow the proportional strain on individual Departments to be assessed.
Last week, in the Treasury Committee, I mentioned that the Department of Health says that it does not collect centrally information on the long-term revenue commitments incurred by individual NHS trusts. That information should be collected and presented.
As the hon. Member for Finchley presaged, I shall make a final point about the traditional cut in the overseas aid budget. It is a scandal that, because of the parlous state of Government finances, the Chancellor has opted to fund his tax cuts by reducing the overseas aid budget again. After 17 years of decline, the amount of our national wealth devoted to life-saving programmes will fall yet again. I commend the Chancellor for his initiative on debt, which has been widely appreciated, but it is not a substitute for our direct contribution to keeping people alive in the poorest parts of the world.
Some of the specific cuts in conventional public sector capital investment programmes are deeply damaging, including the cut for London Transport and the cut in the housing budget, which, as my hon. Friend the Member for Rotherham (Mr. MacShane) pointed out, is disastrous. I can do no better than quote the comments last night of the chairman of the Housing Corporation:All of us in the Housing Corporation are deeply disappointed by these further cuts … The Government's own estimates show a need for a minimum 60,000 new social lettings per annum. As the millennium approaches, provision will now be reduced to 45,000. Without satisfying basic housing needs, it is difficult to see how Government's policies to improve people's health, minimise crime, meet children's educational needs and boost individuals' employment prospects can succeed.Such blunt speaking from a Government appointee is rare but welcome and highlights the scale of the problem.
The Budget does nothing to help and makes matters worse in several key areas. It is time for a change.
§ Ms Dawn Primarolo (Bristol, South)
We have had an interesting and diverse debate on the Chancellor's Budget, which is already unravelling. On the "Today" programme this morning, the Chancellor described how he viewed himself on television last night. He said:Here was the Chancellor, I thought, looking at myself on television, putting some taxes up, some down.He could not have put it better. He was giving with one hand and taking back with the other.
The Evening Standard poll today shows that the nation is not impressed. Council tax bills will be forced up by the Government and, despite the Chancellor's claims, the typical family will be worse off as a result of yesterday's Budget changes.
During the debate, my hon. Friends have reminded the Government of their record. We shall continue to pursue that strategy, remind them of their record over 17 years, and not allow them to con the British electorate into thinking that they should be judged on only the past few 429 months. My hon. Friend the Member for Coventry, South-East (Mr. Cunningham) reminded them that they are 11th out of 15 on inflation and interest rates and 42nd in education, and have slipped from 13th to 18th in the international prosperity league.
The hon. Member for Bath (Mr. Foster) referred to the local government settlement and reminded the House again, as did other hon. Members, that the package announced by the Government will increase council taxes by at least £41 a year. He explained the mirrors and smoke screens that the Government have used, yet again, to try to make the country believe that they are investing more money in education when in fact they are investing less.
Considering the impact on council tax, my hon. Friend the Member for Walthamstow (Mr. Gerrard) also referred to the cruel manipulation of statistics and the reduction in housing spending at a time of great housing need. The Government have misrepresented that yet again.
My hon. Friend the Member for Nottingham, South (Mr. Simpson) referred to the growing inequalities that fracture our society. The Chancellor referred to the Rolls-Royce recovery, but it is a Rolls-Royce for the few, not for the many.
My hon. Friend the Member for Rotherham (Mr. MacShane) talked about his video link this evening with the Rotherham business community. He then went on to express some forthright views on Europe—to which he is passionately committed—and made some challenging comments, to which we shall no doubt return. He added a considerable spark to the debate.
My hon. Friend the Member for Glasgow, Springburn (Mr. Martin) described the impact of the Budget on his constituents. He set out the problems of smuggling, intimidation and the growth of organised crime.
Finally, my hon. Friend the Member for Newham, North-East (Mr. Timms) made a thoughtful speech on the problems of the private finance initiative and the waste of talent and energy of an entire generation as a result of the Government's strategy.
The Government have increased taxes and reduced spending on the health service. The dispute at the beginning of the debate was so intense that it caused the Chancellor to avidly read the Red Book and finally, with some help from the right hon. Member for Wokingham (Mr. Redwood), the Chief Secretary admitted that the Budget increased taxes.
Before I consider the details of the Budget, I shall refer briefly to the Government's proposals to increase VAT revenue. They created the problem when the former Chief Secretary to the Treasury, now the Secretary of State for Defence, introduced the future spending review. The number of VAT officers was savagely reduced, despite the fact that the Department had been informed that the cuts would reduce the ability of Customs and Excise to continue effectively to collect outstanding VAT and to ensure that the complex regulations operated properly.
We told the Government that the proposed cuts were counter-productive and that there was a considerable risk that evasion would increase, significantly undermining the long-term tax yield. The Paymaster General at the time—the right hon. Member for Wells (Mr. Heathcoat-Amory)—told us that Customs and Excise could maintain and improve its output with fewer staff. We are pleased that the Government belatedly understand the importance of VAT officers, although it is a tragedy for the country that revenue has been lost.
430 We also welcome the climbdown on the three-year rule and the equalisation between the Revenue and the taxpayer in respect of tax collection, but there remains an underlying problem, which the Government must address, relating to the appeals procedure and the time taken to settle disputes.
The Budget was big on boasts, but when we study them in detail they do not amount to much. Tax will still be high at the next election. The Government have shown that they are the biggest tax cheats around. They make promises, break them, replace them with more promises, and expect us to believe them. After 17 years, we are not about to do that. The burden of tax on the average family will remain high at the next election.
We need to test the Government, not on their recent record, but on their entire record. The Tory Government have perpetuated a number of myths. The first relates to enterprise, the second to fairness and the third is that they are committed to the family. None of them is true.
Far from being the enterprise capital of Europe, since 1979 Britain has suffered economic decline under the Tories, and the slowest average growth rate of any major industrialised nation. Britain's share of world trade has fallen to its lowest level this century.
As for fairness, one in five households are without work. That is nothing to be proud of. Living standards have decreased in the past two years. Manufacturing investment has fallen for the past three consecutive quarters, and is below the 1979 level. The United Kingdom is 19th in the OECD table for investment per head and 21st in that for investment. Britain's national debt has doubled since the Prime Minister took office in 1990, despite the bonanza of privatisation receipts.
The Budget means that the 22 Tory tax rises since 1992 will have cost the typical family £2,120 by the next election. It raises the overall tax burden, as the figures in the Red Book clearly reveal, with a rise of £350 million between this year and next. There is one brand new tax: an extension to 17.5 per cent. of VAT on travel insurance, car hire insurance and other types of insurance—as well as the increases in prescription charges and a number of other areas.
The Budget breaks the promise that the Prime Minister made at his party conference: that the national health service would get more money over and above inflation year on year throughout the years of the next Conservative Government. The Red Book gives the lie to that commitment. In real terms, the NHS budget goes down in the second and third years.
The Chancellor's plans for school spending represent £73 million less than is being spent now, yet they call this Budget fair. The Government's spending plans include a £56 million cut in the planned budget for nursery education, a £34 million cut in the budget for training and enterprise councils and a £20 million cut in capital spending on higher education.
The Chancellor says that he wants to attack welfare dependency. Indeed, he said in the 1994 Budget speech:We must combine greater prosperity for the majority of our people with measures to prevent the emergence of a deprived underclass, excluded from the opportunity to work and dependent on welfare."—[Official Report, 29 November 1994; Vol. 250. c. 1079.]By abolishing one-parent benefit, he makes working lone parents worse off and discourages work among that group. He ruled out that measure last year on the ground that it 431 would trap people on benefit. The Government failed to bring forward plans for welfare-to-work programmes to help people out of the vicious cycle of poverty, and engaged instead in a cruel and vindictive attack on that group of vulnerable people.
The Chancellor says that the current account will be in balance, but his own figures show that the trade deficit will worsen, reaching £4 billion in 1997. What have the Government presided over in this year, the international year of the eradication of poverty? There are now 14 million people, of whom four million are children, living in poverty in Britain—nearly three times as many as in 1979. Britain now accounts for one in four of Europe's poor. That is nothing to be proud of.
People are caught in the unbreakable cycle of high rent, poverty, benefits and unemployment—an interlocking system of personal disaster that denies them the opportunity to use their talents and abilities, about which my hon. Friend the Member for Newham, North-East spoke so well.
The Tories claim to be the party of family values, but their tax changes over 17 years have had the worst impact on people with children. Yes, children still count as part of a family. They are an unfair Government to have ensured that 62 per cent. of one-earner couples with children have lost out during their period in power. The number of individuals living in families without any member working has doubled since 1979 and now totals 9.1 million. One in three British babies are born into poverty, and the national survey by the Health Visitors Association shows that widespread child malnutrition and poor living conditions are re-emerging. That is nothing to be proud of.
The Government have failed in every area of policy. Labour sets three simple tests for the Budget. Is it honest? Most certainly, it is not. At every opportunity, the Government cook the books, misrepresent the facts and say anything to get political advantage. If they were not worried about that proposition, they would be prepared to open the books to an independent assessment of the state of the nation, so that all of us could decide where we are.
The Budget is not fair, because only a few people benefit. The 30 per cent. of poorest families are worse off as a result of the Budget. It is not a Budget for ordinary, hard-working families: it is a Budget to try to get the Government re-elected.
This is not a Budget that will strengthen the economy and equip Britain for the future. The Tories have admitted that productivity is falling in British industry, but there is nothing in the Budget for investment. Indeed, there are to be further cuts in public investment.
The Evening Standard poll sends a clear message to the Government. Eight out of 10 people said that they would not be better off as a result of the Budget, and seven out of 10 said it was not fair. They give a clear judgment. The Budget is the last gasp of a desperate Government. It is time they put their record to the people so that we can defeat them at the next general election.
§ The Exchequer Secretary to the Treasury (Mr. Phillip Oppenheim)
We have had an interesting debate. I thought that the comments by the hon. Member 432 for Nottingham, South (Mr. Simpson), when he complained about the Rolls-Royce metaphor, missed the point. He probably thought that my right hon. and learned Friend the Chancellor meant Rolls-Royce, the rich man's car, but he meant Rolls-Royce the aero-engine manufacturer and I think that is a good analogy. [Interruption.] Whichever he meant, that is the analogy I will stick with.
When we came to power, Rolls-Royce—on the border of my constituency—had 10 per cent. of the world market for civil aero-engines. Now it has treble that and it threatens to overtake General Electric and Pratt and Whitney. That is a record I am proud of, because it has created secure, quality jobs and because, when my constituents travel abroad, they do so more and more on planes powered by Rolls-Royce engines.
§ Mr. Oppenheim
Will the right hon. Member for Dunfermline, East (Mr. Brown) tell us that the first thing that a Labour Government would do would be to reverse the airport tax? He is not prepared to do that. Fine, he accepts our agenda.
§ Mr. Oppenheim
The right hon. Gentleman should have been listening.
I agreed with much of the speech by the hon. Member for Glasgow, Springburn (Mr. Martin). He pointed out the difficulties caused to local traders by smuggling. It also causes difficulties for honest taxpayers, who have to pay more as a result. It causes difficulties to public services, because VAT funds, to a significant degree, hospitals, schools, law and order and the police. It is important to get it into perspective, because smuggling of, for example, tobacco represents around 1.5 per cent. of the total tobacco tax take and that is a significant amount in itself. That is why we have listened carefully to the consultations and decided, bearing in mind the enormous growth of organised gangs and crime in smuggling, that we will keep 1,100 customs officers and redeploy them. We will also link better with organisations and the armed forces to ensure that we clamp down on smugglers. Smuggling is a key area in which we must clamp down. The problem extends to smuggling endangered species, which is not a revenue earner, but is important none the less.
The hon. Member for Newham, North-East (Mr. Timms) made an interesting speech. He asked whether we would put more private finance initiative figures in the Red Book next year. My right hon. and learned Friend the Chancellor, and possibly even I, will reflect on that for next year's Red Book.
I listened with interest to the hon. Member for Rotherham (Mr. MacShane), but I must say that I am a little worried about him. He said he went to bed with a Trollope, he talked about red-hot thrusts and then he referred to me as the "posthorn general". I am seriously worried and I do not know what the hon. Gentleman has been smoking recently. He also cited Argentina as a great economic success story. When challenged to describe the economic policies that Argentina has followed for the past 10 years, he blustered and talked about a military 433 government. I can tell him that Argentina has followed free-market monetarist economic policies, and has been successful as a result.
I was pleased that the hon. Member for Coventry, North-West (Mr. Robinson) wandered into the Chamber earlier and made a couple of interventions. It is nice to see him, because I know that he is busy running around getting cash from business men for the office of the Leader of the Opposition. He is also busy, because he runs a very successful business—so successful that he has managed in the past couple of years to give himself massive increases in salary. I do not begrudge him that, but I should point out that it was not always quite like that. He used to run a company called Jaguar, during the great macho days of Labour's industrial strategy.
§ Mr. Campbell-Savours
Has the Minister given my hon. Friend the Member for Coventry, North-West (Mr. Robinson) notice of this?
§ Mr. Oppenheim
The hon. Gentleman should listen.
When the hon. Member for Coventry, North-West ran Jaguar, its production slumped towards 10,000 cars a year. It was a byword for bad quality. Now, in the private sector—
§ Mr. Oppenheim
I will in a minute, if the hon. Gentleman calms down.
In the private sector, Jaguar is successful and is making cars of which we can be proud.
§ Mr. Oppenheim
I would rather that it had American management and made 50,000 or 60,000 cars a year than be under state control and losing a fortune that could be spent on hospitals and schools—as it was under the stewardship of the hon. Member for Coventry, North-West.
§ Mr. Ainsworth
The Minister is referring to my hon. Friend the Member for Coventry, North-West, who is not here to defend himself. I worked at Jaguar at that time under the chairmanship of my hon. Friend. We worked overtime on Saturdays and Sundays, when the oil crisis meant that every car manufacturer in the world wound up stacking up cars that they were unable to sell in the American prairies. The Minister should not attack my hon. Friend with such a load of nonsense.
§ Mr. Oppenheim
I do not blame the hon. Gentleman, or the work force; I blame the management and the Government at the time. The fact that the workers were working overtime indicates appalling labour management, because the company was building 10,000 cars a year. [Interruption.] If Opposition Members will calm down, they will hear me refer to the favourite subject of the right 434 hon. Member for Dunfermline, East—league tables. Before I do, I should say how much I enjoyed the speeches of my hon. Friends the Members for Brentford and Isleworth (Mr. Deva), for Taunton (Mr. Nicholson), and for Finchley (Mr. Booth), who all made a number of good points.
The hon. Member for Bristol, South (Ms Primarolo) referred to the need to tie up tax loopholes and to increase the VAT take. Every time we tie up a loophole—in this Budget we are doing just that—Labour shouts, "It's a tax rise." It will be interesting to see what Labour does if it ever comes to power. One of the VAT loopholes that we tied up last time—[Interruption.] If the hon. Member for Bristol, South listens, she might learn something. One of the loopholes that we tied up last time was VAT on gold granules, and Labour published a leaflet calling that a tax rise.
Presumably, for fear of what Labour calls "putting up taxes", it will sign a tax avoiders charter and say to the clever accountants and well-paid tax lawyers, "Get on with it, boys. We don't want to be accused of putting up taxes." [Interruption.] If the right hon. Member for Dunfermline, East stops making animal noises for a moment, we can talk about league tables, which are his favourite subject.
Let us talk about Labour's prosperity league. Labour claims that the tables it used came from the Government's competitiveness White Paper, and that is true—up to a point. One of the tables compares the OECD ranking of GDP per person for 1979 with the World bank ranking for 1994, which allegedly shows Britain slipping from 13th to 18th. The trouble is that only one of the league tables was in the competitiveness White Paper. The 1979 comparisons quoted by Labour come from a different organisation, use different methodology and include different countries—[Interruption.] It is all very well for the right hon. Member for Dunfermline, East to say, "Oh, God." These are the facts, and he should listen if he has any claim to honesty.
One of the economies that the right hon. Member for Dunfermline, East claimed overtook us was Kuwait—an oil-rich nation. The other, Hong Kong, is hardly an example of socialist central planning. Hong Kong is possibly the most free-market, open economy in the industrialised world.
§ Mr. Oppenheim
The hon. Gentleman asks where we are, and I shall tell him and put the matter in perspective for him. In 1960—[Interruption.] Hon. Members should listen for a minute. According to the consistent OECD series, in 1960 Britain was fifth equal. By 1970, we had slipped to 11th, behind France, Denmark and the Netherlands. By 1979, we had slipped to 15th, behind Germany, Sweden and Belgium. By 1994–15 years later—we had slipped by a further one place to 16th. During the same period, France slipped by seven places.
§ Mr. Oppenheim
The hon. Gentleman should listen to this and perhaps he will say that again.
In 19 years, from 1960 to 1979, Britain slipped by 10 places. In 15 years, from 1979 to 1994, a period of huge change in the global economy and of the advance of 435 the east Asian nations, we slipped by one solitary place: we were overtaken by Japan. Everyone knows that Labour's favourite league tables are botched. They do not compare like with like: it is as silly as comparing Manchester United with the Dallas Cowboys.
I know that Labour Members like league tables, so I shall quote another. During the 1970s, Britain's manufacturing productivity grew at a third of the rate of Japan's, half the rate of France's and half the rate of Germany's. Since 1980, our manufacturing productivity has grown 50 per cent. faster than Japan. We moved from the bottom of the G7 league table in the 1960s and 1970s to the top, which is why, according to an independent report, after decades of decline, since 1979 we have closed three quarters of the competitiveness gap with Germany and we are catching up fast. Those are the facts, and that is why people say that there are lies, damned lies and new Labour league tables.
Let us move on to tax and debt—fertile ground for more spurious Labour league tables and statistics. The Leader of the Opposition said yesterday that we would go into the general election with a higher tax burden than when we went into the previous general election. That is wrong. One of the daftest claims by Labour spokesmen is that we have borrowed more than any previous Government, to which they add, carefully selecting their year, that debt has doubled since 1991—not 1990, note, or 1992, but 1991. Why 1991? Because that was the point in the cycle when debt was at its lowest.
I shall not be so selective. During the entire period we have been in power, since 1979, borrowing has been at half the rate—excluding privatisation receipts—that we had under Labour, and overall debt has been lower every year than it was under Labour. In fact, if we had carried on borrowing at the Labour rate, we could have cut a further lop off income tax—
§ Mr. Deputy Speaker (Sir Geoffrey Lofthouse)
Order. The hon. Member for Rotherham (Mr. MacShane) has already made his speech. He will kindly let the Minister make his.
§ Mr. Oppenheim
Thank you, Mr. Deputy Speaker.
Of course, we would merely be deferring tax for future generations, as Labour did, because we have had to pay off a lot of debt that the last Labour Government incurred. 436 I want to talk about privatisation and the windfall tax, another favourite topic of the right hon. Member for Dunfermline, East.
What are the policies of new, aspirational, stakeholding Labour, looking forward purposefully to the new millennium? All over the world, countries are privatising. In 1979, British Airways was the same size as Air France, making roughly the same losses, and it was rated by its passengers below Aeroflot. When we privatised it, the Labour spokesman said that it would become the "pantomime horse of capitalism".
The person who said that was the right hon. Member for Glasgow, Garscadden (Mr. Dewar), now the new Labour Chief Whip. Now British Airways is nearly twice as big as Air France and is the world's most successful airline. French, Italian and Spanish taxpayers are still contributing to their national champion, state-owned flag carriers, while British Airways makes a profit, the tax on which helps to pay for hospitals, schools and the police—not bad for a pantomime horse.
British Steel was the world's biggest loss maker, but now it is one of the most efficient steel makers in the world and has quadrupled its exports since 1979. I could go on, but I shall give Opposition Members some clear facts. In 1979, state industries were depriving schools and hospitals of £85 million a week; now, the privatised industries are contributing £55 million a week to hospitals, schools and the police. People know our policies; they do not know Labour's. I am told that, not long ago, Labour would not even tell us whether British Telecom was among the privatised utilities that would be hit by its windfall tax.
A new Labour publication called "Women Today" held a contest that invited people to win a day in Parliament. All they had to do was to say in no more than 100 words what the policies and priorities of a Labour Government would be. We are still waiting for those good ladies to send their replies.
Perhaps I am being unfair. Labour has said it will tax the privatised industries, even if it will not say which ones. Social democratic and socialist Governments all over the world, in Sweden, New Zealand and Australia, have privatised. Who still opposes privatisation? Not Cuba—it is going soft. The contradictions inherent in the final stages of Marxist Leninism are too much for Cuba. Only North Korea—
§ It being Ten o'clock, the debate stood adjourned.
§ Debate to be resumed tomorrow.