§ 4.6 pm
§ Mr. Peter Lilley (Hitchin and Harpenden)
Yesterday was the first time that the trust which the British people put in the Government was put to a real test. We shall see that, as the consequences of the Budget filter through to them, the British people will realise that their trust was misplaced.
It was the Prime Minister himself who chose to make trust the central issue of his election campaign—above all, trust that a Labour Government would not revert to tax and spend. Invoking almost biblical language, the Prime Minister claimed to have entered into a new covenant with the British people. He, Tony, claimed to be uniquely trustworthy. To allay fears that Labour would once again tax and spend, he gave the British people clear and categorical assurances.
Earlier this year, the Prime Minister told business men in Birmingham:We have no plans to tax at all.He told Daily Express readers:Our plans do not involve raising taxes at all. If we have any such proposals we will make them clear before the election.How does that square with yesterday's Budget—17 new Labour taxes introduced by the Chancellor? They are not taxes on fat cats, but taxes which will ultimately fall on the hard-working, prudent savers of middle Britain. The Labour Government have broken their covenant, they have forfeited their trust and betrayed their pledges.
The truth is that there was no need for an emergency Budget now at all. There was no emergency—quite the contrary. No Chancellor has ever inherited a better economic legacy than that bequeathed to the Chancellor by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) and his predecessor.
As Lord Healey said yesterday,As we look at this and future Budgets produced by the Labour Administration, we must always remember that rarely, if ever, have a Government had such cause to be grateful to their predecessor when it comes to the economy.429 When the Chancellor arrived at the Treasury and opened the books, as the phrase has it, he found that, far from there being hidden problems, the economy was doing better than my right hon. and learned Friend had predicted during his Budget last November. Borrowing in the four months between the Budget and the end of the financial year was £3.3 billion lower than forecast, and it has continued on a healthy downward path since then. Revised figures show that growth has been better than we thought it would be. The trade figures have been better than expected, despite the strong pound, and unemployment has been falling faster than forecast.
As the new Chancellor could not find anything wrong when he looked at the books, he decided to cook the books. He did, in effect, what any takeover merchant about to asset-strip a sound company would do: he decided to downgrade the forecasts. So he came up with four new assumptions, and got the National Audit Office to examine them. The NAO described his assumptions, rather acidly, as a deliberately cautious interpretation of the evidence. And so they are. Indeed, his new assumptions are not merely cautious; they assume that the Government will fail.
The right hon. Gentleman assumes that the Government will fail to privatise anything—that is the black hole of which we warned during the election. He assumes that the Government will fail to get unemployment down. He assumes that they will fail to deter any tax evasion; and fail to get the economy to grow as fast in the future as it has in recent years. So we have four forecast failures by a Labour Administration—a pretty dismal outlook, but, I suppose, a fairly realistic assessment of what this Labour Government may actually achieve.
Even the revised forecast that the Chancellor has made did not justify increasing taxes, but he was determined to raise them, because he wanted to tax now in order to be able to spend later.
§ Mr. Dale Campbell-Savours (Workington)
The right hon. Gentleman will know that the City has been saying that the economy is overheating and that something has to be done. In those circumstances, would the Opposition have supported raising interest rates, raising taxes or doing nothing? Presumably they would have had to do one of the three—which one would they have selected?
§ Mr. Lilley
Funnily enough, I was just coming to that. The Chancellor justified his decision to raise taxes precisely on the basis of the hon. Gentleman's point—that there are some who believe that consumer spending in the short term is growing too rapidly. Yet, overwhelmingly, the taxes that the Chancellor raised fell not on consumption but on the corporate sector. So presumably the Chancellor does not believe in the thesis; there is therefore no reason why the hon. Gentleman or I should believe it either.
Far from trying to take action to deal with a short-term growth in consumer expenditure, the right hon. Gentleman's taxes—by and large—fell on the corporate sector, and were geared to the longer term, by when it is assumed that consumer spending will have slowed, anyway.
The Budget raises very large amounts of extra taxation: roughly £6 billion a year, which is £300 for every household in the land. But it seeks to do so in ways that 430 are not easily visible, and are at one remove from the ultimate taxpayer. Unfortunately, however, there is a general rule of taxation, stating that, the less visible a tax is in the short term, the more damage it does in the long term. As taxes work their way through to people's pockets, they do a lot of damage en route. Any attempt to conceal the blame will increase the ultimate pain.
There are two big measures in the Budget—the change in advance corporation tax and the windfall tax. Both hit pensions and long-term savings. That is a double whammy for pension funds; it is the Robert Maxwell memorial Budget. No wonder the National Association of Pension Funds has described the Budget asthe biggest attack on funded pension provision since the war. Even Robert Maxwell only took £400 million.The ACT change alone, according to the NAPF, will take more than £50 billion of extra pension contributions from employers over the next 10 years.
The House will recall that I published a proposal to give every working person in the new generation a funded pension, which would have involved Government putting billions of pounds into pension funds. Labour is taking billions of pounds out of pension funds. That means that Labour's shameful election lie that we would put people's pensions at risk was not merely dishonesty, but rank hypocrisy.
In opposition, Labour said that changes to pension arrangements should be introduced in a spirit of bipartisan co-operation. Certainly, major changes should be introduced only after full consultation with the pensions industry. Yet these changes, which radically alter taxation of both pension funds and the corporate sector, have been introduced without consultation with either sector. They have been rushed in after just a few weeks of being tacked together. I fear that, as a result, they are shoddy, incomplete and ill thought out.
By definition, if the Government are several billion pounds a year better off, pension funds must be several billion pounds a year worse off. As a result of this tax, in order for the same pension to be paid, members or companies will need to pay more into their pension schemes. The National Association of Pension Funds calculates that a contribution sufficient to pay a pension of £100 a week will now pay only £85 a week. Do the Government plan to tell members of personal pension schemes the amount of the extra contributions that they will need to pay to make up the shortfall?
§ The Chief Secretary to the Treasury (Mr. Alistair Darling)
The right hon. Gentleman is trying to pose as a friend of pensioners. Does he not recall that, when he was a Minister at the Department of Social Security, he presided over the regime under which the mis-selling of pensions took place? Does he not remember that he proposed the abolition of tax relief on employee pension contributions, and was it not the Conservative party that was going to abolish the state pension? No wonder no one believes anything that the right hon. Gentleman has to say about pensions. His arguments simply do not stand up.
§ Mr. Lilley
If the right hon. Gentleman can only stand at the Dispatch Box and make a statement that he knows to be untrue, while refusing to answer the question that is posed to him, he discredits his office. I have a number of questions to put to him, and we would rather have more 431 sensible and constructive answers. Not just Conservative Members, but all who are involved with pensions and companies, want to hear answers to those questions.
The present national insurance rebate is calculated by the Government so that, assuming a certain after-tax return, it will generate a private pension that is roughly equivalent to the pension that people would have if they stayed in the state earnings-related pensions scheme. If the level of rebate is not revised to reflect the change in taxation, many people with pensions would be best advised to contract back into SERPS. Is that the Government's intention? Will they advise people to opt back into state earnings-related pensions?
If the Government do not do that, will they not be guilty of the very mis-selling that the Chief Secretary just accused the last Government of having allowed to happen? Trying to make it suitable, or rather advisable, for people to opt back into SERPS and then not advising them to do so is certainly mis-selling of a kind; moreover, it is the very opposite of what the Government have been saying they intended to do ever since the election. We must ask whether Social Security Ministers who have been saying that they want to enable everyone to opt out of SERPS were aware of the impending change in the tax regime.
If the Government do not advise people to opt back into the state scheme, the alternative is that they increase the value of the national insurance rebate to offset the tax change. Do they intend to do that? How much will it cost? Have they asked the Government Actuary to assess that cost? Has that extra cost been factored into the Budget arithmetic?
I shall give way to the Chancellor, who will surely want the House to know whether his calculations took that into account. It seems that not only do Social Security Ministers not know, but the Chancellor does not know what is in the Budget, and he does not know its implications for social security. The pensions industry, those who are in pension schemes, particularly those with private pension funds, and those in companies which run occupational pension schemes, want answers to those questions. I hope that we shall have answers before the end of the debate.
There is another perverse consequence of the change to ACT which the Chancellor failed to mention yesterday. He constantly laments the lack of investment, and claims to want more investment in Britain. He often laments that many British companies invest more overseas. However, his proposed change will make it significantly more advantageous to invest abroad relative to domestic investment than was previously the case. How many Labour Members realised when they cheered yesterday that the first act of the new Chancellor would be to encourage British companies to switch investment from Britain to abroad?
To the extent that companies continue to invest in this country, they are discouraged from paying out the fruits of productive investment in mature companies which have few good productive investment opportunities left. They are encouraged instead to retain those funds and invest them in their own companies. That means that less money will be recycled through the capital markets to the new, small, expanding companies which need investment, and will no longer find it so easy or so cheap to get.
432 The other major tax is the windfall tax. It is the only new tax burden that Labour admitted to planning before the election. To make it acceptable, Labour had to pretend that it would not be paid by ordinary people. Last year, the Chancellor said that it would not be paid by ordinary families. The impression was created that it would all fall on the fat cats in the privatised utilities.
Now we know. Virtually none of it will be paid by the fat cats. Instead, we are led to believe that it will be paid by an abstract entity called the firm, but as John Kay, the adviser to the Prime Minister and Chancellor has said:There is no such thing as a tax on firms. The effective incidence of all taxes is ultimately on individuals.Normally, the £5 billion cost of this tax would show up in due course in household bills and there would be higher gas, water, electricity and phone bills.
As there are nearly 20 million households, that £5 billion tax would, on average, cost each household more than £250, but the extent that regulators prevent the tax from being passed on in higher prices, it will instead fall on the value of shares. Of course, its impact will be the more concentrated on pensioners, who pay a disproportionate amount of household bills out of lower incomes, than if it had ultimately gone through in higher charges. That is because more than half of all shares are held by or on behalf of today's and tomorrow's pensioners.
If several billion pounds are siphoned from pension funds by the tax on top of the ACT changes, companies and individuals will have to put in an equal extra amount or suffer lower incomes in retirement. Even if the tax did not fall primarily on pensioners, it is still objectionable in principle. It is not merely retrospective: it is being imposed long after the alleged windfall profits arose. It goes back 15 years, to when BT was originally privatised, much to the chagrin of Iain Vallance. It does not go back to the first privatisation under the influence of the International Monetary Fund—the sale of the Government's stake in BP. It appears that a company's chairman has to become a Minister; voting Labour is not enough, as Iain Vallance found out.
Of course, this tax will not be paid primarily by the people who benefited from the original speculative profits. People whom the left vilify as speculators—those who sold the shares fairly soon after they were issued—will not pay a penny of the tax, but pensioners whose schemes invested later for the longer term will bear the full burden.
Labour's windfall tax will damage Britain's standing as a country whose Government can be trusted not to behave arbitrarily. It will drive up the cost of capital and, perversely, reduce the revenue that may be obtained from any future privatisation, if the Chancellor eventually finds something to privatise; but the real absurdity is that it is a one-off levy to fund an on-going make-work scheme. The Government cannot fund a permanent programme from a temporary tax.
We support the objective of getting young people off welfare and into work. We believe in that passionately. It has been one of the keys to our reforms of social security, employment and education. We have aimed to give people the skills, the incentives and the jobs to get them off welfare and into work, and we have been succeeding.
433 Over the past four years, the number of young people unemployed has come down by 100,000 a year. When the Chancellor first mooted his plan to get 250,000 young people who had been unemployed for six months or more off the dole, 280,000 young people were in that position: there are now fewer than 180,000. We have done a lot of his job for him, and we did it by sensible measures to create real jobs, not by make-work schemes and the skivvy jobs that he proposes.
§ The Secretary of State for Education and Employment (Mr. David Blunkett)
Will the right hon. Gentleman give way on that pathetic note? Perhaps he would tell us, therefore, why his party, over the period of its recent office, introduced 30 separate schemes, which he now describes as makeweight?
§ Mr. Lilley
I have no objection in principle to taking measures over and above those that I have described to get people off welfare and into work. I have no objection in principle to the sort of measures that the Chancellor is proposing.
§ Mr. Lilley
I was quoting the term used by Labour Members to describe the regime that we established for 16 to 18-year-olds, which is precisely what they want to extend to 18 to 25-year-olds. We established a scheme under which people had the option of education, of training or of work, but not of benefit. He proposes to establish that benefit regime and to extend it to those people. We have no objection to that in principle, and no objection in principle to the proposal to introduce job subsidies. It is just that we think that it will not work, and we know that it will not save money.
We set up a study to examine similar schemes throughout the world, and it discovered that not a single scheme saved more in benefit than it cost in subsidies and in employing people on make-work schemes.
§ Mr. Blunkett
Will the right hon. Gentleman tell us, therefore, why his Government introduced three schemes, including workstart, that involved a job subsidy of the sort that he is now attacking?
§ Mr. Lilley
I have just told the right hon. Gentleman that I do not attack these schemes in principle. Had he listened to me during the Queen's Speech, he would find those very words. We believe that there can be a social case for them, but that there is no financial case; and it was the financial case that the Opposition put to the electorate before the election. They claimed that the savings on social security would be greater than the cost of the schemes, and that they would be able to transfer the savings on social security to the education budget. All talk of that has disappeared, because it is nonsense.
There are no such savings, because a large part of the cost of subsidy goes to young people who would have got jobs anyway. A further element goes to people who displace people who had jobs, or who would have got jobs but were not entitled to the subsidy. Yet a further 434 element goes to people who are on the schemes only for the six months that the subsidy lasts and then return to benefit. For all those reasons, the costs far exceed benefit savings.
I repeat that there may be a social case for such schemes. The Conservative Government certainly thought that there was, for example, to help those who had been unemployed for a long time—two years or more, and we introduced a pilot scheme. The dead weight in that circumstance is far less—because far fewer people get back into work after they have been unemployed for more than two years—so there is a far greater chance that a high proportion of the costs will be met by benefit savings.
When the Labour Government try to pretend, as they did before the election, that they have come up with a magic scheme that will enable the right hon. Gentleman to increase his departmental budget, they are deluding both themselves and the British people. The schemes might work to the extent that the subsidy reduces the cost of employing people. If the Government accept that reducing the cost of employing people will create some additional jobs, surely they must also accept that increasing the cost of employing people—by, for example, adopting the national minimum wage and importing European social costs—will reduce the number of jobs.
The subsidies are temporary, and apply to only a few hundred thousand people. The increases in employment costs are permanent, and apply to millions of people. The net effect of the Government's proposals will be to drive people out of work and into welfare, and the cost of that will be far greater than could possibly be met by a windfall tax.
As well as changes to help young people who are unemployed, the Chancellor made much of his plans for lone parents. However, he did not bother to inform the House of one aspect of his plans that was hidden away in his departmental press releases.
The House may recall that, before the election, I announced, but did not have time to implement, plans to equalise the benefits payable to new lone parents to make them equal to those available to married couples in similar circumstances. That is fair, it does not send out the wrong signals about marriage and the value of two-parent families, and, in the long run, it saves £500 million a year.
However, that was anathema to the politically correct denizens of the Government Benches. Before the election, the then Leader of the Opposition, now the Prime Minister, was asked on the "World at One" programme:Are you going to stick with the Conservative plans to equalise benefits for lone parents with those of married couples?The right hon. Gentleman replied,No.It is not easy to misunderstand that reply—it was a quite simple, unusually straightforward "No." He told the people of this country that he would not implement my plans.
But yesterday, only moments after the nauseating spiel we heard from the Prime Minister about his integrity and how he always sticks to his promises, the Chancellor broke that promise. We now know that the right hon. Gentleman will implement my plans—I welcome that—with total disregard for the pledge the Prime Minister made to the electorate before the election.
435 The Prime Minister is keen to emphasise that this Budget is no more or less than his party promised during the election campaign. However, before 1 May he was asked a number of clear questions, to each of which he replied, "No." Would he put up taxes at all? No. Would his July Budget go beyond his windfall tax plan? No. Would Labour implement my lone-parent benefit reforms? No. Would Labour leave a £1.5 billion black hole by refusing to privatise assets? No. Would Labour alter Conservative departmental spending plans? No.
Only two months ago, Labour answered no five times. Yesterday, however, we learned that the true answers to those questions were yes, yes, yes and yes. [HON. MEMBERS: "That is only four."] And yes. [LAUGHTER.] Is it not extraordinary how Labour Members are proud of the number of pledges that they have broken? They do not want me to underestimate them, and in future I will not.
The Budget provides not only the opposite of what Labour told voters it would provide, it will accomplish the opposite of what the Chancellor claimed, only yesterday, that it would accomplish. He said that it was a Budget designed to curb a consumer boom; yet the overwhelming bulk of the tax burden will fall on the corporate sector. He said that it was a Budget to control houses prices; yet its net effect will be to make investing in houses more attractive than investing in equities. He said that it was a Budget to encourage long-term investment; yet its biggest effect will be to hit long-term investment in pension funds. He said that it was a Budget to encourage investment in the United Kingdom; yet its measures will encourage people to invest abroad.
Today, the cheers of Labour Back Benchers may still be ringing in the Chancellor's ears. Tomorrow, I fear that he will find that those cheers have turned to hollow laughter.
§ The Secretary of State for Education and Employment (Mr. David Blunkett)
I welcome the shadow Chancellor to his new post: may he hold it with distinction for many a long year. Before commenting on his speech, I should like to accord him a tribute. I acknowledge that he does care about young people, about their exclusion from society and about their need to be able to earn their own living and to lift themselves off the scrap heap of time. I accept that he should like those young people to be in jobs and able to develop their own families. After hearing the shadow Chancellor's speech today, however, I am totally unclear about whether he supports our measures, whether he is in favour of job subsidies or whether he believes that the Government should intervene in the labour market to help clearly disadvantaged unemployed people.
The shadow Chancellor has contradicted himself in this debate several times already. He said, for example, that he is in favour of programmes organised by the Government, but that he is not in favour of our programme. He is also in favour of subsidies, but he is not in favour of our subsidy. He is in favour of the Government raising money to spend on young people, but only if it is not raised from a windfall tax on the utilities. Presumably the shadow Chancellor would be in favour of raising money to help young people if the burden fell on the backs of someone else—such as pensioners, whom the previous Government required to pay VAT on domestic 436 fuel bills. The previous Government imposed 22 tax increases that affected everyone, although the burden of most of them fell on individuals.
My right hon. Friend the Chancellor has introduced a windfall tax on profits which, in the 1980s, the present shadow Chancellor clearly believed—because he came close to admitting it—were excessive. The shadow Chancellor seemed to say that it is all right to raise money to help young people, but only if it does not come from windfall profits. If the money is to come from a windfall tax that demonstrates those excess profits—the billions of pounds of profits made over the past 15 years—he is agin it. He made an extraordinary admission. He is in favour of the type of intervention that we propose—although he would like it to cost less and not to be based on quality, continuity and employability, which are the hallmarks of our programme—and he is agin it.
Yesterday, my right hon. Friend the Chancellor announced a programme that has received almost overwhelming applause and the unified commitment of the British people. He presented the most popular Budget in decades, and he did so in a manner that showed considerable aplomb. He has given hope to the British people. They now have hope that the legacy that we inherited—a legacy of neglecting investment in our health service, in our education, training and employment programmes and in our housing—will be ended.
There is neglect in the education system, which the right hon. Gentleman and his colleagues have left us to clear up: 600 primary schools rely on outside toilets, and there are 25,000 temporary classrooms. There is a legacy of redundancy among teachers and a legacy of disrepair in schools with crumbling walls, leaking roofs and window frames that rattle, which creates an environment not fit to teach in. That is why my right hon. Friend the Chancellor's announcement yesterday was welcomed by parents, governors and teachers and by communities across Britain.
An investment of £1.3 billion over the coming years to tackle that disrepair is morally right, economically sensible and will bring about social cohesion. It allows those who want a job to have a sensible job to meet a need in our community, by linking public and private, as my hon. Friend the Paymaster General will be assisting us in doing.
§ Mr. William Cash (Stone)
In the light of what the right hon. Gentleman has just said, will he review the whole question of the standard spending assessment system to ensure that constituencies such as those in Staffordshire get a fair deal? Will he also recommend to the Chancellor that the capping of local government expenditure should be removed?
§ Mr. Blunkett
I am fascinated by the hon. Gentleman's admission that those constituencies did not get a fair deal under the Conservative Government—we certainly all agree with that. The quantum amount available and the distribution of it are about fairness. The hon. Gentleman asks whether, after nine weeks, I am going to do something about it. I hope that we manage more in the next nine months than his Government managed in the past nine years. If we do, we shall bring about greater fairness, and no doubt the hon. Gentleman's electorate will be so enamoured of the new Labour Government and 437 so grateful for our bringing a bit of common sense and equity to the funding of their children's schools that they will vote Labour and vote him out. We all look forward to that.
We will not only bring about fairness and equity by ensuring that investment in the infrastructure provides classrooms fit to teach and learn in, but we can now ensure that we turn back the legacy of a 40 per cent. increase in class sizes, which the Government managed to bring about in the past five years. We shall also be able to reverse the trend of redundancy and implement our class size pledge through the £1 billion that will be available next year for the education service across Britain—£835 million in England—which was not available until my right hon. Friend the Chancellor stood up in the House yesterday afternoon and announced that we will invest in the education service, even if the previous Government were not prepared to do so.
§ Mr. David Willetts (Havant)
The Secretary of State will be aware that the university teachers' pension scheme is a funded scheme and has no surplus. What advice has he received from the Government Actuary about the extra contributions necessary to offset the effect of the tax changes in the Budget? How does he propose to raise the money to finance the higher contributions in order to meet existing pension commitments?
§ Mr. Blunkett
The hon. Gentleman is right to say that it is a funded scheme. I have checked on the university teachers' scheme, which was revalued last year. There is no prospect of the proposal placing any burden on it; I am delighted to be able to say that it is perfectly able to continue in the current vein. I double-checked that this afternoon because I was certain that, despite not having reached the Cabinet, the hon. Gentleman would at least be smart enough to ask that question.
§ Mr. Blunkett
In a moment. I was getting around to applauding my right hon. Friend the Chancellor for lifting the abysmal £182 million that my predecessor managed to win for the education service next year and for translating it into a 5.7 per cent. increase—2.9 per cent. in real terms—that will give us the opportunity, as I will spell out to the House next week, to implement our standards agenda so that every child in every school in every part of Britain will have the opportunity to learn, to earn and to have hope and prospects of a job.
That £1 billion is worth every penny in terms of the life chances of our children. It has been welcomed by all those who care about education. It is a disgrace that we have to take such action to overcome the penny-pinching meanness of the previous regime, which would have allowed teachers to be sacked, class sizes to increase and children's education to be affected.
§ Mr. Townend
We are all very worried about the standard of education of children leaving school, especially the standard of literacy and numeracy—the Conservative Government introduced the national curriculum to try to improve standards—but does the right 438 hon. Gentleman agree that one cannot blame the problems in education on the previous Government or, indeed, on any Government? The major responsibility for education lies with local education authorities, the vast majority of which are controlled by Labour. As spending is not hypothecated, many of those local authorities could have spent more on education had they not spent it on frills as so many Labour authorities did.
§ Mr. Blunkett
As a matter of fact, Labour authorities were responsible for spending £500 million more than the then Government allowed them through the standard spending assessment. I hope that the hon. Gentleman will make it clear to the schools in his neighbourhood that it was the Conservative Government who denied the money to North Yorkshire county council and the schools in his area, not the Labour authorities.
§ Mr. Blunkett
We are the Government now; that is absolutely true, and I will tell hon. Members what we are going to do on the back of that.
§ Mr. Stephen Dorrell (Charnwood)
The Secretary of State makes great play of the extra money for schools that the Chancellor announced yesterday. What assurance will schools have that the money will get through to them, especially as the Chancellor announced no extra money yesterday for social services, the other major spending head of local authorities? What assurance can the Secretary of State give that the money that he claims for schools will reach them—or will it in fact go towards the generality of local authority services?
§ Mr. Blunkett
We have had an admission that there was not enough money for education under the previous Government, followed by an admission that there was not enough money for social services. Who was it who set the Budget for this year? Who imposed the standing spending assessment and the revenue distribution last year?
I was asked how much of the money will go to schools. First, it has been made clear that the £835 million allocated in the Budget yesterday will go to education authorities, not into the SSA for all councils. Secondly—this is unique in recent years—the SSA that was announced will be matched pound for pound by grant so that we shall at last have transparency rather than the fraud perpetrated in recent years when the SSA was lifted by the Conservative Government but the grant was not made available for local authorities to be able to match it.
§ Mr. Dorrell
The right hon. Gentleman has just made an important announcement. Is he telling the House that in future local authority education budgets will be financed by specific grant?
§ Mr. Blunkett
No. I have just made the important announcement that, when we declare an increase in the SSA and say that there is £835 million more available for education than was previously budgeted for, we will match it pound for pound and allocate the money to the education authorities. I have today written to the leader of each of those authorities, saying that it is now their responsibility to ensure that the schools and the standards agenda are funded from the direct revenue support that 439 my right hon. Friend the Chancellor made available yesterday. I am sure that they will be delighted, because local authorities have long awaited that level of honesty and transparency being brought to the carrying out of their duties.
§ Mrs. Theresa May (Maidenhead)
I am grateful to the Secretary of State for clarifying that point. I should like to be sure that I understand clearly what he is saying. As a former chairman of an education authority, I know how important it is to know exactly what is happening when the Government allocate extra funds. As I understand it, he is saying that money will go to those local authorities that are also education authorities and not to those that do not have education responsibilities, but that the money will not be ring-fenced to ensure that it goes to the education budget: instead, it will be allocated to the authority's general budget and it will be up to councillors to determine whether it goes to schools.
§ Mr. Blunkett
I am delighted that I have been so clear that the hon. Lady has got it first time. We are giving the money for education to education authorities. I have just said that I have written to the leaders of those authorities stating clearly what the money is for and where it should go. They will join us—at least, Labour authorities will join us—on the standards agenda. I remind the hon. Lady that in the past Conservative authorities have refused to spend money allocated for nursery education on nursery education.
§ Mr. Blunkett
No, I shall not give way to the hon. Lady again because I am going to give way to my hon. Friend.
§ Ms Beverley Hughes (Stretford and Urmston)
I am grateful to my right hon. Friend for giving way. Does he have any thoughts on why Conservative Members are signally failing to endorse and welcome the measures in the Budget that have been welcomed by schools, parents and local education authorities? [Interruption.] I will not be barracked and I will finish my point. Can my right hon. Friend give us any more details yet on how local education authorities—which are the appropriate bodies—can begin to access some of the resources that I congratulate him, the Chancellor and all my right hon. Friends on including in the Budget for the education service?
§ Mr. Deputy Speaker
Order. Before the Secretary of State responds, I apologise to the hon. Lady for mistaking her name. The Secretary of State has been generous in the number of interventions that he has taken. I appeal for them to be brief.
§ Mr. Blunkett
Thank you, Mr. Deputy Speaker. My hon. Friend spoke for the nation. The nation is speaking with one voice, which is fully in favour of what my right hon. Friend the Chancellor announced yesterday.
Some £83 million of the capital award will be available this year and £250 million for each of the four subsequent years. Local authorities will be expected to bring forward 440 proposals, in conjunction with their schools. We shall judge the priorities with my hon. Friend the Postmaster General—
§ Mr. Blunkett
I apologise to my hon. Friend. I was obviously thinking of stamp duty.
We shall look at how the public-private partnerships that we announced before the election can be developed and kick-started with the resources that are made available.
A substantial part of yesterday's Budget was about the welfare-to-work programme. It is important to get the message across to the country that it is not a cheap and nasty substitute for work, but a programme of quality with continuity and the possibility of employability for all who take part in it. All parts of the programme will involve education and training and will have mentors who will work with the young people, so that from the start, when they enter what we are calling the gateway, they will have the advice and support that they need, providing them with guidance on the best choices and with the basic skills that they require to hold down a job or take up a place on a programme.
As my right hon. Friend the Chancellor announced, four choices will be available, but there will not be a fifth choice of remaining out of work on full benefit. The programmes will involve a subsidy of £60 a week to private employers, plus a £750 allowance for education and training that will be available to all young people for accredited and properly qualified training and education. For the environmental and voluntary sector options, there will be a placement fee of £3,200 for each six-month placement, totalling £6,400 in a full year. In addition, there will be the full-time education option, which will be extended to up to 12 months to allow young people to take a proper qualification. A discretionary grant will be available for fares and equipment.
In addition to being able to retain their benefit and passported benefits, which is important to ensure that there is no penalty, there will be a grant of up to £400 for those on the voluntary and environmental programmes. All those on the programme will receive mentoring and skills training.
At the end of the programmes, for those who have not already obtained full-time work or gone on to full-time education, there will continue to be a programme to enable them to take up trials in particular types of employment, to be given further advice and skills training and to continue without feeling that they have dropped off the end of the programme. We have devised a new and imaginative way of ensuring that those who have been excluded and alienated from society can take their place alongside their peer group, earning their own living, creating their own families and contributing to society.
§ Judy Mallaber (Amber Valley)
The new deal will give new hope to the many hundreds of young people in my constituency who have been unable to get work. Is my right hon. Friend aware that the confusing multiplicity of schemes introduced by the last Government have seriously damaged confidence among young people and the long-term unemployed? What measures can he take to 441 reassure them that we are offering quality jobs and training, not make-weight jobs? In particular, what measures will he take to ensure that the programmes do not involve job substitution and do not result in other people losing their jobs or being sacked to make way for the new deal participants?
§ Mr. Blunkett
I fully accept the thrust of my hon. Friend's question. It is crucial that young people have confidence in the programmes and in the options available. They must believe that their voice is being heard, that they are being consulted and that those who are working with them are equipping them for future employment. That is why the offer of education and training is so important.
The previous Government ran a community programme from 1982 to 1989. It was the nearest that they got to a quality programme. The problem was that it did not offer education and training, it did not offer mentoring, it did not have a gateway access programme to prepare people for it and there was no mechanism to ensure at the end of the programme that those who had participated did not find themselves in a revolving door. Our programme picks up on all those problems. All those in the new deal will receive the help and support that I have outlined.
My hon. Friend asked an important question about job substitution.
§ Mr. Blunkett
I shall finish answering the question first, thank you.
My hon. Friend asked an important question about job substitution. We must all join together. Good employers, who gave their whole-hearted support and commitment at the event that my right hon. Friend the Chancellor organised at No. 11 Downing street, must be able to join us in monitoring the programme so that there is not job substitution and people do not abuse the £60 subsidy. There will be a declaration for employers to sign and there will be a contractual requirement. There will therefore be the potential for breach of contract. We believe that, by working together with good employers—as Winston Churchill rightly pointed out, the bad will be undercut by the very worst—we can avoid substitution taking place.
§ Mr. Jenkin
I very much hope that the Secretary of State's scheme succeeds in all the aims he has for it, but can he explain what will happen when the proceeds of the windfall profit tax run out? Will the scheme continue to be funded or will that be the end of it?
§ Mr. Blunkett
One of the advantages of this programme, as opposed to the 30 schemes that preceded it—because of the time taken and the interventions that I have accepted, I shall not read out the list to the House, although it would make interesting reading—is its continuity. For the next five years, people will know that the programme is in place and that it will be built on stage by stage. Through the growth of the economy, through the reduction in overall unemployment, through the transfer of welfare into work, through the increase of people contributing back through 442 tax and national insurance and through the reduction in payment of benefits, we shall be able to continue investing in the well-being of young people.
I would not want the hon. Member for North Essex (Mr. Jenkin) to worry his head about the matter. In four years' time we shall tell the electorate how we have done and what progress we have made. We shall ask them to re-elect us, and once we are re-elected we shall be able to tell the hon. Gentleman what we are doing, how important it is and what progress we have made. We are modest enough to believe that we shall succeed and that this country will have a popular Government who actually carry out their pledges, who are trusted by the electorate and who can once again give the British electorate confidence in politics and in politicians. In view of this afternoon's revelations, we desperately need to reinforce belief in politics, politicians and democracy.
§ Mr. Blunkett
I will give way one last time, as the hon. Member who wishes to intervene sits on the Liberal Democrat Benches.
§ Mr. Kirkwood
Can the Secretary of State confirm that his scheme will have a penalty sanction for non-compliance? Will he share with the House the background against which the penalties will be imposed? More importantly, will he explain what rights of appeal, if any, there will be against such sanctions?
§ Mr. Blunkett
There is an issue here of rights and responsibilities, and of obligations. We need to ensure that people are prepared to take up those responsibilities for themselves, which is important. The ability to offer choice is at the heart of this programme. People can choose, and be guided and supported in what is right for them. For the able-bodied, we do not believe that it is right after they have been offered choices for them to turn down those choices and to continue drawing benefit. We made that clear before the election.
There will be a series of steps before people find that their benefit is withdrawn. There will be counselling for those who believe that none of the options is acceptable to them. Further offers will be made and guidance will be given, including, as part of the gateway, guidance on the social and educational skills required. If young people then choose not to take up one of the options, they will be able to appeal to an adjudicating officer and still retain their benefit. If the adjudicating officer judges that there is no good reason for refusing the option of work, such as sickness, family circumstances or caring responsibilities, the penalties will come into place.
People will at first lose benefit for two weeks. At any point in those two weeks, they can rejoin the programme. If, after two weeks, they refuse to join the programme, there will be a further month's penalty. In those circumstances, if people have dependants who are in need of support, an award will be made to ensure that the dependants do not lose their support and benefit. There will, however, be a 40 per cent. penalty on the individual who has declined to take up the programme.
Those are the sanctions which are available within the total context of a new programme which gives young people the duty and obligation to fend for themselves, 443 but which also gives them the right to choose and to receive more than the benefit that they have been receiving on the dole. The programme is about quality, as I have said, and about employability. It is about a new beginning. It is about people not being excluded and alienated from our communities. It is about bringing back people in some of the most disaffected and disadvantaged parts of the community, including my own constituency.
I know that young people will be persuaded that the programme is about hope and not punishment, that it is a new beginning with a Government who care. We are big enough to impose the sanctions as well as to offer the opportunities. The rights and obligations offer a new beginning for Britain.
Today, the BBC has not concentrated on improvements in education or health. It has not talked about those who are excluded from the society around them or about the £3 billion that we will invest in their future. It does not talk about the money available for caring and disability, which will be spelled out by my right hon. Friend the Secretary of State for Social Security in the House tomorrow morning.
Instead, the BBC wrings its hands over the pension funds and gives publicity to the shadow Chancellor, who also wrings his hands although he was prepared to put forward a pension proposal that would have withdrawn tax concessions from individual pension contributors. He served in a Government who allowed the most scandalous misuse of pension advice that this country has ever known. He was a member of a Government who betrayed people—he used the term himself—by allowing misleading information and advice. Hundreds of thousands of people are still waiting for redress for what happened under his regime.
When we see those who are powerful and those who have vested interests turning away from those who have no power and who are excluded from society, we know that we are speaking for the people of Britain when we say that it is investment in our future, through education and employment, and putting our nation to work that will make the difference and create the kind of society that we want for the 21st century. I am proud to be a member of this Government, and I congratulate my right hon. Friend the Chancellor of the Exchequer on making it possible to bring welfare back into work.
§ 5.7 pm
§ Mr. Kenneth Clarke (Rushcliffe)
Seven months ago, I appeared in this Chamber and presented a Budget on behalf of the previous Government. The present Chancellor of the Exchequer, who was then my shadow, replied on the measures that I proposed. I produced a deficit reduction programme which was intended to ensure that we were on course to have a balanced budget by the end of the century.
I was able to make some small reduction in personal taxation. I brought down the standard rate of income tax and I brought down the small companies rate of corporation tax. That was not opposed by the then shadow Chancellor. Indeed, he committed himself to sticking to those rates and to holding down rates of income tax to the level that I had set.
I do not recall the then shadow Chancellor saying to the House that, if his party won the next election, he would introduce a quite different Budget within eight weeks of 444 taking office. I cannot recall the right hon. Gentleman saying that it would be a much tougher Budget than the one I had produced. I do not recall him mentioning that he thought I should be introducing a big tax hike on pension funds, on investments and on savings. I do not remember him pointing out that he thought I had not put up the tax on petrol enough or that I had not put up the tax on cigarettes enough. I do not remember his heavy words about mortgage interest tax relief and how it should be phased out. I do not remember a commitment to putting up stamp duty on the sale of houses.
The Chancellor fought the election thereafter, as my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) said, on the basis that Labour would do the same as we had. He did not mention an early Budget and, when we told the public, during the election campaign, that there would be an early Budget which we feared would be heavily tax-raising, we were accused of scaremongering.
I congratulate the Chancellor on his political skill. After only eight weeks in office, he has introduced a totally different Budget from anything that the British public who voted for his Government expected. I was amazed to see Labour Members cheering. It was an extremely tough Budget. It was tax raising on a grand scale and it was announced with great skill yesterday.
Order Papers were waved when I introduced tax-raising Budgets. My first Budget was tax-raising; Order Papers were waved on the day, but I knew that I was in trouble thereafter. The Chancellor will find that the same will happen with his first Budget.
The Budget was presented within eight weeks as part of a significant change in economic policy from the policy that we were pursuing successfully before the election. That change will be bad for important sections of our community. It is already beginning to prove bad for manufacturing industry and exporters. It is bad for the traded sector of the economy. It is bad for pension funds and future pensioners who had anticipated and planned the benefits that they might get from their pension funds. In the medium and long term on which the Chancellor laid such heavy emphasis, the change in economic policy, including the Budget, will be bad for jobs, living standards and the British economy.
§ Mr. Blunkett
Does the right hon. and learned Gentleman agree with his retiring adviser who, only a few days ago, advocated the same measures that my right hon. Friend the Chancellor has taken in respect of tax credits, and that were started by Norman Lamont in a previous Conservative Budget, when he reduced them from 25 to 20 per cent?
§ Mr. Clarke
If Edward Troupe said that, I do not agree with him. I did not always take the advice that I received, even from Edward Troupe. I shall give my reasons for disagreeing when I turn to tax credits. However, the right hon. Gentleman cannot deny that the changes to tax credits on dividends are a significant tax hike on pension funds that have affected the position of every pension fund manager in the country and the expectations of pensioners, and often their employers. They are part of raising resources and taxes on a scale that had not been anticipated.
It may seem churlish to the Secretary of State for Education and Employment, who has spoken in the debate and intervened in my speech, for me to say that I do not 445 altogether welcome his presence at the Dispatch Box today: that is not because of any feeling against him or his proposals for education and welfare to work. However, this is the second day of the debate on the Budget. Yesterday, £5 billion-worth of net tax increases were imposed on the economy and now we have broken with tradition. There are Treasury Ministers on the Bench, but there is no Treasury Minister at the Dispatch Box.
The Secretary of State made no mention of the Budget provisions. Instead, he took us back to education spending and welfare to work. Labour used the same tactic in opposition. Whenever we made speeches about the potential for Labour to turn to taxation and spending, Labour Members talked about welfare to work.
I agree with my right hon. Friend the Member for Hitchin and Harpenden, who was perfectly entitled to say that, in principle, we are least inclined to attack that policy because we worked on it. I used the phrase "welfare to work" in my Budget three years ago. The phrase has been lifted from our description of our policies at that time.
I worked with my right hon. Friend, now the shadow Chancellor, when he was Secretary of State for Social Security, on a package of measures based on included family credit that was designed to increase the number of young people—particularly long-term unemployed—moving from welfare into work. It was the centrepiece of our entire Budget at the time.
We hope that the measures work and have some effect, but we are entitled to point out that, because they were devised politically in opposition, the Government raised expectations far beyond what they are likely to achieve. They have taken inadequate account of displacing people from existing jobs and the temporary nature of some of the opportunities that they will provide. The idea of 250,000 young people being taken out of unemployment became rather weak when we got the number of those eligible for the scheme down to 178,000 by pursuing orthodox economic policies.
At a time when they are tightening fiscal policy dramatically and, in my opinion, making the most unwise choice of a tax base from which to raise revenue, the Government must not be allowed to avoid addressing serious economic arguments by making worthy protestations about their desire—which I wholly share—to avoid the development of an underclass in our more prosperous society and to get people from welfare to work. They are labouring that aspect of their policy because they do not wish to give further publicity to other measures that the Chancellor announced yesterday.
§ Fiona Mactaggart (Slough)
Does the right hon. and learned Gentleman accept that young people regularly enter the employment market, so we shall certainly have the opportunity to meet the target that we set? In addition, does he accept that the skills and talents of the British work force are at the heart of any successful economic strategy and, therefore, it is absolutely right that they should be at the heart of the Budget debate?
§ Mr. Clarke
Absolutely. That is why I worked so long on education reforms and the establishment of national vocational qualifications. There is a long way to go in developing a proper system of vocational qualifications. 446 That is why I helped devise schemes such as action for jobs. That is why, three years ago, we extended family credit. In recent years, all that was achieved against the background of an expanding enterprise economy which made it easier to create real jobs and help unemployed people move into lasting employment.
The scheme now being introduced was devised largely in opposition as a way of presenting the windfall tax, to which I shall turn in a moment, and is produced against the background of a change in economic policy involving a dramatic tightening of fiscal policy and a huge increase in taxation which the Government have not adequately explained or defended in the House and so far in the debate, although it may be addressed in the Minister's reply to the debate.
At various times since the election, we have been given two reasons why a July Budget was necessary and why UK Ltd. and the real economy needs such an eye-wateringly tough Budget.
First, the Government tried to soften us up with the usual line that the Chancellor had looked at the books, found a black hole and suddenly discovered that he needed to raise more taxation that he had not been able to mention at the general election. That did not run very well. The Chancellor then tried to build on understandable concerns about the overheating of the economy and the rapid increase in consumer demand and said that a tough Budget was required to slow it down and make sure that it was sustainable. In only eight weeks, the Chancellor has slipped from the first reason to the second in explaining why he is taking so much money out of the economy.
The first explanation involving the black hole is simply untrue. The second is misleading. I do not approve of adjusting fiscal policy to consumer demand in order to slow down the overheating of the economy, even if the Budget succeeded in doing that.
§ Yvette Cooper (Pontefract and Castleford)
I sense from the right hon. and learned Gentleman's indignant tone when he speaks about what he did in the past that he still finds it hard to accept being in opposition. I have three questions for him—[Interruption.] The third completes the first two. Is he saying that interest rates should not have gone up? Is he saying that taxes should not have gone up and is he saying that the economy is in no danger of overheating?
§ Mr. Clarke
I apologise to the hon. Lady if I am giving one of my more bipartisan speeches. I had obviously failed to get across the fact that, on the whole, I disapprove of the strategy lying behind the Budget. She asked a very direct question, and I shall deal with the two reasons that have been given.
The issue of the black hole has not really been pursued very much recently. The National Audit Office, to which the whole matter was turned, rather killed it off when asked to look at it. It was an ingenious idea to ask the NAO to test the assumptions. I congratulate Sir John Bourne and the NAO on the very high standards of public service that they maintained by giving a perfectly 447 straightforward factual reply to the assumptions that they were given, which did not do any good to the Government's case at all.
§ Mr. Clarke
I should like, first, to deal briefly with the NAO and wait to see whether anybody on the Government Benches puts any weight on the issue.
The Government put to the NAO the Chancellor's own fresh assumptions and asked it to comment on them. The NAO did not criticise my Budget assumptions or my figures, and it did not say that there was a black hole in my Red Book in November.
§ Mr. Timms
Does the right hon. and learned Gentleman accept the view that the NAO took about the potential savings from the spend-to-save initiative, given that the amounts that he claimed that he would save from that initiative were very much greater than those that have now been confirmed by the NAO?
§ Mr. Clarke
I cannot in the middle of a debate look up the precise words, but the NAO accepted that, as we had predicted, there would be a deterrent effect over and above the direct changes that we were making in the spend-to-save proposals. The NAO said that the amounts were difficult to estimate, and therefore left it at that. The fact is that that initiative will save more than the Chancellor is now saying and that the deterrent effect which we calculated was a cautious assumption—I think that the NAO confirmed that when commenting on the Inland Revenue figures concerning the knock-on effect as people become more compliant once they are tackled. The NAO otherwise merely commented that such an approach was one way of approaching the whole problem.
Some of the other assumptions that the Chancellor put to the NAO in order to say that there was a black hole are quite astonishing. He is insisting that this country's trend rate of growth is 2.25 per cent. only—the average for the past 40 years. After 20 years of supply-side changes and the criticism of our decline in the league tables—I thought the Chancellor was implying that we would leap up them once we had a Labour Government—he is back to 2.25 per cent., abandoning my reckless 2.5 per cent., to which I had persuaded the Treasury to move. That is totally out of line with the rhetoric of the Labour party that fought the election recently, when it said that Britain was growing too slowly compared with our competitors.
The Chancellor has gone back to a flat-rate assumption of unemployment, which was much criticised by the Treasury Select Committee. The assumptions that I made were very cautious—we are already doing better than the assumptions that I made in November. The Chancellor effectively said, "We are not going to reduce unemployment as a Labour Government. We will return to a flat-rate assumption."
448 I will not go on, because the real problem about going to the NAO was that, by the time that it had finished, the Chancellor still could not find much of a black hole, even after adding up the difference between his pessimistic conclusions and mine, because the economy by then was doing so much better and tax receipts were rising. He could find a difference of only £500 million for this year, even if his deliberately pessimistic assumptions were right. There was no black hole; it is a myth to say that there was—barring one factor.
We had pointed out that, if a Labour Government stopped privatisation, they would not have our privatisation receipts. I have given up working out where we are on national air traffic control, which I think is one of the subjects under review, like so many others under the Government. The assumption now, as we said, is for nil privatisation receipts—and that is the most expensive part of the black hole that the NAO was trying to discover. That part exceeds any other. If one translates the last paragraph of the NAO's conclusions, it is basically: "It is up to you if you wish to make these pessimistic assumptions." The Chancellor has done that, and it does not really make his case.
The Chancellor announced that, for the first time, he has a deficit reduction programme. Alas, I did not have the slogan, but I had the deficit reduction programme. The previous Government were reducing the public sector borrowing requirement every year without fail and we were continuing to act in order to do so. Looking at the books, the Chancellor has no explanation of why the Labour Government are suddenly dramatically speeding up that process.
I turn to the overheated economy argument. The economy is certainly running very strongly—better than my cautious assumptions. It is certainly right that, as I repeatedly said more often than I can remember throughout my time as Chancellor, we want no return to boom and bust. We spent four years being committed to stability, creating the conditions that really encourage investment, growth and new jobs, and that has to be maintained.
There is, however, a new departure. I would never have begun—nor, I think, would any Conservative—turning to fiscal measures to control overheating of the economy. I attribute the system that I put in place and my approach to economic policy to Nigel Lawson, particularly in his earlier years after his Mais lecture. The control of demand and activity is largely a function of monetary policy, and one sets interest rates to hit inflation targets and produce stability in the financial markets. The aim of fiscal policy is to produce healthy public finances. Over the cycle, one aims to ensure that there is not excessive borrowing. Fiscal policy is all about tax and is linked to public spending and borrowing. We should not go back to fiscal fine-tuning to control demand.
It is extremely dangerous to lurch back to such ideas and start turning to features of taxation to react to inflationary dangers which one sees coming along. The weakness of the argument—the average member of the public can realise it—is that it is no good pretending that one is putting up taxes on cigarettes and petrol and cutting away at mortgage interest relief because one thinks that the economy might be overheating and running out of hand. That might be credible if anybody thought that, if demand ran down, taxes on fuel or cigarettes would be 449 cut and mortgage interest relief at source would be reinstated, but I do not think that any of that will come forward.
What this Budget is doing is raising revenue. Interest rates have to be used to control demand. They have to be set high enough to deliver the inflation target, but they should also be kept as low as possible to permit growth, job creation and rising prosperity, consistent with hitting the inflation target.
If the Chancellor genuinely disagrees with me and says that, in the present circumstances, he needed to raise taxation to control the overheating of the economy, and if he really agrees with the Confederation of British Industry—which I do not, because I think that it was mistaken to demand the raising of taxation and to think that it was an alternative to interest rate increases—then he has failed, because he has not satisfied the people who advocated rises in taxation. Such a policy was too difficult politically, and he chickened out in the end. He has not done enough on cigarettes, fuel or MIRAS to satisfy the people who were making those demands.
The Chancellor has gone for the biggest hits on pension funds and the corporate sector. I can only say that, when I was raising taxation on behalf of the previous Government, we did not go for pension funds and savings. We deliberately avoided loading taxes on the corporate sector, precisely because we were trying to produce growth, stability and continuity, which has been disturbed by what has been done.
As I have said, the Government have failed to use fiscal policy to control consumer demand. I happen to think that one of the difficulties of setting interest rate policy at the moment is that much of the consumer demand is slightly one-off. The difficulty about this year is in trying to predict what will happen to all the one-off money coming out of building societies. How much will be spent and how much will be saved? Together with the strength of sterling, to which I shall turn in a moment, that creates a particular problem in setting monetary policy.
The Chancellor has chosen this moment of all moments to hand away responsibility for monetary policy. He has given complete freedom to the Governor of the Bank of England, with the sole objective of hitting the inflation target. That is against the background of a Budget in which the Chancellor said that he was trying to control excessive consumer spending, but he has not demonstrably done so.
We all expect that the Governor of the Bank of England will raise interest rates. Alongside a tough tightening of fiscal policy, we will have the tightening of monetary policy. On that basis, the outlook for inflation is good, and I will concede that yearly forecasts of 2.5 per cent., 2.75 per cent. and then 2.5 per cent. again look possible. Unfortunately, we are responding to a sudden flurry of excitement about overheating now and consumer demand this year, but we will see the effects of the Gordon and Eddie show in only two years' time. That is when we will see the combined effects of a tax-raising Chancellor and an interest-rate-raising Governor, and we will see whether they have gone too far.
One constraint is already staring the Chancellor and the Governor in the face. I do not know what they will do about it, but they have succeeded in sending the pound up to dramatic levels and a DM3 pound is staring us in the 450 face. That is the biggest problem facing our manufacturing industry and exporters. Parts of the economy are slowing down in their expectations, because they are contending with a strong pound and facing a Government who seem to be doing everything they can think of to drive the pound up further in the pursuit of their economic policy.
§ Mr. Tam Dalyell (Linlithgow)
Will the right hon. and learned Gentleman satisfy our curiosity? Were our suspicions in opposition wrong that, as Chancellor of the Exchequer, he would have dearly liked to give independence to the Bank of England, but was forbidden to do so by the Prime Minister and others?
§ Mr. Clarke
I have always said that the views of Chancellors on the independence of the Bank of England are usually given after they have left office. Perhaps at some stage I will give a full exposition of my views on the independence of the Bank of England.
My view on monetary policy is that it should be based, above all, on controlling inflation. Interest rates have to be high enough to hit an inflation target, but also kept as low as possible to provide room for growth. If the arrangements are to be changed, the Chancellor should make far better provision than he has to ensure a balanced approach. I am not the only person who thinks that giving the Bank of England complete independence with the sole purpose of hitting the inflation target will mean over-insurance. It certainly does not need to be combined with the fiscal tightening that has been introduced in the Budget.
I am sure that the hon. Member for Linlithgow (Mr. Dalyell) does not disagree with my comments about the strength of sterling. I thought that he was going to congratulate me on my record of keeping down the duty on whisky. That always got praise from Scottish Labour Members, but was suddenly forgotten by the Chancellor in the Budget. He put up the tax on whisky, because he obviously prefers water.
I shall deal briefly with the measures chosen in the Budget, because I have already dealt with the strategy. I am now speaking from the Back Benches, so my contribution should be shorter than a Budget speech. The windfall tax is a deeply regrettable tax and I hope that we never see its like again. The tax has no economic justification. It is a political tax, devised at a time when it was needed by the Labour party to appeal to the popular prejudice against fat cats—those individuals who seem to have done too well, although they will not pay the tax—and to old Labour's prejudice against privatisation. The tax combines those two prejudices, but has no logic behind it.
The choice of companies is arbitrary, as is the definition of excess profits and the choice of the tax base. As it happens, the Government have chosen the best tax base, because the regional electricity and water companies have performed better than British Gas and British Telecom.
However, the windfall tax has fatal flaws. It is arbitrary to look with hindsight at a purchase and say that it was a bargain, so it will now be taxed. The Government have no answer to the argument that today's shareholders are not, in many cases, the people who had the windfall. The tax will hit people, and pension funds, who happen to have investments in the relevant companies. It is a political gimmick, and people will forgive the Government only if they never do it again.
451 My fear is that, now that the Government have found that they can raise £5 billion to spend on their programmes, they will be tempted to do something very similar next time they get into financial trouble. The Government have shown that they have a populist approach to tax raising, not an approach based on economic policy. They look for a tax that makes a good speech on the right platform, and that is the sole origin of the windfall tax.
The tax change that the Government did not announce beforehand is even worse. I happen to know that they were secretly working on it in opposition. The Chancellor has the nerve to describe the changes he has made to advance corporation tax as part of his Budget for investment.
A few years ago, my right hon. Friend the Member for Charnwood (Mr. Dorrell) and I considered whether the tax credit encouraged the distribution of profits instead of their retention. We considered the argument that companies would invest more if they retained more, but we rejected it, mainly because we were worried about the impact on pension funds. We were worried about its effects on pension funds, especially after the new capital adequacy requirements, and we left it alone. We certainly never contemplated abolishing the tax credit completely.
The changes have not been done for any economic reason. The Chancellor announced changes to dividend tax credit because he knew that 999 out of 1,000 people would not understand a word he was talking about. He did not do so because he wanted to explain to the public that it would give a tremendous boost to investment. It was a convenient tax that people would not understand and that is why Labour Members cheered it. The Government are now attacking the BBC for reporting the true consequences of the policy on the radio this morning. Norman Lamont had a similar problem when he reduced the tax credit, and that is why I did not follow his example.
The policy will have an extremely damaging effect on pension funds. We are told that the pension funds are in surplus, but that is absurd, because they are not all in surplus. Some are, but many are not. Many people with personal pensions will not be told that their funds are in surplus, and their expectations will be upset. People who are about to retire have rung me to say that they are in funds that are not well funded. They tell me that they have legitimate, but not guaranteed, expectations of lump sum payments, and they know that the trustees of their funds will have to consider the effects of the change.
It is no good saying that the change will have no effect, because it will take 20 per cent. out of the value of the income from the equity investments of pension funds. It is absurd to say that £5 billion can be taken out of the funds every year without any effect. The change is not good for investment, because it will raise the cost of capital. It has cut the capital value of major companies. It is a political decision and, like the windfall tax, it makes no economic sense. It played well in presentation to say that it would raise £5 billion, because people do not understand it.
§ Mr. Chris Pond (Gravesham)
The right hon. and learned Gentleman cannot see the faces of his Front-Bench colleagues, but many of us suspect from their glum expressions that we are hearing the prepared speech 452 that he would have given—and had hoped to give—as Leader of the Opposition yesterday. He obviously does not wish to waste it.
The right hon. and learned Gentleman has told us of his concern about the big hit on the pension funds. Was he not concerned about the big hit on the pensioners that the previous Government made when they raised VAT on fuel? That was a much more important big hit and, therefore, his comments are somewhat hypocritical.
§ Mr. Clarke
When we raised VAT on fuel, we raised the pension and benefit levels to compensate. I shall not go through the arguments again, because the Labour party has now done what it wanted to do. However, it has always been true that retirement pensioners were the one section of the population not affected by our change. They were the only ones who were compensated for it.
The increase in VAT on domestic fuel was an environmental measure. I found it amusing yesterday to listen to the Chancellor go on about environmental measures and then a little later reduce the tax on domestic fuel that the Conservative Government had introduced. When I was defeated on the second instalment of the imposition of VAT on domestic fuel, I said that everyone in the House of Commons would benefit from the defeat except pensioners, because we cancelled the increase in pensions to offset the change. The bigger people's houses, the more they will benefit from the reduction on VAT in domestic fuel, but the windfall tax and its effect on the utilities will more than wipe out any benefit.
The Government have increased tax on petrol. The housing market has been tackled, not, rather surprisingly, by getting rid of MIRAS but by cutting it back a little. The increase in stamp duty on bigger houses falls between two stools. It is not enough to affect the housing market. I do not believe that the housing market is overheating seriously outside the south-east of England. The increase in house prices is extremely patchy. The Government must be cautious in hitting the housing market when it is recovering from such a dead condition that it could still come back to normality.
The Government's measure is a small way of raising revenue at the expense of those buying a house or moving house. I do not remember the Labour party mentioning it at the general election. If the Chancellor had told owner-occupiers that he was contemplating increasing stamp duty, more of them might not have voted for his party.
Reference has been made to spending. I welcome that, because it is a complete change from what the Prime Minister and the Chancellor have said until now. The Liberals got in first. They were right to say that it was an idiotic commitment by the Government to say that they would stick to departmental spending totals for the first two years. No Government in history have done that. We have had a public spending round every year. All sensible Governments readjust their priorities. I am flattered by the extent to which the Chancellor still sticks to my spending totals for last year. Local authorities will have to stay with what they have got, except on education. The police service will stay with what it has got; so will the Prison Service.
The Chancellor has not made the slightest attempt—which I would have done, with my Chief Secretary—to go around Government Departments to try to take 453 something out of their total to move to priority services. The Government have announced some welcome easing, but not for this year. My totals for this year, which the lobbies are complaining about, are endorsed by the Chancellor. He is sticking to them. I advise Government Back Benchers not to support the complaints of local authorities or health trusts about this year's figures. The Chancellor and I agree on them.
The Chancellor has increased spending on health and education next year by worthwhile but not spectacular amounts. We did better than 2.25 per cent. real growth in the national health service in most recent years.
§ Mr. Clarke
My right hon. Friend the former Secretary of State for Health tells me that 2.25 per cent. was average. We did much better than that in some years. Many hon. Members who are new to the House have only to hear the word "billions" and they wave their Order Papers. It is as well to listen to how many billions when one is talking about education and health. Even I thought that the capital expenditure on education—more than £1 billion from the windfall tax—which I welcome, sounded like a great deal of money. I had not appreciated that the amount was spread over five years and every local education authority.
My hon. Friend the Member for Maidenhead (Mrs. May) is right about current spending on education. I always exhorted the local authorities to pass on the increased standard spending assessment to schools, but the Labour ones did not. A letter from the Secretary of State for Education and Employment asking them, "Could you please do so this year?" is not guaranteed to succeed.
§ Mr. Clarke
No. I said when I gave way to the hon. Member for Gravesham (Mr. Pond) that it was for the last time. I should conclude.
The extra spending on education, modest though it be— I apologise to the hon. Member for Kingston and Surbiton (Mr. Davey), a Liberal Member who no doubt agrees with my strictures on public spending, for not giving way to him—is drawn down from the contingency fund. We drew money down every year, but we usually waited to discover that we did not need it before doing so. What happens if a contingency arises? What happens if mad cow disease turns into mad sheep disease or there is some disaster we wait to see? The Chancellor has waved those arguments aside in order to have something to say to cheer up his Back Benchers in his July Budget.
The Budget imposes a dramatically increased tax burden. That is from a Chancellor who lectured me all the time in opposition about the extent to which we had increased the tax burden on the British economy. We now have tighter monetary policy. The Governor of the Bank of England has been let free to have charge of monetary policy. When I was Chancellor, I found that it was no good looking to market expectations. The markets guess what the Chancellor or Governor is going to do. They do not tell the Chancellor that they have inner wisdom that is denied to him.
454 When I was Chancellor, the expectation was that interest rates would peak at about 7 per cent. by this stage in the cycle. In fact, I never, ever went higher than 6.75 per cent. Interest rates of 8 or 9 per cent. are now predicted. I remind the Order Paper wavers that that can only produce in two years' time slower growth, slower creation of jobs and possibly a rise in unemployment if the Government have overdone it completely, and some abatement in the expected rise in living standards. In two years' time, the economy will have slowed down too much.
I know what the Government will do. I do not think that the Chancellor will mind if the economy slows down too much. He is cynically prepared to pay that cost. If the economy slows down too much, he will kick-start it. There will be more public expenditure. He will start cheering up the lobbies and prepare to cheer up the electorate. He is increasing taxes now as soon as he can after the election in ways that he thinks people will not notice, in order to spend public money more generously to buy votes later in the Parliament and win the election.
The Chancellor's policy is simply the dreaming up of cynical excuses to justify the tax hikes, despite election promises, and make a political Budget sound as if it has a respectable economic purpose. In my opinion, that will sacrifice jobs and growth in the meantime.
The sole purpose of a Government's economic policy should be to create the stability that enables jobs to be created, living standards to rise and the British economy to become one of the most successful and efficient in the western world. The legacy that the Labour Government were given gave them every ability to do that, in the national interest. The party that has taken power puts politics before the national interest. Only a day after the Budget, it is not very popular. The true costs will be felt by the British public in the next two, three or four years. We have to bring that home to the British public.
§ Mr. James Plaskitt (Warwick and Leamington)
Thank you, Mr. Deputy Speaker, for giving me the opportunity to make my maiden speech in this debate. It allows me to confirm, especially for the benefit of the right hon. and learned Member for Rushcliffe (Mr. Clarke), that the Budget measures introduced by my right hon. Friend the Chancellor are welcomed throughout the constituency of Warwick and Leamington, which I have the honour to represent.
I have illustrious, not to mention knighted, predecessors. From 1924 until shortly after the Suez crisis, the constituency that I now represent was held by Captain, later Sir, Anthony Eden, who became a Conservative Prime Minister. My immediate predecessor, who served the constituency from 1968 until the last general election, was Mr., and later Sir, Dudley Smith. I am beginning to wonder whether my constituents think that it is a prerequisite that their Member of Parliament be knighted, judging by the number of letters that I receive addressed "Dear Sir James".
I have had the opportunity to look back at the maiden speeches of my illustrious predecessors. I note that they were all made during debates on historic issues of the time. Sir Anthony Eden's maiden speech urged the then Labour Government to embark on a programme of rearmament. Sir Dudley Smith's maiden speech urged 455 the then Labour Government to toughen immigration restrictions. I am glad that I have the opportunity to maintain the tradition of Warwick and Leamington Members making their maiden speech in historic debates and addressing Labour Governments. I am delighted that I can set a precedent, because I can speak to a Labour Government from the Labour Back Benches.
I am somewhat surprised, looking back to my predecessors' maiden speeches of 1924 and 1968, that neither of them told the House anything about the constituency. So much for that tradition. As right hon. and hon. Members have heard little or nothing about Warwick and Leamington for 75 years, I think the House should receive a quick briefing.
There are many attractive features to my constituency. Warwick is an historic town in its own right and possesses one of the most splendid mediaeval castles in England. Similarly, Leamington is an historic town. It possesses many fine buildings, including some of the best examples of Regency architecture to be found in the United Kingdom.
The constituency incorporates many delightful Warwickshire villages. It includes, since the boundary revision, the attractive town of Henley-in-Arden. It is possibly the most prosperous part of the constituency but, interestingly, the only one to have approached the recent general election with any experience of Labour representation. It was formally part of the Stratford-on-Avon constituency, which was represented for a while, before 1 May, I am happy to say, by the Under-Secretary of State for Education and Employment, my hon. Friend the Member for Newport, East (Mr. Howarth), who was located a short while ago on the Government Front Bench.
My constituency benefits from a substantial cultural diversity, reflecting settlement into the area that began 30 or 40 years ago. It is a development from which the entire constituency benefits. I am pleased to say that we regularly celebrate the cultural diversity of our community. The efforts of many voluntary organisations and local authorities have ensured generally harmonious relations between the various communities. There is, however, a considerable caseload of immigration appeals as families in my constituency wrestle with various regulations.
I am happy to pay full tribute to my immediate predecessor for his tireless work on behalf of many of my constituents who were, or are, caught by immigration regulations. Things have already been made easier, I am glad to say, by the welcome abolition of the primary purpose rule announced by the Government.
Leamington Spa, for the past two years, has been designated in surveys as the most profitable town in England in which to do business. There are many thriving small businesses and many large employers, many of which are concerned with the car industry, such as Ford, Volvo and Automotive Products. We also have communications and technology-based companies such as IBM.
Thriving though these businesses are, they have concerns about the future. They were looking to my right hon. Friend the Chancellor of the Exchequer to bring forward certain measures to address their concerns. I am happy to say that their concerns have been met.
456 First among the concerns frequently expressed to me are those that relate to employment constraints, especially the shortage of skilled young people. Manufacturing employers tell me that it is often difficult to fill apprenticeship places. The fact that the manufacturing sector has spent so many years in decline has damaged the image of that sector for many young people. That is something that we shall need to remedy in years to come. I believe that we shall do so as we begin the vital task of rebuilding such an important part of the economy.
Despite apprenticeships, hundreds of young people in my constituency are out of work. Measures to create education, training and employment opportunities for 18 to 25-year-olds will be welcomed both by young people and by local businesses.
A second area of concern to businesses in my constituency is the exchange rate. Many firms export a substantial proportion of their output. They have been concerned about the recent 18 per cent. appreciation of sterling and the difficulties that that creates for winning and holding export markets in a global economy. Companies in my constituency may still be concerned to some extent that perhaps not enough has yet been done to restrain the appreciation of sterling.
If, as my right hon. Friend the Chancellor of the Exchequer judges—I think that he is right—the output gap has probably closed, it is important to dampen domestic consumption in the short term until my right hon. Friend's welcome measures to promote investment and expand the productive sector of the economy begin to bear fruit in the longer term.
If we rely primarily on monetary policy to do the job, there could be an appreciable further rise in sterling. The impact on our exporting manufacturing sector would not be welcome. Nevertheless, it will warmly welcome the fact that the Government have a commitment to fiscal rectitude and to a five-year deficit reduction programme. That will minimise the risk of higher long-term interest rates, which will combine with the welcome tax incentives in the Budget to stimulate investment. Progress towards a fiscal balance in line with the golden rule of my right hon. Friend the Chancellor of the Exchequer will in itself be a stimulus to business.
The third and final area of concern of local businesses in my constituency is the European Union. Companies in the constituency have had anxieties about relationships with the EU for some time, although I think chat they began to ease after 1 May. The companies of which I speak urge a constructive approach towards membership of the EU. They urge also completion of the internal market. They fear nothing from inclusion in the social chapter. That being so, they have every reason to welcome the support of business that has come already from the changes that the Government have brought about.
All the aspects of the Budget to which I have referred are welcome to the business community in my constituency. There are also other sections of the community, however, that will welcome my right hon. Friend's measures. At the same time as we enjoy a good business base, we experience also many of the results of past economic mismanagement. Too many families are living in hopelessly inadequate accommodation. In Royal Leamington Spa, for example, people are sleeping rough on the streets. There have been 100 this year so far. Also in Royal Leamington Spa, we have a daily soup kitchen, which is run by dedicated volunteers.
457 Tackling the housing crisis is an urgent imperative. The decision to begin the phased relief of capital receipts will be most welcome, as will other measures in the Budget to bring general stability to the housing market as a whole.
There are too many families caught in a welfare and poverty trap, and especially single parents who are anxious and willing to work but unable to find work that will pay in relation to benefit income. The decision to embark on a general review and begin to create a modern welfare system incorporating a child-care strategy will be most welcome.
In my constituency, there are no fewer than 19,000 pensioners, many of whom live in straitened financial circumstances. They will especially welcome the direct help that they will receive with the coming winter's fuel bills. I hope that my right hon. Friend will be able to do more for such an important section of the community in future Budgets.
The schools in my constituency are doing an outstanding job but under intense financial pressure. There are still some hopelessly inadequate buildings. These schools will raise a chorus of approval for the measures announced yesterday that will in due course bring urgently needed additional resources for classrooms and for children. I hope that this benefit will not be cancelled out by my right hon. Friend the Secretary of State for the Environment, Transport and the Regions as he considers Warwickshire's case for redetermination.
I reluctantly accept my right hon. Friend's announcement that local authority capping will apply again next year. It remains, as it always was, a fundamentally undemocratic practice, and it undermines meaningful local democracy. We are, of course, rightly committed to its removal. I hope that next year will be the last year of capping, and that thereafter we can begin the process of restoring vitality to local government and of seeing further improvements in important local services.
As I said earlier, my predecessors made their maiden speeches in historic debates. I am glad that I have been afforded the same opportunity. The Budget sets the course for sustainable growth, low inflation, stronger investment, fair taxation and decently funded public services. That is what the people of Warwick and Leamington voted for on 1 May. That is why they sent me here. I will be able to support the Budget, on these measures, confident that we have begun the task. I commend it to the House.
§ 6 pm
§ Mr. Don Foster (Bath)
I am sure that the whole House would wish to pay tribute to the hon. Member for Warwick and Leamington (Mr. Plaskitt) for an excellent maiden speech. I have no doubt that the House appreciated his tribute to his predecessor, Sir Dudley Smith, and to his work for individual constituents.
I have no doubt that the House has suffered, almost in silence, for 75 years from not having heard more details about the hon. Gentleman's constituency. Not only were we grateful to have heard more about it; no doubt his constituents were, too. That may ease his passage to the knighthood that he so clearly craves.
I suspect that there will not be uniform agreement in the House about the hon. Gentleman's comments on the undemocratic nature of local government capping. Liberal 458 Democrat Members entirely agree with him and feel it a great pity that other hon. Members on the Government Benches do not seem, at the present time at least, to support his view.
The hon. Gentleman referred to his concern for schools. I shall pick up on one or two of the points that he made, because I share his concern about the situation in our schools and fear that the Budget will not offer the comfort that he currently believes is contained within it.
Yesterday, my right hon. Friend the Member for Yeovil (Mr. Ashdown) made it clear that the Liberal Democrats believe that there are some good elements in the Budget, but we do not believe that, when taken together with the many aspects of the Budget, with which we fundamentally disagree, they can lead us to support it. Therefore, as my right hon. Friend made very clear yesterday, we will not support it. We believe that the Budget is rather like the proverbial curate's egg—good in parts. Some of those good bits offer jam tomorrow, but frankly there is precious little of it, as I shall demonstrate shortly.
The right hon. and learned Member for Rushcliffe (Mr. Clarke), in an excellent speech that the House will have thoroughly enjoyed if not entirely agreed with, made it clear that the more one analyses the content of this Budget the more one will see that it will not deliver what the Chancellor, in his hype, suggested it would deliver. Indeed, it is probably fair to say the Budget is more of a triumph for the spin doctors than for the British people.
As the former Chancellor said, the British people will certainly be hit by higher taxes. There is nothing intrinsically wrong with higher taxes. Indeed, my party has been clear and consistent on the issue. We have long argued for increased taxes, and have said very clearly what those increases should be. We have said clearly that they should come through the fair, open and honest form of taxation—income tax. We have made very clear what we would use the revenue from an increase in income tax to fund.
The Liberal Democrats have also made it very clear that we would have had a different Budget. Our proposals to increase carbon tax while reducing employers' national insurance contributions would have meant a switch away from things that are bad, such as pollution, to things that are good, such as creating employment.
Sadly, that is not what the Chancellor did in his Budget. He has certainly raised taxes. It is estimated that the average taxpayer will have to pay an extra £234 per year—£1,100 extra during the course of the Labour Parliament. Those taxes have been raised not through fair taxation but through hidden taxes, which the Chancellor hoped that the public would not notice. We believe that such taxes are wrong. They will not stop interest rates from rising, because they will not cool the consumer boom. Nor will they, in many cases, help businesses.
The Institute of Fiscal Studies has today analysed the Budget and argues that the net effect of the various tax measures will be a £3 billion tax increase on businesses. Because the consumer boom is not being tackled, businesses will face high exchange rates, which affect exports, and the very real likelihood of higher interest rates. In other words, the Budget is offering a triple whammy to businesses in this country.
The extra taxes that are being raised are also wrong, because they are not being used to improve our essential public services. What warning were we given for the taxes 459 that are in the Budget? What reference was made to them in the lead-up to the Budget? Indeed, what reference was made in the Labour party's election manifesto to a tax on pensions?
The current Chancellor of the Exchequer must believe that it is right for political parties to make clear in advance their taxation plans, because, after the Lamont tax-raising Budget of March 1993, following the 1992 general election, he said:If he cannot point out the section of the election manifesto which warned of increased tax rises for the ordinary voter … he should be ashamed of himself."—[Official Report, 17 March 1993; Vol. 221, c. 291.]I believe that the current Chancellor should be ashamed of himself, because he has introduced taxes of which no warning was given in the Labour party election manifesto. He has betrayed the very spirit of the Labour party's promises on taxation. It is also clear that he has betrayed the Government's promise on education. "Education, education, education," said the Prime Minister in the lead-up to the election. But has this Budget really delivered for education? There is no doubt whatever that it has delivered more than many people expected, or could even remotely have expected.
After all, despite repeated questions from my right hon. Friend the leader of the Liberal Democrats, from me and from many of my parliamentary colleagues, we were told categorically, time after time, that individual departmental spending ceilings would not be breached. Yet there has been a significant U-turn by the Government in a very short time. In the two keys areas of health and education, the departmental ceilings are to be broken. It is a U-turn, but I congratulate the Secretary of State for Education and Employment on persuading the Chancellor to break the clear commitment that they gave only a few days ago.
The Chancellor announced an extra £1 billion for education—taken, incidentally, from the contingency reserve. One might argue that that will leave them in a rather parlous state and perhaps unable to sustain the pressures that may well come because of the pressures on many other public service areas. He implied that it is only a one-off increase in spending, a one-off payment into education. Even given that, one could argue that something is better than nothing, but the real question is whether it will be enough. One thing that is clear is that it will do nothing to help this year. It will do nothing to help resolve the crisis that exists in our schools at present. Class sizes will continue to rise. Already one in three primary pupils are in classes of 30 or more. I wonder how that figure will look in a year's time.
Were he in his place, the Secretary of State would no doubt intervene to say that the Government are doing something; that they will reduce class sizes by the transfer of money from the assisted places scheme for children aged five, six and seven to maintain the pledge, that they gave to the British people.
But it is worth reflecting that, from the figures that we now have of the amount of money which, in the forthcoming year, will be transferred from the assisted places scheme, that amounts to the equivalent of 1p per pupil per day. It is simply not enough. I have consistently said that it is not enough to deliver that election pledge, but the Government have consistently said that I am wrong.
The story has now broken. Only yesterday, the Minister for Education and Industry, Scottish Office, the hon. Member for Cunninghame, North (Mr. Wilson), also 460 acknowledged that there will be insufficient money from the assisted places scheme to ensure that the Government meet their commitment on class size. That was plastered all over the Scottish press. Class sizes will continue to rise.
Similarly, the Secretary of State referred to the 600 primary schools with outside loos. They will continue with outside loos for at least the next 12 months. He referred to the 25,000 temporary classrooms. For the next year at least, there will continue to be 25,000 temporary classrooms. Buildings will continue to crumble, and roofs, as the right hon. Gentleman said, will continue to leak. There is nothing in the Budget for education this year. Therefore, there is no comfort for the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) who, only three weeks ago, addressing members of the Government Front Bench, said:Ministers must address the crisis facing primary schools now".—[Official Report, 10 June 1997; Vol. 295, c. 957.]Ministers have failed to deliver for the hon. Gentleman.
But if there is no jam today, what of the jam for tomorrow? We are told that there will be £1 billion extra for schools. It sounds like pennies from heaven until we start to analyse the reality. Put simply, it goes like this. First, there is no extra money for further education, at a time when, under the previous Government's Budget, the money for further education was to be cut. That means that there will be further cuts in further education. Secondly, there is no additional money for higher education. That means that there will be further cuts in the higher education sector.
Yesterday the Chancellor announced that he was increasing the inflation targets for the current year and the next financial year and that, in turn, he was therefore increasing the GDP deflators, in both cases from 2 per cent. to 2.75 per cent. Taking those two years and that increase together, it will cost somewhere in the region of £500 million to meet that increased cost of inflation to the education sector. Therefore, the amount of money that is now left of the £1 billion to spend on any improvements is only £500 million.
But then the Chancellor announced his taxes that will hit pensions. They will hit the local authority pension schemes as well, and the local authorities will have to find the money to replace the money that is lost. That too will reduce the amount left from the £1 billion.
We now have a situation where the increased money that is available in real terms is less than £500 million. Yet if we go to the local education authorities and ask them simply how much money they need to stand still to take account of the continuing overhang of the second half of the teachers' pay award, changes in legislation on school transport and seatbelt rules and, in particular, the increased number of pupils that there will be in our schools, they will tell us that in England alone they need well over £500 million, so in the Kingdom as a whole they will need even more than that.
The net effect of all that is that the £1 billion on offer for next year—not for this year; there is nothing for this year—will not even be sufficient to allow our education service to stand still. As a result of the Budget announced yesterday, there will be further cuts in our schools. Therefore, as I said, jam tomorrow but not very much of it.
461 That, sadly, is true in so many other areas of the Budget. The hype was impressive. For example, we are told that £150 million will come each year from the mid-week lottery to help child care. We are also told that £200 million will come from the windfall tax over the lifetime of the Parliament. That amounts, roughly speaking, to £200 million a year.
If that is the case, and if we accept that there are about 1 million lone parents each with two children, that £200 million a year amounts to the staggering sum of £2 per week per child. Frankly, one cannot buy much child care with that. Not widely reported is the fact that the new Government are continuing the plans of the previous Tory Government and freezing benefits to lone parents, so that the extra available is effectively wiped out.
The Government may say that that may be true but, nevertheless, they are extending the child care disregard, uprating it from £60 a week to £100 a week, so they are doing something. However, if one looks at the figures, one sees that only one in 20 of lone parents entitled to family credit currently benefit from the existing child care disregard, so the chances of more being helped by the uprating are slim. Let the House not forget that the increased disregard is available only to those lone parents with more than one child. It is no wonder that the so-called bonanza is reckoned to cost the Treasury only £10 million.
We are now told that there is to be a national child care strategy, but we have to ask what that strategy is. If there is some extra, however small, for child care, for education and health—although we must reduce the increase for health because of the impact of the increased GDP deflator and the abolition of tax relief on private medical premiums—there is no additional money for other vital public services such as the police and social services. As the right hon. and learned Member for Rushcliffe said, the present Government are accepting for those services the spending targets and limits that he set for them, so there is no extra. Yet they will now have to face the increased pressure of that rise in the GDP deflator.
Therefore, it must be questioned whether that extra money for education can, in any shape or form, be ring-fenced or whether it will end up propping up the equally vulnerable services. The overall picture for our public services does not look rosy.
Only today, the Institute of Fiscal Studies, in the briefing to which I referred earlier, looked at the three scenarios for public finances that are offered in the new Red Book. Its analysis, if I understood it correctly, shows that, even taking the most optimistic estimate of growth in public spending, when the new Government's plans are compared with the historic position of the previous Government there would, in the last year of the Parliament, be a cut in public service spending of £15 billion. In other words, according the IFS, Labour will spend £15 billion less on public services, on its current plans, than might have been expected to be spent by the Tories in the last year of this new Parliament.
The centrepiece of the Budget—the part that we heard most about from the Secretary of State today—is the welfare-to-work programme, paid for by the windfall tax. My party fully supports the principle of welfare to work, 462 and we offer to support the Government in any way that we can when they introduce the measure. Getting people off benefits and into work must be the right way forward; we applaud the new Government for making a start.
We would not have gone about it in quite the same way. We would have helped to boost job creation by cutting employers' national insurance contributions, which are a tax on jobs. We would initially have targeted the additional help on the parts of the country with the worst unemployment. We would have given a greater boost to child care provision. Additionally, we would have tackled the root cause of unemployment by significantly increasing—far more than the Government have—investment in education, especially in schools and nurseries.
Generally, however, we welcome the Government's moves and will do what we can to support them. We believe that they offer real hope to many of the young people who feel that there is no hope. But we must record a severe reservation about the compulsory aspects of the scheme. I am grateful for today's assurance from the Secretary of State that, during the adjudication process or an appeal, someone who chooses not to take up any of the options will still be able to receive benefit. But the vast majority of people who are out of work clearly want to be in work or to take up training opportunities that will improve their employability. So we see no need for a compulsory element to the scheme; indeed, we perceive several dangers in it.
I hope that, when the Financial Secretary replies to the debate she will assure the House that the Government will publish in full the results of the proposed pilots and include in any review of those pilots details of what happened to people whose benefits were cut because they failed to join one or other of the elements of the package.
We certainly do not support the Government's way of funding the welfare-to-work scheme, however. We fundamentally oppose the windfall tax, which is unfair and retrospective. Nor will it hit its intended target: the fat cats. It will hit ordinary people such as pensioners, those who hold endowment mortgages, and many others. It will hit many people who gained nothing when the immediate gains were made just after the utilities were privatised. The House will have noted from the Secretary of State's speech today that he accepts that it is a retrospective tax. He made it clear that he was referring to the taxation of profits made in the past.
An analysis of shareholding revealingly shows that the tax will not hit the fat cats. In my area's water company, Wessex Water, immediately after privatisation there were 186,000 small shareholders. Within two months, that had fallen to 124,000. It now stands at only 60,000—in other words, most of the fat cats have gone. Only 15 per cent. of the shares of Wessex Water are owned by individuals; all the rest are held by institutions which, as might be expected, have moved in and out of Wessex shares over the years.
We cannot support a Budget that contains measures with which we fundamentally disagree. We cannot support a Budget that uses backdoor tax rises instead of the fairer, more honest approach of income tax rises. We cannot support a Budget that does little more than ensure a standstill for health and education. The country deserves more than standstill: it deserves to move forward. We should have preferred a Budget that achieved that, which is why we shall not support this one.
§ Mr. David Borrow (South Ribble)
I begin by thanking the voters of South Ribble for showing their confidence in the Labour party by electing me to represent them on 1 May. I find myself in this Chamber because of a cruel twist of fate. In January 1996, the Labour party in South Ribble selected Dennis Golden as the candidate. In January 1997, ill health forced him to resign as the Labour candidate. Thus, not only did he fail to achieve his lifelong ambition of representing the constituency in which he lived; he also failed to live long enough to see the election of the Labour Government. I am therefore conscious that I arrived here in tragic circumstances.
Dennis lived in Leyland and held a county council seat there. He served as chair of the highways committee on Lancashire county council. He was a tireless worker for the people of Leyland. He worked at Leyland Motors, the heart of the town, and was a pillar of the engineering union. During the election campaign, many members of that union from across the constituency told me little tales of how Dennis had helped them. I am glad to pay this tribute to a fine socialist.
I was gratified to learn while in my constituency last week that the local authority has agreed to name a road there after Dennis Golden—a fitting tribute to the chair of the highways committee of Lancashire county council, a post he still held on the day he died.
The constituency was created in 1983, when it shared the boundaries of South Ribble borough council. Between 1983 and this year's election, it was represented by Robert Atkins, who became my Member of Parliament when he was elected, by 20 votes, to represent Preston, North in 1979. Ron Atkins, the defeated Labour candidate, remains a good friend of mine and continues to serve on Preston borough council as chair of the planning committee. I have spoken to him since the election. The election of a Labour Government gave him great pleasure, and he was particularly pleased that his daughter, Charlotte, has been returned as the hon. Member for Staffordshire, Moorlands (Ms Atkins).
Robert Atkins had a reputation in the constituency as an assiduous dealer with correspondence. His reputation owed a great deal to his wife, Dulcie, who ran the constituency office and whose personal manner with constituents was often praised during the election campaign. Robert served as a Minister in several Departments, including the Northern Ireland Office and the Department of the Environment. He also took a particular delight in being the Minister for Sport—like the right hon. Member for Huntingdon (Mr. Major), he loves cricket. I am sure that he will now have more time to devote to the cricket at Lord's.
I also pay tribute to my hon. Friend the Member for West Lancashire (Mr. Pickthall), four of whose wards were transferred to South Ribble in the boundary changes. He gave me a great deal of help before and after 1 May, for which I give him these public thanks.
My constituency can be divided into three distinct parts. The principal town is Leyland, an old manufacturing town which has traditionally depended on the commercial vehicle industry. The forerunner of Leyland Motors was founded in Towngate, which is in Leyland, in 1896. When I first moved to central Lancashire in the mid-1970s, Leyland was a thriving town to which thousands of people 464 travelled by bus and train each day to make buses and trucks. It is a tragedy that, over the past 18 years, so much of that industry has gone.
I pay tribute to the work of Lancashire Enterprises and Lancashire county council in rescuing Leyland DAF in 1993. I was pleased to have the opportunity, on Wednesday last week, to welcome the Prince of Wales to Leyland Trucks so that he could see the company that had been born out of the ashes. It is expanding, taking on more staff and investing heavily in new trucks and new ideas.
The second chunk of my constituency is best described as the southern suburbs of Preston, lying to the south of the River Ribble. As a former leader of Preston borough council, to the north of the river, I well remember many of the communities in the area participating in the Preston guild celebrations of 1992.
The remaining part of the constituency contains about a dozen small rural villages stretching between Preston and Southport. They are partly commuter villages, but, in many respects, they are agricultural, specialising in horticulture and market gardening. There is also a good deal of poultry breeding. As the new Member of Parliament for South Ribble, and as a confirmed townie, I found it particularly interesting to meet and talk to farmers in the constituency.
It is customary in maiden speeches to mention figures from the past who have served in all or part of one's constituency. Leyland, in my constituency, used to be part of the Chorley constituency. I was very pleased when George Rodgers, the former Member of Parliament for Chorley, spent several days working for my election campaign, and I know that he was pleased when the result was announced.
I want to mention another former Member of Parliament for part of my constituency. Until recently, I did not realise that he had represented it. As a Yorkshireman, born in Huddersfield, I was interested to find that, 50 years ago, Ormskirk had been represented by another Yorkshireman born in Huddersfield, the late Lord Wilson.
The Budget should be judged on the basis of two sets of criteria. The first relates to the Government's policy objectives and priorities. Those will not necessarily be shared by the Opposition parties, but Labour Members must assess the Budget according to how far it goes towards meeting them. That is part of the test that we must apply.
The second set of criteria involves the extent to which the fiscal and monetary policy in the Budget creates stability and eases the excesses of the business cycle. Obviously, exchange rates and interest rates are a particularly important aspect of that. In any Budget debate, those two factors can sometimes work in opposite directions.
Let me deal first with the policy priorities and objectives. I remember visiting Leyland in 1975 and seeing a thriving town. Many people worked in manufacturing industry, and school leavers could walk into apprenticeships. My generation, brought up in the 1960s and early 1970s, could not only expect to be better off than our parents, but could look forward with some optimism to a secure future. By and large, our expectations were justified, but the young men and women in my constituency today do not enjoy the same 465 sense of security. They do not believe that they will experience better living standards than their parents or that their jobs and futures will be more secure.
One of the tragedies of the past 18 years is the fact that work has become less secure. So many jobs are part-time, casual or fixed-term, and so many jobs are low-paid. A social tragedy and a growing problem in society is that while, at the age of 16 or 17, members of my generation could expect to settle down, establish homes and start thinking about raising the next generation at 28 or 29, that is no longer a prospect for all too many youngsters in their late teens and early twenties. We should not be surprised by the violence, drugs offences and other crime that we now see—all the social problems that blossomed during the years of the Tory Government.
The key measure in the Budget is the welfare-to-work proposal, which goes to the heart of what I see as the basic problem in society. That proposal begins to give the generation to which I refer some hope of secure employment and of security in later life. It will be particularly effective when combined with legislation to establish a minimum wage.
All too many youngsters are paid such poor wages that they have no prospect of leaving home, settling down and bringing up a family—and we wonder why they feel that they are not part of society and why there is social breakdown. Unleashing market forces produces winners and losers. We have seen the salaries of the winners, and we have seen the social consequences for the losers. Combining welfare-to-work measures with legislation for a minimum wage will constitute a crucial first step towards stabilising our society.
I was interested to hear the Chancellor's proposals for the release of capital receipts, which will improve—albeit only marginally—not only employment among building workers, but the prospects of people in poor housing or no housing at all. That, too, is a useful step in the right policy direction.
If I am asked whether the Budget meets my Government's policy priorities and objectives, I will say that it does. It meets the policy priorities and objectives of the people who voted for me on 1 May.
Will the fiscal and monetary policies produce stability and cushion the excesses of the business cycle? There have been contradictory comments by Opposition Members. The figures given by the Chancellor yesterday show that, in the current financial year, £6 billion is being taken out of the economy by the reduction in the public sector borrowing requirement. A similar amount is proposed for 1998–99.
Classic economic theory has it that a rise in interest rates and a rise in the value of the pound are linked to excessive demand in the economy with which the economy is not structurally strong enough to deal. Therefore, it seems sensible to take some of that demand out of the economy. We can argue about whether it has been taken out in the right way, but the policy seems to be heading in the right direction. It is strange that Opposition Members are not prepared to admit that some demand needs to be taken out of the economy.
It is a pity that the right hon. and learned Member for Rushcliffe (Mr. Clarke) has left the Chamber. It has puzzled me for 12 to 18 months that insurance and 466 housing finance companies have acted as if they were printing money and have put extra spending power into the economy in an uncontrolled way. The Treasury and the Government have to pick up the pieces as a result of those private decisions to print money, but there was remarkably little debate on such issues before the election. That increase in money which is about to circulate in the economy has had a significant effect on the Budget.
I have tried to keep my speech as uncontroversial as possible. I commend the Budget to the House and look forward to its provisions being implemented and well received in my constituency.
§ Mr. Archie Norman (Tunbridge Wells)
Thank you, Mr. Deputy Speaker, for this opportunity to make my maiden speech on the important subject of the Budget. I congratulate Labour Members who have made their maiden speeches today and welcome their interest in the businesses in their constituencies, especially the highly profitable ones in Leamington Spa. I share their interest and that of the Chancellor in the business community, but perhaps in a more substantial way. I should declare that I am chairman of Asda—the largest private sector employer based in the north of England—a director of Railtrack and a former director of British Rail. That establishes my public sector credentials as well.
I have tried to speak in the Chamber in previous debates, and I think this is about my 11th hour of taking assiduous notes. I have listened to many excellent maiden speeches and, as a result, my geography has been much improved. On this occasion, I do not intend to give the House a guided tour of my constituency, but I should like to speak about my predecessor, Sir Patrick Mayhew, who is now Lord Mayhew of Twysden.
It is not difficult to pay tribute to Lord Mayhew. He was a distinguished Attorney-General and his contribution as Secretary of State for Northern Ireland was remarkable. He undertook the role with an open mind, great objectivity, integrity, enthusiasm and relish, and he brought the prospect of lasting peace in Northern Ireland closer than at any time in the previous two decades. In the constituency and in the House. Sir Patrick was, in all respects, larger than life. He succeeded in making a contribution which was in many ways beyond politics. His halo still shines brightly in Tunbridge Wells and, as I am constantly reminded, he leaves large shoes to fill.
Mine is a delightful constituency, situated in Kent in the heart of England. Its focal point is Royal Tunbridge Wells, a spa town which was famous in the 18th century for its royal visitors who, I suspect, were able to get there rather more quickly than today's commuters. It has two major public finance initiative projects which are important to the local community and which were supported by the Conservative Government. The first is the long-awaited dualling of the A21, which is the main arterial route from London to Hastings. The second is a desperately needed new hospital because the Kent and Sussex hospital is divided into two parts and has outdated facilities. A PFI project for a new hospital is at an advanced stage.
Regrettably, both projects have been called in for one of the new Government's ubiquitous reviews. That means that, within two months of the election, my constituents 467 fear that they may have to pay a steep price for a Labour Government. I hope that those fears are unjustified. The people of Tunbridge Wells are famous, apart from anything else, for the forthright expression of their views in national newspapers. They are vigorous letter writers, as the Minister will find out before long if our transport and health projects are not approved.
My warning may be a little too late for the Chancellor. He will hear from many home owners in Tunbridge Wells and especially from those whose incomes are less than £15,000 a year. The majority of those who benefit from MIRAS are in that income range, and their incomes have been cut as a result of the Chancellor's action.
Many of my constituents are retired or saving for retirement and their pension funds will be hit by the changes to advance corporation tax. The abolition of tax relief on private medical insurance affects many of my constituents who are in nursing homes and many people in the insurance industry. It is short-sighted, mean-spirited and economically insignificant and can only add to the pressure on the health service. It is greatly regretted by my constituents. My ambition is to rebrand my constituents "Contented from Tunbridge Wells", but I fear that the Government have done little in their first few months to help me to achieve that aim.
Two of the Chancellor's main themes were business and employment. Unlike many Labour Members, I believe that experience in business, enterprise and industry is good for the Government and for the House. I am proud of my record in business and of the companies that I served. I welcome the Chancellor's intention to be business-friendly, and I also welcome the promotion of people with business experience to the Government. The appointment of the Paymaster General and of David Simon, the former chairman of British Petroleum, are a welcome recognition of the contribution that business can make to the policy and process of government. I am glad to see that my friend Howard Davies has been given a leading role in the Securities and Investments Board. It is good to see a former McKinsey man in gainful employment in public services. Hopefully, he will not be the last.
It was reported at the weekend in, I think, The Sunday Times that Martin Taylor had turned down a ministerial job. Of course, BP and Barclays are among Britain's 10 largest companies: Asda is about the 50th. Perhaps as the Chancellor works his way down the list I will eventually receive a call. My badge from my shopkeeping days reads, "Happy to help", which has always been my motto, but, of course, I cannot be certain that my help would be the sort that the Chancellor has in mind.
It is not long since the Secretary of State for Health described people like me asstinking, thieving, lousy, incompetent scum.Even as I read the words I find them amazing. One of the great strengths of the House is that hon. Members are able to speak freely, and the right hon. Gentleman is entitled to his view, but I hope that there is a little truth in the last part of his epithet because my dictionary defines scum asmatter which rises to the top in an otherwise murky liquid.The right hon. Gentleman's words were, in the main, different from the more honeyed prose that we have heard from the Labour party in the past two years. Its business manifesto states that a Labour Government would create 468a dynamic and supportive environment in which business can prosper and thrive.We hope that they will succeed in that endeavour, although it will be hard to better the achievement of the Conservative Government in the past 18 years, during which period there has been a comprehensive managerial revolution in the way in which we manage and employ people, create success and invite investment into the United Kingdom. To date, the words from the Government have been friendly, but the substance, I fear, has been increasingly hostile.
The Chancellor said that this is a Budget for investment and to secure our future. Business people are, in the main, practical, and we will wonder quite what he means. Our economy's future depends on competitiveness and profit and, so far, the balance sheet does not look too good. To start with, business people will wonder whether it is logical for a Government, who make much of the need for investment in infrastructure, transport and the waterworks, to reduce the prospect of further investment with a windfall tax.
The Chancellor said that the tax will not affect investment, employment or the cost of services. In fact, it clearly will. It takes investment cash from those companies, and it defies belief to suppose that obliging utilities to gear up and take on more debt will have no effect on investment. Surely we are all financially literate enough in this day and age to understand that taxing more means investing less. Stage two, we fear, may be regulation to force the investment, which the Government have made less attractive, by other means.
Business people will wonder also where the logic is in Labour's plans for the proceeds of the tax. They are to be used, apparently, to subsidise wages to create temporary jobs, but permanent jobs will be threatened as wage costs will be driven up with the introduction of a minimum wage. Those of us with experience of employing people and of being employed do not need to be the principal of the London business school to know that a minimum wage will mean fewer jobs. It will hit the most vulnerable people in society—in many respects, those whom the welfare-to-work programme is supposed to help, including the unskilled in particular, the handicapped, the young, the old and, yes, single mothers who work part time.
There is a piece of hypocrisy floating around that the minimum wage is a form of competitiveness—that it will even up the competitive field between employers who exploit employees by paying less and those who do not. The reality is that big business will not be affected by the minimum wage, but small business will. The companies affected will not be large and profitable; they will be the corner shop, the local pub, the small hairdresser and those that we need to support most.
Business people will wonder also how opting into the social chapter will help our competitiveness. I was curious and interested to hear the hon. Member for Warwick and Leamington (Mr. Plaskitt) say that businesses in Leamington Spa were not concerned. That is not my experience. Many small businesses throughout the UK are in favour of a free-trading Europe, but wholly opposed to further regulation in the form of the social chapter. New regulations in the form of works councils, supervisory boards and paternity requirements can bring us only closer to a European model of inflexibility and ossification.
469 Business people will wonder also how taxing pension contributions by limiting tax relief on advance corporation tax can do other than raise the cost of employment. It is irrelevant for the Chancellor to justify that measure by claiming, as he did yesterday:Many pension funds are in substantial surplus".—[Official Report, 2 July 1997; Vol. 297, c. 306.]If they are in surplus, that is a consequence of the funds that have been injected and of their investment performance. Those companies with surplus funds are taking advantage of that by improving their profits through a pension holiday. By definition, eliminating the scope for pension holidays means reducing those profits. It follows that, if those pension funds are in deficit in future, the money to fund them will have to come out of corporate profits. The £5.4 billion that this measure will raise has to come from somewhere. The cost of the Budget is in company profits and individual savings. That is corporation tax by another name for companies and a savings tax by another name for pensions.
It would be churlish of me not to welcome the cut in corporation tax, particularly for small businesses, many of which will benefit in my constituency, but the balance sheet for businesses in the first eight weeks of this Government is in the red—a small cut in their tax bill for a large slice of their pensions and a large increase in pension contributions.
After this Budget, business people will ask whether we have a Government who mean what they say about business, or a Government for whom business was simply a nice idea and who simply said what the electorate hoped they would. The Chancellor's grand words about investment and long-termism belie a fundamental shift in Government tone and policy—a shift towards a belief that it is Governments who create jobs and shape the economy. The question that business people will be asking is whether new Labour means a new form of socialism—not the ownership socialism of the past, but the regulatory socialism of continental Europe.
The assumption behind the Budget appears to be that the Government can engineer investment, whereas, in the business world, we know that subsidised investment is often the worst form of investment. The other assumption is that the Government can engineer and create jobs, whereas, in the business world, we know that subsidised jobs are often of the poorest quality and temporary.
It is not my intention to be unreasonably contentious, The Chancellor's aspiration to improve competitiveness and long-termism is, of course, one which we share. It is the means that we contest. This Budget is not a people's Budget, as the people will have to pay more tax. It is not a Budget for competitiveness or for enterprise. It is a Budget of taxation to enable a Labour Government to pursue political policies that involve spending more of the "people's money" on their well-meaning, but perhaps ill-judged, projects.
It is not a good Budget for business, for middle Britain or for my constituents in Tunbridge Wells. The business world is pragmatic, not ideological. Most business men operate in their commercial interests and in those of their shareholders and employees. We judge people by what they deliver, not by what they say. As far as we can, we call a spade a spade. Substance triumphs over style, 470 decisions over reviews, and we will hold the Chancellor to account for his promises. Today, the jury may still be out, but the first signs for business and enterprise are ominous—very ominous indeed.
§ Ms Patricia Hewitt (Leicester, West)
Thank you, Mr. Deputy Speaker, for giving me this opportunity to make my maiden speech during the debate on the Budget. It has been a pleasure to listen to such fine maiden speeches this afternoon. I listened with interest to the speech of the hon. Member for Tunbridge Wells (Mr. Norman). Having spent many a pleasant weekend with friends in his constituency, I was sorry to hear that "Disgusted of Tunbridge Wells" remains disgusted. I hope that he will make good his offer to assist my right hon. Friend the Chancellor of the Exchequer by ensuring that Asda, the company with which he has had such a long association, participates enthusiastically in our welfare-to-work programme.
This is, above all, a Budget for jobs and families, which is why it is being so warmly welcomed in the constituency that I have the honour to represent. I know that my pleasure in this Budget will be shared by my predecessor, Greville Janner, whom many right hon. and hon. Members will remember as an effective Chairman of the Select Committee on Employment.
Greville Janner is remembered and known more widely for his lifelong opposition to racism in all its forms, for his distinguished presidency of the Board of Deputies of British Jews, for his sponsorship of the War Crimes Act 1991, and for his relentless pursuit of the secret repositories of Nazi stolen gold. In the constituency, however, he is remembered above all as an outstanding constituency Member of Parliament.
I remember last year knocking on the door of one elderly woman, who told me most movingly how her grandson had died many years ago in a tragic accident swallowing the top of a biro pen, which, in those days, lacked the tiny hole that would have enabled him to breathe sufficiently to remain alive. It was Greville who led the successful campaign for that safety measure in product standards. It was that sort of campaigning on behalf of his constituents for which not only he but his father—his predecessor in this House—is remembered.
Greville was one half of a unique father and son team, who between them represented my constituency for 52 years. Greville's father, who subsequently became Lord Janner, did not announce his decision to retire until after the 1970 general election had been called. Greville used to tell the story of his selection with great amusement. He claimed—I am sure quite wrongly—that he was assisted by the fact that the election posters, "Vote Labour, Vote Janner", had already been printed. I am sure that he would have been selected under any circumstances. He will no doubt forgive me if I say how grateful I am that his son decided not to follow in his footsteps.
I also want to pay tribute to three other outstanding public servants who served my constituency. Councillor Paul Sood was one of the most outstanding fighters for the Asian community, not only in Leicester, but throughout the country. Tragically, he died last year, just a week after being re-elected to serve as the city councillor for Abbey ward in my constituency. It was an enormous loss, but I know how proud he would be to see his widow, Mrs. Manjula Sood, now serving in his place.
471 All of us in the constituency were sad to hear last month of the death of Councillor Martin Ryan, who for many years was leader of the Labour group on the county council. He served, among other capacities, as the county councillor for the Mowmacre ward in my constituency. Just two days ago, I was also extremely sorry to hear of the death of the former councillor, George Billington, who had only recently retired as my predecessor's parliamentary agent. I will do my best to live up to the extremely high standards of public service which they and my predecessors have set.
I know that my hon. Friends the Members for Leicester, South (Mr. Marshall) and for Leicester, East (Mr. Vaz) will agree when I say that Leicester is a wonderful place in which to live and to learn. We are Europe's first Environment City. We are home to two first-rate universities. Many of their students, especially those at De Montfort, live within my constituency.
Although it may distress some right hon. and hon. Members to acknowledge this, now that Leicester holds the triple crown of sporting achievements in football, rugby and cricket, we are indeed Britain's sporting capital. I am delighted to say that, now that the Millennium Commission has chosen the project for the national space science centre, to be sited within my constituency, as the landmark millennium project for the east midlands, we will shortly be the space capital as well.
Leicester, West is a constituency of captivating variety. It stretches from the old industrial buildings along the banks of the River Soar and the Grand Union canal, which form part of the border of the constituency. It takes in a small part of the city's old mediaeval centre—although, less happily, we also take in some of the inner-city ring road, built in the 1960s with a distressing lack of sensitivity for that old mediaeval heritage. It extends down the Belgrave road, which marks the border between my constituency and that of my hon. Friend the Member for Leicester, East, where the red brick cottages of 19th century weavers are now the heart of Leicester's Asian community, and from there across to the new estate of Beaumont Leys and the longer-settled communities of Mowmacre, Stocking Farm, New Parks and North Braunstone.
I know that residents, especially on those estates, will warmly welcome my right hon. Friend the Chancellor's announcement yesterday that he would rapidly begin the release of council house receipts, which will make possible desperately needed repairs and renovations to their homes.
Above all, Leicester is rich in its people. We are well known, and rightly so, for our cultural and racial diversity. By the year 2000, half the young people of our city will come from the ethnic minority communities. Leicester is fortunate to be home to many thriving businesses and to a variety of churches, temples, gurdwaras and mosques that are at the heart of the communities they serve. It is home also to a number of theatres, festivals and arts performances from a variety of different traditions.
Like many of my constituents, I am a citizen not only of this country, but of another—in my case, Australia. In this Parliament, I am the only Member also to be an Australian citizen. Like many of my constituents, I know what it is like to have families in two countries, so I know how much many families in my constituency warmly welcomed my right hon. Friend the Home Secretary's early decision to abolish the odious primary purpose rule.
472 I must mention also the parks and open spaces with which my constituency is so richly endowed. Perhaps suitably for Europe's first Environment City, Western park in my constituency is home to one of the country's leading green charities and consultancies, Environ, along with the flourishing city farm on Gorse Hill—both of which will, I hope, play a considerable role in creating the environmental task force within the east midlands.
I regret to say, however, that our enjoyment of some of our open spaces is all too often spoiled by the arrival of unauthorised travellers, who themselves have too few authorised sites to which to turn. I hope that my right hon. Friend the Deputy Prime Minister will be sympathetic to the case that I will be making on behalf of my constituents for a badly needed review of the previous Government's law and practice in this area, which has proved so disastrous.
Perhaps too often neglected in my constituency and others like it are the outer-city estates. Almost half of my constituents live on such estates. Listening to my right hon. Friend the Secretary of State this afternoon, I found myself thinking in particular of families struggling to bring up children in communities where anything up to one in four of working-age men are officially unemployed—and where, in reality, far more are out of work.
Young men all too often turn to destructive or criminal activities, because no creative outlet is offered for their energy. Children are growing up, as one grandmother said to me in fury and frustration, to believe that the only way they can earn a living is to sign on for a giro.
Those are the people whom the last Government locked into unemployment and poverty, and then derided as an underclass. The people I have the privilege to represent are no underclass. They want a chance of a job, a chance to earn a living, a chance to bring up their families decently, to live in safety and to retire with dignity. They want the same respect and opportunity' as other people. That is what the Budget will begin to give them.
Listening to today's speech by my right hon. Friend, I thought of Betty, for example, who is a parent governor at Wycliffe community college, which is located on one of the estates in my constituency. Recently, Wycliffe community college was inspected by the Office for Standards in Education. One member of the inspection team asked Betty how the school coped with local parents and with families living on income support—"you know", he said, "with the underclass."
Betty said, "I'm one of the people you're talking about." She told him, "I live on benefit—not because I want to, but because my husband lost his job and hasn't been able to get another one, and because we bought our council house, just as the last Government encouraged us to do. Now we find that the only way we can pay the mortgage is to stay on income support."
Betty left school at age 15 with no qualifications, returned to school, through Wycliffe college, and got herself five O-levels, which in itself is no mean achievement. She would love to train and work as a classroom assistant, and that school would love to give her the job. She cannot take such a job, however, for the simple reason that, as things stand, her family would no longer be able to afford their mortgage. It is such poverty traps, which were created by the previous Administration, that force families such as Betty's to choose between the job they need and the home in which they live.
473 I know how much Betty's family and families in a similar position will welcome the announcements made in the Budget, and today by my right hon. Friend the Secretary of State, about the Government's welfare-to-work programme and their longer-term objective of creating a benefit system that will at long last reward rather than penalise hard work and effort.
I thought also of Bill, who is a manager at one of the employment projects on a local estate. Bill was a construction worker—a roofer—until he was injured in a fall from the roof on which he was working. He now says, however, that that accident was the best thing that ever happened to him, because it gave him a chance to discover within himself gifts that he did not know that he had. He is now running an employment advice project, into which he has introduced some wonderfully sophisticated software that, with his guidance, enables people who are lacking not only a job but the most basic confidence to start exploring their own real aptitudes and aspirations before taking that first step into training or a job.
Bill said, "I know how hard it is to change. But I also know that people can do it, because I've done it myself." I believe that the Government's welfare-to-work programme will mobilise community groups such as Bill's, marrying the bottom-up energy and potential of millions of people across the country to the Government's top-down strategy and vision.
I thought also of the lone mothers in my constituency who began another group, which they called Turning Point, because that is what it was for them. Originally, those lone mothers met to support one another over a cup of coffee around a kitchen table, but now they are running their own thriving voluntary organisation.
I thought also of the staff and parents—fathers and mothers—who run creches and playgroups that have been starved of funds, sometimes to the brink of closure, because of the previous Government's local council budget cuts. They are able to offer not only child care places but—in response to yesterday's very welcome announcement—training places for young unemployed people who wish to work with children.
I am sure that, like me, those parents hope that my right hon. Friend the Secretary of State will ensure that lone parents under the age of 25 who have spent six months or more out of work and on income support will be able to access the opportunities created by the welfare-to-work programme in the same way and on the same terms as other young people who have been on job seeker's allowance.
After listening to yesterday's Budget and to today's debate, I thought also of the teachers working and living in my constituency. Their dedication was scorned by the previous Government. Our new unitary council shares the new Government's determination to ensure that all our children have a chance to fulfil their potential, whether they live in inner cities, in suburbs or on outer estates.
I know that my right hon. Friend the Secretary of State will not be at all surprised if I say that several Leicester schools—including Dovelands junior school and Bendbow Rise infant school, which is in my constituency, and recently did its best to celebrate an anniversary while the rain poured in through the roof—will be early in the queue for the very welcome new capital funding and private finance initiative announced yesterday.
474 Finally, I thought of the hundreds of women and men, many of whom are retired, who are now volunteers in so many community organisations, such as social clubs, youth sporting groups, children's bands and other organisations. I thought also of the sometimes wholly unrecognised individuals who, in their own homes, are looking after children and other relatives with profound disabilities. Our social fabric is woven from all their efforts.
Those men and women, and many others like them, are the heroes and heroines of my constituency. They and thousands of other people across the country will be the heroes and heroines of the new Britain that we were elected to build, and for which the Budget lays such a magnificent foundation.
§ Mr. David Willetts (Havant)
I begin by congratulating the hon. Members who have delivered their maiden speeches in this debate. I feel slightly guilty that I am not delivering a maiden speech myself.
We heard speeches by the hon. Members for Warwick and Leamington (Mr. Plaskitt), for South Ribble (Mr. Borrow)—whom I congratulate on delivering his speech without notes, so far as I could tell—and for Leicester, West (Ms Hewitt). We also heard from my hon. Friend the Member for Tunbridge Wells (Mr. Norman), who is particularly welcome on the Opposition Benches. From now on, we will call him "Eloquent of Tunbridge Wells". They are all very welcome to the House.
We also heard a sort of maiden speech from my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), the former Chancellor of the Exchequer. He made his maiden speech from the Rack Benches, after serving for I do not know how many years on the Front Benches on both sides of the House. He made a very powerful and effective speech, in which he demolished the macro-economic judgment that supposedly lies behind the Budget. He also took apart the various arguments that we have heard at various stages from Labour Ministers in defence of the Budget.
We have been told that there was a black hole in the nation's finances. However, table 1.1 the very first table in the Red Book—as we traditionalists still call it, although new Labour has of course abolished the "red" bit—gives the lie to the story of a black hole. It reveals that—on the instructions of the Chancellor, who has provided some rather bizarre assumptions to work on—since the November 1996 Budget, the National Audit Office has changed the PSBR assumptions for the worse by £0.6 billion for 1997–98 and by £3.2 billion for 1998–99.
The line below that one, however, shows what are called forecasting changes, which are the economic changes that have occurred in the past six months under our management and since the final Budget of the previous Chancellor, my right hon. and learned Friend the Member for Rushcliffe. What do those forecasting changes show? They show an improvement in the PSBR of £3.3 billion in 1997–98 and of £6.7 billion in 1998–99. Therefore, the overall change in the public finances since the November 1996 Budget—even taking account of the assumptions under which the Government Actuary was supposed to work—has been an improvement. There is no black hole.
We were then told that the problem was that the economy was overheating. The basis for that judgment was a rather speculative interpretation of whether the economy was or 475 was not operating at full capacity. The Treasury has a learned little note on that, on page 54 of the Red Book. The most sensible remark appears in the second paragraph, which states:It is impossible to measure the output gap with any degree of certainty.The output gap is no basis on which to conduct macro-economic policy, because measuring the output gap is virtually impossible. One cannot manage an economy by speculating on the size of any output gap.
The Chancellor told us that, because he believed the economy was overheating, he was going to take tough fiscal measures. However, as my right hon. Friend the shadow Chancellor and my right hon. and learned Friend the former Chancellor made clear, that belief in the need to use fiscal policy to tighten up on consumption in the economy was not put into practice.
If the Government were serious about trying to stop the economy overheating by tightening fiscal policy, they would have done some unpopular things to reduce people's perception of their spending power, but the Chancellor's nerve failed him. According to his analysis, the economy was overheating and we needed tough fiscal measures to deal with it, but, in practice, the only fiscal measures that he dared introduce were those which he thought would be invisible to the average consumer and the average voter. He went for pension funds and companies. His analysis was that the economy was suffering from the dangers of overheating, but he failed to deliver the measures that he claimed were necessary.
The person on whom responsibility will now fall for acting on the Chancellor's own analysis will be the Governor of the Bank of England. If interest rates rise, it will be because of the failure of this Budget to deliver the fiscal tightening that the Chancellor himself claimed was necessary.
I am reminded of the old Treasury story of the Chancellor who treated his speech writer rather badly. He was sent off to deliver a speech written for him by that writer. He went on for page after page, describing the appalling circumstances of the British economy and speaking of high inflation and a balance of payments deficit. He said that the Government had a set of policies that would enable the British economy to escape those problems. He turned over the page and found only a short note from his speech writer: "From now on, you're on your own."
The Chancellor is now in that position. From now on, he cannot blame his inheritance. If interest rates have to go up, it is because the Budget has failed to include the measures which his own analysis of the situation suggested were necessary. The Chancellor's nerve failed him. There was a failure of will and a failure of courage to follow through on what his own analysis said would be necessary.
The most important feature of the Budget, and by far the biggest tax increases, are the measures involving the taxation of dividends. I should declare an interest as an economic adviser to Kleinwort Benson, as there is obviously a learned economic debate going on in the City about the implications of these measures.
The analysis on which the Chancellor bases his measures is one with which we are familiar. It is to be found in the writings of the likes of Will Hutton and 476 others. The argument is simple: one of the things that is wrong with this vulgar Anglo-American capitalism which they dislike so much is that too much money is distributed in dividends to shareholders and not enough is retained in the way that it is in the virtuous continental economies that they admire so much. However, that analysis is flawed.
It is not the case that money distributed in dividends is spent on candy floss and conspicuous consumption. Much of the money distributed in dividends goes to pension funds, and is then available for them to invest in projects and companies which they believe have the best prospects. There is no reason why the companies that generate the best cash flow and retain most of their earnings should have the best new investment projects. The role of the capital market is precisely to take the revenues from companies that are thriving and to allocate them to the capital projects which are going to provide the best return.
It is not unlike the dilemma with which the Labour Government have already had to start to wrestle—what to do with the regime for local authority capital receipts. It has dawned on the Government that the local authorities that have the greatest capital receipts may not be those to which the Government wish to give the biggest new spending and borrowing powers. That is why there is a rather ingenious scheme in the Budget whereby the extra £900 million of capital spending by local authorities is not the £900 million belonging to the authorities which happen to be sitting on the greatest capital receipts.
By analogy, exactly the same argument applies in the capital markets—there is no reason why the companies sitting on the greatest retained earnings should be the companies with the most attractive investment prospects. That is the classic argument for capital markets to allocate investment funds, and it works in this country.
That is why entrepreneurs who want to invest in biotechnology or set up a new business and get investment venture capital come to the markets of London and New York. They do not go to the continent, because there, the only way to get more money to invest is to be big already. That is why the continent's economies are slowing down and why the British economy is in its sixth year of growing more rapidly than that of France or Germany. Therefore, the economic analysis on which the Chancellor's measures rest is false. It cuts across his declared intention of doing something to stimulate investment.
The Chancellor also claims that his proposals will yield an enormous amount of tax revenues. The figures are very dramatic, and much bigger than those for the windfall tax. In the next three years, he wants the abolition of tax credits for pension funds to yield well over £10,000 million. That means that the fiscal tightening of which he is boasting depends crucially on this one incredibly complicated and yet ill-thought-out measure.
If this measure does not deliver what the Chancellor claims for it, and if people in the City work out ways to get around this enormous tax hit that he is trying to impose on them, all the calculations in his Red Book will go up in smoke. He will have nothing else to turn to.
The evidence is that the Chancellor may well find that the ingenuity of the City is such that he fails to raise the revenues he promises. The incentives for people to work 477 out ways to distribute funds from companies to pension funds and avoid the heavy hit that he is trying to impose are enormous.
We know what pensions funds will do: they will now invest in foreign equities to get past the tax penalty that the Chancellor is imposing on domestic investment. He also knows that, because of the abolition of the foreign income dividend scheme, many international companies with streams of income from abroad, which will now be highly taxed, will instead look for other ways to pass on those dividends to their investors.
There will, of course, be a significant shift abroad by international companies with headquarters or large-scale operations in London to avoid the effect of the tax. It is at that point that Labour Members, who were yesterday cheering so loudly about an indefensible and incomprehensible measure, will begin to realise what it means for the real economy. When BP, Shell or ICI announce that they are shifting a significant part of their activities abroad to avoid the tax penalties, Labour Members will understand what it means.
There are also economic implications for the public sector. I would be interested to hear from Treasury Ministers what calculations the Government Actuary has given of the impact of the proposals on, for example, public sector pension schemes. The Secretary of State for Education and Employment assured me when I intervened on him that there was not a problem with the pension funds of university teachers. I was grateful for that assurance, and I hope that it is correct, but we know that there are no surpluses in the funded local authority pension schemes.
How are local authority employers to top up the pension schemes they operate in order to meet the liabilities they already have to their employees? Where will they find the money? It will come from the sums that they are supposed to spend on schools and school buildings. As was established under questioning by my hon. Friend the Member for Maidenhead (Mrs. May), those resources cannot be ring-fenced, and they will be used to meet the extra pension liabilities that the Chancellor has just imposed.
We were promised a full explanation from the Secretary of State of what the Government's welfare-to-work measures will do, but no such explanation was forthcoming. We heard the sketchiest of accounts, with no serious analysis of the British labour market or of the employment circumstances of 18 to 24-year-olds. There was nothing to enable people to assess the measures seriously.
I offer the House some evidence about the labour market for 18 to 24-year-olds. A written answer the other week said that, in 1996, 1,209,000 people aged 18 to 24 went off benefit. Of those, 637,000 definitely went into work, and another 359,000 failed to attend the benefits office for reasons that we do not know. Those people are also expected to have found work, adding up to almost 1 million 18 to 24-year-olds moving off benefit and into work last year.
That puts Labour's 250,000 into perspective, and raises an important practical problem. How will they design their measures in such a way that they do not help the 1 million young people every year who would be going 478 off benefit and into work anyway? How will they avoid what, in the language of the policy analysts, is called the dead weight cost?
The dead weight cost problem affects all welfare-to-work policies, and is particularly acute for 18 to 24-year-olds, because there is a lot of mobility in that age group, with many people going off benefit and into work and others, sadly, going out of work and on to benefit. It is a turbulent part of the labour market. That is why it is difficult to design measures to help those stuck on benefit without wasting a lot of money helping those who would have got off benefit and in to work regardless.
In 1996, 18 per cent. of benefit claimants aged under 25 left the count each month, as against 13 per cent. of claimants aged over 25. Even among 18 to 24-year-olds who had been unemployed for more than six months—about whom the Government claim to be particularly concerned, although there are way below 250,000 such people left—12 per cent. left the count each month, as against 8.5 per cent. of those aged over 25 who had been unemployed for that period. There is already a lot of mobility among those young people. That is why dead weight is such a problem. We have heard no explanation of how the Secretary of State will address that.
There are other problems. What about the displacement effect? Why should any employer now employ a 16 or 17-year-old? Can Labour Members, who claim to be so concerned, explain what prospects there are for a 16 or 17-year-old who wants to get a job—as I understand it, this is still a free country, and that is a legitimate option for 16and 17-year-olds—when employers will get a subsidy if they take someone who is 18 to 24?
What about the perverse incentives? What if an employer wants to take on an 18 to 24-year-old who has been unemployed for three months? There will be no special subsidy there. The employer will say, "Why don't you come back in 12 weeks? I like the look of you and I want to take you on. Come back in 12 weeks and I'll make it worth your while." There will be an increase in the number of people unemployed for six months so that the employer and employee can divide between them the special tax subsidy that the Government are offering.
The measure is so ill thought out that I doubt the Labour party's genuine conviction and belief about taking action on welfare to work for 18 to 24-year-olds. If they cared about the problem, they would not just say so: they would have thought about it. If they had done, they would surely be able to tell us how they will deal with the dead weight costs, how they will avoid the problems of displacement and how they will confront the perverse incentives. We have heard nothing about that from the Chancellor or from the Secretary of State for Education and Employment. That is why we are beginning to doubt how serious they are about it.
My right hon. Friend the shadow Chancellor eloquently pointed out that we had been told that the measures would save money that could be released for education. As my right hon. Friend established when he researched the subject as Secretary of State for Social Security—findings that have been backed up by independent organisations—in no country are such schemes self-financing. There is no scope from saving on unemployment in that age group to release funds for education.
The programme may achieve a reduction in benefit expenditure on 18 to 24-year-olds, but once the other public expenditure programmes that Labour are gaily 479 inventing are added back in—the tax subsidies, the training schemes, the costs of employing people on benefit plus to do environmental projects—there will be no public expenditure saving.
We were told that that was how the Government would find resources for education, but they have just raided the contingency reserve in the traditional way. In eight weeks of office, they have discovered the truth of the supposed great device to raise money for education by saving money on employment—the figures do not add up. The plan is ill thought out, and will not raise the revenue for education that we were promised during the election campaign.
§ Gillian Merron (Lincoln)
The Budget encapsulates the essence of the Labour Government. It is a breath of fresh air for the whole nation, touching the places and people whose well-being had long been forgotten by the last Government. It is a privilege to make my maiden speech in a debate on a Budget that gives hope to the 671 young people in my Lincoln constituency who have been out of work for six months or more.
As tradition holds, I pay tribute to my predecessor, Sir Kenneth Carlisle, who carried out his duties with a deep affection for the city of Lincoln and its people. I am honoured to follow in the footsteps of the last Labour Member for Lincoln, the President of the Board of Trade and Secretary of State for Trade and Industry, my right hon. Friend the Member for Derby, South (Mrs. Beckett), who continues to serve our people with great dignity and skill. The House will be aware that Lincoln has had a chequered political past, but I hope that we shall have a distinguished political future.
I have met many people in Lincoln over the years, but perhaps the one whose experience of life has touched me most is a young man of 20 who came to see me. His mother had sent him because she said that I would understand. He had never had the chance to work and he wanted to. I am sure that he will remember our conversation as I have done. He will join me, the 670 other young unemployed people in Lincoln and their friends and family in warmly welcoming the opportunity to work or train.
How interesting it is to make my maiden speech in the same debate as the contribution of the right hon. and learned Member for Rushcliffe (Mr. Clarke), the shadow shadow Chancellor, who has confirmed that he—and perhaps also his party—has a commitment to the welfare-to-work policies commended to the House by the Labour Government. I want to acknowledge their long and regrettable experience of work-to-welfare policies, which has damaged the lives of many millions in this country.
Many of my hon. Friends will have visited Lincoln and enjoyed the beauty of the fine cathedral and castle which form the historic heart of the city. The cathedral, which has suffered fire and earthquake, stands partly on the site of a 1st-century Roman fortress. It is a vision to behold and was commended by John Ruskin, who wrote:I have always held and am prepared against all comers to maintain that the cathedral of Lincoln is out and out the most precious piece of architecture in the British Isles, and, roughly speaking, worth any two other cathedrals we have.I give the House those words without wishing to offend anyone else who represents a cathedral city.
480 Despite its wealth of attractions, both historic and current, Lincoln frequently finds itself in splendid isolation because of poor transport links which have worsened over recent years. There is now no direct rail link to London and there are inadequate connections to other places. The A46, one of the major link roads to the city, is aptly described by the local paper as "agony corridor". The difficulty of travelling to and from my constituency makes life difficult for people trying to go about their everyday lives while business opportunities continue to be lost to Lincoln. I look forward to making representations in the review of road building and transport.
I consider Lincoln to be a city of partnership. It is the partnership between this Government and the people that will make this Budget one that equips Britain for a positive and bright future. On the banks of Lincoln's Brayford pool is living proof of how a dream can become a reality. The first purpose-built university for decades, the university of Lincolnshire and Humberside, welcomed its first intake of students last year. We were delighted to welcome Her Majesty the Queen and Prince Philip, who did the honour to the city of formally opening the university, as befits such an important project. Local authorities, businesses and ordinary people freely gave their financial and practical support to make the university happen. It is just the kind of university we need to work with the Government to deliver the education opportunities that can truly open doors. It is through opening doors by education that we can give equality and opportunity to all.
For hundreds of young people in Lincoln and for many local good causes, the football in the community initiative has been a lifeline. That is down to the good work of Lincoln City football club, where the team are affectionately known as the Imps. I must explain that that is due to the influence of the infamous Lincoln imp which can be found in the stonework of Lincoln cathedral, and is no comment or reflection on the stature of the players.
The football club has gone one step further in developing partnership. I have been pleased to support Lincoln City 2000, a venture that fosters wider community support and involvement. Sincil Bank, the football ground, is open to us all in Lincoln to enjoy, not only for football matches, but in terms of fine fitness and social facilities. That is just the kind of community organisation that we need to work with this Government to enhance the quality of people's everyday lives.
Lincoln has the distinction of being the birthplace of the tank as well as having been home to top engineering companies, many of which, sadly, have suffered the ravages of Conservative economic policies. I suspect that, if previous Budgets had worked in favour of investment and industry, as this Labour Budget surely does, Lincoln would not have seen the round of factory and other closures and the resultant blight of people's lives as they live daily with the threat or reality of losing their jobs.
I am pleased to tell the House, however, that engineering excellence is still alive and well in a number of companies, including Lincoln's largest private employer, European Gas Turbines. The success of this world-class company demonstrates the value of partnership between the company and its work force, working together to set ambitious targets and sharing aims, worries and a vision. That is just the kind of business that we need to work with the Government to 481 boost local economies and to create jobs. We have made our intentions clear by cutting corporation tax and increasing capital allowances. This Government are serious about investment and jobs.
This is a Budget that plans ahead; it is not a Budget just for today or for yesterday, but one that looks to a stable future. This is a Budget that sets out what is decent and what is not. This is a Budget to be proud of.
I passionately believe that a one-off windfall tax on excess profits to fund a new deal for young and long-term unemployed people, lone parents and schools is right and proper and will be regarded as the decent thing to do in my constituency and across the country. The nonsense of the privatised utilities has gone on for long enough. East Midlands Electricity can boast to its board of a sixfold increase in annual board pay since privatisation, while the work force has been halved and those remaining carry heavier work loads and worries for their future and the future of their service.
What this Budget offers, which recent Budgets have failed to do, and what the experience of partnership in Lincoln has shown is the idea that working with and for the people is the way to true prosperity. I hope that I shall be worthy of the trust put in me by the people of Lincoln. I hope that they, like me, will feel that this Budget is the breath of fresh air that we have all been waiting for.
§ Mr. Keith Simpson (Mid-Norfolk)
I congratulate the hon. Member for Lincoln (Gillian Merron) on her maiden speech. I do so on the ground that I made my maiden speech only a month ago and I know that it is stressful to wait to catch Mr. Deputy Speaker's eye. Although I represent a constituency in another part of East Anglia where I should defend the interests of Norwich cathedral, I fully recognise the hon. Lady's comments about Lincoln cathedral, which is also our national memorial to the 30,000 British aircrew in Bomber Command who died during the second world war.
My right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) pointed out that this Budget is, above all else, a political Budget. It is not determined by a Labour Government who are keen to demonstrate that they can deliver their promises, but by a Labour Government who are unclear on how they will deliver their contradictory promise of not raising personal taxes while keeping to the previous Government's departmental spending ceilings.
Over the past two months, since the new Parliament first met, hon. Members have seen those promises beginning to come apart at the seams. One can hear great stretch in all directions. Over the past two months, many Conservative Members and one or two Labour Members who have not yet been sufficiently ideologically turned have been greatly amused by the Government's attempts to rummage through the historical lumber room of clichés to breathe new life into what is a rather vacuous political party.
In what is, I believe, referred to in a slightly different context as cross-dressing, new Labour borrows much from the Liberals who formed the Government in 1905. Indeed, I understand that the present Chancellor greatly admires the Liberal Chancellor of the period just before 482 the first world war—David Lloyd George. He is in many respects David Lloyd George without the sex. He has modelled his Budget on David Lloyd George's people's Budget—another historical cliché—of 1909. That Budget is not necessarily a fortunate example, as it raised massive expectations but failed to deliver on public expenditure, but then, perhaps, as that great Conservative Prime Minister Arthur Balfour said:History doesn't repeat itself, rather historians repeat each other.New Labour's attempt to give clichés a fresh look has led to so many absurdities that it is getting almost beyond a joke, and those absurdities have been very much mirrored in the present Budget. We have heard, for example, of that wonderful, original phrase, "a new deal". I have a suspicion that someone called Franklin Delano Roosevelt once talked about a new deal. We are saved from hearing the phrase "a new Europe" because someone obviously had the sense to look it up and found that Hitler had used it first.
I an genuinely surprised that we have not heard about the new woman. It is alleged that the length of ladies' skirts reflects economic prosperity and recession. At times of economic prosperity, skirt lengths rise and when we are about to go into recession skirt lengths fall. [Interruption.] Listening to the mutterings among Labour Members, I realise that I may be making a politically incorrect statement. Perhaps I should say that under new Labour, in every possible sense, it is a matter of trousers going up and coming down. I take the advice of my wife who says that at the moment skirt lengths are beginning to come down, so I suspect that we are heading for a recession.
Yesterday, we heard what could best be described as a hangover Budget. It felt good yesterday, but by God there are some bloodshot eyes among Labour Members today.
I want briefly to consider one aspect of the Government's economic policy and then turn to a specific issue that relates to my constituency. In less than a year's time, the Government will realise that the basic issue of public expenditure, which will not be debated this autumn, is crucial. Some of the more astute Labour Members have woken up to the fact that their Government's public expenditure plans do not add up.
Lord Healey, the former Labour Chancellor, once said that the Treasury knows the cost of everything and the value of nothing. The Treasury has produced a series of instruments to contain public expenditure. At the strategic level we have the comprehensive spending review, at the operational level we have the cross-departmental reviews and at the tactical level we have a whole series of departmental reviews that are taking place at the moment. The declared aim of the reviews is to assess how to use resources better while rooting out waste and inefficiency in public spending. I have never heard that from anyone in the Labour party. Many Conservative councillors would find it absolutely amazing, in view of the excess spending of many Labour local authorities.
The "Oxford English Dictionary" defines a review asa general survey or assessment of a subject or a revision or reconsideration".The French word, revue, is defined asa theatrical entertainment of a series of short usually satirical sketches and songs".On every occasion in the past two months when Ministers have been faced with a difficult decision, they have hidden behind the usual phrase, "We are reviewing it". 483 That has caused at the very least a degree of scepticism among the Opposition and some hilarity on the Labour Benches below the Gangway. Every time the hon. Member for Bolsover (Mr. Skinner) hears a Minister mention a review, he sings the song from "Oliver" that begins, "I am reviewing the situation". I understand that the awkward squad below the Gangway are to cut a disc but that they have turned down the offer by the Minister without Portfolio to act as their manager because he was asking for far too high a cut of the profits.
The serious point about the series of reviews is that in a year's time there will be winners and losers. I suspect that there will be more losers than winners. The Treasury is looking for savings and I can highlight one Department which is a sitting duck for making savings.
Before the election, the Conservatives costed every Labour departmental election promise and found a minimum of £10 billion in promises. In only one Government Department were there no spending promises— the Ministry of Defence. To be fair to the Labour party, it has never considered defence a priority and it is not a priority in terms of Government spending.
Putting aside the security implications of taking considerable sums of money out of the defence budget to fund some of the Government's election promises, it should be remembered that the Ministry of Defence is still the biggest single customer of United Kingdom industry. There is probably not one hon. Member present who does not have small and large companies in his or her constituency dependent on that. Defence cuts will have a major impact on employment and business, not least in my constituency.
I now turn from the general impact of the Government's economic policy to the specific impact of the Budget. The Budget resembles an Arthur Daley deal; we must look beyond the Chancellor's extra-large print and read the small print. Many people are beginning to realise that the Budget is a time-bomb.
More than 20 per cent. of my constituents in Mid-Norfolk are pensioners. The Budget will be a tax on them. Labour has made much of the reduction in VAT on fuel from 8 per cent. to 5 per cent., but most pensioner households will save at most 31p a week.
This Labour Budget will tax all our pensioners in four specific ways. First, the windfall tax will hit pension funds and many utilities will pass the costs directly to consumers. Those least able to afford that will be pensioners. Secondly, reducing the rate of advance corporation tax credit will mean that pension funds will have less income and pensions will be lower. Some councils have already indicated that increases in council tax will pay for the impact on their pension funds—another blow for our pensioners.
Thirdly, abolishing tax relief on private medical insurance—a rather nasty little measure—will hit the over-60s, affecting some 600,000 pensioners and overloading the national health service. It also contradicts the policies outlined by the Minister of State, Department of Health.
Fourthly, the increase in tax on petrol and the intention to make insurance companies bear the cost of hospital treatment for those injured in accidents will doubly hit pensioners, particularly in my large rural constituency.
484 It is a time-bomb Budget that will dramatically affect pensioners and it will not achieve the honest objectives of many Labour Members. Lady Violet Asquith once said of Lloyd George thathe could never see a belt without hitting below it".The present Chancellor can never see a tax relief for private enterprise without reducing it or abolishing it.
§ Mr. Stephen Hesford (Wirral, West)
Thank you, Mr. Deputy Speaker, for allowing me the opportunity to speak in what I and many hon. Members consider to be a historic Budget debate.
There are three reasons why I am pleased to make my maiden speech on this historic occasion. It is the first Labour Budget to be presented to the House since 1979. As other hon. Members have said, many in the House and outside consider it to be the people's Budget—the Budget that the people wanted my right hon. Friend the Chancellor to implement as soon as possible. It is also an historic occasion for me to make my maiden speech in this important debate. I have no hesitation in welcoming my right hon. Friend's Budget, and nor do my constituents in Wirral, West whom I have the honour of serving.
Before moving on to the formal part of my speech, consistent with the pleasurable traditions surrounding a maiden speech, I should like briefly to touch on why I believe the Budget will be good for the country and good for the people of Wirral, West.
There are 18,000 elderly people in my constituency—good and decent people, many of whom live in the pleasant seaside towns of West Kirby, Hoylake and Meols. They will welcome the measures to reduce VAT on domestic fuel and the extra money that my right hon. Friend the Chancellor has found for the health service. I know that those and other measures will go a long way to allay the fears of pensioners across my constituency. I spoke to many of them during the election campaign, and they told me just that.
In the town of Greasby, which is inland and central to my constituency, as well as in the areas of Irby and Pensby, many hard-working families with children at school will welcome the new money earmarked for education by my right hon. Friend the Chancellor.
On the eastern edge of my constituency, which borders on the constituency of the Minister for Welfare Reform, my right hon. Friend the Member for Birkenhead (Mr. Field), my constituents in Upton and Prenton and especially those on the Woodchurch estate, where during the election campaign people were kind enough to give me the warmest of receptions, will welcome the welfare-to-work measures, which will provide real opportunities for jobs and real training for the many hundreds of young people who have been out of work for more than six months.
Moreover, the measures to which I have just referred will go a long way towards dealing with and repairing the damage done to the body politic by the former Government. What this Government and what Labour Members are willing to say and promise, they are also willing to carry out.
Convention directs that I now mention my predecessors, and I do so gladly. Indeed, I would do so even if convention did not direct me in that way. I have 485 the honour of succeeding the right hon. David Hunt MBE. Before him, the seat—Wirral as it was then—was held by a former occupant of the Chair, the late Lord Selwyn-Lloyd.
I have had the considerable benefit of being able to read the maiden speeches of both my predecessors, and on the face of it certain traditions appear to have been formed by them. I should like briefly to outline some of those traditions. First, Lord Selwyn-Lloyd, while Speaker, had the reputation of answering his constituency correspondence by return of post.
Secondly, both my predecessors made their maiden speeches while in opposition and, as was consistent with those former times which are sometimes difficult to recall, they welcomed the proposals being put forward by the then Labour Government in a constructive manner. I wish and hope—although I do not necessarily expect to be repaid for it—that Conservative Members would reintroduce that tradition of constructively welcoming proposals when they are good for the country, although I have not heard any of that in my short time in this honourable place.
Thirdly, the right hon. David Hunt made his maiden speech during the 1976 Budget debate. To emphasis the point that I have just made, he welcomed many measures before the House in that speech, especially in relation to job creation and training. Both my predecessors represented the constituency for many years—31 years and 21 years, respectively.
I should be delighted to try to continue some of those traditions. I shall endeavour to answer my constituents' correspondence by return of post. I am only too happy to welcome the measures put forward by my right hon. Friend the Chancellor on behalf of the Government, but by way of difference from my predecessors, I am pleased to be able to do so from the Government side of the House. I hope that I am not tempting providence as a new Member, but I am also willing to represent Wirral, West for many years to come. I also realise that, in my own small way, I may have started a tradition of my own: I am the first Labour Member for Wirral, West. Again, I hope that I am not tempting providence, but I hope that that will continue for many years to come.
David Hunt was and is widely respected and liked inside and outside the House. He was known in the constituency as a courteous and diligent Member of Parliament. He was and is a one-nation Tory. His career is well known to many hon. Members, and it would be remiss of me not to remind the House of the many important ministerial pasts that he held, culminating in a well deserved place in the Cabinet in the important position of Secretary of State for Wales.
On a personal note, no victorious candidate can ever have been blessed with a more gracious person in defeat than I was with David Hunt. He has been most kind, and continues to be so, and I should like my thanks to him for that to go on record.
I should like to make one brief observation on the welfare-to-work proposals which were so clearly set out yesterday by my right hon. Friend the Chancellor. My hon. Friend the Member for South Ribble (Mr. Borrow), who made an excellent maiden speech on behalf of his constituency, has already made mention of the minimum 486 wage, but I should also like to do so. My right hon. Friend the Chancellor made it clear that that proposal underpins the challenge to get 250,000 young people back to work. The need for that proposal is well understood across my constituency and across the age range.
If I may, I should like to cite one anecdote from just before the election campaign. During a particularly cold February, I and my colleagues in the constituency petitioned on the question of a minimum wage. More than 1,300 people supported the principle of a minimum wage by signing that petition. Sadly, when it was sent it to the relevant Department, it was ignored.
What struck me most forcefully on the streets of Hoylake, West Kirby, Pensby, Upton and Prenton was that people knew about the minimum wage. They well understood the principles behind it and the need for it. I therefore beg to differ from Opposition Members when I say that people in my constituency do not believe that the minimum wage will have the job-negative effect claimed.
The new jobs that will be created under Labour's welfare-to-work scheme must not be under Burger-King conditions. In addition to helping the young people to whom I have referred, a minimum wage will assist about 6,000 people—mainly women part-time workers—who currently earn, disgracefully and unacceptably, less than £2.50 an hour.
I shall conclude on that note, as I hope to speak in the debate which I understand that we are to have later in the year on the minimum wage, when I hope to put other arguments before the House. I beg to support the Chancellor's Budget statement.
§ 8.9 pm
§ Mr. John Burnett (Torridge and West Devon)
Thank you, Mr. Deputy Speaker, for calling me to make my maiden speech. I am delighted to congratulate the hon. Member for Wirral, West (Mr. Hesford), who made a fluent speech. I am sure that he will be an able and effective advocate for his constituents.
It is a great honour to have been elected to serve the constituency of Torridge and West Devon, which has been my home and where I have farmed for many years. I am also delighted to pay tribute to my predecessor, Miss Emma Nicholson, and her predecessor, the late Sir Peter Mills.
I first met Emma Nicholson during the 1987 general election campaign. She was a formidable and fair campaigner and I got to know her better after December 1995. She has always championed the causes of the less fortunate and, last year, I accompanied her on the traditional pre-Christmas tour of the constituency. In schools, hospitals, day care centres for people with learning difficulties and homes for the elderly, she was greeted with warmth, affection and gratitude. Her reputation for personal courage is widespread and her work with refugees was often carried out at great personal risk. She has been a source of encouragement to me, and I am most grateful.
The late Sir Peter Mills and his dedicated wife, Lady Mills, served the constituency with distinction for many years until his retirement in 1987. He was a much admired Member of Parliament and a man of the highest integrity—a fact that he himself would have been the last to advertise.
487 My constituency is, I believe, the second largest, geographically, in England. It is a beautiful part of England with a variety of landscapes. The cliffs at Hartland in the north-west give way to the long beaches of Westward Ho! Nearby at the mouth of the River Torridge is Appledore, whose shipyard has survived in a difficult market. Further up the river is Bideford, which has a busy quay and a breathtaking setting. To the south are the towns of Holsworthy, with its busy livestock market, and Great Torrington, which has recently been successful in the rural challenge. That will provide a much needed impetus to the stalling local economy. In the south of the constituency is Okehampton, which is often referred to as the gateway to Dartmoor national park, whose stark beauty has been so successfully sustained by the park authority. The most southerly town in my constituency is the ancient stannary town of Tavistock.
The people of Torridge and West Devon are independent and hard working. Our economy is based on some industry, tourism, fishing and, of course, agriculture. In his maiden speech in 1964, Sir Peter Mills explained that an increasing number of farmers in the constituency were producing cereals, although we had not reached the heights of other counties, such as Wiltshire, Norfolk and Suffolk, with their rotation of four years barley and one year in the south of France.
Times have not changed, and agriculture in my constituency still mostly consists of small and medium-sized livestock enterprises. Many farmers, especially now with the bovine spongiform encephalopathy crisis in its second year, are hard pressed financially. They have seen the value of their stock plunge to levels not seen for years. The unwarranted and unfair cuts in compensation for the over-30-months scheme and the imposition of the upper weight limit announced last week by the Minister of Agriculture, Fisheries and Food are a cruel blow to many farmers in my constituency who are already having the greatest difficulty surviving in business.
In his Budget speech, the Chancellor put great emphasis on stability and long-termism. As a lawyer practising in my constituency for more than 20 years, I have seen at first hand the results of instability and short-termism. One of the great problems we have in Devon and Cornwall is that the brakes get put on the economy by dramatic increases in interest rates when overheating in the south-east demands it, which is usually just before the recovery reaches us. For years, our downturns in the economic cycle have been relatively lower and longer than in most other Organisation for Economic Co-operation and Development countries. It is no surprise that our investment record is poor.
I have frequently witnessed the destruction of good and viable businesses caught up in the boom-bust cycle. I have watched the havoc it has caused to the lives of many able, honest and hard-working people. To help stabilise our economy and to promote sustainable growth and investment, it was my party's policy to bring greater independence to the Bank of England. We are pleased that the Government have adopted that policy which should assist the regions of Britain especially to plan for sustainable growth and investment, free of the concerns that are generated by political interference in the day-to-day management of monetary policy.
488 Yesterday's announcement that the National Audit Office will have a continuing role in auditing the public finances—and the commitment to greater openness—should buttress changes made to the role of the Bank of England to secure long-term stability for the British economy. However, pressing needs remain for public expenditure. There was nothing extra for the national health service and education this year. I hope that the £1.2 billion for health next year—which in real terms, allowing for inflation, works out at about £560 million—is sufficient to keep open facilities such as Winsford hospital in my constituency, which is threatened with closure.
Will the additional education spending enable the rebuilding of many of the old and unsuitable schools in my constituency, such as Holsworthy primary school? I can assure the Chancellor that, notwithstanding the poor structural condition of the schools, they meet exacting standards for results and discipline.
Most of the revenue required to match the Government's commitments to expenditure and repayment of debt comes, first, from the one-off and retrospective windfall tax and, secondly, from changes in the tax treatment of company distributions. Both those measures raise legitimate and significant concerns. The Liberal Democrats can only hope that the expectations raised by the Budget will be fulfilled in the years to come.
§ Charlotte Atkins (Staffordshire, Moorlands)
I am especially pleased to follow the hon. Member for Torridge and West Devon (Mr. Burnett) because, only the other evening, we discussed our maiden speeches and he told me that he wished to make his maiden speech during the debate on the Budget, as did I. I congratulate him on his maiden speech, which was fluent and interesting. I drive through his constituency to Cornwall when I visit my mother, so I was pleased to hear something about it. As he said, it is a beautiful area.
I am honoured to represent Staffordshire, Moorlands. The name of the constituency often confuses people about its location. It includes Kidsgrove and Talke, which are parts of Stoke-on-Trent and were generously transferred to me by my hon. Friend the Member for Stoke-on-Trent, North (Ms Walley). Staffordshire, Moorlands also stretches all the way to Derbyshire. My constituency borders no fewer than 10 other constituencies. I do not know whether that is a record, but it is certainly amazing.
The constituency has a large agricultural area. It has many potteries. It has quarrying, engineering, textiles and the computer industry. It also has the headquarters of a large building society, the Britannia, which is proud to maintain its mutual status. Sadly, there are no longer any pits; there is only the awful threat of opencasting, and its blight on the landscape.
Staffordshire, Moorlands is one of the most beautiful constituencies in the United Kingdom. It includes large parts of the Peak national park, the lovely market town of Leek, and Biddulph, which is the home of the famous Biddulph grange gardens. I am glad to say that Biddulph is festooned in flowers at the moment, thanks to the local organisers of the marvellous "Biddulph in Bloom".
I also have the delightful village of Flash, which is the highest village in Britain. Farmers in Staffordshire, Moorlands have the tradition of farming high up into the 489 hills. They, like the constituents of Torridge and West Devon, are experiencing severe difficulties as a result of the BSE crisis and bovine tuberculosis.
Staffordshire, Moorlands is a very beautiful constituency, so it was no surprise to me that, when the BBC filmed its highly successful adaptation of Jane Austen's "Pride and Prejudice", it came to my constituency in Staffordshire to film Elizabeth Bennett's visit to Derbyshire. Some scenes were filmed at the Roaches, right in the centre of my constituency, which Lizzie Bennett describes as "absolutely beautiful." Like Lizzie Bennett, I recommend my constituency to all who seek a delightful holiday in the Peak district. I also recommend a visit to the local potteries to pick up some interesting Staffordshire pottery.
Staffordshire, Moorlands is a constituency of surprises. Who would have thought that there would be a tornado a few weeks ago? It lifted the roof of the swimming pool in Waterhouses. I am glad to say that moorlanders are equal to adverse weather conditions. They are used to snow, sometimes well into late spring. They take such weather conditions in their stride.
As Member of Parliament for Staffordshire, Moorlands, I follow Sir David Knox, who sat in the House for 27 years. His predecessor, the Labour Member of Parliament, Harold Davies, served for 25 years. I can only hope that my tenure matches theirs.
I am delighted to pay tribute to Sir David. He was well respected by all hon. Members on both sides of the House. He was also well respected in the constituency. He looked after the interests of supporters and opponents alike with great diligence. He has always been kind and accommodating to me. I know that he will be a hard act to follow. His devotion to public service cannot be questioned, and I wish him a well-deserved retirement.
I come into the House 18 years after my father left it. My father is Ron Atkins. I am pleased that my hon. Friend the Member for South Ribble (Mr. Borrow) mentioned my father, because he defeated Robert Atkins, to whom my father lost in 1979 by 21 votes. Hon. Members will notice that they had the same initial and the same surname. It is ironic that, as one Atkins leaves the House of Commons, another arrives to take his place.
William Morris, the socialist reformer, spent much time in Leek, the lovely market town in the centre of my constituency, observing the horrors of the industrial age. I am glad to say that his legacy lives on in Leek in the wonderful stained glass windows of both the grade I listed All Saints' church and the lovely, older St. Edward's church.
I wonder what William Morris would think if he visited Staffordshire, Moorlands today. Many of my constituents are forced to accept pay of £2.50 an hour and less and they have to look to the taxpayer to top up their wages. I am pleased, therefore, that my right hon. Friend the Chancellor spoke about the minimum wage, which will create a floor under low wages. Why should the taxpayer have to subsidise Scrooge employers? That only encourages a cheap labour mentality. My right hon. Friend underlined the point by quoting figures for investment in United Kingdom workers. He said that, for every £100 invested in the United Kingdom, Germany 490 invested £140, the United States invested £150 and Japan invested £160. There is no future in a low-wage, low-skill economy.
The previous Government helped to create skill shortages in my constituency by their policies. That is why I am so pleased that the Budget allocates an extra £2.3 billion for schools. I follow the hon. Member for Stone (Mr. Cash) in pressing the case for Staffordshire in terms of education funding. Staffordshire has some of the largest class sizes and worst school buildings in the country. It has consistently come bottom or second to bottom in the standard spending assessment funding league. The area cost adjustment unfairly discriminates against Staffordshire, so that, for example, Bedfordshire gets more than £160 per primary pupil and £230 per secondary pupil more than Staffordshire. That injustice must be remedied by the Government.
I hope that my constituency gets its fair share of the £1.3 billion allocated for school capital spending. When I visited Moorside high school in Werrington, I was appalled by the conditions under which teachers have to teach. Their labs are especially disgraceful. Most are not even large enough to take full-size classes. The school has been awaiting modernisation for years and it is still waiting. Is it any wonder that students decide to opt out of science—a subject that is vital for Britain's prosperity in the 21st century?
As my hon. Friend the Financial Secretary to the Treasury is due to sum up the debate, I must put in a plea for the Leek tax office. Its future is under review by my hon. Friend. With self-assessment upon us, the office has never been needed more. Already, the staff see 10,000 taxpayers a year. The office covers a vast area from Buxton and Uttoxeter to Stoke-on-Trent. If it closes, people will have to go to Stoke-on-Trent for advice. Public transport is appalling in my constituency as a result of deregulation. If people take a bus from Buxton to Stoke-on-Trent, they have only 15 minutes to conduct an interview on their tax affairs if they are to get back to Buxton.
I am told by experts that the self-assessment form takes at least three quarters of an hour to go through. I appeal to my hon. Friend the Financial Secretary to ensure that the Leek tax office is not closed. It would leave the people of Staffordshire, Moorlands, the elderly, small businesses and farmers at the mercy of so-called independent tax advisers. I urge my hon. Friend to reprieve Leek tax office. It means so much to the community.
I congratulate my right hon. Friend the Chancellor on his Budget. It has been well received already by my constituents and it offers real hope for the future.
§ Mr. Piers Merchant (Beckenham)
It is a pleasure to take up the remarks of the hon. Member for Staffordshire, Moorlands (Charlotte Atkins). I congratulate her on making an excellent maiden speech and I look forward to hearing many contributions from her in future. She took us on an interesting tour of her constituency, which seemed at times to live up to its name. The prospect of a holiday in the area is certainly enticing. I was rather concerned about her new Lib-Lab pact, but reassured when she paid a generous tribute to her predecessor, who was a much respected colleague of mine and Member of this place, whom we shall certainly miss.
491 There are some who no doubt felt that they might reasonably expect a new party in government for the first time for many years to launch a Budget that was inspiring, radical and inventive. Such a Budget was introduced by the then new Conservative Government in 1979. If people were expecting such a Budget this year, they must have been sorely disappointed. The only radical feature of this Budget is the new red box that the Chancellor of the Exchequer produced. The rest of the Budget is a disappointment. It harks back to old Labour Budgets of tax rises and public spending increases, with no new economic direction charted.
I fear that a trend will be set for future Labour Budgets. As Government Front Benchers find themselves put under strain by vested interests and by right hon. and hon. Members on the Back Benches championing their own causes—all, of course, requiring more public spending—they will bow, bend and ultimately break. To fund additional public spending, they will have to increase taxes. They will return to the House again and again with tax-increasing Budgets, no doubt clothing them in the language of demand management. That is an old, tired phrase which is almost forgotten but with which the Chancellor, rather weakly I thought, attempted to defend the Budget.
As my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) said in his excellent speech, the way to treat an overheated economy, where necessary, is by monetary policy and interest rate rises, not by increasing taxation. The Government are increasing taxation because they want more money to spend. They want to increase public spending, but not because they are interested in demand management.
The Budget is about tax rises, and there are 17 across the board. At the end of the day, it will be the ordinary man and woman in the street who will pay the increased taxes. There is a thinly veiled disguise, one so thin that we can see through it already. The Government take the view that somehow the money will be raised elsewhere.
Let us examine the main tax increases that are instituted. Who will pay for the windfall tax on the utilities? Of course, the consumer will pay for the smash-and-grab raid on the utilities through the increased prices that the utilities will have to introduce sooner or later to fund the mammoth £5.2 billion tax that the Chancellor has imposed.
What about the tax on pension funds? There has been the greatest attack on pension funds since the war, according, rightly, to the National Association of Pension Funds. This £5 billion attack is one that will be paid for by the ordinary man and woman through their pension contributions. They will have to increase their funding so that they might have a reasonable pension at the end of the day.
There is an increase in transport or fuel tax along with vehicle excise duty. The Government mask these increases in rhetoric about the environment. Car and freight use on the roads is inflexible, and users will not abandon their cars despite the 16p a gallon increase and notwithstanding the increase in vehicle excise duty; instead, they will simply pay up. Again, the Chancellor's hand is going into the pocket of the ordinary man and woman.
There is a strange contradiction in the Government's environmental rhetoric: they claim that, by increasing taxes on transport, they will restrain the use of transport 492 and improve the environment; at the same time, they are decreasing taxation on house fuel—without mentioning the impact it will have, if their theory is correct that demand will be affected—thereby increasing consumption of home fuel and accordingly harming the environment. There is a peculiar contradiction that destroys the myth that the Government's measures are designed to help the environment. They are not; they are designed to raise increased taxation.
There are other tax increases on tobacco, alcohol and insurance premiums. They are all designed to raise extra money, but with a thinly veiled disguise. The Budget is about raising taxes and about the Chancellor's sticky paws being slipped into the pockets of working men and women, thereby taking from them a larger proportion of their hard-earned wages. It is about transferring choice from the individual into the state's centrally planned economy. It is also about increasing state power and influence and decreasing choice and the amount of money that an individual keeps to spend or save as he wishes.
That is not the way to inspire an economy to grow and to be healthy—far from it; it will have the reverse effect. It ignores the lesson that is apparent throughout the world. Strong, vibrant and growing economies come about when taxes are kept low, when public spending is controlled and when individuals are given the initiative and encouragement to do and earn of their best. Those are the conditions in which economies grow. That does not happen when Governments plot and plan to take a larger proportion of the income that would otherwise flow into individuals' pockets.
My greatest concern about the tax-raising Budget that is before us is the attack on home ownership. All my constituents will suffer from the other measures to which I have referred, but the measures that will hit them most in the longer term are those linked with taxes that will specifically hit home owners.
I happen to believe that home ownership is a good thing in itself. I also believe that there should be an onus on Government to encourage home ownership. That is because it builds for individuals a stake in the community. It encourages them to be individually responsible financially and in other ways. It makes for easier mobility. In addition, it takes the burden away from the state to provide housing, as much as possible, and leaves it with the private market and individuals making their own choice.
The Labour party has always been equivocal about home ownership. It has been responsible in the past for many measures designed to restrict home ownership or to discourage it. The Budget, however, is a downright attack on home ownership. Through three measures, the Budget will ensure that life is made more difficult for home owners, and that those who wish to move into home ownership will find it more difficult to do so.
First, there is the reduction of MIRAS to 10 per cent. That will cost the average mortgage payer about £120 a year. That sum will increase as interest rates increase. That is the second consequence of the Budget. The inevitability of interest rate rises will additionally hit home owners.
Home owners will be hit also by the increase in stamp duty that the Chancellor has brought forward. Stamp duty is an iniquitous tax because it taxes mobility. It is a tax 493 on a simple transfer, and I would like it to be non-existent. To go in the opposite direction and increase it will certainly be harmful.
Most of the impact on home owners will not be on the rich; it will be on the ordinary, struggling middle classes who are attempting to stay in home ownership, or young people who are moving into home ownership in the first place, because they require mortgages and have to service them. Those people sometimes have to move into houses of higher value, particularly if they live in areas of the country such as mine, where property prices are much higher—as, indeed, they are across London and the south-east. Many of those people will have to pay the new increase in stamp duty which has been introduced in the Budget, which will have a serious impact.
The Budget, which is merely the first step in a series of Labour tax-raising Budgets we will see, will have a particularly adverse impact on the ordinary men and women who want to move into home ownership or want to retain their stake in the nation via home ownership. It is despicable that the Government should attack those hard-working people in that way.
The Budget is also a conjuring trick—an attempt to produce money where there is none, an attempt to shift money around, an attempt to raise taxes and then conceal the fact. The Chancellor may be able to get away with that in one Budget until it dawns on people, but the people of this country are not stupid. They realise when they are expected to pay more. The Labour party led them to believe, during the weeks running up to the general election, that they would not have to face tax increases; yet, a mere handful of weeks after the general election, they are faced with precisely that.
This is a breach of trust with the British people, who were led to believe one thing and have now seen, even this early, something quite different delivered. They will grow increasingly irritable with a Government who go in that direction, as this Government will. The Government will not be able to continue the conjuring tricks that they were able to use when the Labour party was in opposition and that they have used successfully in the first few weeks of being in office. People will see through that. When the Government have to deal with the real economic problems, with their lack of ability, which they will soon display, to control public expenditure, they will need much more than magic to get them through.
§ Mr. John Hayes (South Holland and The Deepings)
Thank you, Mr. Deputy Speaker, for allowing me to speak in the debate.
As a new Member, I congratulate other new Members who made their maiden speeches today. Perhaps I may, unconventionally, also congratulate the Chancellor of the Exchequer both on the delivery of his Budget speech and on its political cleverness.
I draw particular attention to the issue of consumption. In his Budget speech, the Chancellor made great play of the argument that consumption was heading out of control. I suggest that, because of the invisibility of the tax burden that he is now levying on the people, the mood that leads to excessive consumption will not be dampened or challenged and will necessitate interest rate rises in the 494 short rather than the medium or long-term. When those interest rate rises take place, which I predict will be in the very short term indeed, the responsibility will lie fairly and squarely with the Chancellor.
The trick of transferring apparent blame to the Bank of England is just that—a trick. When interest rates go up, the British people will recognise that the Government must bear the brunt of the responsibility for that. The judgment on the Budget will be on what the Bank of England does about interest rates, and on how the British public will respond to that increase.
I now deal with the main thrust of my speech—health. People who care about the health service must have been desperately disappointed by yesterday's Budget. The increase in health service spending is less than it was last year. Last year it was £1.6 billion; this year it is only £1.2 billion. This year's increase—2.25 per cent.—is lower than the average for the previous 17 years. That is a disappointment to the people who care about spending on health.
As other hon. Members have said, there is no new money, no extra money, until next year. There is nothing to satisfy those who wanted immediate action. There is nothing to stave off any of the demands that will undoubtedly come as we head into the autumn and winter of this year, and there is less growth than we could have reasonably expected.
The Budget is also bad news for petrol prices, which have gone up. I know that, for the wealthy, and for those, perhaps, who live in conurbations, it will not be so much of a problem, but for the people who live in rural areas, who will be condemned to their hamlets and villages because they cannot afford to use their vehicles, it is a significant problem.
The problem with increasing the duty on petrol is that it is indiscriminate. It is not progressive. People in rural areas, on small incomes, have to use a car, because we cannot take public transport into every hamlet, into an area with a sparse population like the one which I represent. They need a car to get out. They are discouraged and blighted when duty is increased on petrol, and to do so under the artificial veil of green, environmentally friendly, environment-conscious activity is little more than an insult to the people who will have to pay more.
The hon. Member for Staffordshire, Moorlands (Ms Atkins) mentioned this country's lamentable record—I think that she described it as such, or used words to that effect—on investment. Let me assure her that, in terms of capital allowances, the record on promoting investment is not encouraging. Whether the doubling of capital allowances that was announced in the Budget will lead to the targeted investment in infrastructure that the Government need and desire is highly debatable. The record suggests that it will not.
That is not something that I say with any great political malice, because it was tried by the previous Government, and, by and large, the investment that was aimed for was not achieved as a result of increasing capital allowances. I wonder whether investment is not better achieved by a more targeted and focused approach to encourage companies to invest in the infrastructure that most hon. Members desire.
I also wish to draw the House's attention to the extra money for education, and to the non sequitur on this subject in the Chancellor's speech. He talked about the 495 submission of plans, of bids by schools and how they would spend additional capital money. He talks about the submission of strategic plans that will be based on some competitive bidding process. Then, almost in the same breath, he talked about £150 for every pupil in this country.
Either the Chancellor targets the money on infrastructure—on information systems, on technology—into some schools, to give them a reasonable chance to lead by example, a reasonable chance of investing the sums that are necessary to make a real difference to teaching and learning, or he spreads that investment—£150 per pupil, in his words—so thinly that it will make no difference to the experience of children throughout this country. I wait to hear in the wind-up speeches whether the money will be targeted, ring-fenced, bid-based, or, as the Chancellor implied, spread very thinly and therefore have little impact.
Above all else, the Budget is an attack on pensioners. It is a take now and pay later Budget, a short-term Budget, a Budget that tries to disguise its real intent by attacking the future plans, the future prosperity and happiness of people who are investing in their own future, in their own pension.
The attack on tax credits will have two effects. First, pension funds will suffer. People will either be asked to contribute more in order to make up a pension fund to a reasonable level, or they will find, possibly too late, that the pension that they expected and anticipated—not unreasonably, with the degree of individual responsibility which one would hope for and expect from prudent people—will not be there when they most need it, That, by any measure, is an attack on pensioners. Make no mistake about it, people will come to recognise the fault and frailty which is implicit in that proposal.
As I have already said, I was impressed by the delivery of the Budget to which I listened with great interest. But I was not impressed by the Budget's short-termism, its political conjuring, and its flagrant attempt to deceive the British people into believing that it increased spending without affecting them, when the effects on them will be profound, long-term and deeply damaging.
§ Mrs. Theresa May (Maidenhead)
Before I speak, I declare a non-registrable shareholding in the Prudential Corporation.
This is a spin doctor's Budget, because the impression it gives is entirely divorced from reality and because it claims to do things that it does not do while claiming not to do things that it is doing. Its only success is that it is a Budget for spin doctors.
The Chancellor told us yesterday that one of the main themes of his Budget was to take some heat out of consumer expenditure. As was ably pointed out earlier by my right hon. Friend the shadow Chancellor and my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), in the short term the Budget does nothing of the sort.
The Chancellor claimed that it was a Budget for investment. I have news for him. Investment is not increased by taking £5 billion out of the corporate sector every year. If £5 billion is taken as a tax hit out of the corporate sector, the funds available for investment are reduced rather than increased.
496 The Chancellor also gave the impression that the Budget would not have an impact on families and individuals. He gave the impression that he had been extremely clever because he had found a way of raising revenue without affecting anyone. He gave the impression that somehow the abolition of dividend tax credits for pension funds is a victimless tax. In fact, it is nothing of the sort. The victims will be companies, pensioners and people whose jobs might be lost as a result of that £5 billion being taken out of the corporate sector.
Company pension schemes will either have to reduce the benefits that are available to their members, or they will have to put more contributions into the pension schemes, which again means less money for investment. In particular, they will have to be looking at the funding of those schemes today because of the more stringent requirements on funding that were introduced by the previous Government out of necessity following what happened under the remit of the late Robert Maxwell, who, as we know, was a former Labour Member of Parliament.
But there are two other ways in which the abolition of dividend tax credits will hit people. First, it will have an impact on people with money purchase pension schemes; individuals with personal pensions who will now be faced with the stark choice of either reducing their standard of living today by putting more contributions into their schemes, or reducing their standard of living in the future when they come to take their pensions out.
Secondly, a matter which was not referred to by the Chancellor yesterday, but which was highlighted earlier by my hon. Friend the Member for Havant (Mr. Willetts), the abolition of dividend tax credits will have an impact on local authorities. Local authorities' pension funds will be hit by the abolition of dividend tax credits and local authorities will find themselves in the position of having to increase contributions into those pension funds. Where will they find the money?
As was pointed out earlier, one possibility will be for that money to come out of the extra money next year supposedly for education, which the Secretary of State for Education and Employment said he will not ring-fence for schools but leave for decisions to be taken by local councillors. We have seen the sort of decisions that too many Labour councillors take when they are allowed to make such decisions on money that the Government hope will go into education.
For local authorities, the likelihood is that they will either put up council tax or cut services in order to fund the contributions required for their pension funds. That will be a hit on families and individuals. Far from all those smiling faces of Labour Members waving their Order Papers at the end of the Chancellor's speech thinking that somehow the Budget would put more money into public services, it will do the opposite. It will result in cuts in services by local authorities.
In my constituency is the headquarters of one of the regional electricity companies, Southern Electric. I am particularly concerned about the principle of the windfall tax and its impact. As the hon. Member for Bath (Mr. Foster) said, when the windfall tax concept first came up, the Labour party claimed that somehow it would be a tax on fat cats. It is nothing of the sort. It is a tax on pensioners, shareholders and customers. Far from what we have just seen, a period of better services and falling 497 prices in the electricity companies, we may well see prices going up, and we will see an impact on shareholders and on people whose savings are invested in the shares of those companies and whose pension funds have investments in those companies.
A number of points have been raised with me by constituents. One is the increased tax on petrol. My office took a phone call this morning from an extremely irate constituent asking whether the Chancellor realised that that measure hit everybody, even those who do not have cars, because of delivery costs of food, manufactured goods and so on. She said, "This will hit us all. Can't you make that point? Doesn't the Chancellor understand?"
Another point was made by someone who is disabled. He is particularly concerned because he relies on his car to give him the quality of life that he wants. This measure will be an extra hit on him and other members of the disabled community who also rely on their cars to get about.
The Chancellor also claimed that the Budget would help small businesses. The reduction in corporation tax is to be welcomed, but there are other aspects about which I am sorry the Chancellor did nothing. For example, he did not raise further the VAT threshold for small business, and he did nothing to pick up the ideas which the Conservative Government developed before the election about changing the uniform business rate, which is a particular concern of many small shops, particularly in the rural villages in my constituency. There is an aspect of the Budget which will adversely affect small businesses. It has been put to me that, if a small business is in difficulties, the proposal to change the period of qualification for loss carry-back will have a real impact on it. Far from being a positive measure for small business, then, it will have a negative impact on them.
Nowhere in the Budget is the spin-doctoring more acute, or the Chancellor's claim to be doing one thing while doing another more callous, than with the funding of the NHS and education. There were cheers yesterday when Labour Members heard that £1.2 billion was to go into the NHS—but it is going in next year. As my hon. Friend the Member for South Holland and The Deepings (Mr. Hayes) pointed out, that is less extra money than we put into the health service last year.
For the next few months there will not be a single penny extra for hospitals. So all the hardship cases that Labour Members have been raising about their local hospitals—they will continue to raise them—will meet with no extra money from this Budget to solve their perceived problems. The money will be available only from next April, and then only if the contingency reserve has enough money in it. The Chancellor is raiding tomorrow's nest egg but announcing it today. The impression given is that something is happening immediately; the facts are very different.
The same impression has been given about education. Here the spin doctoring went into fast forward. Those of us who watched the Chancellor's Budget television broadcast last night saw him produce a pretty little table showing how much extra money was to go into schools—£2.3 billion, he said. I wonder how many teachers, parents and school governors watching must have rubbed their hands with glee at the thought that their schools would benefit immediately from the Budget.
498 Once again the reality is different from the impression, and the Chancellor has claimed to be doing something he is not doing. Far from £2.3 billion going into schools over the next few months, either £100 million—the Red Book figure—or £83 million—the figure given us by the Secretary of State for Education and Employment—is to be given to schools up to April 1998. That is nowhere near the Chancellor's claimed amount. Furthermore, the £1.3 billion from the windfall tax new deal will be spread over five years, and the other £1 billion that the Chancellor announced will not be available until next year either—and then only if it can still be taken out of the contingency reserve.
This is a spin doctor's Budget, a cynical Budget. It tries to pull the wool over the eyes of the electorate. As others have said, a Budget that is applauded and thought popular on the day it appears is a Budget which turns out to be very unpopular in the long run; because it is in the long run that people will feel the pinch in their pockets.
§ 9.1 pm
§ Mr. Tim Boswell (Daventry)
This is inevitably an unusual occasion, in that there are no wind-up speeches on the first day of Budget debates, so today we have to wind up two days of debate. It is my pleasant duty to record the delivery of a number of elegant and remarkable maiden speeches. On my count, there were eight yesterday and another eight today. It would be invidious to pick out any of them and tedious to enumerate all of them. Still, those that I heard were of high quality and were an example to everyone.
Almost without exception, maiden speakers have described their constituencies with affection and have been considerate and generous to outgoing Members of Parliament, especially those who had been defeated. They have also produced interesting insights into current politics.
It is always a pleasure, listening to maiden speeches, to hear resonances from constituencies that I have visited to campaign in, or whose Members I have known, or which I have visited as a Minister or in some other capacity. It all introduces a note of courtesy to our proceedings which is of great value to those who honour this place.
I welcome the Financial Secretary to the Treasury to her position. We look forward to her contribution this evening. My closest involvement with the Treasury came some years ago when I acted as parliamentary private secretary to my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), now the shadow Chancellor. I enjoyed that experience, just as I enjoyed his speech today. That post gave me a good insight into the workings of the great institution in which the hon. Lady now serves as a Minister.
The House may be surprised to know that the first time I ever briefed Members—then Opposition Members—on a Finance Bill, as a comparatively young man, was during the passage of the celebrated 1968 Finance Bill, That experience is seared into my mind. For one thing, it was on the back of a Budget introduced by Lord Jenkins of Hillhead, as he now is—he was then the Labour Chancellor—which, as I recall, involved a tax increase of £923 million. That was then a record increase.
The most remarkable development in the nearly 30 years that have elapsed since then is the change in the scale of the figures: it has changed out of all recognition. 499 Just the change in MIRAS—which the Chancellor sought to downplay—will cost £950 million in a full year, which is almost the same figure as the one that I mentioned earlier, but is in fact only a nominal amount relating to a single change. That is before we even start on advance corporation tax and the windfall tax.
I think that the moral of my rather long, if intermittent, experience of Treasury matters is that, while some things change, others go on for ever. The first is the simple perception that Labour Chancellors nearly always raise taxes. That is what I associate with Labour Chancellors, and that is what we all suffer from Labour Chancellors. The second is this. When the late Iain Macleod—of whom some of us were deeply fond—was shadow Chancellor, he coined a concept that was known then as Macleod's first law of the Budget, to which a number of hon. Members on both sides of the House have referred today. He said that what played well as a Budget on day one would look very different in a few months' time.
I think that he had in mind the traditional timetable to which I believe the Government are considering reverting—a spring Budget followed by a summer Finance Bill concluding in July. This year, we have a midsummer Budget, also, apparently, concluding in July—but I shall pass over that until later.
Iain Macleod was making the point that, however hard you spin and however well you dress it up—and there are people in that great Department of State who are past masters at concealing spin, flights, googlies and so forth—reality will out by the time people have to pay the bills.
As we have some time to spare, I think it appropriate to refer to the first First Lord of the Treasury, Sir Robert Walpole. He said—admittedly not on a financial occasion, but on the outbreak of war with Spain in 1739—They now ring the bells, but they will soon wring their hands.Before I begin my speech in earnest, I should get one point out of the way. It would be inconsistent with the general tenor of the debate, and particularly with the maiden speeches, to engage in some silly controversy about who cares most for young people. I sincerely hope that hon. Members on both sides of the House are conscious of the position of young people, and the position of unemployed people, whether young or older.
Some of us have done time as Education Ministers. I had the great pleasure of being the Minister responsible for further and higher education, and I also have a fairly strong family involvement with adult literacy issues. Probably all of us, by definition, have no direct experience of the underclass, but, in our constituency work, we all come across people who may be in danger of falling into that category. We all want to help them; the questions are how we help, what are the most effective means and whether there will be any repercussive effects if we adopt one course rather than another.
I think that some of my right hon. and hon. Friends have analysed the Budget as they have because it was heavily presented by the Chancellor as a warm and caring Budget. The difficulty that should be exposed—indeed, my colleagues have exposed it effectively today—is that all those warm and caring words could not hide the fact that there was a time bomb in the Chancellor's hand. That time bomb is primed to go off at some stage, and it will cause a degree of disappointment—even, perhaps, 500 feelings of ill faith among Labour Members, who will find that what they expected to be glad confident morning turns into a very depressing picture.
I do not want to seem totally negative and churlish about not merely the delivery but the contents of the Budget. I often feel that Labour Chancellors who, as I reminded the House, nearly always put up taxes, are a little like the proverbial monkey on a typewriter because sometimes, by accident, the result is intelligible and quite palatable. A Labour Chancellor cannot help sometimes getting something right. The cut in corporation tax, including the small companies' tax, and the proposals on the film industry are welcome. However, they must be set in the context of what the Chancellor is trying to do and set against the unpalatable measures in his proposals which he sought to conceal.
The measures that we have welcomed are isolated shafts of light in a bleak picture. It is rather disturbing for me to talk about a bleak picture, because the Government have been in office for only nine weeks. Just like that, they have taken an economy which was an acknowledged success throughout Europe and have started to run down the golden legacy of growth, competitiveness and low inflation that we bequeathed them. They are busy on the task of turning that golden legacy into dross.
I shall analyse first, as my colleagues have done in some detail, the impact of Labour's proposals on the home owner, who will suffer heavily from the Budget. He is facing three direct hits. The first is the scaling down of MIRAS which will total £950 million in a full year. I remind the House that the benefit of MIRAS is not for the middle or upper classes: it is not only Islington man who benefits from it. The distribution of the benefit across all sectors and percentiles of income is broadly stable. That has been shown by the Institute of Fiscal Studies, and scaling down MIRAS will hit everybody with a mortgage more or less equally.
The second hit on the home owner is the increase in stamp duty, which is smaller in amount, about half the size of the MIRAS reduction at just over £500 million, and is apparently confined to larger properties, which, according to the Chancellor's definition, are those costing over £100,000. Of course, many such properties are not necessarily occupied only by the executive classes. Farms and commercial properties may also attract the charges, and the structure of stamp duty with its rather unusual step system means that it has strong repercussions at the borders of the changes. Instead of having two rates—zero and one—there will be four rates, and that will not contribute to reducing the burden of taxation or simplifying the tax system.
The third hit on the home owner is the two increases so far in interest rates since the election, which, as I have said, was only nine weeks ago. Who knows what will come next week? The press is certainly speculating hard that there will be a further increase then. It is not surprising that people have not gone out into the streets and revolted at these changes on day one, because, as Treasury Ministers will know, there is only an annual statement of account for many mortgages. The general tendency is to lengthen the repayment period. As the tax change, one of the three hits, will not appear until the spring, it is hardly surprising that the burden and impact of the changes, some of which are already taking 501 place, will not come to a head until then. Like the other deferred Budget disappointments, they will appear with a vengeance.
I shall deal with another matter that I do not think has been flagged up in the debate, most of which I have heard. It bears on the other tax changes, with which I shall deal in a moment, in particular, the changes in advance corporation tax, and relates to the use of endowment policies to repay mortgages; and, I suspect, it relates also to mortgage protection policies. The plain fact is that a hole will be torn in those endowment policies and one or two people may find themselves with inadequate policies to service their eventual mortgage repayment. I hope that the Financial Secretary to the Treasury will comment on that concern.
The second and perhaps greatest sectoral hit in the Budget is the impact on pensioners in particular and on other savers in general. To quote for the last time the late Iain Macleod, he once said memorably that savings are the harvest of a man or woman's life and career. Of course, many people are saving, through one means or another, for their eventual retirement, so this affects not only pensioners, but people in my age group who are contemplating eventual retirement and are trying to put their affairs into sound shape.
The windfall tax is one aspect of that impact. In fairness to the House, it has been well discussed. It was brilliantly analysed by my right hon. Friend the Member for Hitchin and Harpenden, the shadow Chancellor, and by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), both of whom explained the incoherence of introducing a temporary tax to fund a long-term programme and a partial tax to fund much more general aspirations, including education. The proposal is already holed below the waterline, but it will be for the Government to decide how they wish to persist with it. If they do not persist with it, they cannot possibly make even their rudimentary figures stand up.
At a modestly early hour of the morning, I found myself appearing on Talk Radio. In another studio was Professor Geoffrey Wood from the City university business school. I made a comment that was fairly politically blunt about the impact of the changes in ACT. I have no idea what his politics are, but, when asked to comment on my remarks, he said that the ACT changes were a major change in the British tax system and that their full significance had yet been realised. That was a masterpiece both of precision and of modesty.
The plain fact is that there is a black hole somewhere around the Chancellor's Budget. It was not bequeathed to the Government by their predecessors. As my right hon. and learned Friend the Member for Rushcliffe has already made clear, it is an autonomous black hole, chosen by the Chancellor. The black hole that he is carving out is in the pension funds and the savings of individuals.
We all know that the National Association of Pension Funds estimates that the changes will mean over £50 billion of extra pension contributions over a 10-year period. Its chairman, Mr. Peter Murray, commenting perceptively, said that the changes were a direct attack on the people's money. Of course, the NAPF is generally representative, although not always, of the larger funds. What about the smaller company schemes and 502 self-financed pension schemes? What about personal pensions? By definition, they have no friendly, large, well-capitalised public company to top them up. The changes are a direct hit on the resources available to individuals.
The exact nature of that hit is somewhat difficult to calculate. For example, one fund may be investing more in tax-favoured assets such as real property, or in overseas companies rather than in domestic companies. One of the most telling points that has come out of today's debate is the way in which we are driving investment away from Britain by making it less attractive for companies to hold assets here.
If companies feel that they are challenged by the ACT changes, they may re-balance their portfolios and pension funds, but it is clear—certainly to me—that the hit on pension funds induced by the Chancellor to raise his £5 billion every year, will total between 5 and 15 per cent. of income. That allows for capital gains, from which they also benefit.
I advise people to get out their policies tonight. It might be as well for them to take advice in the near future on whether they will have a sufficiently large policy to meet their mortgages or other commitments in due course. If they are politically motivated, or just cross about what has been done—as they should be—I suggest that they write on their policies, "Devalued by the Chancellor who said he would never put up taxes."
Before I leave the position of pensioners, I want to flag up the damage done by the withdrawal of tax relief on private health insurance—again alleged to save money, but again a rather small amount. It is targeted at 600,000 people and is likely to drive many of them, perhaps even a third, back into the public health sector, thereby lengthening waiting lists.
I want to deal with one or two other effects of the tax changes. Some of us had the considerable privilege of attending today's lunchtime seminar conducted by the Institute of Fiscal Studies. It is a body respected by both sides of the House because, quite frankly, it dishes it out indiscriminately to all of us, as it sees fit. It points out—it is not difficult, as it is obvious even from the Red Book—that advance corporation tax changes will cost business almost £5 billion in a full year, while the cut in corporation tax which the Chancellor presented as the offsetting benefit amounts to only £2 billion. It does not require a university degree in mathematics and computing to work out that the gap is £3 billion. As the institute magisterially concluded today, despite the rhetoric the changes are unlikely to benefit business investment. Quite frankly, I agree.
I want to pass from taxation of business—which, as a number of people, including Professor John Kay, have conceded, in the end is merely a shell or a format for the payment of taxes that fall indirectly on the people—to taxation that falls directly on the people. In today's presentation, the institute analysed the impact of tax changes on households according to their relative income. It calculates that the impact on the top decile of incomes will be £2.19 a week, while the impact on the bottom decile will be 50p a week. Some 70 per cent. of all households will lose out from the Budget, while 20 per cent. will gain and 5 per cent. are "don't knows".
503 What is clear is that, on the absolute figures, the greatest proportional loss is among the bottom decile. Yesterday, Labour Members were busy waving their Order Papers in support of a Budget that independent experts have assessed as regressive.
I want to raise a final point that deeply concerns me. Many Conservative Members are becoming increasingly worried about the Government's propensity to treat the House with ill-concealed contempt. Of course, I except those who are here tonight. Much of the legislation introduced in such a short period has been rammed through in haste, often with Committee stages being taken on the Floor of the House and therefore with highly truncated consideration. Bills are being rammed through on the back of the Government's current handsome majority.
We are also deeply concerned about the ill-concealed attempts by Treasury Ministers to leak the Budget contents in advance. [Interruption.] If Labour Members want to deny that, they should agree to have the allegation examined properly and independently. We would respect any such inquiry. Let them not, however, try to brush off the leaks, as if Opposition Members are not properly concerned when we discover that the Budget is delivered to us not by the Chancellor but with the Financial Times in the morning.
Such leaks are all of a piece with other events. The Opposition do not believe—I warn Ministers of this—that arrogant and hasty high-handedness contribute to good legislation. The Chief Secretary to the Treasury goes on about the community charge or poll tax. I should tell him that that measure was most extensively debated in the House, and if we did not get it right, it was not for lack of trying by him. He should consider that matter. I am not making a narrow party point. We need to ensure, and I hope that Ministers want to ensure, that we get the Government's legislation right. At the end of my speech, I will advert to one specific concern on which I should like the Financial Secretary to the Treasury to comment.
The Opposition believe that legislation should be properly considered. We also believe that there are chinks in the Chancellor's carefully crafted Budget armour which need prising open with proper and full scrutiny. We are bound and driven to the conclusion that, if that scrutiny does not occur, it will be because the Government have something to hide and prefer that neither the Opposition nor the public notice. If Ministers try to rush a Finance Bill, they will leave not only technical errors but a mood of disillusion, as the public discover that the expected glad morning does not appear.
I tell Ministers that the Opposition simply will not settle for a truncated debate on those matters. We want a proper debate and we want a proper reply from the Government, both to today's debate and in Committee. I hope that Ministers will show the right spirit in dealing with that issue.
I ask the Financial Secretary to make—she will perhaps recall the phrase—a fresh start and to set a good example to her colleagues by answering four specific questions, rather than brushing aside the concerns that were expressed so eloquently by my hon. Friends and other hon. Members.
First, I stated the figures, as I took them down, on the Budget's impact on households because of tax changes. Does the hon. Lady accept that the overall distribution of 504 the Budget's tax changes will have a regressive effect on the lowest income deciles? If she does not, will she please explain why?
Secondly, will the hon. Lady explain to the House—because no adequate explanation has been offered—why she expects business to invest more when it will have to give up an additional £3 billion in corporate taxes annually?
Thirdly, does the hon. Lady accept that the deflator changes that were announced in the Red Book, even on the most optimistic of the three projections provided, mean that public spending plans over the quinqucnnium will be below the trend line of public spending in the past 18 years of Conservative government?
Finally, as an example of the types of technical problem that over-hasty and arrogant legislation can cause, has the hon. Lady considered, and can she give any indication of the Treasury's thinking on, the treatment of franked income for unit and investment trusts? Is such income—as it appears to me—totally to be suspended and wiped out? If so, can she tell us what the impacts will be on savers? Does she concede that its suspension will represent yet another blow to savers and to pension holders—in a Budget that attacks them directly?
§ The Financial Secretary to the Treasury (Dawn Primarolo)
I welcome the hon. Member for Daventry (Mr. Boswell) to his new post. I look forward to our future debates, and acknowledge his experience, which goes back for some 30 years. As he said, while he was advising on the Finance Act 1968, I was 14—when I was enjoying an excellent comprehensive education, which has equipped me with the qualifications to establish myself in society and to contribute to that society. The Budget is about offering to young men and women the opportunities which the hon. Gentleman's Government unfortunately denied them.
The hon. Member for Daventry talked about controversy, said that he did not wish to trade insults across the Dispatch Box, and reflected on his past. When I entered the House 10 years ago and made my maiden speech, I spoke of the young men and women in my constituency who were despondent, disappointed and rejected and who believed that society did not value them as individuals. Unemployment is a personal disaster as well as socially destructive but, some 10 years later, this Government have to take action to tackle it because the previous Government failed to do so.
I remind the House that the last time the Conservative party advised members of the public to seek advice on their pensions, it led to this country's biggest scandal in pension mis-selling. It ill behoves the hon. Member for Daventry and his colleagues to scaremonger and to frighten pensioners.
Yesterday and today, many hon. Members have made their maiden speeches. They were mostly Labour Members; that reflects our majority in the House, but I assure the hon. Member for Daventry that we have no intention of stifling debate or forcing through legislation, as his party did with the poll tax, because we intend to keep our excellent Prime Minister, not pull him down as the Conservatives did with their Prime Minister over the poll tax.
505 In yesterday's debate, my hon. Friends the Members for Eastwood (Mr. Murphy), for Brentford and Isleworth (Mrs. Keen), for Redditch (Jacqui Smith), for Enfield, North (Ms Ryan) and for Pontefract and Castleford (Ms Cooper) spoke in support of the windfall levy and talked of the importance of giving young people the opportunities for work and training. They supported the principle of rebuilding the health service and the principles that the previous Government allowed to be undermined and destroyed. They acknowledged the importance of reducing VAT on fuel and the benefits that that brings to the elderly. Conservative Members speak of their concern for pensioners, but I do not remember them showing that concern when they introduced VAT on fuel in the first place, having promised that they would not.
What seems to shock Conservatives Members is, first, that the Government intend to keep their election promises; and, secondly, that a new Government would want to introduce a Budget to set out the course that they intend to take. When the Conservative Government were elected for the first time, they introduced such a Budget, so I cannot see what is so terribly unusual about this Government wanting to do likewise, especially as we made clear in our manifesto our intention to do so.
My hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt) gave us a scenic tour of his constituency. He, too, underlined the importance of ensuring training and skills for our young people. We must avoid the trap that the previous Government reversed those young people into—the trap of low wages, low skills and only rare chances of jobs that offer opportunities, if they have jobs at all.
My hon. Friend the Member for South Ribble (Mr. Borrow) spoke movingly of the cruel fate that denied Dennis Golden, the previously selected Labour candidate, the chance to contest that constituency. He had to resign because of ill health and then unfortunately died before he was able to see the election of a Labour Government. My hon. Friend spoke fluently without notes on the importance of jobs. I think that all hon. Members will acknowledge his thoughtful contribution and look forward to hearing him in the future.
My hon. Friend the Member for Leicester, West (Ms Hewitt) talked about a Budget for jobs. She also paid tribute to her predecessor, Greville Janner. I am sure that Greville would not mind me saying that he was a character in the House who will be sorely missed, although my hon. Friend, who is one of 101 Labour women, is an excellent addition to the House and will make a good contribution. She described graphically the needs of her constituents for access to jobs and training to liberate their talents and ensure that they can contribute to society. That was echoed by my hon. Friend the Member for Lincoln (Gillian Merron), who showed a clear understanding of the needs of her constituents.
My hon. Friend the Member for Wirral, West (Mr. Hesford) made it clear that we were delivering on our election promises. He acknowledged the contribution of his predecessor, David Hunt. He added a personal pledge, saying that he intended to answer all his constituents' letters by return post. I wish him good luck and hope that he is able to keep that pledge.
506 My hon. Friend the Member for Staffordshire, Moorlands (Ms Atkins) spoke of her predecessor, Sir David Knox, and the kind support that he has given her. I agreed entirely with her argument about the desperate need for a minimum wage—a floor under which wages cannot fall—and the importance of that for the future of Britain. I took particular note of her spirited representations for her local tax office. She rightly drew attention to the importance of self-assessment. I shall consider her points carefully.
The hon. Member for Bath (Mr. Foster) asked some specific questions about the provisions in the welfare-to-work programme. The programme will be carefully monitored in all respects—quality of training, quality of work experience and how people get on in keeping jobs. We shall also always keep open the opportunity for those who do not initially accept the option to take part to choose to do so. I stress again the importance of the advice, support, counselling and help that young men and women will get before their placement and new career.
Young people who have difficulties—special needs, homelessness or drug abuse problems, which blight so many lives—will have special advice and support. The organisations involved will have a track record of success in that area. It is our intention that the programme we propose should be about inclusion and opportunities, and not about exclusion and punishment.
In what has been an interesting debate this evening, one contribution hit an all-time low. I refer to the speech by the hon. Member for Mid-Norfolk (Mr. Simpson), who started by talking about the length of women's skirts and cross-dressing as an indicator of economic prosperity. Although the House appreciates a joke, he should perhaps refine his a little more before he speaks again.
The hon. Gentleman made comments about private medical insurance, and described Labour's proposals as nasty and hitting at pensioners. He really should check his facts. Between 1990, when the scheme was introduced by the previous Government, and now, there has been no significant growth in the number of people using private medical insurance relief. Some £140 million could be better spent, because the people getting the relief are those who already had insurance premiums. If Conservative Members are so worried about pensioners, will they explain why they took away the zero rate of VAT on fuel?
The Government have put forward clear proposals. We have a Budget equipping Britain for the long-term future. We have reflected the priorities of the people. Disillusionment does not stalk the land; instead, there is acceptance and support of the Chancellor's proposals. The Budget fulfils our election promises, in stark contrast with the practice of the previous Government. It is about a new deal for the unemployed, and about investment in industry and infrastructure. It is about fair taxes and economic stability. The Budget is for the long term and it is about equipping Britain for the future while delivering now on the priorities of education and health.
During the election, Labour promised that education would be our number one priority. This Budget allocates £2.3 billion extra spending for schools and £1.2 billion more for health while ensuring that Government borrowing is reduced. This Government are determined to 507 encourage a fair society in which the many and not the few can share high living standards and greater job opportunities.
§ Mr. Boswell
In that case, I am prepared to wait. I hope that we can have her assurance that she will answer the questions I posed.
§ Dawn Primarolo
I can assure the hon. Gentleman that I was not about to bring my remarks to a close.
The new deal for the unemployed fulfils our manifesto commitment, and it will be paid for by the windfall tax on the privatised utilities. The Chancellor made it clear yesterday that after full consultation with the regulators, there is a clear judgment that the tax can be paid for without there being an impact on prices, investment, service standards or the employment prospects of those currently in the utilities. Indeed, the Public Accounts Committee has made it clear that in the case of the water companies, which have made profits totalling £7.4 billion, and in the case of the regional electricity companies, which have made profits of £8.7 billion, the profits were in excess of the level that the respective director generals have judged it reasonable to allow in the future.
The Budget contains a popular set of proposals that people have accepted. It provides opportunities for the unemployed, and assists lone parents back into full-time employment by helping them with child care provision. Some Opposition Members have complained that we have not invested enough in child care. That is rich coming from them, when, for 18 years, the Conservative Government presided over the worst investment in child care, denying people access to quality provision.
A successful economy needs stability, low inflation, strict control over Government borrowing, and openness. My right hon. Friend the Chancellor has set a target of 2.5 per cent. underlying inflation, and the Bank of England is responsible for setting interest rates. Strict control over Government borrowing and public finances is essential for stability. The Budget introduces new rules, under which the Government will borrow only to finance investment, and which include deficit reduction.
The Government are committed to building their reputation on trust and openness. They have opened the books to independent checks, and will continue to do so.
§ Mr. Lilley
Will the hon. Lady tell us how many of the 17 tax rises introduced in the Budget she had the honesty and openness to trust her voters with before the election?
§ Dawn Primarolo
We have stuck to our promises. Our manifesto made absolutely clear our intention to invest in industry and infrastructure, and to plan for the future.
Openness has never been a hallmark of the previous Government. We hope that, in the exchanges between Front Bench Members in the coming years, our openness will help the Opposition to understand the direction that the Government are taking, even if they cannot grasp it now.
508 We have undertaken a major reform of the corporation tax system, providing a low-tax environment for companies, encouraging quality long-term investment, and maintaining an attractive environment for inward investment. We have cut the basic rate of corporation tax from 33 per cent. to 31 per cent. from April 1997, and the rate for small companies from 23 per cent. to 21 per cent.
Let me make it clear that there is no attack on pensioners or pension funds. Opposition Members are engaging in scaremongering. Tax credits for pension funds and United Kingdom companies are abolished from Budget day. The abolition of credits removes the distortion which encourages the payment of dividends rather than the reinvestment of profits. Many pension funds have large surpluses totalling nearly £50 billion, so they can absorb the loss of tax credits and improve company performance as a result of encouraging long-term investment.
The measure is good for pensions and pensioners, not bad for them. Furthermore, the existence of pension fund contribution holidays demonstrates that there is scope to absorb the measure. People should understand that our reforms will benefit pension funds.
§ Mr. Christopher Chope (Christchurch)
Is the hon. Lady aware that, this evening, Sir Jeremy Beecham, a highly respected member of the Labour party's local government team, has spoken out by saying what a disaster tax credits will be for people who pay council tax due to the implications of costs on local government? He is calling on the Government to give an indemnity to local authorities against the additional burden. Is she able to meet his demand?
§ Dawn Primarolo
Having listened to this debate and despite all the hon. Gentleman's protestations, I would like to ask him why the Government whom he supported cut advanced corporation tax if they believed that it would be so damaging. The issues are clear. The tax credits can be coped with in being withdrawn from pension funds and companies will benefit as a result. There is no change for charities and no change for other non-taxpayers until April 1999. Charities will then receive transitional compensation for five years, giving them a total of seven years' notice—more than the previous Government did.
§ Mr. Boswell
The hon. Lady has just effectively given the House the impression that there will be no impact in most cases of the changes which we have discussed. In that case, why is it necessary to give charities compensation? If there is no problem, why are the Government giving compensation to one sector but not another?
§ Dawn Primarolo
We accept that there is an impact on charities, and that is why we are giving compensation. It seems a very simple proposition, but obviously not one that Opposition Members can understand.
Individual savings accounts will be created to continue to provide tax-favoured savings. The provision of first year allowances for small businesses is a temporary measures to ensure that investment in machinery and plant for small and medium-sized companies can also assist their development.
The Government have responsibilities to promote real opportunities for all the people in Britain. Young unemployed men and women have responsibilities to seek 509 work and accept reasonable opportunities, and to upgrade their skills when those opportunities are provided. Those people are ambitious and motivated but cannot get work. There are also young men and women who have lost their motivation and whose ambition has been eroded as a result of years of unemployment under a Government who offered them no hope.
The Government have put forward a Budget which invests in people, education and health, and which creates stability and long-term security. This Government keep their promises and will be earning the respect of the people of this country. The people know that they can trust this Government because they are fair, open, honest and direct. That is why this Government have been elected. The economic policies to which Opposition Members have constantly referred in this debate have been rejected.
I hope that, in the discussions that will ensue on the Finance Bill, the Government will demonstrate that they do not follow the example of the previous Government. There will be no abuse of our majority; there will be debate and discussion of the issues before the House. I sincerely hope that, as has been said, we shall do so in a fair and open manner—not trading insults across the Dispatch Box.
§ Mr. Boswell
On a point of order, Mr. Deputy Speaker. The Financial Secretary has an endearing style of what might be termed serial peroration, which is why I intervened somewhat prematurely in her remarks. I gave her every opportunity to make some attempt to answer the four specific questions that I posed to her at the end of my remarks. I appreciate that she is new in the job and she may not be familiar with the answers to entirely reasonable questions, but she might have sought advice and made some effort to respond, as she indicated she would. Is not that a gross abuse of the House of exactly the kind that we have complained about before?
§ Mr. Deputy Speaker (Mr. Michael Lord)
The way in which Ministers choose to answer questions is not a matter for the Chair.
§ Debate adjourned.—[Mr. Robert Ainsworth.]
§ Debate to be resumed tomorrow.