Motion made, and Question proposed,
That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
§ Mr. William Hague (Richmond, Yorks)
I begin on a personal note, by congratulating the Chancellor on the stamina with which he delivered his speech. There are measures in the Budget that we will wish to support, including the measures that he has announced on corporation tax, small companies' tax rates, the challenge fund for universities, the reduction in national insurance contributions and his reform of capital gains tax, which is almost exactly on the lines proposed by the shadow Chancellor, my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), except that it is not quite as ambitious.
In his talk of new ambition, the Chancellor may be getting a bit ahead of himself. We have always associated the Chancellor—as has the Prime Minister—with old ambition rather than new ambition, and I think that that has been on display again today.
We will also look at the details of some of the right hon. Gentleman's proposals before deciding whether we support or oppose them. We will look at the details of what he has proposed on stamp duty. It will be a great relief to the Prime Minister that he sold his house before the Chancellor introduced a measure that will affect only rich people with houses over a certain value.
Any analysis must start where the Government started when they inherited last year an economy in the finest shape of any economy inherited by any Government after any election since the second world war. They started with their now notorious pre-election promises, which must be seen against the background of this Budget and their previous Budget taken together. Before the election, the Prime Minister said:We have no plans to increase tax at all.He told Radio 4 listeners last January:The programme of the Labour party does not imply any tax increases at all.He told BBC 1 viewers four days later:There are no hidden tax rises.Two months after they took office, the Labour Government tore up those solemn promises and introduced 17 new taxes or tax rises in their first Budget. Now, under this Labour Government, after the taxes and 1114 mortgage increases that have taken place over the past 10 months, the typical family is £798 worse off in a year. Nothing that the Chancellor has done today remotely compensates for the price people have already paid over the past 10 months for a Labour Government. The overall tax burden in this country is set to rise by almost 3p in the pound, even before this Budget. We will look carefully at today's figures to see what the new rise in the tax burden will be.
In the course of those two Budgets, there has been a betrayal of businesses by the Labour Government. They made great play of being a friend of business, but in the past year, they have slapped £22 billion of extra taxes on to businesses. Nothing that the Chancellor announced today remotely makes up for the tax increases that he announced before.
For all the Chancellor's cosmetic gimmicks today, there has been a betrayal of rural areas. The Labour party, which posed as a friend of the countryside, has today added to the costs of people in rural areas with an additional tax hike on petrol.
There is also a betrayal of many women and children, by a Labour Government who promised to protect universal benefits and are now becoming the first Government ever to tax child benefit. So there is a betrayal, and a great deal of disappointment for many people who will have heard today's Budget.
The Government were lucky when they started in office. They inherited the fastest growth of any major European economy, unemployment that was falling fast, the lion's share of investment from outside the European Union, inflation that was under control and—as this morning's borrowing figures have shown—public finances that are even stronger than our final Budget forecast. The previous Government hit our inflation target right on the button; the current Government have now missed their inflation target in nine out of 10 months, including in the latest figures, which were published today.
It was the Chancellor's duty to preserve a golden economic legacy, but, step by step, he is betraying that legacy. His record is already telling a tale of two economies: services booming, and manufacturing on the brink of recession. Manufacturing output has fallen for five successive months. If those figures turn into a manufacturing recession, it will be a recession that was made in Downing street. The Chancellor has created the worst of all worlds for industry: higher tax and higher interest rates. With higher interest rates leading to an ever higher pound, export orders and jobs are at risk.
The Chancellor has so little confidence in his own policies that—in the fine print of today's Budget—he has even downgraded his own growth forecast for this year. Last November, he was predicting between 2.25 per cent. and 2.75 per cent. growth; now he is predicting 2 per cent. to 2.5 per cent. growth. That change has occurred in only a few months. The Red Book, which was published only a few minutes ago, says that manufacturing output will be flat this year. In a wonderful euphemism, it states that net trade willmake a negative contribution to growthof the economy this year. In Treasury-speak, what is the meaning of the statement that net trade willmake a negative contribution to growthof the economy this year? It means that businesses are being crucified by the exchange rate.
1115 The Government could have done plenty in the Budget to help industry out of those difficulties. The Government could have cut the cost of creating jobs in other ways. Although the Chancellor has made some changes, he could also have abandoned the idea of a national minimum wage. He could also have further freed capital markets. However, in the past year, he has hit on the worst solution: an all-out assault on pensions and savings—the £5 billion annual pensions tax in last year's Budget—introduced by stopping pension funds claiming tax credits on their dividends.
The Government then had the plan of abolishing personal equity plans and tax-exempt special savings accounts, and of replacing them with individual savings accounts. I am glad that we have forced the Government into a humiliating U-turn in their plans for ISAs. We may have lost the vote in the House, but we have clearly won the debate. Nevertheless, we should not let the Chancellor think that he has not done damage to savings in the United Kingdom. Savers now know what the Government really want to do. They know that the Labour party has an instinct for retrospective taxes on savings.
The Government have done permanent damage to Britain's savings culture. In the forecast published with the Budget a few minutes ago, the Chancellor forecasts a sharp fall in personal savings—but that is what happens when one clobbers pensions and savings. He forecasts that the percentage will fall from 11 to 9 per cent. How will he build a high-investment and high-productivity economy while pursuing policies and issuing forecasts that show a sharp fall in the personal savings ratio?
The Government have made only a small step in getting their policy right. Dropping the retrospective savings limit is the right thing to do, but there is no case for keeping a lifetime limit for any savers when there is also an annual limit. Any lifetime limit will increase the cost of a scheme, making it less attractive to savers. We shall await the details of the Chancellor's proposals.
No Government can seriously claim to be building the economy for the long term when they slap a £5 billion a year tax on pension funds. As even the Government Actuary has told Ministers, if the Government take a tax hike out of pensions, people will have to pay more. Speaking at a dinner last week, the chairman of the Association of Consulting Actuaries said that the ramifications of the Chancellor's proposals last yearwere clearly not thought through at the time of the Mini-Budget. Frankly they should have been.He also said:We all know how much damage has been done because our words went unheeded…They must stop loosening the foundations on which the hitherto robust system of OccupationalpensionSchemes is built.The Chancellor has done nothing today to repair the damage of those measures.
The Chancellor has proposed the working families tax credit system to replace our current family credit system. The Prime Minister vowed at last year's Labour party conference to reduce spending on welfare. He made that a top priority of his Government, and the test by which he wanted to be judged. Opposition Members have always 1116 made it clear that we support reform of the welfare state. However, it is now clear that Labour came to power with a heap of promises, a bundle of aspirations, a lorry-load of cliches, but nothing resembling a plan.
Today, the Chancellor has produced a plan: a reform that increases expenditure, increases the number of people tangled up in the benefit system, and increases complexity. The central reason for that mess is the scrapping of family credit and its replacement with the working families tax credit. To redeem a pledge to reform welfare, the Chancellor has devised an extremely complex system, which I think he hopes that none of the commentators will understand. When they study it, they will find that it has put women at a disadvantage—[Interruption.] The Chancellor says that people will be able to choose to whom the benefit is paid.
§ Mr. Hague
What happens if they do not agree? Who will arbitrate? Will Ministers decide which member of the family receives the benefit? Will the Chancellor personally decide who will receive the benefit?
When people have read the details, they will discover that the scheme is a burden on business and demands that businesses keep records of family circumstances. They will discover also that, if the Chancellor changes the tapers and more gently withdraws benefit from some people, the Government will be spreading means testing higher up the earnings scale. They will discover that that will produce higher marginal rates of taxation and benefit withdrawal for those on middle incomes. They will discover that his scheme will extend the problem of benefit withdrawal up the income scale, from one-earner families to two-earner couples, and that, consequently, it will hit women on modest earnings, who are particularly sensitive to such disincentives.
We do not object to the Governmentrunning its own neck into the noose, but we object when it is taking millions of poor working families with it."—[Official Report, Standing Committee B, 18 March 1986; c. 942.][Interruption.] The Deputy Prime Minister says no. Those are the words of the current President of the Board of Trade, when the scheme was floated by a previous Government, in 1986. She was objecting to the scheme in 1986. The difference is that, whereas we withdrew the scheme when the problems became clear, the Chancellor has pressed on with it, hoping that, the more problems and chaos he causes, the more radical his reform will seem to be.
There has been a report on a very similar system that now prevails in Canada, by a Mr. Mendelson—I hope that no Ministers are moonlighting. On the Canadian scheme, Mr. Mendelson writes that if, in Canada,the working income supplement"—which is the comparable scheme—has proven a false start,there is reason to suspect that the British experience"—should it attempt to establish a UK earned income tax creditmay turn out to be more like Canada'sthan that of the United States. So we suspect that the Chancellor is making a great mistake.
Although changing from family credit to tax credit does not in itself alter family income by a penny, the Government's policy looks at first sight—from what 1117 the Chancellor has said today—as if it will cost the taxpayer a great deal more, will be a disincentive to work for thousands of people, and will mean that hundreds of thousands of women will see more than £50 a week taken from their purse and placed into their partner's wallet.
Introducing that reform makes an incomplete job of welfare reform, at considerable cost to the taxpayer. It means that the Chancellor has done a botched DIY job on welfare reform, at a price that the Lord Chancellor's decorators would have been proud of.
The Chancellor's spin doctors like to claim that they came into office with a carefully worked out programme for government; so how embarrassing it must be, once again, to postpone the 10p income tax rate. Never has a policy been more frequently announced than the 10p income tax rate to which the Chancellor says that he is committed. He announced it before the election, he announced it during the election, and he announced it after the election. He has announced again today, but still no one is going to enjoy a 10p tax rate.
When will the Chancellor actually implement it? Let him be in no doubt; if he wants to cut taxes, we will support him. We will certainly join him in the Lobby to vote for lower taxes, but let him now produce the 10p tax rate to which he is committed.
We are pleased that the Chancellor accepts the need to reform national insurance contributions, and we will support smoothing them out and reducing the burdens on employing lower-paid people. However, instead of reducing burdens, he has decided to redistribute them.
Before the Budget, even those employing workers on more than £210 a week were paying only 10 per cent. Now even those paying £81 a week will carry a marginal employers' national insurance tax of 12.2 per cent. instead of 10 per cent. As a result, although the Chancellor did not refer to this in his speech, he has increased the burden of employing many quite low-paid people. If he was going to make such reforms, he should have done it by cutting tax, not shifting it on to someone else. If he admits that reducing the cost of low-paid staff is a vital job-creating measure, why does he support a minimum wage? Exactly the same arguments that he proudly deployed today in favour of his reforms devastate his case on that.
The Chancellor has also introduced measures on child care. The Opposition welcome much of that. That is why we introduced child care disregard into family credit during the last Parliament. It is not clear that what he has announced today is anything more than switching our policy on family credit into his new tax credit system. By itself, today's measure helps only lone parents and two-earner couples who use registered child minders and clubs. What about people who stay at home to look after their own children? A proper child care package would be aimed at least equally at them.
It is crazy that, on first analysis, it seems that, after the Budget, two neighbours may be better off looking after each other's children than looking after their own. We will not agree with that policy. We want a policy that supports people who look after their own children, as well as those who look after the children of other people. At least the right hon. Gentleman was self-sacrificing and did not introduce a special tax relief for looking after children for the duration of a photo call. We are pleased about that.
1118 The decision to tax child benefit for upper-rate taxpayers poses more questions than it answers. Why leave untaxed the wife of a millionaire who does not work, while taxing the head teacher who does? Why take away a cash benefit and spend it on unspecified Government programmes, when the real aim is to reduce the size of the welfare state? The Chancellor has some time, because of his review—yet another review—to find the answers to those questions. We will judge him and his reforms of child benefit by his answers over the next year.
The Government have got themselves into a hole on welfare reform. After messing about with a bucket and spade for a few months, the Chancellor has came along today with a huge mechanical digger, but the reforms that are intended to make work pay will for many people make hard workers pay. Welfare bills that the Government vowed would go down will instead go up, and the dependency that they pledged to reduce will instead increase.
The Chancellor announced some spending increases. We welcome the use of money not spent elsewhere for education and health. What is remarkable about the increases in the health budget is not that the Government are putting more resources into the health service but that it would have been a national scandal if they had not. They came to office with a pledge to reduce waiting lists, yet, step by step, month by month, they have betrayed that promise. Waiting lists have risen relentlessly, up by almost 100,000 in the 10 months that they have been in office. Far from being more generous to the health service as they promised, over the past year they have dramatically cut the rate of increase in spending on our health service.
Under Conservative Governments over 18 years, the average increase in health spending was 3.1 per cent. in real terms. This year, under a Labour Government, it has risen by 1.2 per cent. in real terms. That is the background against which the Chancellor's announcement must be judged.
For the majority of the 50 years of the health service, it has been managed, expanded and turned into a success by a partnership between Conservative Governments and the doctors, nurses and others who work in our national health service. Before the Chancellor takes a pat on the head from the old rebels and new robots on the Back Benches, perhaps he will spare a thought for the thousands more people who must this year wait for operations who did not have to wait before this Government came to power.
The best way to tackle welfare dependency is for people to find it easier to get a job. The Chancellor talks a good game on welfare to work; it is a shame that he does not play one. The Government are pursuing employment policies that are likely to destroy jobs rather than create them. How does he think that many companies will pay for the £22 billion of new business taxes that the CBI has identified? By cutting back on their work forces, of course. How does he think that they will pay for the minimum wage? By employing fewer people, of course. The Institute of Fiscal Studies is only the latest in a long line of expert organisations to argue that a minimum wage risksgenerating significant levels of unemployment amongst young people".1119 How can the Chancellor introduce such policies and say that in his Budget he is breaking away from dogma? How does he think that companies will absorb the extra social costs of signing the social chapter? How does he think that companies will find people with the skills and training they need if they are going to compete in the next century, when his Government have introduced student fees and abolished the maintenance grant in such a way that applications to universities and colleges have fallen dramatically? The answer, of course, is that they will not.
Last November, the green Budget accepted that the Government had a responsibility to promote a flexible and adaptable labour market and encourage investment in skills. Against that test, huge new business taxes, the minimum wage, the social chapter and the student fees scheme are the height of irresponsibility. The Chancellor might talk about welfare to work, but the policies of this Government could force many people out of work and into welfare. It is yet another step in the step-by-step betrayal of many people in this country by the Government.
The Chancellor mentioned environmental policies. The increase in petrol duty that he announced today is another step in the Government's step-by-step betrayal of motorists. In the past, we increased petrol duties above the rate of inflation on environmental grounds, but in the past two Budgets he has taken that policy too far. An extra 4.4p on a litre of fuel means that the tax has gone up by 20 per cent. in the past two Budgets—twice the rate of increase under the previous Government. Introducing the rise from today, rather than the normal November rate, will cost motorists hundreds of millions of pounds extra. That sleight of hand is yet another of the underhand stealth taxes that the Chancellor likes to introduce.
The Chancellor announced his gimmick of £50 million on rural transport, which will not remotely pay for the extra cost faced by rural motorists because of other policies. Let us hope that that policy is more successful than some other cosmetic announcements and some announcements in the previous Budget. When he announced extra winter fuel payments, it turned out that most people had to wait until the end of winter to receive them. Let us hope that this Budget is implemented more successfully.
Every day, step by step, it is clear this is the Government of the nanny state. This is the Government who tell people how to live. We see it again in the Budget. They tell people, "Don't drink, don't smoke, don't hunt, don't have a pension, don't eat beef on the bone, don't save, don't drive a car; if you drive a car, don't park it." The Prime Minister preaches to people about what they should and should not do. This Budget and the last one represent the collection plate being passed around after the sermon.
The Chancellor's next betrayal was in his so-called crusade against tax avoidance. We notice that the Paymaster General could not bear to be here to listen to the announcements. This is the Government who appointed as the Minister responsible for offshore tax trusts and tax avoidance a man with offshore tax trusts who influences them and is presumably in charge of implementing today's changes to them.
1120 That is breathtaking hypocrisy. We shall judge today's changes in tax law against this simple test—the Robinson test. Will the Paymaster General continue to escape tax after today's changes? Will the Minister for tax avoidance continue to avoid tax? We suspect that he may, and that, despite all the pre-election rhetoric and the Chancellor's reforms today, the Swiss bank family Robinson will stay in business and out of tax. That is another step in the step-by-step betrayal of Britain.
There is a simple way for people to understand what the Government are doing. Listen to what they say, and they in fact do the opposite. They say that they will not raise taxes at all, and then, step by step, they impose stealth taxes that hit hard-working families. They say that they will encourage savings, and then, step by step, they slap new taxes on pensions and scrap popular savings schemes. They say that they will tackle welfare spending, and, step by step, they set about spending more money on welfare. They say that they will be pro-business, and then they load on to businesses £22 billion of taxes that they have not adequately alleviated today. They say that they are for middle Britain, and then they impose higher taxes on middle Britain.
When the Labour party put up all those posters before the general election with a picture of the Prime Minister promising no tax increases, it did not add footnotes saying, "Except if you are a home owner," "Except if you are a pension plan holder," "Except if you are a PEP or TESSA holder," "Except if you are a motorist," "Except if you are a student," "Except if you are council tax payer." They call themselves the people's Government. Which people? Not the people who own their own home. Not the people who are saving for retirement. Not the people who drive their own car. This Budget, taken together with its predecessor, sends a clear message to the family that works hard, saves hard and tries to be independent of the state: "The Government are not on your side." It is the step-by-step betrayal of Britain.
§ Mr. Deputy Speaker
I call Mr. Paddy Ashdown. Will right hon. and hon. Members leaving the Chamber do so quickly and quietly?
§ 5.2 pm
§ Mr. Paddy Ashdown (Yeovil)
Even allowing for the fact that the speech that a leader of the main Opposition party has to give straight after the Budget statement is probably the most difficult that has to be made in the House, in my time, I have not heard a more intemperate or more inaccurate speech than the one that has just been made by the leader of the Conservative party. We are used to being astonished by Conservative U-turns and even Conservative hypocrisy since the Conservatives lost the election, but I have not yet heard a U-turn so extraordinary as the Conservatives' criticism of the Government for their NHS spending plans when the Government are following the Conservatives' NHS spending plans. It seems pretty remarkable to me.
All Budgets are interesting—fascinating, indeed—but the Budget that sets the direction for a new Government is more interesting than most. This Budget is therefore, important not just for what it is, but for what it tells us about the Government's long-term programme. 1121 The Chancellor may not, to his regret, be the captain of the ship, but he has today provided its compass and set its course. We can tell a great deal from the Budget about the direction in which the Government will go.
We have our criticisms of the Budget, of course, but there are also things with which we agree. I think that the Chancellor has been too timid, but we welcome the broad directions that he has set. We think that he could have gone further, but we believe that those directions are right. Many of them seem to have come more from the Liberal Democrat manifesto than from the Labour manifesto. Let me see whether I can list some of them.
The Chancellor has taken a longer-term view on economic management. He has made a commitment to welfare reform. He has shifted much further than I thought he would towards helping enterprise and small businesses, and that is welcome. He is apparently serious about tackling poverty, although the proof of that pudding will be in the eating, not in the words that describe it on the menu. The Chancellor has allocated some extra money for the education and NHS budgets, about which—he will not be surprised to hear—more later.
We applaud the Chancellor for adopting what has been our policy for years on a fiscal responsibility code and the independent status of the Bank of England—something that was in our manifesto, but not his, yet he adopted it three days after the election. We think it right that the Government have adopted a Budget judgment that is broadly neutral and pretty cautious. We are glad that they have listened to some of the legitimate criticisms, not least from Liberal Democrats, but also from the Conservatives, about their proposals on saving and business taxation. I am a little concerned that what the Chancellor has announced today will launch a bonanza in the next 18 months in PEPs and TESSAs, but let us wait and see. I shall return to some of those points later.
First, I shall take a broader look at the Budget, the Government's record and the origins of the present economic situation. On some of the big things, the Government have done well since they came to power. The chief exception is their failure to fund their promises to improve health and education. It is, oddly, on issues of presentation that the Government have come most unstuck—sometimes very seriously. I say "oddly" because they claim to be the great progenitors of the art and science of presentation.
The Government have made two major mistakes—one before the election and one after it—which have now come home to roost in the Budget and must very soon be corrected. Before the election, the Labour party foolishly, even dogmatically, joined the Tories in telling people that they would not increase their taxes. That was a silly promise and an undeliverable one, as the previous Government found to their cost. It has cost us dear under the new Government. It meant that in last July's Budget, when the Government should have been raising income tax to take the heat out of private spending, they could not do so and were forced to add extra burdens on businesses instead of taking money out of consumer pockets to dampen the consumer boom.
The Government seem, by their own actions, to have painted themselves into the corner of one-club economics, rather as the Conservatives did in the early 1980s. They have to rely almost exclusively on the single instrument of interest rates, backed up by a fierce public spending 1122 freeze. The problem is that Britain's economy is not a single economy. It is now, much more than in the early 1980s, not one economy but two. The service sector is booming and needs to be slowed down, but the industrial sector is flagging and needs to be stimulated. Interest rates alone are simply too blunt an instrument to cope with that. They have proved ineffective in dampening the consumer boom, but they are seriously damaging industry, not least by pushing up the level of an already uncompetitive pound.
The Government are left in a cleft stick of their own making. They need to dampen down the consumer boom in the service sector, but they cannot use personal taxes to do so, so they have to use higher interest rates, which industry needs like a hole in the head. That dilemma was graphically and perhaps painfully illustrated by the recent 50:50 split in the monetary policy committee on the question of raising interest rates.
I do not know, and I do not believe that we can yet tell, whether there will be the soft landing that the Government want and we all pray for. The odds seem broadly in favour, but it has now become much more touch and go than it was. In that sense, this is a fingers-crossed, hope-for-the-best Budget. It will be remembered, I fear, not for all its details—commendable though many of them are—but for what happens next in the economy. On that, I suspect, for all his confident performance today, the Chancellor is as uncertain, and has his fingers as tightly crossed, as the rest of us.
Once again, the sensible management of the British economy has fallen prey to electoral promises and the electoral cycle. Once again, we are faced with the possibility—I place it no higher than that—of another spin around that old back-breaking British cycle of boom and bust, which has dogged us for so long. That is a depressing outcome for a Chancellor whom I believe to be sincere about wanting to manage for the long term, and whose first act was, commendably, to give independence to the Bank of England—something that we proposed, but he did.
The second consequence of Labour's foolish pre-election promises on taxation and spending is that the Government cannot now fund an early start to delivering their self-declared early pledges on health and education. That looks even more bizarre in the light of today's figures showing a bigger than expected surplus on the current account. The consequence is clear and painful to many people who voted for the Government: waiting lists are at record levels in the NHS and rising, and they are set to rise far higher; school classes are at their largest for 20 years and growing; hospitals are being closed and teachers are being sacked. I hazard a bet that there is not a single Labour Member who has not received, as I have, bewildered letters about yet more cuts in school budgets and yet more sacked teachers from people who voted Labour on 1 May in the belief that a Labour Government would improve education in their schools.
We welcome the allocation of some extra money for schools and the NHS—after all, we have been calling for that since the general election and have been roundly abused by the Chancellor and the Prime Minister for our temerity in doing so. Apparently, when Liberal Democrats call for extra money for schools and the health service, that is short-term opportunism; but when it is announced by the Chancellor, it suddenly and miraculously becomes 1123 responsible long-term management. [Interruption.] I shall be happy to take an intervention if any Labour Member cares to make one, but I see that none does.
The new money, welcome though it is, will do little to save the job of a teacher who is being sacked this year, or to shorten the waiting time of the 68-year-old widow who wrote to me the other day saying that she could not understand why, under the Labour Government she voted for, she now had to wait six months longer for her hip operation.
The Government's actions will ultimately be judged not by inputs, but by outcomes. Does the money mean universal early-years education for all three and four-year-olds whose parents want it? No. Does it come with a commitment to lower class sizes for all primary school pupils? No. Will it double the cash for books and new technology as the Liberal Democrats have urged? No.
Crucially, will it mean that hospital waiting lists will come down this year? I fear that it does not mean even that. The pressures on the NHS are now too great—not least because the Government would not fund it properly earlier—and this settlement does not properly reflect that fact. I simply do not understand why a Government who are rightly committed to ending boom and bust in the private sector seem now to be actively promoting a bust-and-boom approach to public services. It is not possible, in two years' time, to unsack the sacked teacher or unsell the building that used to be a cottage hospital.
The Government's second mistake came not before the election, but after 1 May, when they injudiciously allowed themselves to be bounced into foreclosing the option of an early decision on Britain's entry into the single currency by a single Financial Times headline and an incautious phone call from a Westminster pub by the Chancellor's press officer. That the Government appear to have decided in favour of the single currency is a good thing; that they have decided to sit on the fence about when to enter it is not. I make the prediction that I have made before, and I make no apology for that: as soon as the rates are fixed on economic and monetary union on 1 May, the Government will be forced down the road by events and will have to take a decision in principle backed by a referendum before—not after—the next election.
It is sad to see the current Government, who are unquestionably more pro-European than any of their predecessors, still being led by events on Europe instead of leading them. It is sad indeed to see that, on the Government's timetable, even Greece will now be sitting at the top table deciding future economic policy in Europe while Britain is stuck in the waiting room outside. It not only a question of leadership: we are paying a real and painful price for that fatal mobile phone call from the Red Lion pub in Parliament square. Our industrial and export industries are bleeding because of the uncompetitive level of the pound; jobs are already being lost, and more—I fear, many more—will follow; interest rates are higher than they need to be, piling on the agony for our manufacturing sector; crucial investment is already beginning to go elsewhere; and much, far too much, of the genuine good will and enhanced influence that the new Government have won for themselves in Europe is being allowed to ebb away.
1124 As the Budget figures reveal, Britain has met all the main criteria for joining monetary union, so I urge the Government to adopt now a declaratory policy on EMU. They should set a clear target date for joining, follow policies consistent with that aim and announce that they are prepared to have a referendum on the principle of the single currency before the next election. The result would be immediately beneficial both to the Chancellor in his predicament and to the country in that it would bring a lower pound, lower interest rates, more inward investment and a real boost to the Government's influence and standing in Europe.
There are two other areas of the Budget on which I shall comment. The first is what might be called its central thrust: welfare reform. We welcome both the Government's overall commitment to welfare reform and much of the detail announced in the package today. We especially welcome their proposals on child care, although, again, we think that they could have gone further. Whether the package as a whole is a success will depend to a great extent on that detail, particularly on the question of working families tax credits. We welcome the changes to the payment of attendance allowance, which has now become available to working wives. That welcome is not in any sense diminished by the fact that the Chancellor has now backdated it to April last year, which is when we were proposing the measure in the Finance Bill and he was opposing it.
We shall look at the detail of the Chancellor's welfare package before we make a judgment. I have no intention of making the sort of knee-jerk response that the leader of the Conservative party has made today. There are many items to which we are prepared to give a warm welcome. However, there is still a suspicion that some of the detail is being shaped by political gimmickry rather than by practical good sense.
For example, an increase in the personal income tax allowance—the zero per cent. tax rate—makes far more sense than the 10p tax rate. It is more progressive, better for incentives and simpler for the tax system, as the Institute for Fiscal Studies has recently pointed out to the Government. I am also disappointed about the lack of any immediate help for our poorest pensioners for which the Liberal Democrats have called—for example, through a £5 premium for the over-80s, who tend to be among the poorest in our country.
The second area I wish to touch on is the environment. The Government have gone further than we anticipated that they would and we welcome that. I particularly welcome the idea that we can have a variable rate of vehicle excise duty—again, that is something that was in our manifesto, not Labour's, at the last election, but that does not diminish our welcome for the measure. However, the Government seem to think that environmental taxation is simply about taxing motorists. What we really need is a broadly based energy tax—a carbon tax—to tax pollution, not people. We also need a national scheme to boost household energy efficiency, which the Government promised when they were in opposition, but which is not contained in the Budget. Without those policies, how are the Government going to keep their manifesto promise to cut carbon dioxide emissions by 20 per cent.?
This is not a bad Budget; in fact, if the details turn out to be appropriate, it might be a good Budget in the long term. It is not a bold Budget, but it does some things well: it is long term, it tackles welfare and it says the right 1125 things about poverty. However, it does other things inadequately: it does too little to correct the underfunding of public services, too little to make serious progress on the Government's self-declared environmental aims and too little to correct the Government's unhealthy reliance on one-club, interest-rates-only economics. It does nothing, I fear, to clarify the Government's unsustainable position on the single currency.
It is good that the Government are getting people back on their feet with welfare reform, but it is bad that the Government are still sitting on their hands over health and education and still sitting on the fence over the single currency. However good the Budget may be in the long term, I fear that the price that we shall pay for those inadequacies will be paid in the months ahead and in the short term.
§ Mr. Stuart Bell (Middlesbrough)
It is always a pleasure to follow the right hon. Member for Yeovil (Mr. Ashdown), although he was somewhat grudging in his support for the Budget—only towards the end of his speech.
The right hon. Gentleman always raises the issues of health and education, but he does not take into account the fact that we have already provided £2.3 billion for education, that we immediately released—300 million into health care last year and that we are releasing—1.3 billion into health care this year.
§ Mr. Bell
If the hon. Gentleman does not mind, I would rather make a little progress with my speech.
If the right hon. Member for Yeovil continues to advance the argument that there must be more money for health and education, he should at least give us the satisfaction of stating what we have already done in both those areas.
§ Mr. Ashdown
I am grateful to the hon. Gentleman for giving way to me, as he did not allow my hon. Friend the Member for Newbury (Mr. Rendel) to correct him. The hon. Gentleman should have noticed that, when the Chancellor talked about extra money for health and education, he carefully pocketed inflation, but was not prepared to pay it out. The effects of the Chancellor's Budgets over the past two years mean that, after inflation is taken into account, the amount of money invested in the NHS by the Government this year is less than that invested by the Conservatives, and over the two years—this year and next—will be nearly £250 million more. Those are the figures that should be taken into account.
The Chancellor should remember that when the Conservatives tried those tricks in 1988, he said:When health costs are rising faster than even ordinary inflation, the sum that the Chancellor has provided today will barely cover the basic inflationary pressures that the health authorities face".—[Official Report, 1 November 1988; Vol. 139, c. 826.]What the Chancellor said of one of his predecessors, we now say of him.
§ Mr. Bell
I say this with great deference, but the right hon. Gentleman has shown that he lacks any grasp of the 1126 economic arguments. He is saying that, if we put £2.3 billion into education, £1.3 billion into health, plus £300 million, we also have to write in inflation—how ridiculous. If we were to do that, we would have to write inflation into the whole system. We would actually be saying that we do not want an inflation rate of 2.5 per cent., which is the target, but that we want it to rise consistently with the amounts of money put into education and health. The actual inflation rate that we would then be talking about would be 5 or 6 per cent.
I sympathise with the right hon. Gentleman over not understanding the basic economic fact about how inflation builds into the system. If we had inflation rates of the sort that the right hon. Gentleman suggests, we would be hearing cries of dismay from the Opposition. That would contradict the argument that the right hon. Gentleman advances: he consistently tells us to join the single currency with a convergence rate of 2.5 per cent. inflation, but his statements on education and health would build inflation into our system so that we could not meet that rate. He will have to work out in his own mind the various contradictions in his policy.
The right hon. Gentleman described the Budget as interesting; the Budget is extraordinary. The Liberal Democrat party has now taken over as the official Opposition. It is a great sadness to the House that the Conservative party, which was in government for so long, has deserted the Opposition Benches, deserted the argument and deserted the battlefield. It is extraordinary that a Budget that places emphasis on the family, the low-paid, welfare to work, redistribution and child care should find absolutely no echo from the official Opposition. While the right hon. Member for Yeovil spent much time talking about the Maastricht treaty and joining the single currency, he referred to child care only in the last few words of his speech.
Today's Budget is extraordinary. It is a Budget that redistributes but, at the same time, does not add to taxation. My right hon. Friend the Chancellor has announced a fundamental reform of the tax system. He has shown clearly that it is a Budget for the many, not the few. He has talked about building stability into the system, not creating the sort of boom-and-bust conditions to which the right hon. Gentleman referred. My right hon. Friend the Chancellor has talked about having sustainable growth and rising employment levels while maintaining a low inflation rate. He has talked about fiscal policy and monetary restraint.
Such policies may not bring an echo from the right hon. Gentleman, but it is surprising that the Liberal Democrat party, which aspires to be the official Opposition, cannot take into account the proper arguments in the Budget. In my constituency, there will be great satisfaction at my right hon. Friend the Chancellor's view that we can move from poverty to modest prosperity, and that what he has created today is a ladder of opportunity, building on the welfare-to-work schemes and the new deal, which comes into effect on 6 April.
My right hon. Friend also spoke of lone parent benefits—a subject that has aggravated many in the country. It was argued that lone parents would lose benefit because, if they took a job, lost it within a short time and then took up benefit again, it would be at a lower rate. Today, that issue has been addressed by my right hon. Friend. He has made it clear that benefits for lone parents will not be lost if those parents take up work for a brief 1127 time—and that brief time is to be at least 12 weeks. He has clearly shown that there will be no loss of benefit to the lone parent in such circumstances.
§ Ms Diane Abbott (Hackney, North and Stoke Newington)
I am grateful to my hon. Friend for referring to lone parents, a subject about which I am very concerned. My hon. Friend is quite right to say that the 12-week link will deal with one of the objections that some of us had to the Government's proposals, whereby single parents who took up work that did not last would find themselves worse off. But the Chancellor said something chilling when he said that there was no case for one-parent benefit. The Chancellor refuses to recognise that being a single parent in itself involves extra costs. It is important to flag up that issue at an early stage of the debate.
§ Mr. Bell
I am grateful to my hon. Friend for accepting that the 12-week period to which my right hon. Friend the Chancellor referred is welcome. It will certainly ease much of the anxiety in my constituency, as in others. What my hon. Friend did not mention, but the Chancellor made great play of, is the equality of work opportunity for women, which everyone in the House should welcome.
While my right hon. Friend did not address the point mentioned by my hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott), he said that child benefit would be raised by 20 per cent. from next April. He has also talked widely and in great detail of the modernisation of the welfare state. He has also suggested that carers will have a sense of place in our system because help for them will be backdated to April 1997. The Chancellor has also made it clear that he will introduce a new child care tax credit, which the House should welcome.
Those who argue one way or another, whether old or new Labour, must accept that the Chancellor referred to the Beveridge report and did so in the context of a changed economy. We are in the year 1998 and looking towards the millennium. We have an entirely changed economy and an entirely different social mix; it is right and proper that, while we adhere to the values and traditions that have guided this Labour party of ours for so many years, we modify and adapt them for the age in which we live.
I was pleased to hear the Chancellor say that child benefit would stay as a universal benefit, and that its levels would be raised.
I am sure that the Liberal Democrats, who now make up the Opposition, join us in welcoming the new working families tax credit. That is an excellent suggestion, which will help 750,000 people who are held back by low wages. By tackling the unemployment trap and increasing help to families, the working families tax credit should ensure that work will always be more attractive than benefits. That will please those who have been raised on the work ethic in our industrial cities and towns. They understand the nature of work—the dignity and respect that it gives to those who have it and how those who do not have it are deprived of dignity and respect.
The working families tax credit will tackle the poverty trap, meaning that the more one earns, the more one takes home. That is part of the new deal. As my right hon. 1128 Friend has said, there is an onus and a responsibility on people to seek work. My right hon. Friend has guaranteed that work will pay.
My right hon. Friend also had a word to say about the disabled. The debate on welfare reform has become more excitable, with disabled people chained to railings because they think that somehow their benefits will be cut and they will be victimised. My right hon. Friend has made it clear that the Government will never compel the disabled to work, but that he will remove the obstacles that prevent those who want to work from achieving their potential. That is an admirable principle.
My right hon. Friend said that he would introduce a new tax credit for disabled people in work. The measures that my right hon. Friend has announced will ensure greater rewards for disabled men and women who enter work. The essence of the Budget and the welfare-to-work programme, which should have been welcomed by the Conservatives, is that those who wish to work can and should work, and that work will pay.
I shall limit my remarks to the welfare-to-work proposals. I shall not follow the, as it were, Leader of the Opposition—the right hon. Member for Yeovil—by debating the single currency. He did not give my right hon. Friend credit for the drop in the long-term interest rate from 7.5 per cent. to 7 per cent. He also failed to explain how we could enter a single currency with a short-term interest rate of 7.25 per cent., while short-term interest rates in Europe are 3.5 per cent. How can we enter a single currency when there is no convergence in our economies?
§ Mr. Ashdown
The hon. Gentleman was—uncharacteristically, perhaps—not listening to my speech as carefully as he might. I said that the Government should follow a declaratory policy; I did not say that we should enter the single currency now. We should set a target date of 2001 or 2002. We should follow policies consistent with that, by which time we can, no doubt, achieve convergence, and then hold a referendum on the principle before the next election. I do not know whether the hon. Gentleman agrees, but I believe that the Government will do that.
§ Mr. Ashdown
No. I have said this twice in simple English. The Government will be forced to take a decision and hold a referendum on the principle of joining a single currency before the next election. They can then join on their target date of 2001 or 2002. That is pretty simple. I should have thought that the hon. Gentleman could understand that without too much further assistance.
§ Mr. Bell
I understand that, but it comes to the same thing. The right hon. Gentleman wants the Government to make a commitment to joining the single currency after 1 May. He has disregarded the Government's clearly set out policy that there must be convergence of business cycles throughout the European Union, that there must be a referendum and that the referendum must be won. 1129 The right hon. Gentleman should be advocating fixing our rates against other currencies, or possibly entering the exchange rate mechanism, rather than putting forward hypotheses about what he thinks will happen.
In the days of old Labour, we used to talk of a fundamental and irreversible shift in the balance of wealth and power to workers and their families. In the days of new Labour, my right hon. Friend the Chancellor is seeking to achieve an irreversible shift in opportunity towards those who are less well off and less privileged in order to create a modern Britain. That is the essence of the Budget, placing emphasis on those who need help in our society and those who want to climb the ladder of opportunity. The Budget should be commended by hon. Members on both sides.
§ Mr. William Ross (East Londonderry)
I have listened to a good many Budget debates during my time in the House. This one has had a different flavour from usual. It was different in structure and, to some extent, in content. We usually hear a list of all the goodies that the Government intend to provide in the coming year. We are then told the global cost of those goodies and the revenue that has to be raised to meet that cost.
We have not heard that today. We have been left in limbo, having to go away to get the bundle of papers, sit down with a cold towel over our head and start to work it all out. No doubt the financial editors of the newspapers will do that ere tomorrow.
Very few of the changes announced will have effect from today or tomorrow. The first main change seems to be planned for December, with all the others flowing from about April next year. The measures are being introduced over a long period.
Not having heard any great detail about how the Government intend to pay for the measures that they have announced, I am driven to the conclusion that they are depending on the economy continuing to expand strongly. That is all very well if the economy follows the course that they are predicting, but if it does not, the situation could be catastrophic. As a fairly cautious man, the Chancellor will know that. No doubt measures to deal with that eventuality are buried somewhere in his speech. I shall read it carefully.
It is difficult to make a speech about the detail of the Budget within half an hour or so of the Chancellor sitting down. It is necessary to try to absorb the broad framework and then try to work ones remarks around the salient points. During the long debate to come on the Finance Bill, we shall be able to examine in detail what the Chancellor is setting before us.
I have always been an advocate of balanced Budgets. I was happy when we were ejected from the exchange rate mechanism, which, sadly, because of the perception in the country, was one of the greatest financial disasters that the Conservative party suffered. The ejection was a happy event. Going in to the ERM in the first place was the cause of much of the misery that the Conservatives suffered and, ultimately, of their coming to join us on this side of the House after 1 May last year. The ordinary citizen may not have been clear about what happened, but he figured that something bad had happened and did not like it. That, along with the poll tax, sealed the Conservatives' fate.
1130 I hope that the present Government will not take the advice of those who are urging them into the single currency. In the longer term, they would suffer the same fate as their predecessors, and ordinary citizens would pay the same unhappy price.
Following our ejection from the ERM, the policies pursued by the previous Conservative Administration with regard to the country's finances have practically brought us back to the position where we can start to repay public sector debt. I welcome that, because I believe that we should try to redeem the indebted state in which we live. We should look forward to a long period in which as a nation we are rarely in budget deficit. In the long run, that huge burden of debt, and the huge financial commitment that must be made in interest payments every year, should shrink away.
I am well aware—and I am sure that it is well known on the Treasury and the Opposition Benches—that that happy situation will not be achieved without pain. I hope that, as the next election approaches, the Government will not lose their nerve, and that the next Government, whoever they may be, will continue on the same path, so that we can earn our keep in the world honestly.
I shall touch on some of the details of the Budget. The first concerns tobacco. The issues are well documented. Only a small proportion of the population, or of those engaged in the tobacco industry, would deny that tobacco is dangerous. It is dangerous, and it is better not to smoke. I am in the happy position of not smoking, although I confess that I do not think it is so dangerous that we should demand that smoking be stopped in every public place. I am not so politically correct that I am willing to go along with that manifestation of correctness.
I have noticed from the documentation that has been sent to us recently that there has been a rise in the number of smokers, especially among the young, over the past year or so. Why should that be? It cannot simply be a matter of price. It must have something to do with peer pressure among the young. I wish that the Government would spend some of the enormous sums that they receive from the tax on tobacco to investigate the reasons why people start smoking, and that they would put the large number of spin doctors whom they employ to a more useful purpose—to come up with a good anti-smoking advertising campaign aimed at the young, to prevent young people from starting to smoke.
That will not make me very popular with many of my friends who work at Gallaher in Ballymena. I understand that, but everyone in the industry knows that, in the long term, the tobacco industry as a major employer is doomed.
§ Mr. Brian Cotter (Weston-super-Mare)
Does the hon. Gentleman agree that the Government signalled in their statement today that they would put more emphasis on controlling smuggling and on the Customs operation? The revenue from tobacco sales should go to the Exchequer for the purposes that the hon. Gentleman identified and also for the national health service. Much of that money is not being paid to the Revenue, and is also being lost to our small shops.
§ Mr. Ross
I was coming to that, as it is an important issue that is well understood by those of us who represent constituencies in Northern Ireland, and especially by those of us who have a connection with the Gallaher factory, 1131 which approaches us each year, worried about the increase in costs and the effect of that on smuggling and on its sales. This is not a black and white issue: it is complex and difficult.
§ Mr. Roy Beggs (East Antrim)
Does my hon. Friend accept that, as our Government increase the taxation on tobacco products, that creates an even greater incentive to smugglers, and that our Government should use their presidency of the European Union to close the gap in taxation on tobacco products?
§ Mr. Ross
My hon. Friend pre-empts me—I shall deal with that, but first I shall conclude my remarks about the young.
Despite the vast sums that they collect from tobacco, the Government have neglected the necessary education process. They want the money, but they also want the good health of the population that would flow from denying themselves that money. I urge them to use some of the money to educate the young and so reduce smoking.
It has long been my view that, although the damage that an individual suffers from smoking is more personal than the damage caused by the excessive use of alcohol, it is still a dreadful thing to see friends, relatives and neighbours dying from cancer. For that reason I object to smoking in general, but I am not so naive as to believe that it will be easy to get rid of it.
There are enormous costs in health provision as a consequence not only of smoking but of excessive alcohol intake, and the latter shows up more vividly in car smashes, broken bodies, broken limbs, smashed lives and young people dead. I sometimes think that too much concern is directed at smoking as a health hazard, and not nearly enough at the excessive use of alcohol.
Tobacco creates large, important and pretty well-paid employment in Northern Ireland, but as my hon. Friend the Member for East Antrim (Mr. Beggs) pointed out, the high taxes encourage smuggling. There is an enormous loss to the public purse, which has been quantified time after time by the tobacco companies for the Chancellor. The Treasury is well aware of the problem. It knows that the hand-rolling tobacco that leaves Ballymena today will be back in the stalls all over the British isles within a fortnight, no tax paid. It is extremely difficult to crack down on the trade. The number of lorries passing backwards and forwards to the continent is enormous.
Although there have been considerable successes as a result of increased surveillance and a crackdown, smuggling is still a huge operation. A great deal of it is organised crime. It is not, so to speak, a simple home-based industry, but organised criminal activity on a very large scale. The only way that we will ever get rid of it is by getting rid of the money-making element, which means the harmonisation of tobacco taxes across Europe.
It is about time that, on health grounds, the rest of Europe started getting its tobacco taxes up to our level. Then we would see whether the smuggling would last. The revenues properly payable in this country would flow into the coffers of our Treasury, rather than into the bank accounts of the criminals running that massive industry.
§ Rev. Martin Smyth (Belfast, South)
My hon. Friend mentioned hand-rolled tobacco. My understanding is that 1132 the bulk of it that is coming in is illegal—it is not British tobacco coming back. However, what has happened, especially since the last tax increase in December, is that more cigarettes are coming in. That has not affected UK manufacturers, who export the cigarettes to the continent which then come back into the country, but it is hitting the small businesses—the tobacconists and newsagents. That should cause the Government concern. It is estimated that £1 billion a year is being lost to the Exchequer. How do the Government expect to make that up by putting another 20p on a packet of cigarettes?
§ Mr. Ross
The 20p increase on a packet of cigarettes will probably increase that loss to above £1 billion as more cigarettes are smuggled into this country. The weekend press was full of stories about how Andorra, of all places, is one of Europe's principal conduits for tobacco. The Government must examine that complex problem—I shall not go into it in great detail, because I know that the Government have far more information on the subject. They know the evil effects of tobacco.
The Government are also aware of the problems caused by different pricing and taxation rates, not only for tobacco but for all sorts of goods. For instance, the high cost of cars in Northern Ireland compared with the Irish Republic is absolutely devastating the garage car trader industry in the Province. That price difference results purely from reduced taxation levels in the Republic and the pricing structures of the companies that manufacture the vehicles. The United Kingdom is one of the highest-priced car sales points in the world—it is certainly the most expensive market in Europe. The Minister may care to apply his mind to that issue.
I now wish to discuss fuel tax. I am well aware of the strong lobby seeking to increase fuel tax for environmental purposes. I am aware also of the pressure to use gas for propulsion—there was an interesting exhibition on that in the House not long ago. However, a gas car, like a diesel car, is much more costly than a petrol car, and it will be some time before gas is able to compete effectively with other fuels. I suspect that a fuel-efficient car with low emissions is also rather more costly than an ordinary vehicle. I fear that it will be some years before those cars penetrate into the rural areas where people depend on private transport.
Personal vehicle transport is extremely convenient, and no other form of transport will ever be as popular. Cars are vital for many people in their work. People in very different occupations—such as commercial travellers; Members of Parliament, who must visit their constituencies; and district nurses—depend on cars to a greater or lesser extent. Some occupations are totally dependent on cars.
Although it may be possible to introduce mass public transport systems for urban, suburban and regular there-and-back journeys, that will never be possible in rural areas. Even urban and suburban public transport will always have to be subsidised to some extent if prices are to be kept down and people are to be persuaded to use it. There is a limit to how much the Government can increase the costs of cars and of running them.
We face even greater difficulties with rural public transport, including buses and so on. It is always difficult to service sparse populations. There is no easy answer to that problem, and it cannot be right to put up the price of fuel year after year. It is easy to travel by personal transport to many regions where public transport simply cannot meet existing need.
1133 We know that people—especially those in rural areas—will do without other things in order to hang on to their cars. Steadily increasing fuel costs are creating great hardship for many people who live and work in the more remote areas of this country. There is no point in demanding Rolls-Royce standards for the environment if that creates penury for the individual in other respects—in the form not only of fuel tax but of taxes on rural activities such as quarrying and gravel extraction, which provide vital employment. I shall come to that issue in a moment.
I had an interesting experience just before Christmas when a constituent informed me of a nice legal way to avoid paying excise duty on heavy commercial vehicles in Northern Ireland. I wrote to the Chancellor about the matter on 15 January, and I received a reply from the Financial Secretary saying that the Treasury was grateful to me for drawing its attention to the problem of evasion of vehicle excise duty in Northern Ireland. Although it is evasion, it is not illegal—in fact, it is very clever. People open an office for a quarrying or sand-washing business in the Irish Republic and, if they live within 20 miles or so of the frontier, they can take their vehicles into the Irish Republic where they pay their vehicle excise duty—which can amount to a saving of—500, or—1,000 for the heaviest vehicles, per year. It is even better if the operators can use those vehicles occasionally in the Republic.
Such operators not only deprive the United Kingdom Exchequer of revenue but put themselves in a powerful position in relation to their competitors who pay their vehicle excise duty in the Province. The Treasury must address that loophole. I hope that Ministers will refer to the letter that I received from the Financial Secretary on 18 February because, although the Treasury seemed delighted to hear about that little swiz, it does not seem to have done much about it.
I am a gentle sort of chap, but I was not satisfied with the Treasury's response. I recently asked the Secretary of State for the Environment, Transport and the Regions what assessment he had made of the impact on vehicle registrations in the United Kingdom of the different rates of vehicle excise duty that apply to commercial vehicles in the United Kingdom and the Irish Republic. The answer I received was that no assessment had been made. Perhaps the Treasury could tie in its examinations with those of the right hon. Gentleman.
It was also pointed out that the sums accruing in respect of vehicle excise duty for heavy goods vehicles in Northern Ireland have fallen by about £2 million in the past three years. I do not think that there are fewer heavy vehicles of that class on Northern Ireland roads; I am sure that there are as many as ever—I always seem to get stuck behind a sand lorry when I am out driving. if the excise duty is short by £2 million, that money must be going somewhere else. We should remember, too, that the rate of vehicle excise duty has increased in the intervening three years, so the take should be up by £2 million or £3 million.
I have also discovered that the total number of goods vehicles has increased by some 3,000. Therefore, one can safely assume—I have made further inquiries into the matter—that the lighter vehicles are still taxed in Northern Ireland while another class of vehicle is taxed on the other side of the frontier. Will the Government take that information on board and do something about it?
1134 Most businesses in Great Britain do not have to accept the consequences arising from an open land frontier and the different tax regimes and standards of pollution control on either side of it—which brings me to my next point. Northern Ireland cannot escape those consequences. The two jurisdictions are side by side, so it is easy to adjust and work in the jurisdiction where one will derive the greatest financial benefit. The consequences are that one firm may save money and accrue excess profits while another is driven into bankruptcy. That results in considerable damage to the Northern Ireland economy—to employment, to the tax take and to spending power. The Government must address that problem and create a level playing field so that businesses may compete fairly.
Another issue—it will become worse as a result of today's announcements—arises from the difference in fuel costs between Northern Ireland and the Republic. The overall duty in Northern Ireland on unleaded petrol and diesel is 40.28p per litre. In the Republic, unleaded petrol carries a duty of 29.45p a litre. That is a difference of about 10.5p. The duty on diesel is 25.62p, giving a difference of slightly more than 15p per litre.
It is no wonder that all the petrol stations in the Republic adjacent to the border are making a fortune. Those which are unfortunate enough to be in Northern Ireland are being crucified. In Northern Ireland, the price per litre of unleaded petrol is about 61.9p sterling. In the Republic of Ireland, it is 61.9p in punts, which is a heck of a difference.
§ Mr. Ross
That is right.
In Donegal, the price of diesel is 62.9p. The equivalent price is 0.529 punts. That is a huge difference. As for Down and Louth, the price of petrol is 64.9p in Northern Ireland and 0.569 punts in the Republic. Diesel is priced at 63.9p sterling as against 0.499 punts.
With such differences in pricing, the honest trader or business man in Northern Ireland is being hung out to dry.
§ Mr. Beggs
Does my hon. Friend agree that there is an even greater disparity in the price of red diesel, which is being used illegally by hauliers? That disparity is creating great difficulties for legitimate business men who seek to compete with fly-by-night operators. It would be well justified for Customs and Excise staffing in Northern Ireland to be increased to deal with that illegal trade.
§ Mr. Ross
My hon. Friend is right. I am sure that the Minister will be aware of the order that had to be rushed through the House some years ago when diesel tankers were parked on one side of the border from which pipes were run across to the other side. In that instance, the IRA was involved, and the sums were horrendous. Very few of these activities on the Northern Ireland border are merely matters of commercial advantage or disadvantage. Many of them have a terrorist element.
I expect that the Minister will be more interested in revenue. However, she and her right hon. and hon. Friends at the Treasury should turn their minds to the implications for criminal or terrorist activity, with violence being funded from such activities. I ask the Minister to take those elements on board and for heaven's sake to do something about them before we are very much older.
§ 6.3 pm
§ Mr. Bill Michie (Sheffield, Heeley)
Thank you, Mr. Deputy Speaker, for calling me so early in the debate. I shall be as brief as possible, confining myself to one or two subjects in the Budget proposals, most of which I welcome. There are, of course, still some worries about the benefit changes that are already taking place, such as those affecting lone parents. However, I welcome my right hon. Friend's initiative in considering new benefits to cater for family need.
I genuinely and sincerely hope that the shake-up of the tax and benefits systems will have the desired effect of helping those in greatest need. I hope, too, that we shall be able to provide proper training for proper jobs for those who are seeking work. I look forward to the schemes that have been outlined being a great success.
I understand the concern about inflation. Economists—and especially former Chancellors—have apparently always been obsessed with inflation. It seems that newspaper inflation reports are almost as popular as weather forecasts for the day—will there be rain or sunshine, or has the rate of inflation increased or decreased? However, many people understand inflation and many of my constituents feel that they are not affected greatly by a slight shift in the rate of inflation weekly, monthly or even yearly.
I understand that we cannot allow rampant inflation of the kind that has occurred in other parts of the world. We are aware of the consequences for economies generally. However, it is slightly narrow and dangerous to concentrate solely on price stability, which in its turn brings serious consequences. One example is the value of the pound and the effect that that is having on industry and the export market. I was pleased to hear my right hon. Friend say this afternoon that he fully recognises the problems that manufacturing industry is facing, especially with the export market, as a result of the strength of the pound.
Imports are similarly affected. The fact that we have a strong pound means that it is easier to suck in goods from abroad, and that has an effect on our United Kingdom base. I am sure that the TUC has written to every Member of this place, and certainly to my right hon. Friend, expressing the fears about the strong pound, or the overvaluing of the pound.
Another problem lies with interest rates. I am sure that we have all received letters from employers expressing concern about them. I am no longer sponsored by the Amalgamated Engineering and Electrical Union, but I am still a member of it. I meet members in their factories and firms throughout the country, including my constituency. In that regard I still have an interest, because the industry employs much skilled labour, both male and female.
Manufacturing industry is different from many other forms of employment. Consistently high interest rates along with a consistent over-valuation of the pound have a dramatic impact on our manufacturing base. Manufacturing industry is not like the corner shop, where it is possible to order a gross of cornflake packets one week on the basis that, if business is good, it will be possible to order two gross the following week.
Industry operates on a longer-term basis than that. It is extremely expensive to modernise or expand. Industry has to borrow millions of pounds to improve and modernise 1136 so as to become more competitive in the world market. Massive changes in interest rates, especially rising rates, have a serious effect on manufacturing companies. Such fluctuations have brought many companies to their knees.
Investment in manufacturing is long-term, and there are long-term cycles for order books: when are the products made; how long will it take before they are sold; and how long will it be before payment is made? Against that background, a stable economy is important. Stable interest rates and a pound that is not overvalued are also crucial to our industry.
§ Mr. Alan W. Williams (East Carmarthen and Dinefwr)
Does my hon. Friend agree that, if we want an end to boom and bust and look to stability in the economy—the Government's overriding long-term objectives—we shall not achieve those objectives with the present level of the pound? We must have lower interest rates and a lower pound.
§ Mr. Michie
I appreciate my hon. Friend's point, which is absolutely crucial if in the long term we are to achieve high growth, production and wealth for all our people.
I welcome my right hon. Friend's announcement of a reduction in the rate of corporation tax from April. That will certainly be helpful. Nevertheless, the value of the pound and current rates of interest are causing concern in manufacturing industry.
§ Sir Robert Smith (West Aberdeenshire and Kincardine)
Does the hon. Gentleman realise that about 20 per cent. of United Kingdom manufacturing investment results from expenditure in the North sea oil industry? There will be concern among contractors who will have to wait another month to find out whether the Government plan any reforms of the tax regime. The hon. Gentleman referred to. long-term investment in manufacturing. Does he accept that stability in any tax regime helps to encourage long-term investment, and uncertainty as to whether the Government plan to change the tax regime may drive investment away to other countries?
§ Mr. Michie
I agree with the hon. Gentleman in respect of the oil industry, the steel industry—on which we have all received letters—and engineering. Long-term investment means holding one's breath for a long time and hoping that nothing drastic happens to the economy and interest rates during a five, 10 or 15-year investment programme.
It is a tough world out there. I may be bragging, but I have every confidence in the ability of British manufacturing, engineering, science and technology to compete with the best in the world.
We would like a level playing field, however. To use a sporting analogy, given that the world cup is nearly upon us, we should like a fair kick at the ball on a level playing field. We are not seeking special favours or subsidies, just the chance to prove our worth—and I am sure that we will do it.
A strong pound means cheap holidays, and this year thousands of people may be enjoying extra holidays abroad. That is the up side. The down side is that a strong pound is detrimental to industry, particularly manufacturing, and could lead to job losses. If people lose 1137 their jobs, they will have no holidays, so what may be good for some people may badly affect thousands of others. It is essential that we protect our manufacturing base. I admit that am biased in favour of engineering and science, but it is clear that our manufacturing base has been, and will continue to be, the strength of the nation.
My right hon. Friend's welfare-to-work measures are also welcome.
§ Mr. Michie
No. The hon. Gentleman spoke for 27 minutes on fag ends.
Welfare to work requires proper training and jobs, which depend on a stable economy and a strong industrial base. I welcome the encouragement that my right hon. Friends the Chancellor and the President of the Board of Trade have given British Aerospace in respect of launch aid for the Airbus 340, 500 and 600. It is a classic example of British industry as a world beater.
For 18 years under the Tories, particularly before I entered the House, industry—and the workers within it—was left to the wolves. It took years for the previous Government suddenly to realise that industry no longer had a skills base or a production base for when the economy recovered. Their policies were so short-sighted that they were criminal. Now that we have a totally different Government who are much more sympathetic to industry, and certainly understand it better, confidence is growing. We need to improve our skills base through welfare to work and training programmes.
§ Mr. Michie
No. I am about to finish my speech.
In respect of research and technology, I welcome my right hon. Friend's announcement that £50 million is to go into university research. It may not be as large a sum as some people would like, but it is a step in the right direction.
Since the general election, confidence has improved and there are great expectations. I hope that my right hon. Friend will take into account my points about the manufacturing base, the strength of the pound and the level of interest rates, and that the measures he has introduced will help to realise the nation's aspirations. I know that the present Government can do it.
§ Sir Michael Spicer (West Worcestershire)
Before I comment on some of the points raised by the hon. Member for Sheffield, Heeley (Mr. Michie), I should like to welcome the Paymaster General to our humble debate. His presence now makes his absence from the Front Bench during the Chancellor's statement even more mysterious. Perhaps he was hiding, in which case I apologise. The Paymaster General normally occupies a more prominent position during Budget debates.
I sought to intervene on the hon. Member for Heeley when he referred to industrial production. It is a nice mythology that industrial production collapsed under the previous Administration. In truth, the reverse happened. In the latter period under the previous Government, 1138 industrial production peaked. It was a different composite of industrial production, but it was highly successful. The structural reforms that were implemented by the previous Government are benefiting the present Government and this year's Budget.
The Government have the benefit of the strongest economy inherited by any incoming Administration in recorded history, so it will take them some time to mess things up. I sympathise with an earlier, sedentary, comment that it was irresponsible of the Conservative Administration not to have left behind a worse economy, as that would have averted prolonging the agony of a Labour Government. They will undoubtedly mess it up, but the good news is that it will take them some time to do so.
It is also good news that the Government have inherited sensible policies that they have decided to stick with, at least for the time being. For example, they have retained a £266 billion control total for expenditure.
As the hon. Member for East Londonderry (Mr. Ross) said, we were not given the global totals. That is quite extraordinary. Usually we are in a position to compare expenditure and income. One advantage introduced by the Conservatives was that we had access to both figures. That was a tremendous innovation. This time, however, we are not able to compare the figures, although we know that the Government have decided to retain the control total. Outside commentators tell us that the control totals have been undershot; in that case, what I suggest is even more sensible.
The Government have also sensibly decided to retain the same rates of income tax, although that terrified the left wing of the party. Perhaps that is why so many of them escaped so quickly after the Chancellor sat down—presumably to report him to the newspapers—although the hon. Member for Hackney, North and Stoke Newington (Ms Abbott), who always takes a great interest in these matters—and bravely so—is still in her place. On some issues, particularly in respect of economic and monetary union, I find myself in enormous agreement with the hon. Lady, although she see things from a rather different perspective. However, I would not wish to embarrass her or spoil her career by associating myself too closely with her.
The good news is that the Government have accepted, albeit ungraciously—they have had to accept it—that we left behind an extremely favourable legacy. We left behind some good policies which it will take the Government some time to mess up.
The bad news is that, in the end, Labour always mishandles the economy. In the end, it always loses investors' confidence. However good the motives of those in the Labour party, or in its higher reaches, in the end it is the victim of the fundamental tensions in its ranks between the true socialists—the true inheritors of Keir Hardie and those who built up the socialist movement—and the lotus-eating types who from time to time take over the party.
One of the ways in which the Government have responded to that tension is to hand over a large chunk of the management of the British economy to the Bank of England, which, to a large extent, now effectively runs the economy on a narrow statutory objective.
The hon. Member for Heeley said that we must not treat inflation too seriously. I do not want to caricature or exaggerate what he said, but the problem he faces is that 1139 the Administration he supports has handed over the British economy to an unelected body—the Bank of England with which, from time to time, I have the honour of debating in the Treasury Committee—with the specific narrow statutory objective of a 2.5 per cent. inflation rate.
Members of the Treasury Committee may say to the Governor, "You don't really believe in this, do you? You are really on our side. You will match this up with other objectives, won't you? We are worried because the present high interest rates are forcing up the pound. That might be good for the cost of imports, but it is bad for exports, so we want you to modify that." The Governor can say what he likes in response, but the only legal response that he can make is, "I'm terribly sorry, but my overriding objective is a 2.5 per cent. inflation target."
The Government cannot have it both ways. One of the features of this Budget, and of the previous Budget, is that under this Administration so much of economic policy now has to be conducted within the boundaries of the fact that economic management is no longer the responsibility of the House of Commons and is constrained by limited economic objectives.
§ Sir Robert Smith
Would the hon. Gentleman argue for a higher inflation target, or is he happy with a more relaxed target?
§ Sir Michael Spicer
I do not disagree with keeping inflation down. What I am concerned about is that it is no longer the responsibility of politicians in the House. So much of the debate that we have now is artificial—it is nonsense because we can no longer affect policy.
No doubt that nonsense is the result of the best of motives. The speech of the hon. Member for Heeley was an echo of the past when we had some say in the running of Britain from this Chamber. The Treasury Committee can summon the Governor of the Bank of England from time to time and ask him some polite, or rude, questions, which he must answer in fairly constrained terms; then he goes away, and the Select Committee produces a report and everyone is happy, but the House no longer has any real involvement or accountability.
Therefore, to an extent, debates such as this are a pure waste of time. Monetary management is crucial to economic management, particularly if the Government are committed, as they say they are, to relating fiscal policy to monetary policy. In effect, that was said today about the new fiscal code. If that is to mean anything, it must mean that fiscal policy is running in tandem with monetary policy. It would be nonsense if the Government's stated policy was to run fiscal policy in opposition to monetary policy, if only because interest rates would have to go up and up because of the inflation target. It is arguable that they have gone up to the extent they have because fiscal management has not been in tune with monetary management.
§ Mr. Bill Michie
Does the hon. Gentleman agree that, if my right hon. Friend the Chancellor—as I am sure he will—gets the Budget absolutely or near enough right so that he has money in his pocket, he will be able to have a dialogue with the Bank of England about the exchange rate, and therefore its effect on the pound? It is not that 1140 the two things are in different worlds. The two interested groups know exactly what is happening and if my right hon. Friend has the money in his pocket, it will have the effect that we all want.
§ Sir Michael Spicer
I am sure that Ministers and the Governor of the Bank of England will collude on matters of policy from time to time. The other day on the "Today" programme, a Minister said exactly that—that the Government have ways of getting their message through—but the problem is that a statute has been passed by Parliament not only giving the Bank of England responsibility for monetary policy, to which fiscal policy must be attached, but stating that that monetary policy must be carried out in a precise way to meet a, 2.5 per cent. inflation target.
§ Mr. Geoffrey Clifton-Brown (Cotswold)
My hon. Friend is right to say that the Bank of England's narrow remit is leading to severe problems. Does he agree that one power that might have been given to the Bank of England is the ability to control the money supply? Does he agree that the present increase in the money supply will lead to problems?
§ Sir Michael Spicer
There are inconsistencies in policy—my hon. Friend is right. M4 is running at about 10 per cent. on an annualised basis, which is serious in terms of monetary policy as defined by the Government, and it is one reason the Monetary Policy Committee was split 50:50 on interest rates. I agree with my hon. Friend that it is important that such things should be in sync. That adds to my point that, once policies have been set in such narrow terms, everything flows from that decision.
The debates that we used to have about monetary and fiscal policy and economic management are fairly worthless now. We are left struggling with a little taxation here and there, some tinkering around and a little prioritising, but in terms of Britain's grand economic management, the House of Commons can no longer join in properly. It may try to or pretend to, as it would if we had a European Parliament with the ultimate say in our affairs, but in reality we have no such power.
I was distracted from what I was saying about the tensions in the governing party being one reason why there will be an ebb of confidence from Britain. which is one reason my right hon. Friend the Leader of the Opposition asked what had happened to the lop tax rate and the welfare reforms. I assume that they have not been introduced precisely because of those tensions in the Labour party, to which there is an attempt to pander by not lowering direct taxes too fast. Neither have the Government got to grips with welfare reform.
The tension in the Labour party also explains why taxes have soared in the past two Budgets. The first Budget took out £4 billion of tax, excluding windfall tax, and £5 billion will now be raided from pension funds. Hon. Members need not take the Opposition's word on that; the Institute for Fiscal Studies has shown, based on the Chancellor's first Budget alone, that by 2001 or 2002 taxes will rise from their current level of 38 per cent. of gross domestic product to 40 per cent.
That figure assumes an average growth in GDP of some 2.5 per cent. If the high interest rates, the high pound and the natural economic cycle result in GDP stabilising or 1141 even falling during that period, the percentage tax take will soar because the taxes are now inbuilt; what is not inbuilt is the guarantee that GDP will rise.
It now seems that, should the Government decide to enter economic and monetary union, under the Maastricht conditions the United Kingdom will have to enter the exchange rate mechanism. It was thought that we could simply shadow the euro or the deutschmark. In the new circumstances, interest rates, far from coming down—as people assume they will—in the next two or three years, will come down only a little and then the Germany economy will dominate. The German economy is the size of the French and British economies put together, it is beginning to come out of recession and interest rates in Germany and the EMU area are beginning to rise.
As we approach the next general election, instead of British interest rates coming down, they may start to rise as we try to match the EMU currency. That may worry Labour Members. The hon. Member for Hackney, North and Stoke Newington is right to worry about those matters. If I were a Labour Member, I would be dead scared. The Government have already given up control over monetary policy—to fate, as it were. If they start seriously to prepare for entry into EMU, which will mean joining the ERM again, they will make trouble for themselves.
The best that can be said about this Budget is that it is not as bad as some people feared. That is why all the left-wing Labour Members rushed out of the Chamber to report the Chancellor to the press.
§ Sir Michael Spicer
I have already exonerated the hon. Member for Hackney, North and Stoke Newington and I exonerate the hon. Member for Heeley. If other Labour Members want to raise their hands, they should do so now.
A Government whose pronouncements are not as bad as everyone had feared are not good for long-term confidence. When people go through a mental sauna bath and worry themselves stiff that the Budget will be awful but then find that it is not quite so bad, markets and confidence are unsettled. It is particularly unsettling when the Chancellor gives no proper figures to show how he has balanced the books.
We know that a combination of excise duties, taxes raised at the last Budget and, above all, fiscal drag, which is the result of the strong economy that the Government inherited, has meant that the Government have had some money to play around with, to use the illusion of the hon. Member for Heeley. At the moment, a Government can do wonderful things without much pain, but it will be interesting to see how they perform once the pain sets in and the constraints start to emerge, as they will even according to the Government's own forecasts. It will be interesting to see the tensions build up within the Labour party, but disturbing to see the confidence that will be lost as a result.
When studying the confidence surrounding the Budget we must consider the wider political context in which it is set. The right hon. Member for Yeovil (Mr. Ashdown) said that he was worried about the Government sitting on the fence about monetary union. I worry about that from 1142 the opposite perspective. Whatever one's perspective, the fact remains that it does not help the confidence of this country not to know whether we will join EMU.
The Government say that they want to join, but that first we must fulfil certain tests; when the Chancellor comes before the Treasury Committee and is asked how he will judge whether the tests on convergence and on British interests in EMU have been fulfilled and whether he will occasionally report back on how he is getting on with fulfilling those test, there is a complete fudge. Those tests were produced as a fudge to paper over the Government's problems when they were trying to decide about EMU. Uncertainty about EMU is part of the problem that the Government face in terms of the lack of confidence that is beginning to emerge.
§ Mr. Alan W. Williams
That is the third time the hon. Gentleman has mentioned lack of confidence in the Government's economic policies. The FTSE index shows that shares have soared, especially since we were elected, and the pound is also high. Our problem is not lack of confidence, but far too much confidence and a flow of money into London.
§ Sir Michael Spicer
My argument is based on the fact that this has been a roaringly successful economy because of the previous Government's legacy. When Mr. Wilson took over the economy from Mr. Barber, it was argued that the Conservatives left behind a phoney boom that then burst. This time, manifestly, the Conservatives left an economy that was so structurally sound that it will take some time to mess it up. There is an inevitability about the fact that it will be messed up. I mentioned EMU as one of the longer-term features and said that lack of certainty about our joining would be increasingly unsettling, particularly as more and more evidence about the effectiveness of the Maastricht treaty emerges—the two-year requirement now appears to be quite specific. All those issues will create uncertainty.
The Budget must be viewed in the context of two other serious factors. The Government and the Liberal Democrats appear to be dabbling with proportional representation, which has economic consequences. New Zealand is an example of a strong economy that adopted PR and became weak as a result. Governments of the left and right in New Zealand pursued liberal policies and surged forward strongly in the 1980s. New Zealand's currency became extraordinarily strong and its agriculture was freed from all controls and roared ahead. Along came PR and, with it, certain government collapsed. Its Government are now controlled by parties of the extreme left and right, which is a nonsense.
Anyone who has visited New Zealand knows that the Government now face crises daily. People are beginning to withdraw their money; investment is no longer being made because of the uncertainty surrounding the Government. The prospect of this country moving to a similar system tremendously handicaps its economic management.
The Government's policies of breaking up the United Kingdom fit into that context. The Treasury Committee is beginning to delve into the Barnett formula and the enormous disparities in expenditure per head between Scotland and England.
§ Sir Robert Smith
I do not think that the hon. Gentleman realises that these issues were emerging before 1143 the general election, when the party in power, which was committed to no change at all, began to delve into the figures. The then Secretary of State for Scotland initiated many comparative studies and brought the issues to life.
§ Sir Michael Spicer
No Treasury Committee was beginning seriously to question patterns of expenditure around the United Kingdom as the current Treasury Committee is beginning to do. A Pandora's box is opening up: the backlash is emerging in every English constituency, and instability in budgeting compounds a worrying situation.
The Government pat themselves on the back, but they should pat us on the back. We left them an immensely strong economy, but it is only a matter of time before it unravels and investors start to withdraw their money. Luckily, Governments with huge majorities have short shelf lives. The majority of the 1906 Government disappeared by 1910 and that of the 1945 Government, who are more familiar to Labour Members, disappeared by 1950.
Governments break up from within and the omens are not good for this Government—one can already feel the tensions in the Tea Room. The true socialists are about to burst blood vessels; when they do—metaphysically, of course—the country will be the beneficiary, because that will be the end of the Labour Government.
§ Ms Diane Abbott (Hackney, North and Stoke Newington)
It is always difficult to assess a Budget so soon after a Chancellor has finished speaking, and before one has read the Red Book properly. It is even more difficult for those trying to assemble a few ideas of their own, as I am, in my usual imprudent fashion, rather than using the Millbank brief. None the less, I shall try.
The Chancellor said that the Budget was a signal of support for enterprise, and that the Government are "on your side". But, as Member of Parliament for Hackney, North and Stoke Newington, which has the highest unemployment in the south-east, I am constitutionally obliged to ask myself whether the Government are on the side of my constituents and of people in inner-city communities up and down the country.
The point of departure is the broad macro-economic themes of the Budget, the first of which is stability. The Chancellor still boasts about handing control of interest rates to the Bank of England, but he will not boast for much longer. For the past seven or eight years, my position on the Bank's independence has been consistent. Handing control of interest rates to the Bank of England did not require us to look into a crystal ball—we could read the book. Far from implementing a great modernising measure, we moved back to the position that obtained before the war. Interest rates have risen inexorably, as we said they would.
The problem with the separation of monetary policy from fiscal policy and public expenditure is that it is created in the rarefied atmosphere of Threadneedle street, away from the needs of the real economy. We made a precipitate move, which was never debated by the Labour party conference. The Chancellor gave control of 1144 monetary policy to the Bank of England and the Monetary Policy Committee: interest rates have risen inexorably, and the pound has become overvalued, which has had a crippling effect on manufacturing industry.
§ Mr. James Plaskitt (Warwick and Leamington)
Doesmy hon. Friend not she accept that since the Government granted independence to the Bank of England, long-term interest rates have consistently fallen and are at their lowest for more than 30 years, and that that is the pointer for the future movement of interest rates, rather than what has happened over the past few months?
§ Ms Abbott
My hon. Friend must accept that a socialist Government should run the economy not for the benefit of the bond market and bond speculators, but with a view to the prospects for growth and jobs in the real economy.
The argument that an independent Bank of England by itself produces stability and low inflation is an argument of reverse causality. Germany has an independent central bank, and low interest rates and stability, and people say that we would have the same happy conditions if we had such a bank. I argued at length in the Treasury Select Committee that the Germans are prepared to have an independent central bank and such a monetary policy for specific historical reasons. There is no statistical evidence of a causal relationship between an independent central bank and low inflation.
The Chancellor still boasts about handing over control of interest rates to the Bank of England, but he will not boast for much longer. He also boasted, rather more quietly, about how he was comfortably meeting the Maastricht criteria. There is no doubt in anyone's mind that Britain would enter economic and monetary union on time in 1999 if it were left to the Chancellor.
The Government's cautious approach has my 101 per cent. support. The leader of the Liberal Democrats said that even Greece is round the table on economic and monetary union, but if he thinks that it will be round the table for much longer, he has not looked at the figures. I am not putting a partisan spin on it when I say that an economic and monetary union that involves economies as disparate as those of Greece, Spain and Italy is not sustainable. If my hon. Friends do not believe me, they should talk to the Governor of the Bank of England, because that is what he has said and is still saying.
It is all very well to boast about stability, but if people in inner-city areas such as Hackney are to have any hope of jobs, they need growth. I have taken the trouble to read the Red Book, and it contains some positive and some worrying indicators. The Government's economic forecast is that GDP growth is slowing, that there is a deterioration in the net trade performance and that manufacturing output is stalling.
My concern about the direction of monetary policy is that pursuing low interest rates at the expense of the real economy will give us a form of stability, but we will not have the growth and the manufacturing output to provide jobs for my constituents and others in the inner city. The holy grail of low inflation to the exclusion of all else should not be the aim of a Labour Government.
My constituents need healthy, balanced growth. There is a danger that, at the behest of the Liberal Democrats, fashionable opinion in the City or fashionable economic 1145 commentators, we are pursuing the stability of the graveyard. Anyone can produce a stable economy with no growth, but the trick is to have growth and stable inflation. We do not yet know whether the Government have pulled it off, but there are some worrying indicators on growth, trade and manufacturing output. I am glad to put those worries on the record, because I believe that we shall come back to these issues in the coming months.
The second broad macro-economic theme of the Budget had to do with enterprise. In this context, enterprise seems to mean low taxation for individuals and for business. It is regrettable how low taxation as an end in itself has become the mantra of modern politics. Nobody likes to pay tax, and on a superficial level low taxation is attractive politically. Nobody likes to go to the dentist either, but we do not make rotten teeth the be-all and end-all of our national health policies, and we should not make a natural human reluctance to pay tax the be-all and end-all of our economic policies. Pursuing the goal of low tax for its own sake will cripple the Government's ability to invest in the public sector, which is one of the few measures that will provide jobs for the people whom I represent in the inner city.
§ Mr. Clifton-Brown
Does the hon. Lady agree that small firms need help to make a profit in the first place? If they do not make a profit, they do not pay tax. The way to help them to make a profit is to reduce bureaucracy. Although the Chancellor mentioned that in his speech, he did not say specifically how he intends to achieve it. All the portents are that the Government's policies will lead to an increase in bureaucracy.
§ Ms Abbott
I have faith in my Chancellor. I agree with the hon. Gentleman that reducing bureaucracy is very important for small businesses. The enterprise in Hackney is mostly small businesses. Ethnic minority business men have opened small family businesses in Hackney and are hoping for growth. I am sure that the Treasury is committed to cutting bureaucracy.
The Chancellor referred to the importance of an open market for competition. Again, I give him my 101 per cent. support. An open market for competition should apply to everyone, including Rupert Murdoch. I hope that, when we consider the Competition Bill, Treasury Ministers will see fit to reinforce and support the changes that were designed to smash Murdoch's detrimental monopoly hold on large swathes of the print and electronic media. It is no good the Chancellor talking about an open market for competition on Budget day, if the Government continue to give tacit support to the arch-monopolist of the media, Rupert Murdoch.
Another of the Government's macro-economic themes is welfare reform. We all wait to read the fine print in the Green Paper. Hon. Members are united in wanting welfare reform, but the Government cannot delude the public into believing that it comes cheap and that it is an easy, short-term way of cutting the social security budget. All the evidence, whether from America or from Sweden, shows that to achieve genuine welfare reform we have to be prepared to spend money and to see welfare costs rise in the short term. The public will have to be disabused of the notion that welfare reform is an easy way to cut benefits.
The Red Book is not explicit about welfare reform. It is interesting to examine the control totals and the budgets for each Department. The social security budget 1146 remains constant. It is telling that the Chancellor is not saying that it will rise very much, or that it will fall very much.
One of the biggest issues surrounding welfare reform in recent months has been the benefit integrity project. I was in the House for the last Budget presented by the right hon. and learned Member for Rushcliffe (Mr. Clarke), and I remember the launch of the benefit integrity project. It was not called that: it was a project to bring down social security spending. Everything that Ministers have said since is misleading. The benefit integrity project was first and last a project designed to bring down and contain social security spending. That is why disabled people are having such problems with it, and why people are being harassed. The real intention is not to provide a better service for the disabled or for welfare recipients, but to bring down social security spending.
Work was one of the themes of the Budget, and it will be taken up by the Government. It is important that everyone who can work should go to work to keep their families. In his speech, the Chancellor told the nation that their responsibility is to seek work, and that he will guarantee to make work pay. That is all well and good, but people want to know what responsibility the Government have for ensuring that jobs are provided. It is a cruel deceit to urge people to work and to tell them that he will make work pay, if the Government are not pursuing the broad economic policies designed to achieve growth, especially job growth in the inner city.
Another of the Government's broad macro-economic themes is strong public services. We cannot have strong public services unless the Government are prepared to invest in them, and the money can come only from general taxation. I take a particular interest in the public sector, because the largest employer in my constituency is the local authority, and the second largest is the health service. Without investment in the public sector, jobs will not be provided in my constituency.
On Friday, we are launching the new deal in Hackney. I was concerned to learn that, although much hard work is going into the new deal, the local authority is in no position to take on new people. Hackney council is in the process of restructuring, so it is losing staff, not taking them on. I do not see how the new deal can work in the inner city if there is no investment in the public sector, which is most used to, and most skilled in, recruiting and training in the inner city. I do not see how the new deal can work without investment in the public sector to make jobs available for young people in my constituency.
There are many measures to welcome in the Budget. I welcome the steps to ensure that museums and galleries need not charge. I welcome the tax relief for donations to the third world, although I remind the House that the most important thing that the Government can do for the third world is provide a package of debt relief for the millennium. We need much more substantial debt relief than we have seen before. I also welcome what was said about child care, although I wait to see the fine print.
I particularly welcome the Chancellor's announcement that he will crack down on offshore trusts. I am an old-fashioned Labour person: I believe in equality. We cannot talk to the British people about work and productivity, or about fairness, if we as a Government are 1147 not prepared to crack down on the way in which the rich members of society evade taxation by the use of offshore trusts.
As I said at the beginning of my speech, this Budget was announced with a deal of bravura. It will be impossible to judge it until we have read the background documentation thoroughly and have seen the fine print, which is not yet available to us. As I have also said, however, those who read the documentation that was provided with the Budget statement will note some worrying economic indicators.
Let me give a final quote from the Red Book:Higher interest rates"—which we have experienced—take time to bite on spending…As the economy slows in response to the tighter policy stance, a downturn in the growth of real incomes is also expected. In particular, employment growth is likely to abate".I welcome the new deal. I welcome my Government's commitment to work. I welcome the commitment of my new Government to jobs. But I worry that handing responsibility for monetary policy to the Bank of England, and deflationary tendencies in relation to manufacturing and trade, will create a climate in which—despite the best efforts of the many people working in Hackney and, indeed, up and down the country to make the new deal successful—jobs will simply not be there for my people.
§ 7.1 pm
§ Mr. Peter Bottomley (Worthing, West)
I am grateful for the opportunity to speak briefly. What I want to say follows from what was said by the hon. Member for Hackney, North and Stoke Newington (Ms Abbott). I think that we will see an increase in unemployment during the current year.
I cannot claim to have read every page of the Red Book, but I do not see the forecast for unemployment that I usually begin to see around the time of a Budget statement. If the Government are working on the planning assumption that unemployment will be at the January level throughout the year, and if it has been falling for the last two or three months, presumably they must expect it to start increasing. It has started increasing in Scotland.
My fear is that, because of the effect of some of the Government's policies on manufacturing industry, unemployment will be increasing throughout the United Kingdom by the end of the year. As far as I can see, the costs of that are not taken into account in the Government's projections on tax and spending. There will, however, be other opportunities to debate those issues during the coming year.
Like the hon. Member for Hackney, North and Stoke Newington, I welcome some parts of the Budget. For instance, I welcome the initiative on third-world donations by individuals. Let us remember, however, that, even if 10,000 individuals take advantage of that initiative and the 40 per cent. extra is received from the Chancellor, that will be no substitute for the progress that I wish had been made under the previous Government—the achievement of at least half the target of 70p out of every £100 of our recurrent wealth that we had agreed to give to those who needed it.
1148 Those who argue that some of the aid projects are not worth it ought to join in the effort to find projects that are. The fact that some have gone wrong in the past is no argument for not finding some that will go right in the future.
Of course, we need to do more on aid provision. It is often difficult for a constituency Member of Parliament to argue for more freedom of imports, but if we do not give the developing world the opportunity to trade, our aid will not work to full advantage. I look forward to progress both on what the Government have done and on what I hope they will do, with some bipartisan support.
If the Chancellor starts to say that there is no great support in the constituencies for increasing trade and aid provisions and debt relief, I invite him to send his people down to my constituency. West Worthing is one of the areas that contain a fair number of mature people—the highest proportion of retired people in the country. Those people rightly put pressure on me to put pressure on the Government with regard to this issue, among others, and I do so with enthusiasm.
§ Ms Abbott
Does the hon. Gentleman agree that one of the remarkable aspects of the debate on aid and debt relief has been the positive and energetic role played by the Churches? Given that we have a churchgoing Prime Minister, I use this opportunity to ask the Churches to take that message to the very top of Government.
§ Mr. Bottomley
I agree, but I would go a stage further. I think that what the Chancellor has already done would be rewarded if the Churches persuaded their members to write to him saying how much they welcomed the opportunity of adding to private gifts, and also saying, "By the way, can we have some more public commitment as well?"
I support the Chancellor's proposal for increased benefit for the first child in a family. That certainly helps all families.
There is an eternal truth that Governments occasionally forget. Forty years ago, when people retired they were at their poorest. Most had no significant pension; many did not even receive the full state pension because of contribution deficits. Those people, however, had to pay the same rent as they did when they were working, and life was very grim. We should pay tribute to the way in which our parents and grandparents managed to survive. Nowadays, that is changing for most people.
The time when people are poorest now is the time of family formation, when many go from two incomes with two mouths to feed to one income and three mouths to feed. In 1967, what subsequently became the Department of Social Security produced a report called "Circumstances of Families". It was not known then how many families contained one child, because there was no family allowance, and many people did not receive child tax allowance. That has changed. If we want to help people when they need help most, we should do so when they have at least a first child.
I have grave doubts about the sense of taxing child benefit. That applies even to those like me, who are paying the higher rate of tax. The money gained by taxing child benefit might be £150 or £200 per year; in comparison with the amount of tax that I pay throughout the year, even at the higher rate, that is insignificant.
1149 We should remember that child benefit is the only reliable source of income for parents, whether they are in or out of work, or in higher-paid or lower-paid work. Regardless of whether one parent is in gaol or has gone abroad or has disappeared, child benefit matters most. It is the only reliable income for the carer, who is normally the mother. The answers given about taxation in the early 1980s by the then Prime Minister, Margaret Thatcher, still apply. I warn the Treasury that I hope that, in a cross-party coalition, the Chancellor will consider the arguments against taxing child benefit. Frankly, it is not worth it.
Table B9, on page 117 of the Red Book, concerns general Government receipts. It refers toIncome tax (gross of tax credits)",and gives the cost of income tax credits. I believe that, without any subterfuge, we should do something about payments such as the payment of child cash allowance. That is a better expression than "child benefit", which suggests that the benefit is an income support measure for those with the lowest household incomes. In fact, the only households on whom child benefit confers no advantage are those on income support, because it is rightly taken into account. It is a child cash allowance.
When people are caring for children, their needs are increased and their taxable capacity is reduced; therefore, an allowance is worth while.
The next question is whether the allowance should be a tax or a cash allowance. For all the reasons we know, a cash allowance has many advantages over a tax allowance. Let us suppose, however, that, in public accounting, we could "net off' the cost of the child cash allowance—now known as child benefit—and could ensure that the Chancellor alone decided the level of that allowance, as he does in the case of other personal allowances. It could then be accounted for as a tax credit. Without any change in the public sector borrowing requirement, there would be a change in the level of public spending.
Table B9 tells us that, for income tax gross of tax credits, outturn for 1996–97 was £71.5 billion, the estimate for 1997–98 is £79.4 billion and the forecast for 1998–99 is £86.1 billion. Below that are the figures for tax credits. I think that we should add figures for the child cash allowance, so that it features as a declared sum that does not count as public spending. I repeat my point about the PSBR.
According to the next page of the Red Book the amount of extra Government receipts expected since the calculation for the July budget is £7 billion. The Chancellor has £7,000 million more than he expected. Leaving aside any particular price pressures, medical development pressures or the aging population, if we seriously have to wait another year before trend spending for the NHS is back to 3 per cent. of real growth—or at least of growth of the economy as a whole—which it should be and needs to be, the Chancellor has made a mistake.
Again, if the Chancellor comes to Worthing, he will discover that most of the procedures that are being delayed affect elderly people. The young are the people who have the emergencies. The elderly are the ones who have the important MOT needs: the hip, heart or cataract operation.
In Worthing, West, the eye surgeon who used to do three afternoon cataract operations a week has been ordered to do one a week. Instead of having 300 people 1150 waiting, as he did in May, he had 600 waiting in September and he probably has 1,000 waiting now. For a person aged 70 or 80 to wait a year and a half to get his or her eyesight back is a disgrace. I ask the Chancellor to bring at least one seventh of that extra £7,000 million into the health service now, to ensure that pensioners in my constituency and those throughout the country do not wait for mobility or for their sight.
Incidentally, we see in the Red Book that the waiting list initiative is there for this year and next year, but not for the two years after that, so any extra money that the Chancellor or the Secretary of State for Health announces for a year or two more has to be netted off against the minus £500 million—the money that will not be there in a year and a half s time.
My final point is one for the Government as a whole. If they want to reach bipartisan agreement on some of the radical changes, which should be possible as we move towards the millennium, they should stop being so triumphalist about the result of the last election. In that election, they won power. Well done to them, but let us also recognise that, if they spend all their time trashing the achievements of the past 18 years, and the people who put their backs into that, they are going to disappoint many of the people who would want any Government, whether Tory or Labour, to succeed. Those people include not just those in pensionable employment, such as Members of Parliament, but those who take risks running pubs and shops and building businesses.
Those people seldom get the chance to put money by until they are in their 40s, 50s or sometimes even 60s or 70s. If we can pay attention to their needs and their circumstances, we will do a better job in the House. This Budget and these provisions matter to everyone, but they matter most of all to the wealth creators and those who help the rest of us to be more self-reliant.
§ Mr. Barry Jones (Alyn and Deeside)
I should like to follow the hon. Member for Worthing, West (Mr. Bottomley), but I shall resist his provocations. However, I appreciated his remarks on overseas development.
I congratulate my right hon. Friend the Chancellor of the Exchequer on his finely presented Budget. He got the balance right. He has made the right judgments, and I am confident that the Budget that follows will develop on sound foundations.
For Wales, the Budget means £25 million extra to tackle patient waiting lists, from which my constituency will gain, and an extra £12 million for our schools service. Again, Deeside will share in that large-scale money. I am especially glad that £2.5 million will go into rural transport services, because Cefn Gwlad, the large hinterland of Wales, needs such a boost. I understand that the new deal will receive £3 million to £4 million extra from the Budget, which means that youngsters and the long-term unemployed in Alyn and Deeside will receive even more investment than was previously announced and planned. The Budget is therefore a big boost to Wales, and I welcome the increases.
My right hon. Friend has been a prudent Chancellor. He has kept a tight, indeed ruthless, hold on public finances, and, as The Economist said, has revolutionised financial supervision in the City. He threw away his 1151 dinner jacket at Mansion house, and even sanded the floor of his residence to avoid buying any more carpets. In four days, he freed the Bank of England to set interest rates. Anyone who renders the Governor of the Bank speechless with both rage and surprise has it in him to be a Chancellor of Gladstonian proportions.
Therefore, this Budget will assist my constituency, my country—Wales—and Britain as well. I want a reinvigorated industrial scene, an attack on poverty, smaller waiting lists, modernised and repaired social housing, and an attack on unemployment. The Budget does all those things. It is also sensitive to the needs of women and those who head single-parent families.
I have no regrets that the better off in Britain are being asked in this Budget to assist the poor. It does Britain no good that there is a sizeable underclass, millions strong. It shames our nation. Millions are still without hope, dignity, homes and work. That situation divides Britain, and I hope and expect that the Budget will help hugely. It is inspired by social justice and, dare I say it, by economic efficiency. The Budget and the Chancellor point to a Britain that is more united, fairer, and with hope.
The good thing is that the Budget does not fall guilty of the charge of causing boom and bust. It aims to remove barriers to growth. We have started to modernise the welfare state. We now embark on developing a fairer tax system. Moreover, the Government have placed employment at the heart of their objectives. I welcome that whole-heartedly, and I know it to be a principle and a standard of the Chancellor himself.
The Government are guilty. They are guilty of keeping their election promises. Many were met at that Dispatch Box as the Chancellor revealed his policy. There is to be a minimum wage. Our schools and hospitals are to be priorities. High-quality public services are now in sight. Pensioners are being helped with winter fuel bills. The assisted places scheme has gone, and five, six and seven-year-olds will now have smaller classes. There is a new deal for lone parents, and a national child care strategy. There is a new deal for the long-term unemployed and for the many young unemployed, and I think that we can say that we are modernising our aging council house stock.
A recent speech by the Chancellor explains and puts into context today's Budget. He said:The challenge is to reclaim flexibility in the progressive cause, not as a codeword for employer exploitation but as the basis for employee choice and opportunity.It surely is that. This Chancellor and this Budget encourage creative talents. I like his agenda of the attempted settlement, which is certainly overdue, between the individual, the community and the state. We are looking for a fair middle way, with a broad moral commitment to civic improvement.
In Wales, we have a saying, "It is chwarae teg," which translated means "fair play". This is a fair-play Budget. The rich are going to be asked to help the poor, and the hopeless are being given hope by the Chancellor.
§ Mr. Deputy Speaker (Mr. Michael J. Martin)
Order. The last two speeches were brief. If hon. Members follow 1152 that example, I can certainly try to ensure that everyone is called. Nothing is more soul-destroying than sitting in the Chamber all night and being disappointed.
§ Mrs. Theresa May (Maidenhead)
As one of those who entered the House last May, I can still describe myself as a new Member. I have to confess that there is excitement and anticipation on Budget day, because a Budget is a very big thing. I had that feeling today as I came along to only my second Budget, albeit a Budget from a Labour Chancellor.
In the Chancellor's opening remarks, that sense of anticipation and expectation was increased. However, the first two paragraphs of his speech could have come from a primer for new Labour speakers by the Minister Without Portfolio, along the lines of, "If you have nothing of substance to say, tell them you are going to modernise for a new Britain, with a new agenda for a modern Britain." Within the first two sentences, we had been modernised twice. We had a new Britain, new Labour and a new ambition. I am not sure whether that was a reference to the Chancellor's personal interest in the Prime Minister's job, but that was what we heard.
We were told that it was to be a radical and reforming Budget, with the most radical reform of the tax system that had ever been seen. Having sat through the entire Budget, if there was a radical reform of the tax system, I must have missed it. In that respect, the Budget was exceedingly disappointing. Our response to the Chancellor's claim about a radical reforming Budget must be to ask where it is. Where was the beef? Sadly, there was no beef on the bone of this Budget.
Far from introducing new ambitions, in many areas the Chancellor revealed old Labour and old ambitions. Yet again we saw a Labour Government hitting middle Britain and business in so many of the measures introduced. At the end of the Budget speech, Labour Members, as is their wont—I understand that this happens after every Budget speech—waved their Order Papers and shouted their approbation. However, their silence during the speech was noticeable. There were no shouts of approbation when the Chancellor was introducing his various measures. I am not sure whether that was because they did not understand what the Chancellor was doing or because they understood but did not like it.
We should look at the background against which the Chancellor presented his Budget. Last May, the Government inherited a golden economic legacy from the previous Conservative Government. It was the best set of economic circumstances for generations. We now see that they have been throwing that away.
I receive complaints from business about increased taxation and the strength of the pound, which means that many exporters are finding life incredibly difficult. I also hear from retailers about their real concern at the downturn they are seeing in consumer spending, which is hitting the retail sector marketplace.
We have seen £22 billion of extra taxes on business, which have already been introduced by the Chancellor. We have seen that the strength of the pound is hitting exporters, and we know that the Government are introducing further costs on business. Also, we had a well informed, interesting and lengthy debate in the Chamber on the national minimum wage not long ago, to which I was able to contribute.
1153 I am grateful for certain aspects of the Budget. I am grateful that the Chancellor has listened to the Conservative opposition on long-term savings, PEPs and TESSAs. Our campaign has forced the Government into a climbdown on their proposals for PEPs and TESSAs. I am glad that I will now be able to write to the large number of my constituents who have written to me expressing their concern about the impact of the measures that the Chancellor had proposed previously on the money that they had put into PEPS and TESSAs as a form of long-term saving. I am grateful that he has listened to us, and changed his policy.
§ Mr. Tom Levitt (High Peak)
Is the hon. Lady not aware that the change of direction on individual savings accounts shows that the consultation undertaken by the Government was genuine? From a position of strength, we are able to say, "Tell us what you think, and respond to our policies." We will listen to what people have to say on these issues and many others. It is not a sign of weakness to have changed our mind on a mere detail.
§ Mrs. May
If the hon. Gentleman thinks that what his Government were proposing to do to PEPs and TESSAs was a mere detail, he should talk to some of those who would have been hit by what the Government were proposing to do, and who will now be pleased at the Government's climbdown.
What trust can people have in the future with a Government who had an inclination towards retrospective taxes on long-term saving? I suspect that, for all the Chancellor's protestations about stability, many people will still be concerned that, on long-term saving, there is no trust in the stability of the Government's policies.
What concerns me most of all about the Budget is that, with many measures, we see a sleight of hand from the Chancellor. We see smoke and mirrors. For the Chancellor's sake, I hope that the mirrors are not as expensive as the Lord Chancellor's. In many areas, the Chancellor appears to give while taking away with the other hand.
I was pleased to hear the Chancellor announce that he intends to introduce a working tax credit for people with disabilities. I am sure that we all agree that the artificial barriers for those with disabilities who are able to work should come down. However, from the Red Book, I see that, far from being a new idea, that is a replacement for the current disability working allowance. We will need to see the impact that it will have when taken alongside the fear that is felt by people with disabilities that, as part of the comprehensive spending review, the Chancellor intends to cut disability benefits. Far from taking people from welfare into work, such cuts would result in people with disabilities going from work to welfare.
Another sleight of hand involves the working families tax credit. The Red Book shows that that will not begin to be paid until April 2000. That is a sleight of hand that we see in all too many of the Chancellor's measures. He has a good line in announcing something well in advance, so that he can continue to announce it year after year.
I am concerned about the impact that the working families tax credit will have on women. The Chancellor said that each family will decide how that tax credit will be paid, but I wonder what the default position will be. I suspect that we all know what it will be. I suspect that 1154 most women will lose as a result of changing to the working families tax credit. It will have a negative impact on women. Also, it will impose a bureaucratic burden on business, something that the Chancellor failed to mention in his speech.
My hon. Friend the Member for Worthing, West (Mr. Bottomley) commented on the advantage of increasing the amount of child benefit paid for the first child. However, the giveaway on child benefit is balanced by a takeaway in the reduction of the married couple's allowance. The increase in money for children is to the detriment of those who are bringing up children in a married partnership.
Corporation tax reductions are to be welcomed, but the reduction announced in the Budget will not come into effect until April 1999. Doubtless next year it will be announced as if it is another new measure, when it is just a reiteration of a measure already announced.
We see exactly the same in terms of the spending on the national health service. Last year hon. Members were waving their Order Papers about extra money going to the health service. In fact, most of that extra money was not be spent until the financial year after this one. On the overall figure, compared with the 18 years of Conservative government when the average increase for the NHS was 3.1 per cent., under this Government we see an increase of only 1.2 per cent. So much for what the Government claim to be doing for the health service.
Nothing in the Budget will reduce the waiting lists mentioned so passionately and graphically by my hon. Friend the Member for Worthing, West. Nothing in the Budget will reduce the education cuts that are being made across the country, particularly in the shire counties, because of the Government's appalling local government settlement.
The Chancellor spoke of help for the unemployed across the country, which will be focused on mentors, counselling and individual advice. I am sure that all hon. Members will agree that it would be beneficial for someone who is unemployed to be able to receive much more one-to-one advice covering job opportunities and, for example, how to present oneself for job interviews. However, it was made clear to me—when I recently visited my local jobcentre in Maidenhead—that jobcentre employees are keen to give extra help and advice to people, but that they are currently able to do so only because of low unemployment, which entails fewer people requiring their assistance. Should the unemployment level increase, Ministers will find themselves in some difficulty in fulfilling their promises on mentoring and counselling.
The Chancellor also mentioned reducing red tape. I am sure that all hon. Members will agree that such action is beneficial, particularly for small businesses. However, as my hon. Friend the Member for Cotswold (Mr. Clifton-Brown) said, despite several references in the Budget to reducing red tape, the Chancellor mentioned no specific action. Again we fear that the statements were mere rhetoric—soundbites—played out for the benefit of those listening. Perhaps Ministers are thinking, "If we say the soundbites often enough, people will believe that something is happening"; whereas the reality will be that nothing at all is happening. We await specific proposals.
As I said, some aspects of the Budget already entail an increase in bureaucracy. Working families tax credit, for example, will increase bureaucracy for business. One of 1155 the threads coming through in the Budget—as in the Government's previous policies—is an intention to shift the burden from Government to business. Ministers make much-vaunted claims for the national minimum wage, saying that, as fewer people will have to claim family credit, it will be extremely beneficial.
§ Mr. Clifton-Brown
My hon. Friend mentioned the effects of increased bureaucracy on business. Does she agree that—contrary to what the Chancellor said about reducing the burden on businesses by reducing bureaucracy—everything that the Government have done has increased the burden on businesses? Does she specifically agree that the measure introduced this week by the Social Council of Ministers to extend work councils to small businesses of fewer than 50 employees, will massively increase the burden on small businesses?
§ Mrs. May
My hon. Friend is entirely correct. In so many areas of the Government's policy, Ministers are doing precisely that—increasing the burden on businesses. The Prime Minister claimed that, in signing the social chapter, he would be able to defend businesses from the type of burdens that my hon. Friend mentioned. The reality is that he cannot defend business, because of the voting structure in the European Union. He has been unable to defend businesses in the United Kingdom from such impositions, and, consequently, British businesses will suffer.
In the national minimum wage, the burden is being shifted from state welfare spending to businesses. British businesses will be hit not only with the national minimum wage but with £22 billion extra tax and further bureaucratic impositions. The ultimate consequence of those burdens will be fewer jobs. The Government, sadly, seem to fail to understand that. Perhaps they will understand it only when dole queues start lengthening.
One very specific matter that I should like to mention has been raised in my constituency surgeries: extra increases in petrol duty. Although my constituency is called Maidenhead, it has a number of villages in it—indeed, I claim that my constituency contains some of the most beautiful villages in east Berkshire—and people in those villages have to rely on their cars.
I recall the case of an elderly gentleman whose wife was disabled. They were dependent on a car to get her to hospital appointments, and generally to be able to get her out of the house. A few weeks ago, before the Budget, he specifically mentioned his concern about what the Chancellor would do about petrol duty. That man will not be happy with the Budget; nor will others living in rural or in other areas who are elderly or who have a disability and have to make car journeys. The petrol duty increase will hit them particularly hard.
I echo the comments of my right hon. Friend the Member for Richmond, Yorks (Mr. Hague): the Budget is another step in the Government's step-by-step betrayal of the United Kingdom. The Budget hits middle Britain particularly hard, betrays middle Britain with extra taxes, and throws away the golden economic legacy that the Conservative Government left for the Labour Government. Although it is sad to see that happening, it is even sadder that the Government will probably not 1156 learn their lesson. There will be further hits on middle Britain in increased taxes, and further burdens on business. The Budget is not good for business or for middle Britain. It is bad for business, for middle Britain and for the United Kingdom.
§ Mr. Alan W. Williams (East Carmarthen and Dinefwr)
Thank you, Mr. Deputy Speaker. I am grateful for the opportunity to speak in this debate.
Somewhere in the middle of her speech, the hon. Member for Maidenhead (Mrs. May) talked about the lack of growth in the past 12 months in expenditure on health and education. It is very hard to take any criticism of our public expenditure plans from Conservative Members, as our plans are precisely those that were made by the previous Government. We have merely accepted the previous Government's plans—although, in health and in education, we have found very large extra sums to try to improve the situation. Their criticisms are therefore quite ill founded.
§ Mr. Nick St. Aubyn (Guildford)
Does the hon. Gentleman not understand that, in government, one makes projections, and that one adjusts to the facts as they unfold? Over 18 years, the Conservative Government consistently raised spending on the national health service by more than the current Government have raised spending on it. That is the fact.
§ Mr. Williams
We have been in power for only 10 or 11 months—although we intend to be there for quite a long time. Judge us, and our record on health and education, after five or 10 years. As my hon. Friend the Member for Alyn and Deeside (Mr. Jones) said, all we plead guilty to is keeping our election promises. Our promise on health and education was not to exceed—for reasons of sound economic management—the public expenditure totals established by the previous Administration.
I very much welcome the Budget's welfare-to-work emphasis, and the new emphasis on measures to "make work pay". All hon. Members have thousands of constituents who, over the years, have told us that there is no point in their looking for a job, because they are better off on benefits. They say, "I will lose this or that benefit if I work." The previous Government knew that there was a large poverty trap, but they did very little about it. Indeed, in their 18 years in power, they exacerbated or multiplied the problem. However, the poverty trap is now being comprehensively tackled by our Chancellor, and I very much welcome the many parts of his programme. The working families tax credit will be quite revolutionary in helping low-paid employees.
Today's national insurance changes, which allow £81 a week of income before the employer has to make any contribution, will greatly help low-paid workers. For spending on child care of up to £100 for the first child and £150 for two or more children, the new tax credit will cover up to 70 per cent. of the cost, which is a massive help for parents with young families who need child care to go to work. The £2.50 a week extra child benefit for the first child and for children under 11 will greatly help families who are among the poorest in our society.
1157 As the hon. Member for Worthing, West (Mr. Bottomley) said, the elderly are usually the poorest, but now it is parents—whether lone parents or simply low-paid—in their 20s with young families. Many measures in the Budget are directed at that problem.
§ Mr. Peter Bottomley
I wish to add one point, not for argument but for illumination. If I had a teenage child, above supplementary benefit level, I would get child benefit, which is about £10, going up to £14. An elderly person would bring in about £100 a week, yet teenagers cost three or four times as much to run, with their active social lives, clothes and other activities. I do not disagree with the hon. Gentleman, but I want to put that on record.
§ Mr. Williams
That is a magnificent point to put on the record. Our demography is changing. Factors such as the size of the family unit must be considered. Much of what the Government inherited in respect of the way that the benefit and taxation system works needs to be changed to take account of such social conditions.
I enthusiastically endorse the main drift of the Budget—welfare to work and making work pay—for two reasons. First, there is the anti-poverty emphasis. Secondly, it is anti-inflationary. The best weapon against inflation is expanding the work force to create opportunities for people, especially poor people, to come into the labour market.
The venture capital fund of £50 million for small projects coming out of higher education, science, and research and development is excellent seedcorn money for the businesses of tomorrow. That is one of the deficits we need to make up. The raft of measures on small businesses are welcome.
We realise that education and health are badly underfunded, and I am pleased that £250 million extra has been found for education and £500 million extra for health. Added to last year's announcement of £1.2 billion, that means that £1.7 billion more will be spent on health than was planned by our predecessors. The £1.7 billion works out at about 5 per cent. of the total NHS budget of £35 billion.
Two matters concern me in our management of the economy. First, on the long-term financial strategy, the Chancellor said again that the public sector borrowing requirement was rapidly disappearing. It is down to £6 billion this year, and may be in balance next year. It appears that the Chancellor's long-term policy is to aim for surplus in 2000–01 and the early years of the next century, and to use it for debt repayment. I think that that is unnecessary.
We are well within the Maastricht criterion of a borrowing requirement of 3 per cent. of gross domestic product—with a massive safety margin. Debt is not a big problem. We spend about £25 billion a year on debt repayment, which is 2.8 per cent. of GDP, but the figures are similar across Europe. Our total debt is about 60 per cent. of GDP, again well within the Maastricht criteria. There is no problem there. As long-term interest rates are falling, the burden of debt repayment falls each year. I hope that, in years three, four and five of this Parliament, the Chancellor will reconsider and respond to pressures from within the party on those figures. There is no reason to be in surplus.
§ Dr. Lynne Jones (Birmingham, Selly Oak)
We all accept the golden rule about not borrowing for 1158 consumption, but I agree with my hon. Friend that we do not act as guardian of the people's money by neglecting investment in our infrastructure or by moving from public borrowing into private finance, which is borrowing on the never-never.
§ Mr. Williams
I am grateful to my hon. Friend for those comments. I agree whole-heartedly. It is prudent economic management to invest properly in education. Not to invest in the health service is to cause unnecessary suffering. Health and other parts of the public sector, particularly education, are starved of investment. It is unwise to stack away money rather than investing it in our young people, in schools and in colleges.
My other reservation is the strong pound and high interest rates. Now that the Bank of England is in control of interest rates, I accept its economic judgments, but it is our challenge to create an economic climate in which it can bring down interest rates step by step over the next few years to the 3 per cent. or so of our European partners.
We must not be as sanguine as the Treasury, the Department of Trade and Industry and the Cabinet generally have been about the effects of having for a prolonged period an exchange rate of more than DM3 to the pound. That is higher than when we were in the exchange rate mechanism. In 1991–92, the overvalued pound caused recession, but once it was devalued and we came out of the ERM, we had a recovery. That recovery could be stymied by a long period of unrealistic exchange rates. It is important that we work to deal with that.
In that context, my one regret about the Budget is that there is an imbalance between the private and public parts of the economy. We need to take more money out of private pockets. I would have liked mortgage tax relief to be phased out over the next two years, because there is too much money in the economy. The money raised could have been used in education or the public sector.
Those are criticisms for the longer term. Generally, having sat through the first proper Labour Budget for 20 years, I was enthused by its drift, especially in tackling poverty, in helping people into work and in making work pay.
§ Sir Robert Smith (West Aberdeenshire and Kincardine)
I shall try to be brief, and stick to key issues that affect my constituents.
This is the second Budget that I have watched in person. Having also watched many on television, I am wary of initial impressions, glosses or feelings that come from the selective presentation of an hour's speech with only a small amount of documentation. I hope—this may have started with the concept of consultation—that we shall develop a more flexible approach to the Budget process and a more informed build-up, so that there is a much clearer idea than the headlines provide of exactly what has happened to people on the day after the Budget.
For many of the electors in my constituency, the general election was about the state of the public finances. My constituents did not vote Labour; Labour came fourth in my constituency. However, my constituents took on board a message that a change of Government could bring about a change in the public services that they enjoyed, especially education and the health service.
1159 A mistake that the Government have made is to believe that people vote on the basis of the small print in the contract in the manifesto, rather than on an overall impression of what they want to get out of the election. I hope that as the Chancellor examines the finances of the country, he will start to recognise that the priorities of the electorate are the early promises on waiting lists, class sizes and quality of education. If schools are being closed, there is clearly a problem in the education budget which needs to be tackled. That is something to which the Chancellor will have to return in the future.
The three issues that specifically affect my constituency have been raised already. The value of the pound has affected the farmers in my constituency in a high-profile way. The forestry industry has also made the point to me that it exists in a global market and is severely pressurised by the high pound at the moment. Hon. Members have spoken about the fact that the Bank of England is now independent, but the Chancellor is not ignorant of the policy that the Bank has to operate or of the climate in which it operates. He can still affect the climate that affects interest rates and he has to be aware of how his actions will affect it. One way of creating some stability is to bite the bullet and hold a referendum on joining the single currency.
We should tell the markets which way the country is going. We are to have five years of sitting on the fence by the Government and we would have 10 years if the Opposition were in power. Giving the markets information would assist them to understand where the economy was going. A referendum would be a message in principle to the markets on which way the country was going.
In a rural constituency such as mine, there has been considerable concern in the build-up to the Budget about petrol taxation. The previous Government introduced the concept of increasing tax on petrol on environmental grounds, but I detect that the Treasury has seen petrol in the same way as it sees tobacco. There is a nice argument for the tax, but the Treasury is far more interested in the yield from it than the environmental or health benefits.
We argued that the previous Government should consider ways in which to compensate rural communities before they increased petrol prices. The Labour Government have hinted that they want to do something for rural communities. They have put some money towards rural transport and have talked about a review of vehicle excise duty, but they have gone ahead with petrol tax increases rather than waiting until they have the whole package in place. I am concerned about that. If environmental taxation is to have any long-term beneficial effects, people need to be able to plan for it. The point of the previous Government's policy was that the tax would be increased annually so that the market could plan for the consequences. If Governments abuse the system and start increasing the tax twice a year or in three consecutive Budgets, they will make it far more difficult for people to have confidence in the stability of environmental taxation.
If environmental taxation is to benefit the environment, it should be neutral in its effect; the Government should introduce compensating measures elsewhere in the economy. Once Chancellors are let loose with environmental taxation from which they can keep the 1160 proceeds, there is no way of holding them back. If the Government put money back into the economy to compensate for the tax, they can genuinely condition behaviour rather than merely impose back-door taxation. As we saw with the previous Government and in the previous Budget, if there is back-door taxation, the public do not know where they stand and the Government cannot engage them in a genuine debate about how much public services cost. If, by sleight of hand, the Government pretend to spend more money here and less there, they cannot address the long-term structural problems in public services. The public must be fully involved in the debate. That is why I hope that the idea of opening up the Budget process will come to fruition.
The last issue affects my constituents more visibly because there is a high concentration of people involved in the oil industry in my constituency, but it affects the whole of the United Kingdom economy. The issue is the future stability of the North sea oil industry and the potential for growth in it. In the previous Budget, the Chancellor announced a review of North sea oil taxation. That in itself has caused considerable concern among many of my constituents whose livelihoods depend on a thriving North sea industry. They hoped that their concern would come to an end with this Budget, but we now have to wait another month for the Government to decide what they are going to do. I hope that we are waiting because the Government are planning to do nothing to upset the market in the North sea oil industry.
The North sea oil industry is at a fragile point. It is a mature province; the oil industry has been there for some time. The larger fields are coming to an end. There are smaller fields and there are ways in which to get more money out of existing fields, but it is basically a mature field overall. There is not enough residual capacity to attract investment into the industry if we frighten it away. The Government can play around with oil taxation at the start of a new province. They can afford to experiment, frighten off investors and try to tempt them back again, but we need stability in the North sea oil industry to maintain investment for the future.
We must recognise that the oil industry is not a simple utility. The Government cannot simply leap in with an extra tax and get the money. Oil production companies are global investment companies that invest in a world market. The bulk of the work is done by contractors in small and medium-sized businesses, and some large ones. The investor-contractor relationship is important. If the Government start to tax the investor, companies are free to invest elsewhere.
Companies are much freer than they were even a few years ago. The former Soviet Union, the far east and south America are opening up to oil investment. Azerbaijan is now a much more welcoming place. Oil companies have to balance out the costs of production, the risks involved in their investment and the return on their investment. The United Kingdom has done well by being an extremely stable political regime and, therefore, one in which companies can afford to invest, knowing that there is a fairly good likelihood of return. In other parts of the world, it is much cheaper to produce the oil, but countries lose out because they are politically unstable.
If there is a sense that, whenever there is a little movement and he thinks that he needs a little more money, the Chancellor will start tackling the North sea oil industry, the United Kingdom will become an unstable, 1161 risky political environment in which to invest. Investment will be driven away. The consequences of that for my constituents and the constituents of most hon. Members is a reduction in investment in United Kingdom manufacturing. It is estimated that roughly 20 per cent. of UK manufacturing investment comes out of the North sea oil industry.
The oil industry is very much out of sight and out of mind, because much of the activity is over the horizon out at sea, and much of the work is done by small businesses throughout the United Kingdom. It is extremely important that the Treasury recognises that. The Department of Trade and Industry seems to recognise that, and the Inland Revenue recognises that any downturn in the oil industry produces a reduction in revenues from other sources connected with the industry. I hope that when the Treasury review is concluded, the Government will vote for stability and the long-term future of the North sea oil industry.
Those of us who saw the oil recession in the 1980s in Aberdeen and the north-east of Scotland would not like to see it return unnecessarily early. It was extremely depressing to see row upon row of houses for sale when the rest of the country was booming. We have seen what a depression can do to our local economy. Another factor is that, finally, the contracting community has woken up to the world market and is beginning to break into the investment market. If we have a stable home base, the country can reap the benefits of having had the oil industry here by breaking into the export markets. The technologies that are being developed now in the North sea could be of great benefit in other deep-sea applications off south America and in other parts of the world. The efficiencies that have been driven into the industry by the oil price shocks of the past have produced some effective and forward-looking mechanisms for transport abroad.
I urge the Government to look for stability for the oil industry. I hope that when they conclude their review, stability will be the watchword as an encouragement for future investment.
§ Mr. Christopher Leslie (Shipley)
First, I should like to comment on the remark made by the hon. Member for Maidenhead (Mrs. May) to the effect that, if you say something often enough, people will start to believe it. It is interesting to note that all the Conservative Members who have spoken tonight referred to the golden economic legacy, which we have somehow started to turn down the path of economic decline. That legacy was one of structural unemployment, poor investment and little capacity, and it was riddled with short-termism, so we can really only go up.
Several themes are set out in the Budget. It is a Budget that will make work pay and make work more worth while. It is a radical Budget, containing comprehensive tax and benefit reform, encouraging enterprise and supporting families. The themes are fairness, work and opportunity. It is a strong Budget, a popular Budget and a much-needed Budget. I am especially glad to see the combination of tax breaks for the lower-paid and working families, and the way in which the Budget is helping to eliminate the poverty trap. That, together with the national minimum wage, will help the less well-off to become better off. It is a well-judged approach, and good for the economy as a whole.
1162 In addition to the Budget, the economic framework set out by the Chancellor is helping to create general prosperity throughout the whole economy. My right hon. Friend is steering the economy into equilibrium, and the economic context and the trends we see in the economy focus on the stability in economic policy he emphasised. We are beginning to see stability come through into the economic cycle, which has been a chief aim of the new Government. It is already beginning to provide rewards, by promoting dynamic and competitive business and industry, at home and abroad. The depoliticisation of monetary policy has given interest rate stability in the longer term and we have the lowest long-term interest rates for 33 years, which is helping to make capital investment, particularly in product process technology, more attractive.
The Chancellor has chosen policies to ensure that the economy does not overheat, and that economic expansion is steady and, more important, sustainable and stable over the longer term. He has instituted a monetary policy framework that has reined in the inflation problem by bearing down on price expansion and taking no risks that might mean that the economy returned to the destructive boom-bust cycle experienced under the Conservatives. Stable low-inflation conditions are the foundation for lasting economic growth and prosperity, and the evidence is that the Government have been successful in keeping inflation in line with their targets.
One of the best aspects of the Budget is the strength of the deficit reduction plan instituted by the Chancellor. There has been a sharp and impressive reduction in the public sector borrowing requirement since Labour entered office, which has been achieved without significant privatisation proceeds. The national debt is a burden around the country's neck and a drain on the public purse because of the cost of financing the interest on that debt. National debt interest eats up more than £24 billion each year, which is money that could be spent on vital public services. I am extremely pleased that my right hon. Friend is signalling a further fall in the PSBR and that the golden rule of borrowing only to invest and not to consume is now achieved.
The Chancellor, who likes to be known as the iron Chancellor, has now obtained a reputation for prudence, which is enhanced by his policies in continually bearing down on areas of public expenditure that do not meet the long-term investment and public service objectives we all share. A low PSBR is good, in that it is the sign of tight fiscal policy which, in turn, helps to bring down interest rates in the longer term and to bring sterling into a more trade-favourable position. That is the best policy to pursue in the long term.
The other innovative aspect of the Budget statement is the new fiscal stability code, which is to be welcomed in that it enshrines those new measures in law. I understand that, from now on, the Comptroller and Auditor General of Her Majesty's Government will have to corroborate Budget statements. Those measures are extremely welcome in terms of transparency, responsibility in fiscal policy, fairness, efficiency and, again, stability by making sure that long-term planning and the capacity to plan over the long term are an integral part of economic policy from now on.
All the tax measures announced in the Budget statement are to be welcomed. Looking at the Taylor report and the changes to the national insurance system, 1163 we can see that the Chancellor is beginning to align employee and employer national insurance contributions within that restructuring measure, so that they come into line with income tax. That is a simplification of the national insurance contributions system and it gives positive help to the lowest-paid employees, so helping to end the poverty trap.
The Chancellor has taken steps to encourage investment by industry and business, not only by reducing corporation tax to the 30p rate—lower than any level charged by our major competitors—but by enshrining the principle of stability throughout the lifetime of this Parliament by stating that that rate will apply for the next four years. In addition, my right hon. Friend has instituted the 20p rate for small companies tax. Those measures combined help to give large, medium and small enterprises the encouragement they need to make technological investment and so broaden the United Kingdom competitive base.
I pay tribute to the Chancellor for his measures relating to the individual savings account, especially the extreme generosity in his tax treatment of investment income. That will certainly be welcomed by many of my constituents, who have made representations to me on that matter. Bringing in a wider range of savings products, making them accessible to a larger number of people and encouraging investment rather than short-term consumer spending, will help to set the economy on a stable footing that is sustainable in the long term.
One of the most interesting aspects of the Chancellor's statement is the measures to close tax loopholes. My right hon. Friend has already closed loopholes to the value of £1.7 billion and is now taking steps to close loopholes to the value of £1.5 billion, including offshore trusts. That is an extremely important measure and a good way in which to set fiscal policy in the longer term. It is an enormous achievement to close tax loopholes, which are sometimes highly technical. A tax system riddled with such loopholes was perpetuated by the Conservatives, and my right hon. Friend is now beginning to rein it in. That is a clever and intelligent Budget strategy, and a popular way in which to raise revenues. Tackling tax loopholes and making sure that those who exploit them do not get away with it will be a popular move.
The Budget is eco-friendly, and it is successful in making sure that the tax system reflects our longer-term environmental objectives. As well as keeping the less well-off warm with changes to the VAT charged on fuel and loft insulation materials, the Budget is usefully putting £500 million into public transport and £50 million a year into a rural transport fund, which will help to get people out of their cars and into more environmentally friendly forms of transport.
§ Mr. Andrew Stunell (Hazel Grove)
Does not the hon. Gentleman recognise that the reduction in the VAT on insulation materials does not apply to the normal insulation materials that can be bought at, for example, B and Q? It is restricted to specialist schemes, which are themselves restricted because of cuts in the budget of the Energy Saving Trust.
§ Mr. Leslie
The home energy efficiency scheme, to which the hon. Gentleman is broadly referring, now has 1164 the capacity to extend to many thousands more homes as a result of the Budget measures. However it is looked at, the measure will extend environmental benefits to many more people.
The Budget successfully gives support to families and children. There were many faults in the old family credit system, particularly inasmuch as it perpetuated the process whereby employers could dish out low wages instead of providing enhancements and incentives for people to go out to work and keep the money that they earn. The working families tax credit achieves that aim. I am glad to say that it also gives a guaranteed minimum working income of £180 a week.
The Chancellor was generous in terms of investment in child care. The 70 per cent. tax credit that he has given to cover the costs of child care helps to make it more affordable and accessible. The Budget also introduced other child-friendly measures, such as targeting help at children, with a 20 per cent. rise in child benefit. That will benefit more than 13,000 families in my constituency, and I know that they will be very pleased.
§ Dr. Lynne Jones
Is my hon. Friend not a little disappointed that those measures will not be implemented until next year, in April 1999?
§ Mr. Leslie
No. I think that, if we look at the total cost involved, we see that the Chancellor has taken a major step. A 20 per cent. increase in child benefit is extremely significant. If we are to be prudent, we must ensure that the money is in place. The right way to go about it is to ensure that, as we get the money, the resources are released—that we spend as we can afford to do so.
The Budget fulfils many pledges made in Labour's manifesto. We have already heard how the Chancellor has not increased the basic or top rate of income tax. That pledge has been kept, which shows that the Labour Government can be trusted to keep their promises.
The Chancellor has not introduced value added tax on food, children's clothes, books, newspapers or public transport. He has kept the promise to keep VAT on fuel at the lowest level. That is in stark contrast to the Conservative Government's approach to VAT—given half a chance, they would have splashed it on whatever they could.
The Budget has moved in line with the public spending priorities set out in the Labour party's manifesto at the general election, particularly the extra £2.5 billion on education and the extra £2 billion that has been spent on the NHS since the general election. Those moves will be welcomed by people the length and breadth of the country.
As a new Member of Parliament and a new member of the Public Accounts Committee, I have been working upstairs on the Committee Corridor for many months, scrutinising how a lot of taxpayers' money is spent. It is an important job. The Budget also sets the scene for ensuring that waste and inefficiency in public expenditure are rooted out wherever possible. I note that my right hon. Friend the Chancellor has published the "National Asset Register", which is progressing in tandem with the comprehensive spending review. I hope that, in future, the Public Accounts Committee, in conjunction with Government Departments, may think of looking at the 1165 "National Asset Register" to help us to achieve our objective of ensuring that we root out unnecessary elements of public expenditure.
The Budget sets stable foundations for the economy. It is an excellent Budget which sets the course for the modernisation of Britain. It is a great achievement for the Labour Government, and I am extremely proud to play my humble part in today's proceedings.
§ Mr. Quentin Davies (Grantham and Stamford)
The previous speech sounded like a pretty thorough synopsis of the Labour party line from Walworth road. We must all be grateful to the hon. Member for Shipley (Mr. Leslie) for his speech, as it will at least save us the trouble of reading the original version, which was doubtless very turgid.
It would be wrong not to recognise that the Budget contains many positive features—as my right hon. Friend the Member for Richmond, Yorks (Mr. Hague), with characteristic generosity and fairness, acknowledged. It would be rather difficult for any Government, however incompetent, faced with the rapid growth in revenues and the substantial cash flow that the present Government inherited, not to do a few positive things, in terms of tax cutting and of new allocations of expenditure.
It would also be churlish of the Opposition not to acknowledge that the Government have listened, thank goodness, to the strong representations that they have received from the private sector and from the House. Three weeks ago, we had an interesting debate on the Labour Government's original plans for long-term savings schemes, which would have done enormous damage if they had not listened. It would be wrong of us not to acknowledge the fact that, fortunately, they have listened.
We must not be too readily fooled, however. One would have to be extraordinarily naive—even more naive than I think Labour Members actually are—seriously to believe that one could generate from a standing start, on the basis of nine months' effort and nine months' policy, the buoyant revenues that this country is now enjoying. One would have to be even more naive to suppose that one could generate from nothing the buoyant economy that has given rise to the buoyant revenues that the Government are now enjoying and for which they are shamelessly taking the credit.
Of course, this country's strong fiscal position is a result of the policies and good husbandry carried out over many years, largely by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke). This Government inherited the most extraordinarily strong position last May.
Unfortunately, it is also true that, while reaping that very rich harvest, they have done quite a lot of damage to the soil that has produced it. I am afraid that they have made it less likely that in future—in another two, three, five or seven years' time—this country will have the same opportunities to spend new, unexpectedly buoyant revenues that the Government have today. That is largely because their major budgetary policy decision in the past nine or 10 months has been a colossal fiscal mistake.
In May, the Government inherited a buoyant economy that had been growing for five years or more without interruption. There was no doubt that growth at that time 1166 was above trend. There was no doubt that consumption was growing at an unsustainable rate that could not have been continued indefinitely. In the face of that, in their first Budget, the Government should have generated a greater budgetary surplus to reduce public borrowing, or should have restrained private consumption through appropriate fiscal measures, or should have encouraged greater saving in the private sector. Any of those policies would have restrained demand and allowed fiscal policy to take some of the necessary strain for stabilising the economy.
What the Chancellor actually decided to do last summer was a classic mistake. Instead of restraining consumption through the Budget, he cut consumption taxes. That was an inconceivably damaging and incompetent response to the conjuncture of events at the time. As if that were not enough, instead of encouraging private saving, he taxed it to a degree that has never before occurred in this country's fiscal history. When the new measure—the abolition of the dividend tax credit—comes into effect, it will take £5 billion in a full year, each year and every year, out of pensions. We have said that before and we shall have to say it again, because we are going to reap a very negative harvest from that colossal mistake.
§ Dr. Lynne Jones
Would the hon. Gentleman confirm that the words that he has just spoken called for increases in taxes in last July's Budget?
§ Mr. Davies
I was saying how colossally inappropriate and incompetent it was to cut consumption taxes—something that the Chancellor, whom the hon. Lady occasionally supports, did. At the same time, he compounded that error by taxing the return from savings, thereby reducing the incentive to save—in this case, through the important medium of pensions. Irrespective of the human consequences of that measure for people's expectations of standard of living in retirement—which is a major human and social issue—it was the wrong economic response to the prevailing circumstances, and it has had a damaging effect.
The burden of stabilising the economy—ensuring that demand does not increase at an unsustainable rate, bringing about inflationary pressures and destroying a lot of the good work of the Conservative Government over many years—has fallen entirely on monetary policy. The Monetary Policy Committee of the Bank of England has had to increase interest rates to a higher level than it would otherwise have done. That was explicitly acknowledged by the Governor of the Bank of England, no less, before the Treasury Committee last November. Interest rates have gone higher than would otherwise have been necessary simply because the Chancellor did the wrong thing last summer. The country is paying, and will continue to pay, a major price for that.
What has been the consequence of that increase in interest rates? Sterling has appreciated excessively. The reduction in demand has come about, but not across the board through a reduction in consumer spending—the area that was clearly expanding too fast last summer. The whole burden has been taken by the so-called internationally traded sector of the economy—that part of the economy that either exports or competes in this country with imports. That sector is largely, although not exclusively, manufacturing. We have a crisis in manufacturing.
1167 During my more than 10 years in the House, Labour Members, with their traditional industrial base, have often made eloquent speeches about the importance of a manufacturing base and how mistaken certain Conservatives—not me, I hasten to add—were to say that we did not need manufacturing and could have a completely service-based economy. The Labour party is now making a colossal mistake, resulting in the whole burden of stabilisation falling on that single sector of the economy. Enormous damage is being done as a result to investment in that important sector, where most technological innovation—and therefore most increases in value added—take place.
Enormous, gratuitous and unnecessary damage to this country's infrastructure—our economic foundations—has resulted from a mistake by the Chancellor in last summer's Budget. We shall go on paying the price for that mistake for several years. The nature of economic management is such that we could recover in future years from an earlier major mistake in macro-economic management only at disproportionate cost. The Government think that they can get away with that serious misjudgment and that no one will notice, because the price of their mistake will not become fully evident for some years. However, the cost will become evident eventually.
We shall continue to remind the House of what we said last summer. We told the Chancellor the right response to the situation, but he ignored our advice. The criticism has come not just from the Conservative party. The Governor of the Bank of England is on record as setting out clearly what a mistake the Chancellor made and what consequences flowed from it. We shall go on reminding the Labour party of its unnecessary mistake and we shall ensure that the country knows where to put the blame when there is a greater economic downturn than we would otherwise have suffered. That downturn will impact disproportionately and regrettably on the manufacturing sector.
I have not finished with the Government. This year's Budget is not what it appears to be. No doubt the handouts from Walworth road—we have had a flavour of them from certain Labour Members, who have no doubt been reading them diligently all evening—will be picked up by some people in the press, who will fill up their copy with quotations from them as they have done over the past nine or 10 months. Let us look at the reality behind the brave and apparently alluring statements made by the Chancellor this afternoon.
The Government are committed to cutting costs for small and medium-sized businesses. That is a laudable objective with which no Conservative Member would quarrel for a second. We would all support such a thrust of policy in good faith if it were genuine and sustained, but what is the point of trying to reduce the costs for small and medium-sized businesses in one area while increasing them in another? As my right hon. Friend the Leader of the Opposition has said, what is the point of combining the measures laid before the House in the Budget with the minimum wage, which will result in an enormous increase in costs for small and medium-sized businesses if it is introduced at a level likely to satisfy Labour Members? As well as increasing costs for businesses, the minimum wage will also price many people out of a job.
1168 The Government's lack of honesty and frankness on the minimum wage is particularly sad. If the minimum wage comes in at a relatively low level, less damage will be done to the competitiveness of British business and fewer people will be put out of jobs, but any minimum wage will have some deleterious effect on competitiveness, employment and investment.
§ Mr. Pond
Does the hon. Gentleman accept that, after his Government abolished the wages councils—the minimum wage system for some of the poorest—employment in those sectors declined? We are the only country in the industrialised world without a minimum wage. When the minimum wage in the United States was increased substantially, employment increased. How does he explain that?
§ Mr. Davies
I said earlier that Labour Members were not necessarily as naive as they sometimes appear at first sight. Perhaps I was being a little too generous. Perhaps that was an excess of parliamentary gallantry and I should have been less kind.
If the hon. Gentleman thinks for just two or three minutes about what he has said, he will realise that he would have to be genuinely naive to believe it. The wages councils existed in sectors of the economy in which employment was declining. They were contributing to that decline. It was clearly necessary to remove them. Had they not been removed, employment would have declined still faster. The United States has a buoyant economy. The minimum wage there is very low. It has been possible to increase it without destroying aggregate employment because employment levels were increasing quickly anyway. Had the minimum wage not been increased, employment would, by definition, be higher.
I ask the hon. Gentleman to reflect on the principle of all things being equal—a phrase that is used before almost every proposition that is stated in economics. In the instances that he has cited, all things were not equal. That explains the paradox, which he may find it difficult to grasp, that if a move that reduces the demand for labour is made at the same time as other events or policies that more than compensate for that reduction, there can be a net increase in employment.
§ Dr. Lynne Jones
Surely the hon. Gentleman is not naive enough to think that the economy is a closed system. Does he agree that, if people have more disposable income because they earn more, they bring demand to the economy?
§ Mr. Davies
If the hon. Lady thinks through what she has just said, she will be able to answer her own question. The economy is indeed not a closed system. We have international trade relations with about 160 other countries. If demand is increased in this country while 1169 supply is reduced by making the supply side less competitive, that demand will be satisfied by an increase in imports, or will result in an increase in inflation.
It was not my intention to give Labour Members a lecture in elementary economics, but I hope that the interesting exchanges that we have had across the Chamber will encourage hon. Members to do a little homework on these subjects. I warn them that, if they do, they will find it much less easy to be taken in by some of the things which the Chancellor said this afternoon and which he will no doubt repeat on other occasions.
§ Mr. Peter Bottomley
If it is suggested by Labour Members that wages inflate demand, why has the Whitehall Department that their party now supports agreed to pay a 16-year-old in London more than £9,000 a year? The total contribution to the economy from all the 16-year-olds employed in Whitehall is less than £30,000, because the total number of 16-year-olds employed is three. That is an average of one tenth to every Government Department. Does not that demonstrate my hon. Friend's point? If the level of pay is set too high, people are not employed.
§ Mr. Davies
My hon. Friend has produced an interesting corroboration of my argument. I am grateful to him, as is the entire Chamber, I am sure.
I have explained that, because the Chancellor says that he is reducing costs to small business on the one side, it would be extraordinarily naive and foolish not to notice that he was increasing costs to a much greater extent on the other side. The same proposition holds good in other areas.
What is the point of the Government saying that they are reducing the costs of business, and a moment later explaining that as a result of their abolishing the dividend tax credit, a number of occupational pension schemes will become actuarially underfunded, and employers will have to make up the difference? The Financial Secretary acknowledged that to me in a debate on pensions the other day. She said that, where the abolition of the dividend tax credit results in occupational schemes becoming actuarially underfunded, employers would simply make up the difference.
The Government, who this afternoon proclaimed themselves the defender of business interests and said that they were committed to reducing business costs, thus acknowledged in another context only a few days ago that they had introduced a serious and selective new business tax—the worst kind of tax.
What is the point of saying that, with the new capital gains tax regime, everything will be wonderful and everybody will pay lower rates of CGT, when that is not true? From the Chancellor's announcement this afternoon, it was clear to me that the position of business assets under capital gains tax has been made substantially less advantageous by the measures that the Government have just announced.
At present, if a small or medium or family business sells business assets, those assets are eligible for roll-over relief—or retirement relief, if the business man concerned is retiring—at 100 per cent. That will no longer be the case. Those business assets will instead be taxed for CGT purposes at 10 per cent. That was presented to us this afternoon quite disingenuously, as though it were good 1170 news for small business. It was unambiguously bad news for small business. The news was of a new impost on business through the change in the CGT regime.
I am delighted that the Financial Secretary has just appeared to hear my strictures on the matter. I shall be delighted to take an intervention from her if I have it wrong.
Suppose that a business man sells business assets for £1 million. Suppose that he has built the business up from nothing, so the whole consideration is a capital gain. It will, as we have heard, no longer be indexed. Last week, he would have been able to roll over that capital gain into other business assets or into shares if he wanted to start another business or expand into another area of business; or if he was retiring, he would have had 100 per cent. relief from capital gains tax in respect of that sale. Under the regime that the Government presented this afternoon, that will no longer be the case.
I see that the Financial Secretary is not trying to catch my eye. She does not seem to want to contradict me. I am disappointed, because I was hoping against hope that I might have misunderstood the position, and that we might have some good news for small business.
On that £1 million of capital gains, the small business man will pay £100,000 capital gains tax. That is indeed a substantial change in the tax regime for small business, but it is a negative change. The Budget is bad news for people in that position. People will invest, take risks and work hard through a lifetime only if they believe that they will be able to keep the rewards. To the extent that the rewards are taxed, people will invest less, take fewer risks and work less hard, which will be bad for the economy as a whole. What the Government announced this afternoon is bad news for those individuals who will have to pay the tax but also for business creation, for risk taking and for the future of the British economy.
I do not want to take up too much of the House's time. I have spoken about business. It is extremely important that not just business people but ordinary citizens are under no illusion about the impact on them and their families of what was announced this afternoon. What is the point and where is the honesty in the Government saying that direct taxes will not be increased, when local direct taxes are being substantially increased?
Almost everyone in the country faces an increase in council tax in double figures—and for many people it will be higher than that. That is a reflection of a decision by the Chancellor—which he no doubt thinks is extremely clever—to withhold funding of local services through the revenue support grant, thereby taking credit for a growing surplus in central Government finances. However, that is done at the expense of local authorities, which must deliver the same level of services with a lower contribution from the revenue support grant, and must therefore increase the council tax.
The Government may think that they are clever to do that. They must also think that the British people are stupid and will not find out about it, just as they think the British people are stupid and will not work out the consequences for the value of their pensions of the abolition of the dividend tax credit, and that small businesses will not see that the effect of the minimum wage legislation and the additional pension contributions that they will have to make will more than discount the tax concessions that were trumpeted by the Government this afternoon.
1171 If, after nine or 10 months in office, the Government proceed on the basis that the British people are stupid, they will sow the seeds of their own destruction. When that self-destruction occurs, no one on the Opposition Benches will be in the least bit surprised.
§ Mr. James Plaskitt (Warwick and Leamington)
Having listened to the hon. Member for Grantham and Stamford (Mr. Davies), I can conclude only that he has misread his Ladybird book of economics. It is time to return to both reality and brevity.
I welcome my right hon. Friend's Budget statement this afternoon. As I have had time to study the Red Book, the tests that I apply—
§ Mr. Plaskitt
No, not at this stage.
The first tests that I have applied to my right hon. Friend's Budget statement involve assessing its contents against the needs of my constituents and my constituency. The Budget statement responds very well and effectively to those needs and I congratulate my right hon. Friend on his achievement.
I began by assessing the Budget in terms of its impact on the 3,200 businesses in my constituency. Many of them are in traditional manufacturing sectors, but there are also many innovative companies with high-technology interests. As I talk to the companies in my constituency, they constantly highlight two themes on what business expects from Government. The first is a call for long-term economic stability; the second is for a climate that encourages investment. My right hon. Friend reiterated exactly those themes time and again in his Budget statement and they are central to the Budget strategy. Therefore, I am confident that the Budget measures, particularly those for business, will be welcomed warmly by the companies in my constituency.
The Red Book contains no fewer than six line-item business tax reductions. Companies in my constituency will welcome them very much—particularly the plan to end advanced corporation tax. They will also undoubtedly welcome the move towards the lowest level of corporation tax in Europe. As for to their desire for long-term stability, companies will appreciate the statement that the Government guarantee the structure of corporation tax for the lifetime of the Parliament.
Small businesses in particular—of which there are many in my constituency—will cheer the news that payments of quarterly corporation tax instalments will no longer be required. That will be a considerable advantage to their cash flow. They will welcome the 20 per cent. tax rate for small businesses and many companies will respond enthusiastically to my right hon. Friend's announcement of £50 million venture capital funding. Many small businesses in my constituency are near Warwick university and other universities that conduct much innovative research work.
Precisely that sort of seedcorn funding and financial support will help local businesses to pick up the good ideas coming out of our universities and develop them into products and create employment. That is an extremely welcome Budget measure.
1172 I also warmly welcome the code for fiscal stability in the context of companies' desire for long-term stability. It is inevitable that right hon. and hon. Members tend, in the hours immediately following the Budget statement, to focus on specific tax figures and individual tax changes, but we should not lose sight of the importance of the code for fiscal stability and the fact that it will be enshrined in law. It will play a crucial role in creating a stable and predictable macro-economic climate—the very thing that businesses need to embark confidently upon programmes of investment.
For the first time, the Government will provide a 10-year projection for many of the key variables in the economy and they must, year by year, indicate the relationship between our domestic spending plans and the wider European Union stability and growth pact. That is a key device for linking the performance of the United Kingdom economy with that of our European partners, and I know that it will be appreciated by hundreds of companies in my constituency that are heavily dependent on trade with the rest of the European Union.
If we relate the code for fiscal stability to the new Bank of England independence, the Government's deficit reduction plan, the strategy for debt management and the clear map that has been laid out for progress towards European monetary union, we can see that the Government have created a substantially more stable climate for the economy. It stands in sharp and quite dramatic contrast to the record of the previous Administration. During 18 years of Conservative government, interest rates rose to 14 per cent. or higher four times, and this country had the highest long-term interest rates in the European Union. Both those factors were serious impediments to business undertaking long-term investment.
We now have instead a strategy for achieving fiscal balance, lower long-term interest rates are already coming into effect and the Government are adopting a strategy of fiscal prudence. All that will enhance competitiveness and stability in industry, and I hope that, before long, it will begin to create circumstances that allow for a more competitive exchange rate. I was pleased to hear my right hon. Friend acknowledge in his Budget statement the difficulties that many companies are presently having with the exchange rate. I share his hopeful expectation that we shall soon enjoy a more competitive rate.
The measures that my right hon. Friend has introduced will do much to create a satisfactory climate for business and employment growth. Companies in my constituency will greatly appreciate the changes in national insurance—particularly the impact that they will have on making it easier to create lower-paid jobs or the marginal extra job in a company. That relates well to the impact of the new deal and the specific programmes that it will introduce. Many hundreds of people in my constituency will benefit directly from the new deal programmes as they come into effect. Those programmes fit in neatly with the measures announced this afternoon by my right hon. Friend.
On behalf of my disabled constituents, I welcome the changes announced by the Chancellor that will strengthen the opportunities for disabled people to find work. I welcome the lower taper, the higher earnings threshold and the new linking rule that will alleviate many of the risks associated with taking a job that disabled people have experienced hitherto. They are very welcome measures.
1173 The second group of tests that I have applied to the Budget statement on behalf of my constituents involve gauging the extent to which it promotes and furthers social justice. In the measures under the "making work pay" heading, the Budget makes significant progress through a combination of specific tax cuts and benefit reforms. I welcome the tax cut for the lowest paid and the fact that no income tax will be payable by individuals who earn £220 a week or less. That will provide a significant boost to the disposable income of many low-income families in my constituency.
I welcome also the expansion of child care and the generous tax credits attached to that. I welcome the introduction of higher child benefit. I calculate that 13,000 families in my constituency will be about £130 a year better off as a result of that change, and that 2,000 will be £500 a year better off thanks to the very careful targeting of that extra assistance on those in greatest need.
I also welcome the planned introduction of the working families tax credit. At long last it will take us a long way towards meeting the principle of minimum income and provide a boost in disposable income to low-wage families of up to about £30 a week. It will therefore significantly erode the poverty traps that we know create many of the difficulties that lead to impediments to work. I welcome especially the measures that my right hon. Friend is introducing to close poverty traps and to match these steps towards social justice with the closing of yet more tax loopholes that have been exploited by the highest earners.
I tested the proposals in the Budget statement against the interests of my rural constituents. It is clear that they will welcome many of the measures that my right hon. Friend has announced, especially the specific funding set aside for rural public transport. It has been much denuded over recent years and it is badly needed.
The fuel rebates for bus operators will be warmly welcomed. I welcome also the introduction of lower excise duty for cars—it will be £50 lower for the cleanest cars—which is an important move towards assisting those who depend on a car. At the same time, it is a move consistent with environmental objectives. Against the background of these measures and many others that the Government have taken, it will be easier to create and sustain new jobs in small rural businesses in my constituency.
I test the Chancellor's statement also in terms of its impact on the public services in my constituency. I warmly welcome my right hon. Friend's announcements on education. There are about 50 schools in my constituency, 23 of which I have managed to visit since the general election to discuss the impact of the changes that the Government have already made to education in the classroom. There has been a warm welcome for many of the initiatives that we have taken.
As a result of my right hon. Friend's Budget statement last year, Warwickshire has £10 million more to allocate to education and schools this year than it would have had. Today we have learnt of an additional top-up to boost that allocation. That is welcome news throughout the county and my constituency. Local health services will also appreciate the allocation of an extra £500 million to the national health service for the forthcoming year.
There are two civilising measures, as I would describe them, tucked away in the Budget. I know that they will be welcomed by many of my constituents. The initiative 1174 on international debt will encourage donations from private sources. There is also the programme of money for museum and gallery funding.
The Budget passes a broad range of tests that can be applied to it. I know that the measures in it will be much appreciated. There is extremely good news for the country and certainly for my constituency. It is a Budget that helps us to make further progress towards making work pay. The Budget will encourage enterprise while supporting families in need. It is also a Budget that invests further in health and education, and I commend it to the House.
§ Mr. Desmond Swayne (New Forest, West)
Earlier this afternoon, I would not have presumed to make a speech on the Budget without having first benefited from tomorrow's financial pages. I was prompted to speak, however, by the intervention of the right hon. Member for Yeovil (Mr. Ashdown). Having not planned to speak this evening, I have pressing engagements later. I apologise to you, Mr. Deputy Speaker, and to the occupants of the Treasury Bench if I am unable to remain in my place until the conclusion of the debate this evening.
The principal argument advanced by the right hon. Member for Yeovil in his closing remarks was that the main weakness of the Budget statement resided, first, in its failure to make a declaration in principle in favour of joining the European currency union and, secondly, in its failure to state a target date so that the measures required to achieve the necessary conversion could be put in place by that date.
Perhaps the right hon. Member for Yeovil was unfair to the Government in some respects. My understanding of the Government's position is that they have made a declaration in principle of joining the European currency union. It is now merely a question of timing, and that timing will be judged by the five criteria that have been laid down by the Chancellor of the Exchequer.
As for the selection of a target date and the achievement of the necessary convergence within the period attached to it, I cannot imagine what the right hon. Member for Yeovil had in his mind. The simple fact is that convergence is not achieved by statements of intent. We have interest rates in excess of 7 per cent. while on the continent of Europe they are about 3 per cent. How is convergence to be achieved? By what measures will it be achieved?
I taught the dismal science of economics for about seven years. As for the convergence of economic cycles, there is some doubt about even what causes the economic cycle or the trade cycle. I remember that one of the more plausible theories was that the issue had something to do with the disposition of sunspots on the central orb.
The fact is that the United Kingdom has been a member of the European Community or its forebears for about 25 years, and has failed to converge its economic cycle. Indeed, if statistics are to be believed, the divergence is increasing at a disproportionate rate as we increase the time distance from the point of our membership.
Our trade pattern, with our quickly increasing proportion of trade with non-EU members, is undoubtedly a significant factor in the growing divergence. What means can be put in place to cause convergence? The housing market in the United Kingdom is significantly 1175 different from elsewhere, with a huge reliance on floating interest rates. What means can be put in place to cause that market to converge with the European norm?
Our financial services sector is disproportionately large compared with that for the rest of Europe. Indeed, industry raises its finances here differently from the rest of Europe. What measures could the Chancellor of the Exchequer put in place to cause that system to converge to the European norm? Furthermore, this nation's demography is significantly different from that of the rest of the EU. I am not aware of any means by which that might converge. The right hon. Member for Yeovil is acting rather in the manner of King Canute by stating that convergence can be achieved simply by selecting a target date.
I shall now move on' to some of the substantive measures in the Budget. The principal benefit that it holds out to the British people is the trend in the public sector borrowing requirement, which is moving towards balance and indeed surplus. That is a huge achievement. There is no doubt that the deterioration in public finances and the move to a significant deficit occurred under the previous Administration during a fierce recession. Had we attempted to restrain that deficit by making real cuts in public services, I have no doubt that Labour Members would have raised their voices the loudest. They would have given a new meaning to the concept of bleeding hearts.
Although the measures that gave rise to the increase in the PSBR were introduced by the previous Administration, so were the measures that now bring it back towards balance. It is nonsense for Labour to claim that any policy change has produced the move towards balance. Indeed, some time ago the Government announced that they intended to pursue the policies of the previous Administration, therefore admitting that those policies were correct. No policy change can possibly explain the movement towards balance; it is entirely to the credit of the previous Administration.
My hon. Friend the Member for Grantham and Stamford (Mr. Davies) eloquently described the damage caused by last year's changes in advance corporation tax. Frankly, the Chancellor was allowed to get away with it because advance corporation tax is so complicated. Most of those who comment it fail to understand it, and therefore were unable to understand the changes. That was certainly the case initially.
My fear is that precisely the same complexity attends one of the main features of this year's Budget statement. I refer, of course, to the working families tax credit, which operates in a hugely complicated area. The Government's proposals will have to be examined in some detail, but they have chosen a course where the current studies and the experience of other Governments are not particularly encouraging. I suspect that the measure may become subject to the law of unforeseen consequences and give rise to many more anomalies than it seeks to solve. I suspect that the hope that it will lead to a reduction in overall welfare expenditure is a pious hope.
§ Mr. Andrew Tyrie (Chichester)
My hon. Friend may not have had the opportunity to read all the information, 1176 but paragraph 3.36 predicts that working families tax credit will bring 400,000 more families into the benefit system. That is a massive increase. Another document—
§ Mr. Swayne
I thank my hon. Friend for that enlightening fact. I was not aware of it. I was reserving the document for my bedtime reading this evening.
I shall now move on to the announcements on education and health expenditure. The important factor is the experience of our constituents, which is undoubtedly different from that envisaged by Labour Members when they waved their Order Papers this afternoon. Life is increasing difficult for children, particularly those with learning difficulties, and for people on hospital waiting lists, particularly the elderly.
Labour Members claim that the Government are spending much more than the Conservative Administration would ever have done, but that involves a measure of clairvoyance that is quite unjustified. We judge Administrations by their record. The simple fact is that the present Administration have more than halved the rate of increase in health expenditure under the previous Administration.
No matter what sums are touted by the Chancellor, the reality is what people experience on waiting lists. I draw the Government's attention to the fact that the perception of the patient is more important than the sums that Ministers might tout. At the moment, the perception of patients is that waiting lists are increasing, and I do not believe for a moment that the rate of increase in Government spending is sufficient to address that problem.
I welcome the announcements on capital gains tax and the improvement in the tax environment for small businesses, but they have to be set against the background of £22 billion in extra taxes identified by the Confederation of British Industry that have been introduced in less than one year. The same applies to personal taxation.
Of course the changes in national insurance are welcome, as is the prospect of a 10p rate of income tax, whenever that is achieved, but they have to be set against the experience of many of my constituents who are already paying an extra £1,000 per year as a consequence of the Government's economic management over the past 10 months. That is an extraordinary record from which to produce a Budget statement. There have been increases in interest rates, council taxes, pension costs—as a consequence of the changes in ACT—and education costs.
§ Mr. Robert Syms (Poole)
Is my hon. Friend aware that, according to line 8 on page 18, the abolition of ACT and the introduction of quarterly payments of corporation tax will raise an extra £100 million this year and an extra £2 billion by 2000?
§ Mr. Swayne
I thank my hon. Friend for that extremely enlightening remark.
As a consequence of this year's Budget, 250,000 taxpayers will pay higher marginal rates of taxation. That has to be set against the background of a Government who, before they took office, said that they had no plans 1177 to increase taxation. Within one year, they have achieved the highest revenue-raising Budget in our history. The expertise, skill and audacity of the Chancellor consists of the fact that he has been able to do so without most people noticing, because the changes that he has introduced have been so complicated. I do not believe that that state of affairs will persist for very long.
§ 9.7 pm
§ Mr. Chris Pond (Gravesham)
My hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt) suggested that the hon. Member for Grantham and Stamford (Mr. Davies)—who, sadly, has just left the Chamber—had misread his Ladybird book on economics. The contribution of the hon. Member for New Forest, West (Mr. Swayne) sounded a little like "Tinky Winky and Po Discover Economic Convergence".
What we have heard from some Conservative Members this evening is economics through the looking glass. We have had the suggestion that, somehow, my right hon. Friend the Chancellor has inherited what some have called a golden legacy. If we look at the contributions to that golden legacy, we find a doubling of the national debt in a period of just five years, a decline in our position in the league table for competitiveness—
§ Mr. Pond
I should like to get a little momentum going first, if the hon. Gentleman does not mind.
Under the previous Administration, we had the lowest levels of investment of any of the advanced industrialised countries, we have slipped to llth place out of 15 EU member states in terms of national income per head, and we have the highest proportion of workless households in the EU.
Therefore, many of the speeches that we have heard from Conservative Members have the smack of Blue Peter—"this is one I prepared earlier"—bearing little relationship to the Chancellor's contribution.
§ Mr. Tyrie
The hon. Gentleman's first point related to the doubling of the national debt. He should be aware that the national debt was reduced dramatically from the levels inherited from the previous Labour Government. I see denial on the faces of some Labour Members, but, however much they screw up their faces, facts speak louder. Furthermore, I think that the hon. Gentleman will find that Britain is the only major country which, in the past 20 years, has succeeded in reducing the ratio of debt to GDP. Every other country has seen an increase.
§ Mr. Pond
I thank the hon. Gentleman for that lengthy intervention. What I said was that the national debt had doubled in a period of five years under the previous Prime Minister's period in office. What happened in the longer term, especially given the previous Government's substantial legacy in oil revenues and privatisation proceeds, is something on which we should not dwell.
My right hon. Friend the Chancellor described the Budget as ambitious. It has to be ambitious, given the challenge of the real legacy that was inherited from the previous Government. It is ambitious to provide the means to allow people in my constituency and elsewhere to make the most of the opportunities now available to 1178 build the best future for themselves and their families, and it is ambitious on behalf of the poorest who themselves have an ambition—let no hon. Member deny it—to build a better future for themselves and their families. The Budget has assisted them in that process.
The biggest challenge that my right hon. Friend faced in the Budget was the almost 5 million people who are living in poverty despite the fact that there is someone in that household in work. The second major challenge he faced was that one fifth of households have no one in work at all. The Budget made a major contribution towards challenging that.
One of the major elements mentioned in the Budget, but not included in it, was the national minimum wage to which the hon. Member for Grantham and Stamford also referred. He suggested that some Labour Members should do a little homework on such issues before making statements. I can tell him, although he will have to read it in the Official Report, as he has left the Chamber, that I spent 17 years' homework on the economic impact of the minimum wage, and that his grasp of economics on that issue would not be sufficient him a GCSE.
Last week, we spent 17 hours in the Chamber debating the minimum wage while Conservative Members tried to destroy that initiative. Not once in that debate could any Conservative Member refer to a firm or a major employers' organisation that opposed the minimum wage. I thought that the hon. Member for Grantham and Stamford would try to break that record. I am delighted that he did not.
§ Mr. Pond
As the hon. Gentleman well knows, the Low Pay Commission will report on that very issue in May; it is not the subject of tonight's debate.
The Budget has put in place some other important elements of the attempt to reduce the problems of workless households and of the working poor in the UK. I welcome the working families tax credit. The Select Committee on Social Security, of which I am a member, considered in detail the operation of the working families tax credit and its potential advantages in replacing family credit, not least in trying to deal with the problem that 30 per cent. of low-income households entitled to families credit do not claim it. The working families tax credit may overcome some of the stigma associated with that problem.
The Select Committee was concerned to ensure that transferability would be built into the working families tax credit, and I am delighted that the Chancellor gave a commitment that that would be done, to avoid the possible problems of transfer from purse to wallet, as it used to be quaintly described.
The reform of income tax and national insurance contributions is another major change in the tax system which breaks new ground. National insurance contributions are a form of hidden income tax, and previous Administrations used them to increase substantially the direct taxation of mainly low-income groups in a highly regressive way, to the extent that national insurance contributions now account for 70p in the pound—as much as income tax. It is important that 1179 we reform that system and merge income tax and national insurance contributions as far as possible. Today's statement was an important move in that direction.
Over the years, the direct and certainly the indirect tax burdens have shifted towards the poorest. A decline in the value of tax thresholds has increased tax rates at the lowest levels.
§ Mr. William Ross
Is there a good reason why income tax and national insurance contributions should not be merged completely and treated as one tax as ultimately it would make no difference anyway?
§ Mr. Pond
The difficulty about national insurance contributions is that they are used to finance social security. We must wait until 26 March to hear the proposals of the Minister for Welfare Reform, which may take us further down that road. The changes announced by the Chancellor today were a helpful step in that direction.
After the war, a family with two children would not have started to pay income tax until it had earned above the average wage and, even then, the starting rate was only 7p in the pound. Today, as a result of changes made under previous Administrations, such a family would start to pay income tax at a quarter of the average wage and at a rate of 20p in the pound—three times the earlier rate. That is a major reason why the tax burden has shifted in such a regressive way.
The changes announced today—working family tax credit and national insurance contributions—will help to deal with that. If we could move towards the l0p tax rate to which the Chancellor referred, I would welcome that, too.
§ Mr. Paul Tyler (North Cornwall)
I acknowledge the hon. Gentleman's expertise in this matter. Does he feel that enough is being done to deal with the poverty trap, to which he has alluded in the past two minutes? Is he aware that the National Housing Federation has issued a brief this evening which says that the Budget is inadequate in terms of dealing with the poverty trap, which will remain a considerable problem for people on low wages?
§ Mr. Pond
The Budget has made great strides in dealing with the poverty trap, especially the national insurance contributions poverty trap and the poverty trap related to family credit and its interaction with income tax and national insurance contributions. However, all hon. Members recognise that a major element in the poverty trap is the way in which the housing benefit system operates. That will require fundamental consideration and is currently subject to a governmental review. We still have a long way to go on that.
I was delighted to hear the Chancellor assert that universal child benefit is the most efficient and cost-effective means of providing help for families. The extra £2.50 a week for those families from April 1999 will be a major benefit, as will the additional £2.50 for those on income support and jobseeker's allowance, whose premiums will be adjusted. In my constituency, it will benefit some 13,000 families by up to £130 a year.
We need to debate how we can further improve child benefit, and it would be sensible to discuss whether, with further increases in the base level of child benefit, that should be subject to tax at the higher rate. I was pleased that the Chancellor opened that debate today.
1180 We heard today another major element of the welfare-to-work strategy—the next building block in the national child care strategy. The Government will meet 70 per cent. of the cost of child care, up to £100 for the first child and £150 for subsequent children.
The extension of the new deal to women whose partners are unemployed will assist transfers into employment, and will also overcome a major discrimination within the social security system. The extension of the new deal generally—extra resources are being committed to it from the windfall tax—will help to deal with the issue of workless households.
On Friday, we shall launch the new deal in Gravesham by taking people from some of the 1,600 businesses in my constituency that have benefited from today's Budget for a boat trip on the Thames. We shall ask them to sign up to the new deal enthusiastically; they can disembark at any stage, although the method may depend on whether they have signed up.
Most important, the Budget provides help for carers. It deals with the anomaly that has existed for many years of tax relief being provided to assist with the costs of caring only to a man whose wife is incapacitated. I am pleased that that major discrimination has been removed in the Budget.
Those changes represent the biggest reform of the tax and benefits system since Beveridge, and many other reforms will no doubt be proposed by the Minister for Welfare Reform. The Under-Secretary of State for Social Security, my hon. Friend the Member for Southampton, Itchen (Mr. Denham), is dealing with pensions proposals. The Budget will ensure that there is a major redistribution of resources to people at the bottom of society without breaching the manifesto commitment to keep the basic and higher rates of tax as they are.
I am inevitably pleased, as all hon. Members should be, that resources will be substantially increased to provide the high-quality, reliable and affordable public services on which people depend. Public transport is important to my constituents, many of whom commute daily by bus, and the Budget will help with that. Rail services are much in need of improvement. We hope that there will be a dramatic improvement in the years to come if the channel tunnel rail link goes ahead on its original timetable, and Ebbsfleet international station, which will be in my constituency, gets back on track. I am also pleased that Whitehorse Ferries, which is based in my constituency, has succeeded in obtaining licences to run services in central London and to the millennium experience.
The measures in the Budget will improve the resources available to the health service and education, which will mean that the Government have taken a major step forward in challenging problems of poverty and social exclusion, and in helping to get Britain back to work. The Budget is ambitious, but realistic. It matches the ambitions of my constituents and of people throughout the country. and I commend it to the House.
§ Mr. Colin Breed (South-East Cornwall)
I, too, welcome many of the measures proposed by the Chancellor in respect of the poorer members of our society and to deal with the issues that the hon. Member for Gravesham (Mr. Pond) eloquently enunciated, but I was surprised by the omission of housing and housing benefit, which has just been mentioned.
1181 In my constituency and in others, many housing units are rapidly falling into a poor state of repair, and the number of new starts for affordable social housing is still lamentably low. The opportunity to address that issue has been missed. Certain sectors will always miss out, because Budgets necessarily have to take account of available resources, but housing is the one issue with which all hon. Members have to deal. Constituents attend advice surgeries because they are unable to secure housing, because their housing is poor or inappropriate for their family conditions, or because their rent is too high. The housing problem and the cost of housing benefit, which absorbs an enormous part of the overall budget, need to be addressed.
The housing costs of local authorities are high, and, in the past few years, they have had less and less money to spend on council housing. Even the moneys that are to be made available from previous council house sales will not go far in providing new social housing, although relatively modest sums of money can make a big difference. We learned this evening that £50 million for housing associations would allow a 25 per cent. reduction in affordable rents. That would help many of the families in housing association properties, who are often in low-paid employment and on benefit. It would make a direct contribution to their budgets.
Good housing has a positive effect on people's health. Although the additional money for the national health service is extremely welcome, money to provide people with good housing would reduce costs because people would be in better health and would have less need to avail themselves of the health service.
Regrettably, some families in my constituency are in hostel accommodation. A single parent and three children, two of whom are of school age, may live in one room. Education is important, but it is impossible for those children to do their homework at home because of their poor housing.
§ Mr. David Drew (Stroud)
The hon. Gentleman underestimates the impact of the capital receipts changes that the Government put in place last year. Does he agree that that money should be spent wisely and carefully, and that we should not necessarily pump more money into social housing? The Government's proposals may remove some of his doubts about the apparent neglect of housing in the Budget.
§ Mr. Breed
I agree that the capital receipts programme will help. My district authority has about £400,000, which is a large sum. Even when that is added to the money available from housing associations, it will not be enough to address some of the housing problems. The cost of land is rising and will continue to rise, especially as the current view is that building should be on brown-field rather than on green-field sites. The cost of land is a large proportion of the cost of providing housing.
The Chancellor could have dealt with second homes. Some of us represent constituencies where people have holiday homes or second homes. Those people receive discounts on their council tax. We should ensure that a greater contribution is made to the local authority through the council tax. We should also address some of the problems of low-paid local people who find it difficult to get homes in rural areas.
1182 I do not want to detain the House much longer, but I think that an opportunity has been missed to address a fundamental part of the social scene. I welcome the many measures that have been introduced to help low-paid workers and families, but I feel that, given the enormous amount of money that housing benefit involves, the housing provisions need to be redirected. Housing is an important component of the incomes of many low-paid workers. I hope that, in the next few weeks and months, the Government will think again about housing problems, and, even if they cannot do it in the Budget, will consider redistributing housing benefit to provide the relief to which I have referred.
§ Mr. Tom Levitt (High Peak)
Even before today's Budget statement, High Peak had done well out of the Government's economic priorities. We have benefited from extra money to reduce class sizes, for instance. As we are in Derbyshire, we had one of the biggest problems, and the money we were given was proportionate to our problem.
High Peak has two new schools in the pipeline. In Buxton, which is England's highest town and possibly the coldest, the cut in VAT on fuel and help with pensioners' bills is particularly welcome. There has also been investment in transport infrastructure in our area. Although all the stone that makes up Manchester airport's second runway will come from High Peak, none of it will travel by road. The hon. Member for Hazel Grove (Mr. Stunell) will benefit from the same scheme and the same investment.
Even after that, there is more to be gained. Following today's Budget statement, more than 2,000 businesses in High Peak will be better off. More than 14,000 families will also feel the benefit, as will users of the health service, people in work, people on benefit, and, I believe, people generally. The Chancellor used the phrase "a people's Budget", and that it certainly is.
Other speakers have gone through a long list of what the Budget contains, but I want to identify just two issues, neither of which has been dealt with in great detail so far. I want to celebrate one feature of the Budget, and to express some concern about the other—but I shall return to that later.
I represent a rural constituency, which contains a good deal of the Peak national park. Years ago, High Peak's transport infrastructure was decimated by the bus deregulation for which the last Budget provided. "Decimated" is not too strong a word to use for the impact of deregulation on rural communities, including small villages long distances apart. Many villages in High Peak have no bus services at all, and that is not uncommon in rural areas throughout the country.
During the past few weeks, I have heard people in rural areas saying, "Yes, we have a transport problem: save our cars. Do not put extra tax on petrol." But there is another problem involving cars in rural areas. Once the breadwinner has left the home in the morning—usually travelling by car into the city—four out of five of the families who remain at home during the day have no access to a car. The price of petrol therefore becomes immaterial. We must consider the access of women, children and old people to public transport in rural areas during the day.
1183 Transport is not just an item in itself. Public transport gives people access to work, shops, goods and services—including health services. The chemist is often a bus ride away, even when the simplest medication is required. Access to leisure services is important for those trying to keep a sane mind. Even when buses are running during the day, they often do not run during the evening. People need bus services in the evening if they are to take advantage of leisure services in towns and cities. It could be said—I mean no disrespect to people in rural areas when I say this—that, for some rural areas, transport is necessary to keep in touch with civilisation in many ways.
That is not to say that we have no rural bus services at all in High Peak; we do. Some operate commercially—very few, it has to be said. Many are subsidised by the county council, but that has pressures, and it is not easy for the council to do. Between them, the council and commercial operators do not provide an adequate service for villages and those rural communities.
We have rural trains in High Peak. One line goes across the centre of the constituency. It is under-used, and does not sufficiently provide the attractive services that local people, commuters or the holidaymakers who come my constituency would wish to use. We need to make the services that do exist more accessible and attractive, and provide simply more of them.
We have another transport problem in High Peak. If people go to Glossop and climb the hills above it on to the Pennines and the rich peaked moorlands, they will find that considerable damage is being done to those moorlands by ground-level ozone. Ozone is the substance in the higher parts of the atmosphere that protects this planet from ultraviolet rays, but, at ground level, it can be damaging and a serious pollutant.
Ground-level ozone is caused by reactions in the air between the oxides of sulphur and nitrogen and sunlight. It tends to happen in cities and large conurbations. It happens exactly because the sulphur and nitrogen oxides are the by-products of the burning of oil and of petrol. The prevailing wind from the cities of Liverpool and Manchester to the west, which we can just see from the hilltops of High Peak, brings the atmospheric pollutants that react in the air to produce ground-level ozone. Because High Peak, as its name implies, is that much higher, the pollution rests on the top of our hills, and starts literally to dissolve our peak moors.
That pollution is caused by cars and the internal combustion engine. We must tackle air pollution, partly for environmental and quality-of-life reasons, but also because many children—more than ever before, I guess—suffer from asthma. Therefore, we have to cut the amount of vehicles that operate both in rural areas and cities. This Budget starts to take that problem seriously and to grapple with it.
§ Mr. Drew
My hon. Friend is making a useful contribution. This point came up in the debate on a private Member's Bill—the Road Traffic Reduction (United Kingdom Targets) Bill. I do not know whether he heard the Leader of the Opposition launch, as part of his attack on the Government's Budget, an attack on the so-called failure to understand how rural areas need cars. There was once an initiative called the Tory green initiative. I 1184 wonder where that stands now in relation to the apparent complete disregard for the environment that has been shown by the Leader of the Opposition and the Conservative spokesperson, the hon. Member for Christchurch (Mr. Chope), who is trying to talk that Bill to death.
§ Mr. Levitt
I thank my hon. Friend for that contribution. The Tory green initiative brings back memories. It is many years since I have heard it mentioned.
This Budget does several things to put tackling the problems of the car and internal combustion engine into the fast lane, if I may use that expression. It starts to transfer tax from car ownership to car use, and has a rebate for bus operators, which will be welcomed in rural areas. Particularly welcome is the £50 million subsidy for additional transport in rural areas. I hope that it will be used on integrated schemes involving buses and trains, on community transport schemes and to promote car-sharing. If page 76 of the Red Book is anything to go by, I am sure it will.
An average of over £1 million per shire county can do an awful lot.
§ Mr. Andrew Stunell (Hazel Grove)
Will the hon. Gentleman accept that £50 million is very small in relation to the needs of rural transport? It hardly goes any way towards replacing the cuts that county councils and other authorities have made in their support for public transport as a result of the previous Government's cuts. Will the hon. Gentleman accept that it will not be a sufficient response for the Government's integrated transport review? Perhaps he will join me in pressing the Chancellor to make a larger sum available to deal with the real underlying problems.
§ Mr. Levitt
The integrated transport policy will be published in due course, and will come into effect. This is not intended to be a be-all and end-all solution. The hon. Gentleman seems to be suggesting another use of the Liberal Democrat penny, which has been spent so many times already. At least it is £50 million more than we had before.
From what I have said, you will appreciate, Mr. Deputy Speaker, that I favour green taxation. However, I want to deal with the one issue that causes me some concern.
My right hon. Friend the Chancellor said that minds were open, and the door was open, on an aggregate tax and a tax on extraction. Paragraph 5.59 of the Red Book seems to talk about how the aggregate tax should work, rather than whether it would work. I am certain that we are—we should be—still in the period of asking whether an aggregate tax is right.
I am opposed to an aggregate tax, and I wrote to the Environmental Audit Select Committee expressing my opposition. There are three main reasons why I oppose an aggregate tax or quarry tax. The first reason is a parochial one—that High Peak has at least nine major quarries. It is the largest sector of manufacturing industry within my constituency, and it is important to the local economy. An aggregate tax could damage that industry in my area.
Secondly, I believe that an aggregate or quarry tax will not necessarily be effective. By and large, the smaller quarries are the greatest offenders against environmental 1185 rules and the high environmental expectations that we rightly have of the industry. Despite that, they would presumably be paying less than the larger operators. There has been improved regulation of the quarrying industry in recent years, which European legislation complements, providing an opportunity for better regulation still. Also, I am sure that my right hon. and hon. Friends in the Department of the Environment, Transport and the Regions will be looking closely at the quarrying industry when it comes to tightening planning controls.
The industry is aware of the environmental expectations we have of it, and is looking for ways to promote good practice, the recycling of building materials and the re-use of quarries. All those things have not yet been exhausted when it comes to reducing the environmental impact of the quarrying industry. Therefore, an aggregate tax is not necessary.
The third reason for opposing such a tax is the usual one of cost. A quarry tax would put up the price of what is pulled out of the quarries. In High Peak, we quarry limestone, which is involved in the manufacture of cement, concrete, stone, do-it-yourself materials, inorganic fertiliser and crockery. In fact, 80 per cent. of the country's fluorspar comes from my constituency or from that of the hon. Member for West Derbyshire (Mr. McLoughlin) next door.
High Peak produces the highest-quality limestone, which is suitable for the pharmaceutical industry. Limestone is also used in the manufacture of steel, and is used in high-tech industries and the production of plastic, paper and toothpaste. It is used for homes, roads and their repairs, and for hospitals, schools and their repairs. Even the pillars that will grace the front of the new parliamentary building above Westminster tube station will be made of Derbyshire limestone. Extra costs will be added to all those items if an aggregate tax is imposed.
Who will pay those extra costs? In revenue terms, 40 per cent. of our quarries' products is purchased by the public sector, including central and local government. A quarry tax would therefore simply reduce the Government's own purchasing power. We should think very carefully about taking such action.
The Budget is excellent. I have only the one concern—which I am pleased to have been able to express, making my contribution to the consultative process—on the aggregates or quarry tax. However, I believe that the Budget will promote social justice, social fairness and economic stability. It is also environmentally sound. I commend it to the House.
§ Mr. Andrew Tyrie (Chichester)
I have some sympathy with the points made by the hon. Member for High Peak (Mr. Levitt) on aggregates tax. Although I shall not develop the point now, I was interested to hear it articulated.
The most important message in the Budget is that the Chancellor has entrenched most of the changes that he had already announced—in the form of tax increases on middle Britain. His plans to increase taxes have been very clear. He has increased taxes on pension funds by about £5 billion annually, while retaining many of the disincentives to saving that he launched with his assault on personal equity plans and tax-exempt special savings accounts.
1186 The Budget will be judged by the British public against some of the remarks before the general election by the then Opposition. Although the following statements have already been quoted in the House, I think that they will be quoted again and again. The then Leader of the Opposition said:We will not increase taxes at all.More strongly, he said:I vow that promises we make on tax, we will keep. This is my covenant with the British people. Judge me upon it.I believe that the Prime Minister and the Government will eventually be judged on those pledges.
The Chancellor is not exempt. He said:We will not make promises we will later break, we will not say one thing before the election and another after. Above all, we will be straight with the British people about tax.I do not think that any reasonable person could possibly say that what has happened in the past 12 months accords with those quotations. The gap between the quotations and the Government's actions is enormous.
§ Mr. Tyrie
I thank my hon. Friend for pointing that out to me. I have not yet had a chance to peruse the documents as thoroughly as I should, although I shall probably have a chance to do so later this evening.
Today, a series of new tax rises have been announced—in addition to those already announced—which primarily affect businesses. So far, I have detected at least five sizeable such tax changes in the Budget.
The first change is a sharp increase in stamp duty, which will hit hard many businesses, affecting where they wish to locate by diminishing incentives to choose the most efficient location. The change will therefore reduce British efficiency and British competitiveness.
There will also be a massive increase in business transport costs because of increases in the road fuel escalator, company car fuel scales and diesel prices. Even super unleaded petrol will be hit slightly. Every motorist—not only every business motorist—will soon rue the effect of those new Labour tax measures on those who use our roads.
Another large increase appears to be a further erosion of the contributory principle of national insurance contributions. That may be very bad news for business in the long run. Business will be hit directly by the increase in employers' contributions from 10 to 12.2 per cent. High-tech sectors will be badly hit, as will areas suffering from skill shortages. They will have to pay even more to plug the gaps.
There is not only the abolition of advance corporation tax but the move to quarterly payments for corporation tax, which will impose a huge cash-flow cost of £1.6 billion in 1999–2000, according to the Red Book.
The fifth large tax increase on business that I have noticed is the abolition of the foreign earnings deduction. Britain is successful at going abroad to seek international 1187 business. As far as I can tell, the abolition of the foreign earnings deduction will make it much more difficult for companies to take advantage of such opportunities.
British nationals stationed abroad are subject only to UK tax. The chances are that, by abolishing the deduction, the Chancellor will make employees pay UK tax when they are stationed abroad, even if they already pay foreign taxes. That means that British employers seeking to expand abroad will have to pay employees more, so the cost of expansion abroad will rise further.
Even the capital gains tax change, which looks fairly innocuous at first blush, is in fact rather a nasty and pernicious means of increasing tax. The Chancellor claims to have made the CGT system fairer, especially for the business community, by lowering the rate of tax for long-term gains. However, he has increased CGT for most situations, particularly for small and medium-sized businesses. That is because of the abolition of indexation allowance after April 1998 and the phasing out of retirement relief for gains on the sales of businesses over the next five years.
Let us take indexation first. From April 1998, taxpayers will not be able to take into account the effect of inflation on gains they make. If the Government achieve their 2.5 per cent. per annum inflation target—let us suppose they do—the true cost of an asset will increase by 28 per cent. over 10 years, but taxpayers will obtain no relief for that. The reduction in rates of CGT on long-term gains will fail to compensate for the change. That will be the case even on modest rates of growth in the value of assets.
I have calculated that, for an asset worth £100,000 in year one whose value rises at a nominal rate of 5 per cent. with inflation of 2.5 per cent. over 10 years, in year 10 there will be an increase in the tax bill of more than £1,000. That is a substantial increase.
Retirement relief currently provides complete exemption and protection from CGT for gains on long-term business assets up to £250,000. Over the next five years, it will be phased out. The best that owners of small businesses can hope for is to qualify for the minimum CGT rate of 10 per cent., which will mean paying more tax than the zero they would otherwise have paid.
Taxes are coming in on all sides for businesses. It is clear that the first year of Labour is a big tax assault on businesses through ACT, stamp duty and increases in taxes on transport. No doubt more tax rises lurk in the undergrowth of the Treasury's press releases.
More important still for the future of the economy was the sleight of hand on fiscal policy. The hon. Member for Alyn and Deeside (Mr. Jones) compared the Chancellor to Gladstone and his approach to fiscal policy. Nothing could be further from the truth. Gladstone could not have abided "The Code for Fiscal Stability". It may come to be seen as little more than a charter for fiscal irresponsibility.
Of course, it was trumpeted as the counterpart to bolstering the credibility of monetary policy with Bank of England independence. I am not even sure whether we have an independent Bank yet. The Bank of England Act is a botched job. It has left the target for inflation in the hands of the Chancellor, along with an override power so that he can do what he wants. Two thirds of the committee 1188 that has to take the decisions are appointed for only three years, and are therefore firmly under the Chancellor's control.
The Government's document "The Code for Fiscal Stability" is one of the more pernicious forms of Government document. It gives the illusion of doing something worthy, while changing hardly anything. The two key principles are on page 16. The first is the golden rule. The document reads:the golden rule: over the economic cycle the Government will only borrow to invest and not to fund current expenditure".I challenge anyone to give me a watertight definition of public sector investment. Is it meaningful to compare the return from an extra teacher with a new school roof? Where investment does not create an income stream, the distinction between current and capital spending means very little. I think that the majority of economic commentators agree with that view. The scope for varying the definition of current and capital in public sector investment means that the golden rule is not really a rule, but a highly elastic principle.
The second principle in the document is:public debt as a proportion of national income will be held over the economic cycle at a stable and prudent level.But why should that be done? I cannot understand why the inherited level of debt-to-GDP ratio should be the right one. What about some other level? The policy target is ill thought through.
What is even more extraordinary is that when one turns over the page, the document says:An alternative approach would be to embed the Government's two fiscal rules in the Code. However, this would be unduly restrictive.Here we have two highly flexible, almost meaningless notions that the Government are still not prepared, even though they are nice and flabby, to put into legislation.
§ Mr. Tyrie
I shall come on to the cycle question in a moment. We need a regular publication from the Government that strips out the economic cycle and makes clear to everyone the Government's view of the economic cycle and where we are in it. We need a commitment to a balanced budget over the cycle, not a commitment to a golden rule.
§ The Economic Secretary to the Treasury (Mrs. Helen Liddell)
The Conservative Government did not do it.
§ Mr. Tyrie
Perhaps the Economic Secretary would like to come to the Dispatch Box to respond to my points. If not, perhaps she would like to make fewer points from a sedentary position.
1189 As time goes by, we will realise that the golden rule is virtually meaningless. Even the Economic Secretary is not prepared to come to the Dispatch Box this evening to say a word in its defence. We need a commitment over the long term not to entrench the current level of debt but to reduce the burden of debt and eventually to remove all Government debt, and thereby eliminate debt interest. [Interruption.] Another point is being made from the Front Bench, which I did not catch. If the Minister for the Armed Forces would like to make it from the Dispatch Box, I will gladly answer it. He seems a little reluctant to do so. I wonder whether his points are of any value whatever.
Above all, what we need is an independent fiscal policy committee—a truly independent body which would be a counterpart to the Monetary Policy Committee. It could take forecasting out of the hands of politicians—all aspects of forecasting, including working out what the assumptions should be, explaining how those assumptions were derived and developing them into a forecast. In the United States, the US Treasury does not even try to make forecasts; it relies on forecasts from the Federal Reserve. It may be that the UK Government should consider doing something similar, given that the document they have written is of extremely little value in that regard.
The Chancellor will say, "I have put the forecasts out to independent arbitration; I have sent them to the National Audit Office; I have put them out for vetting," but the NAO is not equipped to do the job. Its staff are first-rate accountants, not first-rate forecasters. It is small wonder that the documents make anodyne statements such as—
§ It being Ten o'clock, the debate stood adjourned.
§ Debate to be resumed tomorrow.