§ 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—
- (a) for zero-rating or exempting a supply, acquisition or importation;
- (b) for refunding an amount of tax;
- (c) for varying any rate at which that tax is at any time chargeable; or
- (d) for any relief other than a relief which—
- (i) so far as it is applicable to goods, applies to goods of every description, and
- (ii) so far as it is applicable to services, applies to services of every description.—[Mr. Gordon Brown.]
§ Mr. William Hague (Richmond, Yorks)
I begin, as ever and as usual, by complimenting the Chancellor on his fortitude in delivering a lengthy speech, and there are some things in the Budget that we wish to welcome. I of course welcome the reduction in the standard rate of income tax, which the Chancellor announced with great fanfare at the end of his speech after passing quickly over the abolition of the 20p band, with much less fanfare, earlier in his speech. Labour Members may also wish to know that all the announcements that the Chancellor made about the capital modernisation fund come from a Budget that has already been announced and that they cheered at the time. As the press release that I have just received appears to show, all those figures are from a fund that has already been announced, with no net increase in the total.
As ever, the most interesting thing about what the Chancellor said was what he did not say. He did not say— but it is the truth—that the total tax burden will rise next year as a result of his cumulative decisions. He did not say—but it is the truth—that, as a result of his decisions in three Budgets, this is the third year running in which we will have higher taxes because of the decisions of this Government. Last year, he had imposed higher taxes twice in a row, and that gave him a reputation for higher taxes. After three years in a row, he gets to keep that reputation for ever.
It would not have been apparent from the Chancellor's speech that he has already announced in previous Budgets tax increases for the coming year that add up to £7,200 million, including taxes on pension funds of £5.4 billion, earlier decisions on the married couples allowance of £1 billion and increases in petrol duty of £1.4 billion. [Interruption.] Labour Members like to cheer reductions, but they do not like to hear the truth about the increases. There have also been increases in stamp duty of £1 billion. People who have invested in pension funds, people who are married and people struggling to run their cars have already been paying for this Budget and those increases have already been locked in.
The Chancellor said that the Budget is good for families. It is good for families who do not have a mortgage, who are not married, who do not run a car, who do not smoke and who do not save for a pension. For a family like that, the Budget is fine. There may even be 193 a family like that somewhere in the country: it sounds suspiciously like the Chancellor to me. If we add it all up, he has already levied additional taxes of £1,500 for every taxpayer in the country—to which he has made marginal changes today—including increases in income tax in previous Budgets amounting to an extra £200 for a typical married couple with a mortgage.
The Chancellor is now posing as the man who likes to distribute a few little goodies, when he has imposed for the current year a huge rise in taxation. He is the man you meet in a pub who says, "Lend us a fiver and then I'll buy you a drink." He is the pickpocket Chancellor who shakes your hand with a smile after he has stealthily removed your wallet. He is the pickpocket Chancellor, aided and abetted by his next-door neighbour, the artful dodger.
The Chancellor seems to try to deny the facts of the matter. The actual fact of his first year as Chancellor was that he raised the tax burden by £6,000 million. Let him get up and deny that if it is not right. If it is right, he should tell the Prime Minister, because he has only just realised that in the past couple of weeks. In the Chancellor's second Budget, he raised taxes for this year by £7,900 million. He might have said in his Budget speech what the total rise in the tax burden will be as a result of his decisions. He had over an hour. We heard a lot of waffle, but he forgot to mention that line.
It is no good the Chancellor claiming that taxes are not rising. Last week, the Prime Minister finally let the cat out of the bag. He had denied for months that taxes were rising, but last week he looked at his folder and accidentally read out the truth. He said:the tax burden will increase".—[Official Report, 5 March 1999; Vol. 326, c. 1075.]What a total betrayal that was from the man who said at the general election that there would be no tax increases at all.
The truth after three Budgets is that the total of taxation is still rising, and the Chancellor did not have the guts to say so in his speech. Nor did he draw attention to other matters that are becoming apparent as we look into the facts that are emerging about his announcements. For example, there is a dramatic fall in the savings ratio. Not only has it fallen from 11 per cent. to 7.5 per cent. over the past two years, but there has been a fall from the Chancellor's own previous forecast, from 9.25 per cent. to 7.5 per cent. The Chancellor said nothing about savings, on which the story of the Government's policy is one of emerging disaster.
The Chancellor will understand it if I say that we must see emerging information about, and figures for, much of what he has announced, because he is not only an expert on stealth taxes, but an expert in giving a stealth speech. Last year, the £3.6 billion hike in corporation tax was described asa new instalments system of payments for … corporation tax".— [Official Report, 17 March 1998; Vol. 308, c. 1100.]
There was, however, no reference then to the tax increase that would result.
In 1997, the Chancellor's £5 billion tax on pension funds was described in the pocket guide to the Budget asother taxes to encourage companies to invest".194 As the director general of the Confederation of British Industry has said:There is concern about the accumulation of extra costs which have been imposed on business, of which the biggest was actually the Corporation Tax changes which were very carefully portrayed as a reduction in tax rates but were actually a tax increase, exploiting the fact that the number of people in the world who understood Dividend Tax Credits is remarkably few, which allows the Chancellor to raise taxes while appearing to cut them.Who knows, then, what will lie behind some of the seemingly innocuous sentences that the Chancellor uttered today? Any apparently nondescript sentence could mean a clobbering for people anywhere in the country—and we heard quite a few nondescript sentences. We already know that, at the same time as the Chancellor is trumpeting tax incentives to help some firms, the Government are damaging businesses across the board with a mass of employment costs, from the social chapter to statutory union recognition and the working time directive.
The Chancellor talks about investment, but we all know that his first Budget introduced a £5 billion tax on pension funds, and that tax has hit investment. We already know that, while he claims to cut taxes, taxes on people and businesses are soaring. We already know that the Government say one thing and do another, take a pound and give back a few pennies. They cannot be trusted to be straight, even on Budget day.
Last week, the Prime Minister said that he wanted our economy to be more like the American economy. One week has passed, and the Chancellor has made his Budget speech. Where is the American dream? Where is the radical plan to reduce welfare bills? So far, the Government have added £40 billion to welfare bills; America is cutting its welfare bills.
Where is the programme to curb union power, or to increase labour market flexibility? The Federation of Small Businesses says:If the Government wants to take a leaf out of the American book, it would ensure the small firms sector wasn't suffocated with paperwork.The Engineering Employers Federation adds of the Chancellor:He seems to be saying one thing and doing something else.What a surprise that is. The federation goes on:His message is about freeing labour markets while at the same time your average small engineering company is being buried under a tide of legislation and paper.In the United States, businesses with turnover of under ․0.5 million are usually exempt from the minimum wage. In Florida, it costs ․150 to set up a new corporation, but in Europe there are thousands of pages of new regulations. In the United States, small businesses flourish because the Government leave them alone. Where are the Government's measures to implement the American dream about which the Prime Minister spoke so proudly last week?
Another remarkable part of the Chancellor's speech concerned the economic forecasts on which his whole Budget is based. Experts will be astonished that his forecasts for GDP growth remain unchanged from the figures announced last autumn. He forecast 1 to 1.5 per cent. growth this year, but the upper end of his forecast is three times the rate of growth forecast by independent economists and published by the Treasury. He forecast 2.25 to 2.75 per cent. growth next year, whereas the 195 consensus of independent experts is that growth will be 1.8 per cent. That is the basis of the whole Budget and of all the Chancellor's calculations—the basis on which, even on his own figures, in the coming years there will be no repayment of public sector debt at any point in the cycle. That is not how the right hon. Gentleman chose to put it in his Budget speech, but it is the truth of the figures.
Behind the statistics of an economic slowdown, we see families under pressure, and businesses struggling in a manufacturing sector that the Chancellor will have further hit today, as I shall describe shortly. Since the right hon. Gentleman entered office, the forecasts for this country have been downgraded more sharply than for any country in the western industrialised world. Much of our manufacturing industry is in recession, and our entire agricultural industry is in deep recession. The extracts of the Red Book that I have seen so far cover that up with statements such as:these undershoots relative to the Pre-Budget Reportreflecta larger negative contribution to GDP growthby manufacturing output. In other words, manufacturing is in a mess, yet that is the sort of verbiage that the Chancellor or his civil servants come out with.
On enterprise, of which the Chancellor has made much, there are policies that we shall welcome. We shall welcome the new corporation tax starting rate of l0p for small businesses, although we shall want to know who will judge whether they are taking the right amount of risk, as the Chancellor appeared to foreshadow in his speech. He made much of his new package of reliefs and incentives for enterprise and, when we have looked at the details, we shall welcome some of them, including the research and development credit.
The very fact that the Chancellor appears so pleased with his latest package of measures, however, shows that he has completely missed the point. Does he not realise that what businesses need, much more than a new incentive here and a clever relief there, is to be set free from the massive burden of new taxes and regulations heaped on them by the Government? It is no good handing out one relief today and putting up other taxes tomorrow. It is no good the Chancellor coming here to talk about introducing tax breaks when the new Paymaster General chairs an Economic and Finance Council committee that is abolishing the tax breaks for the film industry that the right hon. Gentleman introduced less than a year ago.
The shipping industry will be deeply disappointed by the Chancellor's announcement today. It is hypocritical of the Government to fail to act, having raised such high expectations before the Budget. British shipping is an industry with desperate problems, and the right hon. Gentleman will have to explain why he has not been able to resolve the problems that he talked about previously. It is because he has been unable to do that that the president of the CBI says that regulations are now producing "creeping paralysis." The Association of British Chambers of Commerce said this morning that the Government have abolished 20 regulations and introduced more than 2,000. A small business man, quoted in a Sunday newspaper said:The Government is like a professor in a laboratory tinkering with his inventions and not knowing what the real world is.196 The bad news from today's Budget is that the professor is still tinkering, that the whole of business in this country is his laboratory and that he still does not know what the real world is.
If they are to be effective, all the schemes that the Chancellor has announced for enterprise will need to be far more effectively implemented than the Government's policies on saving over the past couple of years. If there is one area that the right hon. Gentleman has hammered more than any other and about which he has done nothing in today's Budget, it is Britain's saving culture, which has been hit by stealth taxes. It says something about the inner mentality of the Government that people who work hard, save hard and try to be independent of the state are finding themselves penalised.
The effects can be seen in the dramatic fall in the savings ratio, of which the Chancellor made no mention. The pensions tax that he introduced is costing a typical 30-year-old saver an average of £ 150 a year. The abolition of tax credits for non-taxpayers, many of whom are pensioners on modest incomes, is costing 300,000 pensioners an average of £75 a year. Today, the right hon. Gentleman had the opportunity to put that right, but he decided not to do so.
The Chancellor also announced the crazy abolition of PEPs and TESSAs—the most successful savings vehicles in our history. One month before the general election, the Prime Minister said:the idea that the Labour Party is going to take action against PEPs and TESSAs is completely absurdWhat is absurd is the idea that the Prime Minister would keep his promise. In three weeks, those vehicles will be abolished and replaced by the new individual savings account. There was a time when the Prime Minister used to claim that that would produce 6 million new savers. Does he still think that the new savings account will attract 6 million new savers? No, he does not say that any more. He no longer wants to hear my question, let alone answer it. Savings vehicles must be simple, and the Government have made a complete mess of savings policy in this country. They have done nothing in today's Budget to put that right.
The figures about the tax burden are beginning to come through. It seems that the tax burden is set to rise from 38.9 per cent. in the first year—which was already an increase—to 39.5 per cent. of gross domestic product in 2001 and 2002. When we do the arithmetic, it also appears—[Interruption.] Some of us must make sense of the Chancellor's distorted announcements as we go along. Today's Budget will raise taxes next year by £1.6 billion. As a result of the Chancellor's three Budgets, taxes are set to rise by £8.9 billion. That is the actual total.
The Chancellor today introduced the long-awaited and much-vaunted l0p tax rate. We welcome any reduction in income tax, including the 10p tax rate—although I note that the Chancellor also abolished the 20p tax rate. As a result of the Government's decisions, income tax will rise from the level it was at when Labour took office, and should be viewed in that context.
We welcome the decision to bring the starting point for employees' national insurance contributions into line with the starting point for income tax. However, the Government must not forget that a number of benefits are linked to national insurance contributions. We want to ensure that the Government do not use that measure to undermine the contributory principle.
197 The measures announced by the Chancellor regarding the national insurance contributions of the self-employed look, at first glance, like a higher tax on the self-employed overall. The Chancellor shrugs his shoulders and looks as though it is a matter of no consequence. However, it will greatly concern the self-employed if that reform results in a further increase in taxation for them. I note that the Chancellor is not taking the opportunity to deny that the measure will have that result.
The Chancellor's announcement about shares for all is welcome in itself, but it is in conflict with everything that he has done—and continues to do—in the area of share ownership. It is a bit rich for the Chancellor to talk in glowing terms about the merits of employee share ownership, given that he has spent the past two years undermining share ownership at every turn. What message does it send about share ownership when the Government prevent people who are too poor even to pay tax from claiming back tax credits on the few shares that they own?
What message does it send about having a stake in one's own business when the Government abolish retirement relief on capital gains tax, bringing thousands of small business people who are selling up for their retirement into the tax net for the first time? Such people have worked hard all their working lives and regard their businesses as their pensions for the future. The Chancellor has not thought about them in this Budget. If this were really a Budget for enterprise and work, the Chancellor would have reversed his previous stupid decision. We welcome any move to boost employee share ownership, but we will judge the Government by what they have done, not by what they say they might do.
I welcome the principle of incentives for people to run cars with low emission engines, which is good news. However, it is bad news for the Deputy Prime Minister, who is even now heading for the Maldives and will be delighted to know from the Chancellor's speech that he is to be given the job of reviewing competition in airports. He is presumably in the Maldives examining how they integrate their transport strategy. Looking at how to integrate sunbathing with water-skiing will come in handy in Hull.
Lower road tax must be put in the context of the stealth taxes being loaded on to motorists at the same time. Not only have the Government increased the so-called fuel escalator from 5 to 6 per cent., but they have brought forward the annual Budget increases from November to March and sneaked in an extra Budget. AA figures reveal that average motorists will pay £183 a year more in tax on their petrol next year than at the time of the last election. That is an extra 62p a gallon and it is another stealth tax on motorists. People will be grateful for £55 off the excise duty, but they are left £130 a year worse off than they were going to be in the first place.
Few people will be aware that, after today's Budget, about 85 per cent. of the price of petrol will be tax. The Government hope that people do not understand how much tax they are paying. We think that they have the right to know how much of their hard-earned income is being spent on petrol.
198 Those are the effects for private motorists, but for hauliers the situation is even worse. When one hard-pressed business man wrote to the Minister for Roads and Road Safety, Lord Whitty, the Minister gave the prize-winning reply thatall hauliers who operate internationally can take advantage of lower prices elsewhereIs it meant to be good for businesses to take their entire lorry fleet over to France every time that they want to fill up? Is it good for the Revenue if they do that?
The truth is that this country started raising those taxes when they were lower than those on the rest of continent, and the Government have continued increasing them by larger amounts after they have become higher than those on the rest of the continent. They have now taken their persecution of the motorist too far. They have taken the damage to the haulage industry too far. A policy change is needed.
We shall want carefully to consider the Chancellor's measures on the environment. Increased taxes on energy use and pollution should be completely offset by tax reductions, and we welcome the intention to do that. However, Back Benchers who cheered the Chancellor's announcements about carbon tax should recognise that it will hit manufacturing industry the hardest because that is the most capital-intensive industry and the most reliant on the use of fuel. The corresponding and compensating reduction in national insurance contributions that the Chancellor announced will give the least help to manufacturing industry because that is the least labour-intensive industry. So that seemingly innocuous announcement by the Chancellor will hit manufacturing industry hard in particular areas; and all hon. Members with such businesses in their constituency will find that it causes a problem for them in the years ahead—a fact not remotely referred to the Chancellor's speech.
The Chancellor made an important announcement about the married couples allowance, and of course we shall consider carefully what is proposed to replace it. He claimed to quote what I would do, but I have always said that the Government should ensure that the tax system recognises the costs of maintaining a family—not only children but elderly relatives—and suggested that we could have a system of transferable allowances for families in which one partner stays at home to look after the children.
The Chancellor's announcement about replacing the married couples allowance was interesting. The difficulties that may arise are, first, that he announced a means-tested taper. It is possible that the implementation of such a taper will infringe independence in the tax system because it will be necessary to consider the whole household in order to determine it. It will further increase disincentives by introducing another means-tested payment to the tax and benefit system. It risks being another factor that has to be administered by the employer, further loading regulation and complexity on to businesses. The Chancellor may have answers to those points, and I hope that he does; otherwise that change will introduce fearsome additional complexity into the system.
I am glad that the Chancellor has been frightened off his intention to tax child benefit, and we shall try to frighten him off doing so in future. We know that, while he is around, the prospect of that tax will be ever present.
199 The Chancellor also made announcements about a further increase in stamp duty. That may be his final revenge on the right hon. Member for Hartlepool (Mr. Mandelson). The Chancellor should reflect on how that announcement may damage the property market, and on how making it more difficult for people to sell homes in certain parts of the country will damage the creation of a more flexible work force and labour market.
The Chancellor made much, as he always does, of plans for the new deal. We heard fine words, as ever, but it is time to check how the new deal is working. He may have seen a report in today's newspapers, saying:Bosses giving up on Brown's New Deal".Such reports make sober reading for the Chancellor. Allied Carpets has suspended plans to take on 250 out-of-work youngsters. Bass has taken on only nine trainees even though it offered 50 places. Thistle Hotels offered 100 places, but has ended up with two trainees. Would not it be better to look at how other economies, such as America's, have created jobs by cutting taxes on business and cutting back on regulations—rather than dreaming up new ones? With unemployment threatening to rise again, one thing is clear: the new deal is not the answer—not the answer for young people, not the answer for employers, and not the answer for the economy.
The Chancellor made much of spending additional money. As I pointed out at the beginning of my speech, he has made his spending announcements on the capital modernisation fund before. What he announced today was a rearrangement of figures over the next three financial years.
People who are paying higher taxes—as they are—are asking where the money is going. It is mainly going to finance the huge additional cost of the welfare system, which the Chancellor has not reformed. We are in favour of higher spending on health and education—[HON. MEMBERS: "Oh!"] I say that just for the record, against the day when the Prime Minister distorts it again. The Government have presided over higher waiting lists, and people are wondering whether the money is being spent effectively.
The Chancellor mentioned his crime reduction initiative and the additional money for it, which, as it happens, he has also announced before. At the same time as announcing that additional money for crime hotspots, he is reducing the number of police, which of course means that there will be more crime hotspots.
Today, the Chancellor should have been attacking the forest of regulation that is strangling business, but he did not. He should have given a clear signal that the tax system will support marriage, but he did not. He should have cut fuel costs for the road haulage industry, but he did not. Instead of raising taxes by stealth, he should have started to introduce some honesty to the tax system. He should have tackled runaway welfare spending, but he did not. He should have saved poor pensioners from losing tax credits on their shares, but he did not. He should have started to support Britain's savings culture, but he did not. He should have set out a programme to lower the tax burden, but he is continuing to increase it.
On all those issues, the Chancellor had the opportunity to act, and has failed to do so. Shut up in the Treasury, he seems to believe that he can impose taxes but that no one will notice them or really pay for them. He seems to believe that people are abstract statistics, and that Budgets 200 are just speeches and pieces of paper. He seems to think that if he keeps the tax-rise bits brief and waffles on at length about pet schemes, no one will notice that they are paying any more. But, in the real world, people stretch to pay their mortgage, try to save a bit, drive to work and drop off their children on the school ran. In the real world, people will notice; in the real world, people will come to realise that this Government have let them down. [Interruption.]
§ 5.8 pm
§ Mr. Paddy Ashdown (Yeovil)
I have heard of waving papers for success, but waving in desperation is another thing—or perhaps Conservative Members were waving their Order Papers in sheer relief that that speech was over.
In line with the traditions of the House, I offer the Chancellor my congratulations on a long Budget speech. I think the right hon. Gentleman's Budget will be considered one in which he had opportunities to do big things but decided instead to follow a scatter-gun approach and do quite a number of rather smaller things. I regret that; I shall return to the subject in a moment. Nevertheless, I think that anyone outside this place who has not had a total loss of memory will feel that the speech just made by the leader of the Conservative party was a mix of hyperbole, hypocrisy and hysteria in about equal proportions.
I had written down that we could welcome some things in the Budget; in fact, we can welcome many things in it. It seems that the Chancellor has once again made a selective smash-and-grab raid on some of our bright ideas and proposals; they feature in considerable number. Although that was not done with the clarity and decisiveness that I would have wished, they are there, and we welcome that.
These raids are becoming such a habit that I had thought of offering the Chancellor honorary life membership of the Liberal Democrats. Starting with giving independence to the central bank—the Bank of England—which was our manifesto policy, not Labour's, he seems to have applied more policies from our last general election manifesto than he has from Labour's. We saw those policies clearly in the proposals for vehicle excise duty, fiscal neutrality in charging a carbon tax, and the uprating of basic pensions in line with wages.
However, the Chancellor may be relieved to hear that, on second thoughts, I have decided to withdraw the offer, for three reasons. First, I do so because, in his first two years, he cut our public services, especially those relating to health and education, more, in real terms, than even the Conservatives planned to. Whatever the Government intend to do next year, the fact remains that, by the end of this Parliament, taking the Parliament as a whole, the Government will have put funds into health and education at a lower level than the Conservatives intended.
Secondly, I withdraw the offer because the Budget does not do as much as it should—or, we believe, given the sum of money available, as it could—to tackle poverty in Britain. [Interruption.] If the Secretary of State for Education and Employment, speaking from a sedentary position, would be prepared to wait a moment, I shall see whether I can prove that proposition to him.
201 Lastly, I withdraw the offer because, in many cases, where the Chancellor accepts our aims, the means by which he seeks to achieve them are, at best, inefficient and, at worst, ineffective; so if I sound a little grumpy in my response, I admit that it is because it is extremely frustrating to hear someone else singing snatches of our song but doing so completely out of tune.
Before I come to the detail, let me look at the wider economic picture. Liberal Democrat Members agree with the Chancellor's basic fiscal judgment that this should be broadly a neutral Budget. I want to study the detailed figures, but I believe that it is broadly neutral. The priority must be to bring interest rates and the pound down.
Last November—I wonder whether the Chancellor remembers; I do not suppose that he does, because he does not read my speeches every day—I told him, in my speech after the Budget, that he was wrong to deny that we would have a manufacturing recession this year. I note that, in the small print of his Budget, the Chancellor has at least had to acknowledge that he was wrong, and that we are witnessing a significant manufacturing recession. That is probable; indeed, it is probably under way as we speak. As the Chancellor well knows, the main reason for that—the main reason why exporters and manufacturing exporters and farmers are in trouble—is the overvalued pound, still 10 per cent. higher in real terms than in May 1997 and 25 per cent. higher, a quarter higher, than it was in May 1996.
As I told the Prime Minister a couple of weeks ago, we welcome the fact that the Government have inched across the Rubicon on joining the euro, even though they still try to tell us that they have not; but, once again, the Government will the end but do not will the means. Why is the commitment to join the euro when conditions are right not followed by the policies to make them right? That is what a Government should do if they are governing and leading the nation. A change of gear is not enough if no one is driving the car.
The Chancellor told us that the centrepiece of the Budget is his tax reform. We agree that there is some tax reform to be done, and it can be done within a broadly fiscally neutral Budget. Today's tax reforms should have been an exercise in simplicity, fairness and honesty. Instead, they have been an exercise in complexity, gimmickry and a good deal of conjuring.
First, let us consider simplicity. The Chancellor told us last November thatour policy is pro-tax simplification".If that was his aim, he has been heading consistently and enthusiastically in the wrong direction. I shall give him some figures. A decade ago, there were four personal tax rates. Under his predecessor in the previous Government, there were eight personal tax rates. Under the right hon. Gentleman, there are no fewer than 54 personal tax rates. We will send the Prime Minister and the Chancellor the list, if they wish. My hon. Friend the Member for Gordon (Mr. Bruce), who is absent, will do that. He is no doubt making that case on the nation's television screens even as I speak.
That does not include the further personal and company tax complications that emerged today. Under the present Government, the tax system in Britain is becoming an 202 unholy mess. In the era of self-assessment, that is madness. It is costly and complicated for businesses. It is becoming a boon only for tax accountants. We all know that the tax incentives of today, however superficially attractive in the short term, quickly become the tax avoidance loopholes of tomorrow.
Secondly, on tax fairness, we do not object to the removal of mortgage interest tax relief. Indeed, I remember proposing it in our manifesto before the last election and in the 1992 election, and being roundly criticised by Labour for doing so. The proposal was considered outrageous. We are delighted that the Chancellor has adopted our policy. The previous Government began to phase out MIRAS, and the Chancellor has taken the logical end position. Amen to that.
If ever there was a time to remove mortgage interest tax relief, it is now, with interest rates low. The right thing to do, it seemed to us, was to use the money generated to raise the level at which people start to pay tax. I agree with the Chancellor that tax allowances should be removed or restructured to pay for lower tax on the working poor and others on low incomes.
The Secretary of State for Education and Employment, who questioned what I said earlier, might like to pay a little attention, rather than having a chat with the Chancellor. It is a manifest absurdity that someone on the minimum wage has to pay income tax. That is the current situation, and the Chancellor's proposals have done nothing to tackle it. That manifest absurdity remains.
We disagree with the Chancellor's plan to create yet another tax rate—a 10p tax rate. The Secretary of State for Education and Employment might listen.
§ Mr. Ashdown
I beg the right hon. Gentleman's pardon.
Why not increase the personal tax allowance—the 0 per cent. tax band—instead? Perhaps the Chancellor will listen for a moment to the experts in the matter, the Institute for Fiscal Studies. He has quoted them often in the past, and perhaps he accepts their view on this as well. They say thata 10 per cent. tax rate is an expensive way of achieving little … it is likely to increase the complexity of the tax systemwhichcould be reformed for equivalent cost, yet with more progressive results … by an increase in personal allowances.Exactly.
Let us admit that the 10p tax rate is a policy driven by headlines, not results. I said earlier that the Chancellor has been raiding our policy bank. Unhappily, he has raided our policy bank for a policy that we had but that we rejected because it made no sense. My hon. Friend the Member for Gordon, the Treasury spokesman, was the first person to propose it, but when we looked at it, we decided that it was nonsense. Increasing the allowances would have been far better, far more efficient, far fairer and a far more effective way of tackling poverty and encouraging jobs.
We believe that the Chancellor should and could have taken a first step towards the long-term aim of raising tax allowances to £10,000, over two Parliaments. Perhaps we 203 should not object; that is a Liberal Democrat policy that he can raid in future years, when he finds that the 10p tax rate has failed. He should have paid for that measure by abolishing the 20p rate, as he did, and mortgage tax relief, as he did, and adding to that the introduction of a 50 per cent. tax rate for those earning more than £100,000 a year.
There is no point in saying that such a measure would kill incentive in this country; it would do nothing of the sort, as any comparison with similar tax rates in enterprise economies abroad would show. That measure would have raised enough money to increase personal allowances this year to £5,600, taking 2.5 million of the lowest paid people in Britain out of income tax altogether, tackling poverty and improving work incentives. That would be a far more efficient way to use broadly the same amount of money.
In respect of honesty on taxation, the Tories are a little unwise to lecture us on hidden taxes; I do not think that memories are that short. Let us be frank: neither the Government nor the Tories are telling us the whole truth on taxation and spending. The Government claim that spending on our public services is going up, but they say that taxes are not going up. The Tories imply that we are overspending and that taxes are soaring. Both are wrong.
I have not had a chance to look at the detail of what the Chancellor has said, but figures from the House of Commons Library show that taxes will rise in this Parliament by about 2 per cent. of national income, rather more than the Government are prepared to admit to us. The Tories are wrong, because spending, as a percentage of national income, is not going up. It is going down. In the Tories' last year in power, public spending was 41 per cent. of national income. In every year of this Parliament, it will be significantly lower than that.
The higher taxes that are being raised by the Government—2 per cent. over the period—will instead tackle the huge structural budget deficit built up under the debt-ridden Tory Government. That is the truth of the matter, but honesty and transparency in taxation is not only about being honest with the figures; it is also about being honest with the public.
I should like to know, either now or later, what has happened to the tax contract which we heard that the Government would produce. It was a good idea—a Liberal Democrat idea, as it happens. We hand it over to the Government and are happy for them to apply it if they wish to. There was a great fanfare about introducing a tax contract. I say to the Chancellor that that should be objectively done—it should not be a vehicle for Government propaganda—but the measure does not even appear. It is gone; vanished. Why? Is not the Chancellor— [Interruption.] Is the Chancellor saying to me that he will introduce the measure next year perhaps? Yes, he is. I congratulate him.
§ Mr. Ashdown
A millennium tax contract. I am delighted; I will send the Chancellor our manifesto for the next election so that it is not applied beforehand.
We should like an independent audit on taxation to be carried out, setting out how many new tax rates have been introduced or abolished, what measures have been taken to promote simplification and what extra administrative cost burden will arise for businesses as a result. That is being honest with the public about taxation.
204 The two other big issues that I want to deal with briefly are the environment and public spending. Today, some significant and welcome steps in the right direction have been taken on the environment. Lower car tax on small-engined cars is good—we have been proposing it for 10 years—but the Chancellor has not gone as far as he could have done. There is a perfect case for abolishing tax—vehicle excise duty—on cars of less than 1,600 cc altogether. There is no earthly reason why that should not be done, and I suspect that that will happen; that will be the Chancellor's destination in due course.
I commend the Chancellor on his commitment to an industrial energy tax. That is undoubtedly good news for our environment, and we warmly welcome it. I do not want to sound churlish—the devil will be in the detail, as the old cliché has it—but at what level will the tax be set, and, crucially, is this a stand-alone policy or part of a serious strategy to fulfil the Government's commitment to cutting carbon dioxide emissions by 2010?
Finally, let me ask about public spending. Of course we understand that no Budget statement from this Chancellor would be complete without the regular announcement of a little more money—or, more often, the regular recycling of money already committed—for education and health. Given that that has become so regular, one wonders why the amounts cannot be allocated in the first place, allowing time for planning, rather than being drip fed into the system.
I am ready to be disabused if I am wrong, but is it not a fact that today's extra money for health, education and the police is not actually new, but has been taken from the capital modernisation fund that was announced last year? Is it not also a fact that the sums announced by the Chancellor are sums for not one but three years?
I seem to recall that, when the capital modernisation fund was announced last year, the Government proudly told us that it would beallocated to Departments on a competitive basis assessed in part by the merit and quality of Departmental Investment Strategies.All that sounds jolly reassuring, doesn't it? But the press tell us that, in fact, the extra money was agreed at midnight on Friday after what they euphemistically call an "eleventh-hour dispute"—for which we should read "late-night punch-up, involving Cabinet heavyweights and a personal intervention from the Prime Minister". I suppose that could be described as competition of a sort, but I had not expected "three falls and a submission".
This, surely, is the important and serious point. We need to get away from short-term crisis management of the funding of our schools and hospitals, and into adequate long-term investment. Incidentally, I am afraid that the extra money for schools and hospitals, although welcome, is rather small beer. While I was listening to the Chancellor's statement, I turned to one of my colleagues and said, "My God! are they going to hold an election this year?" Of course, they are: they will hold elections on 6 May and 10 June. No doubt, Labour Members are smiling because they think that the Budget will help them in those elections. They should speak to the 29 out of 32 Scottish councils that have been forced to cut their education budgets for the past two years, and see whether they are equally pleased about an amount that will provide cold comfort after those two years of cuts.
The Budget money will also be cold comfort for a national health service that can stem the rise in official waiting lists only by doubling the number of people who 205 are waiting to see a consultant. It will be cold comfort for police forces that have had to cut police numbers for the past two years. And I fear that, although it will be some comfort—quite a lot, in fact—to some pensioners, it will be cold comfort for the millions of poor and elderly pensioners over 80 who continue to receive a supplement of just 25p to their weekly pensions. That is less than the cost of a first-class stamp, but the amount has been set at that level for 30 years. Surely it is time to increase it.
We believe that, even in a neutral Budget such as this, the Chancellor could have found the money needed to increase the pension top-up from 25p to £5 a week for pensioners over the age of 80, and to £3 a week for those over 75. Instead, he chose to focus on headline-grabbing gimmicks, which I do not think will be very effective in the long term, such as the 10p tax rate.
This is a Budget that may be—indeed, is—strong on good intentions; but I fear that it is still weak on most of the policies that are necessary to deliver them.
§ Mr. Derek Foster (Bishop Auckland)
We have just heard three very good speeches and probably parliamentary democracy at its best. I am sorry that the House now has to come down to reality. I could not possibly match the eloquence and command of detail of the previous three right hon. Members who spoke. I am just an old party hack, but I will do my best.
The Chancellor's speech was the usual tour de force. When he sat down, I thought that the new Jerusalem had already arrived. When the Leader of the Opposition sat down, I thought that things were as bad as they were under the Tories, but the right hon. Gentleman did a remarkably fine job in what is the worst possible speaking engagement in the whole year; he also has the worst job in British politics.
I know something about that because, for 10 years, I did the second worst job in British politics. On 18 occasions, I sat listening to my leader trying to make a speech in response to a Chancellor who had command of all the detail and the vast Treasury at his disposal, while he himself had limited facilities.
The Leader of the Opposition is my neighbour. I have the strange experience of being sandwiched between the Prime Minister and the Leader of the Opposition. They are people for whom I have enormous respect and regard, particularly the Leader of the Opposition. He has the worst of the two jobs, of course: whatever he does and says will be dismissed because no one that thinks that he will win the next election.
That happened to Neil Kinnock, now Commissioner Kinnock, during my many years of working with him. No one really believed that he was going to win the next general election until 1992, when we all believed that we might do extremely well. Of course, in the end, we did not.
The Chancellor said so many good things in his speech that it is difficult not to make a speech entirely in praise of his policies and what he said, but I have no ambitions to be sycophantic; colleagues may have noticed that from time to time. That is not what being a Member of Parliament is all about. We are here to bring the 206 Government to account, to tell them where we think that they may be right and to mention those things about which we may be worried.
I would have wanted the Chancellor to say that he recognised that deflation, rather than inflation, was the problem facing the economy. Indeed, the international economy faces deflation, not inflation. The Economist has woken up to that. Its leader column last week gave great coverage to an exposition of why deflation is now the problem, not inflation.
My old friend Keynes was a great Liberal. I have ambitions for my Chancellor to be as radical as Lloyd George. He is coming along; he is doing pretty well. Once he has had a bit more experience and we have been able to kick him up the backside occasionally, he may attain that radicalism. If we can do that, perhaps he will adopt Keynesian policies.
Those policies were always deeply respectable within the Labour party, although it was Lloyd George in 1929 who was the first to espouse them. In 1935, President Roosevelt espoused them and transformed the United States economy. In 1945, of course, the Labour party also espoused Keynesian policies, giving us full employment. Keynesianism was so successful that it informed the consensus until about 1970. In the 1970s, we had the two oil hikes, which most people believe blew Keynesian policies out of the water.
If Keynes had a weakness, it was that he did not address the issue of inflation. For him, inflation was not a problem. During the 1920s and 1930s, deflation was the problem. Keynes had a brilliantly successful strategy for dealing with deflation, for which we all owe him a great debt of gratitude. In my book, he is far and away the greatest economist of the 20th century. Without him, we should not have had the Bretton Woods agreement, which ushered in a period of tremendous prosperity for the whole of the western world. That seems to have been forgotten by Labour politicians.
The Deputy Prime Minister managed to use the word Keynes only at Christmas, when the Prime Minister was away. So courageous are we now in our political beliefs in the Labour party that we can whisper the word Keynes only when the Prime Minister is out of the country.
Keynes gave us full employment. The reason why I came into politics was to get rid of unemployment and to get rid of poverty. Only when we get back to the type of policy advocated by Keynes will we make the maximum impact on those two problems.
Why do I say that? In my region—the northern region—many of the Chancellor's policies are not working. We have the new deal—I am an enthusiastic supporter of all the new deals in all their aspects—but, without jobs, all that improved employability is dissipated all too quickly.
In those parts of the country where jobs are plentiful— in the south-east—people who have finished the new deal programme go straight into work. That has been enormously beneficial to them, to their communities and to their economies. If we are able to get more people into work, we shall bear down on inflation, thereby allowing us to run the economy at a higher growth rate. However, in my region, in Scotland, in the north-west, in Wales, in Yorkshire, in Humberside and in parts of the west midlands, when new dealers finish the new deal, there are not sufficient jobs for them to go to. We have to employ 207 a twin strategy, as we do in the making work pay strategy, because making work pay works only if there are jobs to go to.
§ Mr. Andrew Tyrie (Chichester)
Is the right hon. Gentleman aware that the areas that he has mentioned have much manufacturing, which—as he is probably aware—has been hit badly in the Budget? The carbon tax will be almost penal for some manufacturing that has a very high energy input. Levelling off employers' tax on national insurance contributions and benefits in kind, and company car tax increases, will also hit manufacturing.
§ Mr. Foster
I thank the hon. Gentleman for his intervention, as I was about to deal with that point.
I am sorry to say that the Treasury, the Bank of England and the City are part of the problem. For 40 if not 50 years—certainly for as long as I have been observing the problems of manufacturing industry, since studying them at Oxford in the 1950s—the problems of manufacturing industry have not changed. They have remained exactly the same: under-investment, poor research and development, poor training and development of staff and poor productivity—all of the problems that we are now trying to deal with—have been with us for the past 40 years or so. They have defied every Government's attempts to deal with them.
Part of the problem is the Treasury, because the Treasury prefers a strong pound in order to bear down on inflation. Every Treasury Minister of whatever political complexion is advised by the Bank of England, the City and Treasury officials that we need a strong pound, but by God, a strong pound is just what manufacturing industry does not need.
I know that my right hon. Friend the Chancellor has given his influence over interest rates to the Bank of England, but it was still open to him to say, "I want a continual reduction in interest rates until we converge with Europe and I want the pound to fall in value to enable our exporters to export far more effectively into Europe."
Oddly enough, I have been a pro-European for 40 years, but I have always been cautious about the single currency. If we went into the single currency now, at least we would get rid of the problem of the high pound. We may encounter one or two other problems and we need to be honest about the political agenda which is Europe. We pretend that it is only an economic agenda, but of course it is a political agenda and one that I welcome. Frankly, I do not mind power migrating upwards to Europe and downwards to the regions.
§ Mr. Andrew Lansley (South Cambridgeshire)
Is not the right hon. Gentleman being far too sanguine? I appreciate that he may have the same concern, but does he agree that, if we were to enter the euro at our mid rate in the exchange rate mechanism, the equivalent of DM2.95, we would lock sterling into an uncompetitive and overvalued level?
§ Mr. Foster
The hon. Gentleman is quite right. I was quite happy for us to join the ERM. Of course, the previous Prime Minister, when he was Chancellor of the Exchequer, chose the only time that he could persuade his Prime Minister to enter the ERM. We all knew that we 208 entered at the wrong rate at the wrong time and for the wrong reason. The value of the pound was too high. So the hon. Gentleman is quite right to say that we cannot enter now because the pound is far too high. We need it to be at something like DM1.50 or DM1.60—some would say even lower—in order to be competitive with Europe.
Manufacturing industry does matter. We have to get that across to the Government because manufacturing employers do not believe that the Government take manufacturing industry seriously. It may be wrong, but that is their impression. When I talk to manufacturers in the north east—and there are some truly global players, including Glaxo-Wellcome, Black and Decker, Thorn Lighting and Nissan, which is the most successful motor manufacturer in Europe—they all say the same thing: the Government do not take manufacturing industry seriously. Whether or not there is truth behind that perception, it must change. We have to get the message across that we know that manufacturing industry matters.
The previous Chancellor knew that. He understood manufacturing and cared about it. He made it clear that he wanted to create an environment that was favourable to it. He may not have succeeded to the extent that he or I would have wished, but at least he understood the problem. I want to make sure that the present Chancellor, for whom I have enormous regard and respect as a great intellect and someone with great drive—indeed, he is the intellectual driving force of the Government—and whom I greatly support, grasps the problems of manufacturing industry.
My right hon. Friend has grasped the other part of the problem. He speech was outstanding on information and communication technology. That is the future, but we must bring together the two elements. The future of manufacturing industry lies in going up market, producing higher added value, upgrading its technology and getting into information and communication technology. If we can apply ICT to manufacturing industry across the spectrum, from global players to small and medium enterprises, we shall begin to solve the problem. Industry is too slow to embrace information and communication technology, as are the Government. We speak a lot of warm words, but we are way behind the Australians in adopting information and communication technology. In our better government policies to renew the public services, we are lagging far behind the United States and Australia.
The Budget contains some superb measures, which I fully support. However, it will not go down very well in the north-east once people have realised the bad news. In my experience, all Budgets are waved to the echo on the day by supporters of the Government in the Chamber. They think that it is marvellous. The next day, it is not quite so good. By Friday, by God it is turning out to be a bit of a disaster, because everyone has worked out the effects on themselves.
People do not judge Budgets by the public sector borrowing requirement—or whatever its equivalent is now—the rate of investment or even interest rates; they ask what a Budget will do to their job, their mortgage, their ability to put petrol in their car and their tobacco. Regardless of whether we like the fact, 15 million people smoke cigarettes. They will not be pleased tomorrow.
My constituency has 600 square miles of rural territory. The people there will tear me to pieces when I go to see them at the weekend, saying, "Look what your Chancellor 209 is doing." I care about the working poor. The rich in rural areas can look after themselves, but the working poor cannot. We cannot make work pay for them if we price them out of their cars. They have no buses or trains. Their only way of getting to work is by car. If we make it impossible for them to use their cars, we shall be doing the opposite of what we intend. My right hon. Friend must appreciate that if he is to be effective in rural areas as well as in urban areas.
Rural areas are neglected by the Government. That is understandable, because most of us are urban men and women. Only 160 Members of Parliament come from rural areas. The rural economy needs just as much of a boost as the urban economy, because farming is going through its greatest crisis for 25 years and tourism has done badly because of the overvalued pound. We need to come to the aid of the rural economy and make it more competitive.
We need to boost tourism. The Scots and the Welsh get £5 per head to develop tourism. We get 8p per head in the northern region. If we had £5 per head in the north-east, we could create hundreds and thousands of jobs. I want my right hon. Friend the Chancellor to give us parity with the Scots and the Welsh. While he is at it, I should like him to revisit the Barnett formula.
§ Sir Michael Spicer (West Worcestershire)
We have heard a fascinating speech from the right hon. Member for Bishop Auckland (Mr. Foster). He was violently off-message—he would have been horrified in his previous job to hear one of his colleagues making such a speech—but the speech was very interesting.
The right hon. Gentleman said that deflation, not inflation, was the problem. However, that flies in the face of a central aspect of Government policy. They have put it into statute—made it illegal to act against the policy— that 2.5 per cent. inflation is the core objective of the Monetary Policy Committee of the Bank of England. The Chancellor skated over the fact that they are not complying with that, because inflation is currently higher than the target rate. There are signs, such as the tight labour market, that inflation will rise. What happens if inflation rises and interest rates have to go up?
What will happen in the context of the policy of shadowing the euro downwards, which the Liberal Democrats certainly are encouraging? There is potentially a massive conflict of interest between the measures advocated by the right hon. Member for Bishop Auckland and those advocated by the Liberal Democrats and, indeed, by Government spokesmen. I have just received an answer from the Economic Secretary, which says:The Government's policy is for a stable and competitive sterling-euro exchange rate over the medium term".—[Official Report, 4 March 1999; Vol. 326, c. 858.]That is one of the Government's objectives. The right hon. Member for Bishop Auckland has pinpointed a colossal dilemma that the Government are refusing to address.
As the right hon. Member for Bishop Auckland said, the speech after the Budget is possibly the most difficult speech in the world to make, but I thought that my right hon. Friend the Member for Richmond, Yorks 210 (Mr. Hague) did it brilliantly. One of his central points was that this Budget can be seen only in the context of the two previous Budgets.
Two essential features were involved. First, the £40 billion of extra expenditure was based on a false forecast of economic growth. I was amazed when the Chancellor said that he was sticking to his 1 to 1.5 per cent. growth forecast for this year. The Bank of England's central forecast is now for about 0.5 per cent. growth, and the Bank's tendency has been to revise any new forecast downwards.
Secondly, the £40 billion—which came out of previous Budgets—was based on assumptions about income going to the Exchequer which will not come about. Presumably—on the basis that they do not believe their own forecasts—the Government have anticipated that they will not be able to find the money. That is why, even before the Chancellor stood up this afternoon, £8.5 billion of extra taxes were built into the system for this year. We have learned from the latest calculations that the figure has now risen to £8.9 billion.
The Budget is not neutral, as the right hon. Member for Yeovil (Mr. Ashdown) said. It is another tax-increasing Budget. We have a serial tax increaser in the person of the Chancellor of the Exchequer.
To be fair, the great conundrum in domestic politics for any party in power is that the electorate face the Government, of whatever complexion, with two completely conflicting objectives. One is to lower taxation; the other is to raise expenditure on public services. That conflict of demand has built up as the population has aged and as demands have become more sophisticated. There is a constant demand for more expenditure—linked, paradoxically, with a demand for lower taxes and greater choice. Those shrill demands are made with equal force.
The question is how the circle can be joined. It is not feasible to conceive of a left-wing, socialist Government—despite any spin that is put on it—ever being able to square the circle. Solving the problem involves the joining of private enterprise and resources with public services—whether we are talking about pensions, health, education or transport. It requires the marriage of private resources and enterprise with the provision of what have been termed public services.
The previous Administration tackled some of the relatively easier areas—the provision of utility goods and services such as electricity. We are now entering the highly controversial areas of health, pensions and education. We cannot escape it—we will have to get to grips with it. The Conservative party was grossly misinterpreted at the last general election when we proposed linking private enterprise to the provision of pensions, but we made a start. Some might say that it was unwise to enter the fray at the beginning of a general election, as the other side exploited it. Now the Labour Government will have to get to grips with it. They will not, of course—but they will try.
It can really only be the Conservative party that will tackle this matter. Left-wing parties—whatever the words or spin used—will never be able to grasp the concept of enterprise. Traditionally, as part of its constitution, the Labour party was wedded to the ownership of the means of production. With enormous fanfare, that was removed from 211 the constitution. However, the concept of ownership has been replaced—particularly under this Administration—by that of regulation.
Increasingly, the Government are introducing the concept of regulation. That is starting with consumer protection, but it is leading, ultimately, to economic regulation until intervention by regulatory bodies nullifies any enterprise in the economy. Nowhere is this clearer than in the Financial Services Authority proposals which are now before Parliament. That matter is vital to the economy, and vital to the question of where we find the resources to meet the demands of public services—either directly through taxation or indirectly, as I believe, through private sector involvement.
The Financial Services Authority proposals are so critical because financial services—directly and indirectly—now account for 25 per cent. of the entire gross national product. That is more than the entire manufacturing sector. Much has been said about manufacturing, but the financial services sector now contributes a greater proportion than the manufacturing sector to this country's well-being and economic growth.
The Government will be setting before Parliament a system of regulation, the enormity of which few of us have yet fully appreciated. The regulatory body will have its own discretionary powers over what it does. It will be able to insist that new products are invented and promulgated. It will intervene in the marketplace.
I welcomed some of the words from the Chancellor on monopolies, on making it difficult for new entrants and on cartels and secret price deals. That is good, and I think there should be greater competition legislation.
That is all put to nought when we consider the context in which the Government are operating. We have a highly organised, interventionist and anti-competitive regime which starts in the City, but also affects the energy industry and pretty well all the major industries of this country. The Government are taking control of the command points of the economy. That must be anti-competitive and anti-enterprise in a way that makes nonsense of the use of the word "enterprise". The idea that the Government can match private enterprise to public services in the way that is clearly needed in the 21st century is also, therefore, nonsense. It will come as no surprise that, as the economy slows down, the Government will not be able to create enterprise and growth and will be forced to continue increasing taxation as a percentage of gross domestic product.
In addition to the Government's insatiable demand for money from the taxpayer, further tax pressures are coming from the European Union. There are currently three potential demands for tax increases in this country that the Government have said that they will stand against. I want to put on record some comments that the Economic Secretary made in the Treasury Committee on those three potential sources of increased taxation. It is fashionable to say that Select Committees are more important than the Chamber, but what is said on the Floor of the House is enormously important, certainly as a consolidation of statements made upstairs.
The Economic Secretary gave three assurances. On 26 January—the context was the art market, but the principle applies to VAT generally—she said:there are no proposals for the harmonisation of corporation tax.212 I asked:Would that apply to indirect taxation as well?She said:'There is a substantial legislative framework set out under European law for the VAT which allows Member States to make decisions for VAT in their own country but within a common framework.She went on to say:The key issue for us in this country has been the safeguarding of the position on our zero rates. We will not change that … VAT matters within the European Community are subject to unanimity.That was the first assurance. The Government have in effect said that they will veto any attempt by the European Union to increase VAT. We shall keep an eye on exactly what happens.
The second assurance was on the vital question of withholding tax in the City. I asked:Just to be absolutely clear, you said that you would not accept a directive with respect to the withholding tax. Does that mean you would veto any tax regime which included a withholding tax?The Economic Secretary replied:We would not accept a directive that required Member States to introduce a withholding tax.I said:That means you would veto any such regime.She said:That is correct.The Government have given an absolute assurance on a veto on withholding tax, and I hope that there will be no messing around on that.
The third tax issue concerns the abatement, won originally by Lady Thatcher. I asked:Is it true that the Government plan to stand absolutely firm on the present level of abatement?The Economic Secretary replied:It certainly is.The Government have given a complete and unqualified assurance on all three pressures from the European Union. I hope that my right hon. and hon. Friends have noted that and that there will be absolutely no question of the Government being able to budge on those crucial points.
The great future issue of tax and the European Union concerns the effect on tax of entry into the single currency. There can be no disputing the fact that, with a single currency, comes a single price system. The price system will be transparent; it will allow minor variations according to location and transport costs, perhaps, but it will be basically a single system. It will be largely generated by supply and demand conditions in the advanced, powerful economies.
For the foreseeable future, the market will be imperfect in terms of labour movements. For example, Portuguese people will want to stay in Portugal—they speak Portuguese and have lived there all their lives—so Portuguese labour costs will remain about half those of Germany. In crude terms, the Portuguese will have to pay German prices while getting Portuguese wages, and there will be a lot of unhappy people in Portugal unless there is a massive transfer of funds from the northern to the southern part of Europe. Clearly, the cohesion funds and all the other funds that are beginning to emerge are aimed precisely at that.
213 There will be massive tax increases under the single currency, beside which the relatively marginal tax changes that we have been discussing today will pale into insignificance. That makes what has been happening in Germany over the past couple of weeks extraordinary and laughable. The Germans think that, in the near future, they can cut their taxes or cap their contributions to the European budget; that is quite apart from the fact that they have been told by the president of the central bank that, because of the stability pact, they may not alter their fiscal arrangements.
If we enter the single currency, there will be no point in having a Budget debate, and this will be one of the last. There will be nothing much to debate because, under the terms of the stability pact and the new tax regimes associated with the single currency, we will have given all powers to determine our tax and monetary rates to a central bank. That will be the end of all Budgets.
§ Mr. Lansley
On a point of order, Mr. Deputy Speaker. Have Ministers approached you seeking to make a statement to correct a figure in the Red Book that is clearly wrong? On page 26, the figure for current receipts at £335 billion is clearly at odds with the more accurate figure on page 151 of £345 billion. It is important for the House to have correct information on which to base our debates.
§ Mr. Deputy Speaker (Mr. Michael Lord)
That is not a point of order for the Chair, but no doubt Ministers will have heard the hon. Gentleman's point.
§ 6.8 pm
§ Mr. Barry Jones (Alyn and Deeside)
It is always a pleasure and a privilege to follow the hon. Member for West Worcestershire (Sir M. Spicer). I was glad to hear the speech of the right hon. Member for Yeovil (Mr. Ashdown). I was not glad that it was his last response to the Budget as leader of the Liberal Democrats. I think that I have heard every one of his Budget speeches.
Like my right hon. Friend the Member for Bishop Auckland (Mr. Foster), I appreciated the way in which the Leader of the Opposition responded this afternoon. He made a good fist of it, as indeed he did of being Secretary of State for Wales. I did not agree with a word that he said—I will take out that insurance—but I was not surprised to see him come to the Dispatch Box in that manner. Such performances bring the House alive.
I very much appreciated the contribution of my right hon. Friend the Chancellor. As far as I could assess it, it was a Budget for social justice and an agenda for economic regeneration. As ever, it was delivered with an easy command; sometimes humorously, sometimes teasingly, sometimes mockingly. It was produced well, and I thought it very heartening. I especially appreciated the measures that my right hon. Friend announced for our pensioners, which will be warmly welcomed in every constituency. I was much taken also by the imaginative announcement that every school will get a large subvention to be spent on books, which are a measure of our civilisation. That proposal is not before time and our children can only benefit from it. I was glad that my right hon. Friend found the time, in a complicated Budget, to make a statement of such significance for our children.
214 The Budget will be a boost for Wales. I estimate that Wales will receive some £1 billion, and that is magnificent news from which Wales will benefit hugely. That £1 billion will be spent on schools and hospitals, and on help for our people in Wales to get back into work. It will also be used to cut taxes to widen opportunities for families. Some 500,000 Welsh pensioners will benefit and they will see a real difference this winter in their incomes, with the winter allowance being increased to £100, from £20 and £50 for those on income support. I also calculate that pensioners will benefit from the new guarantee on tax.
The Budget was a clever one and will be successful. The country needed it, but I agree with my right hon. Friend the Chancellor that we must close the productivity gap with our competitors. We must steer a stable course for lasting prosperity, and we need high and stable levels of growth and employment.
Like my right hon. Friend the Member for Bishop Auckland, my theme will be manufacturing. I am not as critical as he is, because I heard much in the Budget on the subject of manufacturing that encourages me. I will take any help that the Government give to manufacturing.
In my constituency, manufacturing remains a top priority, as it is for Wales and the whole of Britain. I want more manufacturing, and so does my constituency. I want to see small and medium enterprises, not just large factories, benefiting from Government measures. In Wales, we still overwhelmingly depend on small businesses. I welcome the new measures. Do they mean that we will invest more in capital plant and research? I believe that the answer is yes, but I have not read the small print.
The Government should act to enhance the standing of careers in manufacturing. We should have more measures aimed at making it a priority for our school leavers and graduates to enter manufacturing. Manufacturing as a career should have status and reward. I am far from sure that it has had that image in this century so far. As part of that process, more policy makers should have manufacturing experiences, and I draw a parallel with the Industry and Parliament Trust. Officials in our civil service and other policy makers need more experience in our manufacturing industries.
I wish to single out the steel industry. We need short-term measures to deal with the dumped and subsidised steel that is now flooding into the European Union and this country as a result of the collapse of the Asian economies. The consequence of the Asian crisis is now being visited on the European and British steel industries. Specifically, we need a cap on the electricity pool price and recognition that the steel industry is an intensive energy user. The industry faces sometimes ruinous costs for energy. We also need a negotiated agreement on the environmental consequences of steel making. Such an agreement needs teeth, but it should be negotiated because, without it, further costs could be imposed on what is still a great industry.
Steel in Britain is a success story. Shotton steelworks is in my constituency and I have observed its steelworkers meet every challenge set by the company. Like the British steel industry, Shotton steelworks is a thundering success. Output per employee has risen fivefold in the past 20 years. I thank the industry and my constituents, the steelworkers at Shotton, for that. The steelworks has 215 achieved a 10 per cent. per annum increase and the industry now exports 50 per cent. of United Kingdom production. Two out of every three tonnes go to the European Union and Germany is our biggest customer. One problem is still the strength of the pound; because of the burden that the strength of the pound places on our steel exports, I ask the Government to introduce urgent measures to assist the industry.
No hon. Member would deny that the aerospace industry boosts our export earnings. There are 3,700 British Aerospace workers on Deeside. They have called for more support for research and technology development in the industry. I must give credit to my right hon. Friend the Chancellor, because he mentioned research, technology and investment in that sphere, but we need to know how much and how soon. Will the amount meet the demands already expressed by the industry?
Investment launch aid is how huge projects in the industry become successful. It is Government assistance, but British Aerospace repays it over the years from its profits. So far, investment launch aid has been a winner and British Aerospace is paying back handsomely for the investment aid that it has had in years gone by. British Aerospace and Airbus Industrie in Europe have a colossal and mighty competitor in Boeing. At one time, Boeing swept everything before it. British Aerospace and Airbus have fought back and, arguably, they now have parity with Boeing. However, if they are to continue to deliver exports of high value, the industry will need more investment launch aid.
§ Mr. David Maclean (Penrith and The Border)
I have listened carefully to the hon. Gentleman's comments about the pressures on British manufacturing industry, especially aerospace, compared with Boeing. Is he worried that, while Boeing is able to thrive in the USA in a highly deregulated economy, we are imposing more regulatory burdens on all our industries—including aerospace—making them less competitive?
§ Mr. Jones
I am not complacent, but I do not share the right hon. Gentleman's worry. If ever a brutal blow were delivered to British manufacturing, it fell between 1979 and 1982 when at least 2 million manufacturing jobs were lost because of the deliberate policies of the then Mrs. Thatcher, Sir Geoffrey Howe and Sir Keith Joseph. Those three highly placed Ministers dealt a brutal blow to the future of British manufacturing, and that is one of the reasons behind what I am saying today.
I have only £535 million in mind as investment launch aid—perhaps before the end of the year—for the latest airbus project, the ACXX. That would be the largest civil airliner ever built and marketed, and it would take on the Boeing empire. I request those funds on behalf of my constituents.
There is a proposal that Britain should purchase 40 to 50 heavy-lift aircraft, previously known as the future large aircraft project. I hope that the Government will make a decision on that soon, and I propose that British Aerospace and the airbus consortium should be asked to build the aircraft. My constituents would willingly, happily and skilfully make the wings for that aircraft, as well as wings for the ACXX.
Our aerospace manufacturing industry is the most efficient in Europe. In 1997, it generated more than £15 billion-worth of sales, and it directly employed 216 121,000 people. The industry consistently makes a major contribution to our balance of payments. In 1997, it contributed £3.1 billion to the trade balance. Maintaining the competitive position of that great industrial sector is important to our country. It creates wealth, and it generates a large number of high-quality jobs.
In 1997, the civil aircraft sector in Britain provided 46 per cent. of our country's aerospace sales. We should be proud of that record. The leading company in the civil airframe sector is British Aerospace, along with its subsidiary, British Aerospace Airbus Ltd. which manages the company's 20 per cent. shareholding in Airbus Industrie. At the end of October 1998, Airbus Industrie had secured total orders for 3,140 civil aircraft. I was delighted that my right hon. Friend the Secretary of State for Trade and Industry was able to celebrate with my constituents and me on Deeside the delivery last month of the 2,000th wing set from the Broughton factory.
Current airbus programmes provide direct employment for more than 21,000 people who work in British Aerospace factories or for major equipment and raw material suppliers and for the smaller companies that supply goods and services. The wealth created by airbus work is estimated to sustain a further 41,000 jobs in Great Britain. That makes a total of 62,000 jobs sustained by the programmes, in my constituency, in Wales, in Scotland and in England. That sector of manufacturing industry is making a massive contribution to the fortunes of Britain and the European Union.
I interpreted positively what I heard from my right hon. Friend the Chancellor about research and manufacturing. However, I would like the Ministers to confirm that my interpretation is correct. This great industry generates not only work, but skills. It trains in the local community, and it supports the education action zones. It contributes to, and sustains, the new deal. British Aerospace is an industry of which my constituency is proud.
The Treasury and the Ministry of Defence work together closely on huge projects. I have met Ministers at the Department of Trade and Industry, the Welsh Office and the MOD to talk about the latter's £750 million airborne stand-off radar project, for which a competition is being run. My plea to the Government is that they should resolve to give the project to Raytheon, which is in my constituency. Several hundred highly skilled workers there know that 400 or more jobs would be created over several years, and Britain would also experience a transfer of technology.
An important review relating to British manufacturing is the current review of the assisted area map. It is vital that our constituencies continue to receive the benefit of assisted area status. Deeside suffered Europe's largest ever redundancy in 1980, when 8,000 job losses were announced in one day. It was estimated that at least 10,000 consequential jobs were also lost. We got over that terrible blow to a fair degree because we were given assisted area status, from which infrastructural developments resulted.
I do not want my constituency to lose assisted area status. I have said so to the DTI, the Welsh Office and the Treasury. Ministers have given me a fair hearing, for which I am grateful, when I have approached them on my constituents' behalf. Flintshire county council has put forward a fine case, which I support to the hilt. We have 217 lost a lot of jobs in the past year, although we have gained jobs, too. All the evidence suggests that the loss of assisted area status would deal us a severe blow.
My right hon. Friend the Chancellor rightly made much of the new money that he announced for schools and hospital trusts. I thank him for that, but I have a question for him: can he be sure that the money for schools and hospital trusts will be spent wisely, prudently and against the headings earmarked for it? I am not sure.
The money is urgently needed, and I suggest that the Treasury should set up an audit so that every local education authority and hospital trust has to show where the new money is spent. They would have to show that it was used for the purposes identified by the Chancellor. I am not saying that Flintshire's LEA does anything other than spend wisely. However, in general, I suspect that Ministers' generosity is sometimes misplaced at the grassroots level.
In summary, we are on course to rebuild public services with considerable additional investment in our hospitals and schools. I have heard enough from my right hon. Friend the Chancellor today to know that he is sticking to the principles of our movement, and I note that the official Opposition are shifting to the right and that the Conservative party is now governed by opportunism, as we have certainly seen of late. Even today, we saw some opportunism from the official Opposition; it might have been delivered in a fighting spirit, but at times there was weasel-worded dexterity.
I am proud of the measures introduced by our Government; I welcome the windfall tax, the minimum wage, the working families tax credit, the social chapter, the measures to help our pensioners, such as the increased help for heating costs announced today, and the huge subventions to our health service and to our schools. I congratulate my right hon. Friend the Chancellor.
§ Mr. Charles Wardle (Bexhill and Battle)
It is always instructive to listen to the hon. Member for Alyn and Deeside (Mr. Jones) when he talks about manufacturing. I recall some useful discussions with him at the Department of Trade and Industry during the previous Parliament. I mean no disrespect to him or to the right hon. Member for Bishop Auckland (Mr. Foster) when I point out that the Government Back Benches appear to be peopled this evening with an interesting blend of old lags and some bright graduates of the Public Accounts Committee.
Without fear of being teased, because I am one of those Back Benchers who has not so much as raised an eyebrow at the mention of Opposition Front-Bench preferment during this Parliament, I can safely say that, in the almost 16 years that you, Mr. Deputy Speaker, and I have been Members of this House, I have never witnessed such a virtuoso performance as that given by my right hon. Friend the Leader of the Opposition this afternoon.
What makes today's Budget so predictable is the fact that so much of what the Chancellor said in the House this afternoon had already been leaked in detail to the media by Treasury Ministers and press officers. The idea that only a couple of generations ago a Labour Chancellor of the Exchequer had to resign for dropping the merest 218 indiscreet hint about the Budget to the press must seem risible to the current Chancellor. Not even the sidelining of Charlie Whelan has deterred him; he has continued to foster his symbiotic relationship with the media, whereby he trails his policies well before they are heard in this place; and grateful editors, for their part, portray the Chancellor as a model of prudence and fiscal rectitude.
That image is not borne out by the reality of the Chancellor's first three Budgets. It is not upheld by the Treasury's own forecast of a rising trend in the tax take as a proportion of GDP during this Parliament, as even the Prime Minister had to admit last week. Nor is it confirmed by the sharp fall-off in actual and projected economic growth, especially in the manufacturing sector. Although the Chancellor continues to hope—all too optimistically, I fear—for 1 to 1.5 per cent. growth, I am sure that the Bank of England's estimate of 0.5 per cent. is the top end of the realistic target.
The Chancellor's image is not well reflected in his hollow rhetoric on the international stage about sweeping changes in global financial architecture. The Budget was an interventionist Budget, full of meddling and the promise of future red tape. It paid no heed to the lesson that could have been learned from the United States. The Budget did not emulate, in any sense, what the Americans have done; it was more like the Swedish performance of the 1970s. If the Chancellor really understood business and enterprise and how 18 million jobs had been created—all in the private sector—over the past eight years in the United States, he would have presented a very different Budget.
One has only to look at the damage being done to order books in the new generation of small and medium enterprises—particularly in manufacturing companies. Until recently, such companies had proved to be extremely competitive, but they now face extra burdens from the social chapter, the minimum wage and the Employment Relations Bill. Those companies do not need an econometric model to tell them that they are already in recession; they have only to look at their order books and the shipments from the factory gate to understand exactly what the pain is.
Cheap imports and the domestic downturn in this country add to the problems that those companies already face overseas in weak export markets, as not only the economies of the Pacific basin and Latin America, but those of much of Europe, including Germany, slow down. None of the Chancellor's measures today will alter the fundamentals of that dismal reality. With savings down by a third and investment falling, the Chancellor's record of introducing huge increases in indirect taxation by stealth and his attempts to redistribute wealth will come back and bite him if the motivation for enterprise and wealth creation is diminished by new Labour's interventionism.
Many of the measures headlined by the Chancellor this afternoon had a familiar ring. The promise of more debt repayment and the undertaking not to borrow, except for capital investment, have been heard before, as has the talk of fiscal caution and controls on spending, and the hope of further interest rate cuts on the horizon and a soft landing later this year. However, the real test for all those virtuous aspirations will come sooner rather than later if there is another severe jolt in world markets, which could propel this country, and others, into a sharp downswing. That jolt could be triggered if, after eight years 219 of expansion, the United States economy were to cool rapidly, followed by a sharp downward correction on Wall street.
The United States already has a huge trade deficit, which has cushioned the weaknesses in America's trading partners and has acted as a safety valve for demand in the USA. It could also put pressure on the US dollar and push up prices in the USA. There are other warning signs for the US economy that we should not ignore—for example, the shortage of skilled labour. If the psychology of the US market falters for any reason, the prospect of a soft landing here in the UK will vanish. Similarly, the slowdown in Germany—this country's most important export market in euroland—could hinder our economy. It would also put the euro under more pressure in the markets. I must say that the euro already looks less than wholly convincing as a single currency for 11 far-from-convergent national economies; it is not playing its part, even in its infancy.
Elsewhere, the sharp rise in the People's Republic of China's current account deficit could still lead to a devaluation in that country, despite China's substantial foreign currency reserves. That would reverberate through world markets. Meanwhile, those who look to an early recovery in Japan—still the engine room of Asian economic performance—fail to understand the depth and complexity of the mess into which Japanese business has got itself. Significant risks remain elsewhere, all of which could seriously dent the Chancellor's calculations. Britain depends on export markets much more than the United States or Japan do, so another seismic shock in world markets would mean a hard landing here, a rise in unemployment and even higher social security outlays, which would cause the Chancellor to reassess the outlook that he claimed for the British economy in his speech this afternoon.
The commitment to further tax reform and the announcement of the much-heralded, but hardly dramatic, 10p tax rate have long been on the cards and are unlikely to make a big impact. The same can be said of the micro-measures for business, such as the increase in capital allowances, tax allowances for research and development and for venture capital schemes, and the changes in employers' and employees' national insurance contributions.
The Chancellor said that he will cut taxes for the family, and he has raised child benefit and added to the working families tax credit. However, he has also abolished the married couple's allowance; he is going to scrap mortgage interest tax relief at source; and he has raised petrol tax, company car tax and insurance tax. The list is long and damaging.
In respect of the brewing industry, the announcement of yet another Customs and Excise drive to tackle smuggling from the continent is welcome. However, the move treats only the symptoms, not the cause of the problem. The cause undoubtedly lies with United Kingdom beer duty, which is seven times higher than its equivalent rate in France. No change today in the price of a pint of beer is helpful—and, I might add, personally welcome—but ultimately, if the damage to the livelihood of small pubs is to be halted and if smuggling is to become a pointless activity, the Chancellor will have to lower beer duty rates.
220 There are two areas where the structural damage already caused by the Chancellor through the stealth taxes announced in his previous two Budgets has not been relieved by his announcements today. The first area is stealth taxes on business and the second area is stealth taxes on pensioners. Like the Prime Minister, the Chancellor wants to be seen to be business friendly. However, he has been nothing of the sort.
The Confederation of Business Industry has calculated that, while the headline rates of corporation tax have fallen—they did so again today—the Government have increased taxes on businesses and shareholders by about £25 billion over the course of a full Parliament. That is a net £5 billion a year in extra business tax: no wonder business leaders say that the business horizon has darkened since Labour came to power.
The move to a new quarterly payment system for corporation tax will hit company cash flows and will bring in an extra £1.6 billion in tax in the year ahead. The abolition of dividend tax credits, which was little understood by the public at large, will raise a further £5 billion each year. Increased road fuel duties will probably remove 26,000 jobs from the haulage industry alone. Increases already made in stamp duty will harm the commercial property market and hit business competitiveness. The arbitrary windfall tax on privatised utilities has taken another £5.2 billion from the business sector.
For pensioners, the news is even more bleak under new Labour—in spite of the Chancellor's promises this afternoon. Elderly people with modest savings have already been hit by the drop in interest rates, which may be welcome to mortgage borrowers but which hurts retired people with a small building society deposit. Increased tobacco and petrol duties, stamp duty and the phasing-out of retirement relief on capital gains tax, as well as the uncertainty that the Government have created over occupational pensions, will damage the quality of life of pensioners who fought wars, raised families, lived active and responsible lives and deserve better from the Government.
Three of the most damaging of the stealth taxes in this area are the withdrawal of dividend tax credits for individual non-taxpayers, the abolition of tax relief on private medical insurance, and the abolition of dividend tax credits for pension funds. The Chancellor told the House this afternoon that pensioners will be better off by £240 per annum per household. However, some 300,000 non-taxpaying pensioners will lose an average of £75 a year and another 80,000 will lose more than £100 a year as a result of the stop that has been put on dividend tax credits for individual non-tax payers.
The decision to abolish tax relief on private health care insurance earlier in the Parliament was as vindictive as it was shortsighted. It has already rebounded on national health service waiting lists. The abolition of tax credits for pension funds—equivalent to about 3p on the basic rate of income tax—will mean that people must contribute more to their pension schemes now or face the prospect of lower pensions on retirement. When local authority pension funds make their actuarial adjustments, council taxes will rise for that as well as other reasons.
In conclusion, this Budget is unremarkable because it has already been so widely leaked. I fear that the Chancellor has over-simplified the outlook for the United 221 Kingdom economy at a time when adverse developments elsewhere in the world could easily undermine stability everywhere, including in this country. If some of the Chancellor's measures are welcome, they amount to little when compared with the structural damage that he has already done by stealth with swingeing increases in the overall tax burden.
§ Mr. Alan W. Williams (East Carmarthen and Dinefwr)
I am grateful for the opportunity to participate in the first night's debate on the Budget. I agreed with part of the analysis by the hon. Member for Bexhill and Battle (Mr. Wardle) of international problems— particularly the large United States deficit and the dangers that could arise if the United States economy experiences any difficulties. The hon. Gentleman also pointed to problems in the Asian economies and the rather surprising decline in the euro. I shall return to some of those points later. I also echo some of the hon. Gentleman's concerns about manufacturing industry—although we will not take any lessons from the Conservatives about manufacturing. Some 2 million manufacturing jobs were lost in the early 1980s and another 1 million jobs were lost in the early 1990s in two recessions that were totally self-induced.
I listened intently to the speeches of my hon. Friend the Member for Alyn and Deeside (Mr. Jones) and of my right hon. Friend the Member for Bishop Auckland (Mr. Foster) in which they expressed concern about manufacturing industry and the rather anomalous continuing great strength of the pound. That is a problem that lower interest rates— which will result from this Budget—will help to solve.
I welcome the announcements made this afternoon, the Chancellor's overall strategy and many individual measures. The Budget redistributes wealth to families, particularly children. The abolition of mortgage tax relief was long overdue. I do not quite understand the changes to the married couples allowance, but they are designed to shift support to children. The rise in child benefit— which is even larger than had been forecast—will be an enormous help to poor families.
The working families tax credit, the philosophy of making work pay and the particular help to the low paid through the 10p tax rate are also welcome. I have some sympathy with the right hon. Member for Yeovil (Mr. Ashdown), who said that it might be more effective to raise tax thresholds than to introduce the 10p rate. However, this is a long-term policy and we hope that the band will expand. I endorse enthusiastically the general redistribution in favour of poorer families, especially families with children.
The Budget contains measures that will help the environment. Hon. Members have been lobbied heavily by the road haulage industry. Like my right hon. Friend the Member for Bishop Auckland, I represent a rural constituency where petrol duty causes problems. However, we are confronting a global problem. Carbon dioxide emissions must be curtailed, and the transport 222 sector is responsible for the greatest increase in such emissions. We are simply continuing the policies of the previous Government on fuel duty.
§ Mr. Williams
I will not give way on this point, as there is cross-party agreement about this matter. We inherited that policy from the Conservatives and, unfortunately, the overall philosophy must be right: it is a green tax.
As for vehicle excise duties, the £55 discount for smaller cars must be correct. I have thought about that for a long time.
§ Mr. Williams
No, I will not give way on this point. I may do so later in my speech.
Carbon dioxide emissions are an incredibly difficult problem politically, but we must address that issue in the long-term interests of the planet. This is the right time to introduce an energy tax because world oil prices—at $10 or $11 a barrel—are lower now than they have been in the past 30 years. I am pleased that the measure will be revenue neutral, in that the proceeds of the tax will be reimbursed in lower national insurance contributions for employers.
I wish that the landfill tax had gone up a little more steeply than by £1 on the current £10 a tonne. I visited a landfill site in my constituency two or three weeks ago. It is very concerned about the new EC directive on recycling and the diminishing role of landfill in the next 20 years. The process must be aided by green taxes, so we need a bigger rise in the landfill tax.
I very much welcome the help to small companies, including the tax credits for research and development and innovation. The Chancellor also suggested that, if senior personnel from privatised industries or large companies opt to work for new companies, generous allowances will be available, and that will help to transfer their commercial experience to that sector. There are many such individual measures that I welcome.
On the overall management of the economy, under the Chancellor's stewardship, the Government have reduced the £28 billion deficit that we inherited and transformed it into a surplus of £34 billion over the next five years. That means that economic growth will pause this year. We inherited a growth rate of about 3 per cent. and an incipient inflation problem. Interest rates have cut back growth to between 1 and 1.5 per cent., but the Chancellor predicts that the growth rate will recover in the next two years to between 2.5 and 3 per cent.
§ Mr. Lansley
Does the hon. Gentleman recall that, in the last Budget before the general election, the Conservative Government predicted a negative public sector borrowing requirement—a debt repayment—in 2000–01 equivalent to 0.75 per cent. of GDP, which would amount to several billion pounds? This Government are not proposing, even in the low part of the economic cycle, to undertake a debt repayment.
§ Mr. Williams
I recall that, under the previous Government, the PSBR was ballooning out of control year 223 after year. We inherited a deficit of £28 billion, and during the five years of the previous Government the accumulated deficit was £152 billion. Our accumulated surplus in our five years in government is projected to be £34 billion. Deficit has been turned into massive surplus.
§ Mr. Maclean
Since the Chancellor made a strong point of boasting during his Budget speech that he had not changed the previous Government's spending plans in any way, can he and the hon. Gentleman take credit for the reduction in the PSBR?
§ Mr. Williams
For the first two years in government we stayed with the public expenditure plans that we inherited and, in fact, we obeyed plans even tighter than those laid down by the previous Government. We have got rid of the deficit through those tight constraints on public expenditure and through economic growth, and we are now in surplus.
Today's Budget demonstrated that overall public finances are healthy. The Budget is broadly neutral; it is not a giveaway Budget. About £4 billion is given away in tax cuts and there is an extra £2 billion in public expenditure. We can well afford those investments.
By running the economy so prudently, we have created a climate that gives the Bank of England scope for interest rate cuts. In the past six months, interest rates have come down from 7.5 to 5.5 per cent. As the Chancellor pointed out, we have the lowest long-term interest rates for more than 30 years. They have fallen from 7 per cent. in May 1997 to 4.7 per cent. now—2 per cent. lower in only two years. There is every reason to expect interest rates to continue to fall this year.
Indeed, part of our macro-economic strategy is to bring the British economy into line with European economies to make it possible to join the euro in 2001, 2002 or thereabouts. The challenge to the Chancellor is to create an economic climate in which the independent Bank of England can continue gradually to lower interest rates from 5.5 per cent. to below 3 per cent. by 2001. We are on course.
As those interest rates fall—as they must if we are to be able to join the euro—the pound will, at some stage, start falling. I am an enthusiast for joining the euro, but I would not want Britain to do so at current exchange rates. As we heard in earlier exchanges, DM2.90 to the pound is uncompetitive. I believe that the pound needs to go down to DM2.70, better still DM2.60, and perhaps as low as DM2.50. As interest rates continue to fall over the next three years, the pound will devalue at some stage.
§ Mr. Paterson
Has the hon. Gentleman read articles 118 and 123(4) of the treaty of Amsterdam, which require us to enter the euro at the central rate on the ecu basket, and which state that we can enter only with the total unanimity of all other members, which would mean that we would almost certainly enter at our median ERM rate of DM2.95?
§ Mr. Williams
I do not accept the hon. Gentleman's interpretation. There is no question of our entering at 224 anything like that rate. We shall wait and see what happens in the next two or three years. We have very prudent management of the public finances, the Government's account is in surplus and we are managing the incredibly difficult manoeuvre of the soft landing.
Over the next two or three years, we want to achieve, through careful economic management, a return to steady growth at a rate of 2 or 3 per cent. We have had enough, and the country has had more than enough, of the previous Government's boom and bust policies. Next year and the following year, as interest rates fall and the pound falls in value, the problem for the Chancellor will be to prevent a boom. The great problem in the British economy is that when one takes one's eye off the ball, demand suddenly rises and can produce boom conditions. Interest rates are at 5.5 per cent. The target is 3 per cent. and below because European interest rates may well fall this year; I hope that they will. We therefore want to halve interest rates.
§ Mr. Williams
I may take an intervention later, but I want to develop my argument.
As interest rates fall and are, perhaps, halved over the next three years, there is a danger of a take-off in housing, business and other sectors and of the economy growing out of control. That is why it is important to expand the work force and encourage skills and training. Our policies, like those of Clinton in the United States, will help unemployed people, including the long-term unemployed, to move from welfare into work. The new deal is also working exceptionally well to provide the option of work for the disabled. Today's Budget also included measures for the over-50s.
One of the previous Government's appalling policies resulted in many men in their 50s retiring prematurely on incapacity benefit following redundancy. That certainly happened in my part of the world, where coal mine closures in the late 1980s affected virtually all the miners. Many people in their 50s—perhaps 1 million in Britain— could be working. There are problems of low economic activity in older industrialised areas, where only 70 per cent. of people aged from 18 to 65 are in work. We want as a Government to ensure that there is work available for those who can and want to work. That is part of our anti-inflation strategy, which will be very important next year and the following year, as the economy resumes substantial expansion.
All of our achievement has been made with low inflation, which has been sustained at 2.5 per cent., or thereabouts. In granting the Bank of England independence to set interest rates, the Chancellor and the Government chose very wisely to give it a symmetrical target inflation rate of 2.5 per cent. If inflation looked like being higher than 2.5 per cent. in two years' time, interest rates would therefore rise, and if it looked like being less than 2.5 per cent., interest rates would fall. It seems as if, over the next six or 12 months, inflation will undershoot the target. Eddie George—I noticed that he was present to hear the statement—has made it abundantly clear that he will be just as vigorous in cutting interest rates if we threaten to undershoot as he was in putting them up 12 months ago.
I wish that the European central bank had the same symmetrical target. In the euro economy at the moment, inflation is under 1 per cent., and interest rates are set at 225 3 per cent. When the ECB met last week, it decided not to cut interest rates. The European economy—I return here to some of the comments of the hon. Member for Bexhill and Battle—is crying out for expansion. Unemployment stands at 10 per cent., while inflation is below 1 per cent. The combined balance of payments surplus in euro countries last year was $177 billion. As the hon. Gentleman pointed out—I agree with him—the United States deficit last year was $256 billion. The economies are almost mirror images of each other. The American economy is being run at a large deficit so that the rest of the world can market its products mainly in America.
The European surplus is a very deflationary influence on other countries. The German Chancellor, Oskar Lafontaine, is absolutely right to put pressure on the ECB to lower interest rates. Interest rates of 3 per cent. are absurd when inflation is below 1 per cent. and unemployment at 10 per cent. The ECB should not take just inflation into account.
In debates on the Maastricht treaty in this House and within the parliamentary Labour party, I remember Bryan Gould, the then Member for Dagenham, arguing vigorously, time after time, that the terms of the ECB were deficient. I remember the arguments of some of the Euro-sceptics, too, such as my right hon. Friend the Member for Llanelli (Mr. Davies) and Lord Shore, the former right hon. Member for Bethnal Green and Stepney. The treaty that set up the ECB was far too monetarist in taking account only of inflation. The bank would be much better run if it adopted the same system as the US Federal Reserve, under Alan Greenspan, which takes into account growth and unemployment—a much wider set of parameters.
This Budget has been excellent for the country. It has redistributed in favour of families and children. It is very positive for the environment, small businesses and innovation. It is fiscally prudent, and—I think—has been calculated to cut interest rates. Those cuts in interest rates will follow during this year.
§ 7.5 pm
§ Mr. David Maclean (Penrith and The Border)
It is a pleasure to follow the hon. Member for East Carmarthen and Dinefwr (Mr. Williams). As I was listening to his wish list, and his incredible economic theories of how the economy would perform if the rest of the world and the European economy did not exist, I unkindly concluded that the only soft landing that he was likely to encounter would be on his head. That is too unkind; he did not make any unkind remarks, and I should desist from doing so.
I agree entirely with the hon. Gentleman on one point. His Government are certainly trying to model the British economy on other European economies. That means over-burdensome regulation, powerful trade unions that control too much of their industries, stagnation, high unemployment and, of course, an arrogant presidential style of government that ignores the national Parliament.
It was a real pleasure to listen to the right hon. Member for Bishop Auckland (Mr. Foster) and the hon. Member for Alyn and Deeside (Mr. Jones). The only criticism that I would make of the right hon. Gentleman's speech—I shall pass this on to him—is that, with customary 226 modesty, he denied that he could interest the House as much as the Chancellor. He does himself a disservice. He made a fascinating speech. Although neither he nor I could match the Chancellor's rhetoric, the right hon. Gentleman came across as a man of intense integrity, who is passionately concerned with rural areas in his part of the north of England, as I am with those on the western side of the Pennines.
This is a clever Budget, which has increased taxes by stealth yet again. Labour's first two Budgets increased taxes by more than £40 billion over the course of this Parliament. It is legitimate to use that figure because we keep hearing about the £19 billion on schools, which is of course for the whole of this Parliament, and the £22 billion that is supposed to go into the health service, which is of course to be spent over the whole of this Parliament. It is therefore legitimate to say that, over the whole of this Parliament, Labour—so far—has increased taxes by £40 billion. In fact, most taxpayers will be paying more income tax under this Government in the coming year.
Why do we say that this is a stealth Budget? I shall give a little example of the Chancellor's sneakiness. We heard about the abolition of the married couples allowance and the introduction of the working families tax credit. Two things that the Chancellor did not tell us were that the amount to be paid out in working families tax credit is infinitely less than that lost through the abolition of the married couples allowance, and, of even greater importance—one does not discover this until one goes through all the fine details, the small print and all the Budget statements, which the media will no doubt catch up with in the next few days—the married couples allowance will be abolished 12 months before the introduction of the working families tax credit. The Chancellor spins that the Government will do much for married couples, but that may happen 12 months after the abolition of the married couples allowance.
We heard much from the Chancellor on, for example, the 10p tax band, but no mention, as my right hon. Friend the Member for Richmond, Yorks (Mr. Hague) said in an absolutely brilliant speech, of the abolition of the 20p band. We have to wait to find those things out, by searching for them. However, the Chancellor then said that that would mean a saving of 90p a week for the average family. Earlier in his Budget statement, he made the passing remark that petrol duty would rise by the normal rate of 6 per cent. That includes the inflation rate—[HON.MEMBERS: "Plus inflation."] By my calculation, that works out at an increase of about 13p a gallon, so the average family which benefits from the 90p a week reduction as a result of the 10p in the pound income tax band will pay £3.50 a week extra in fuel duty. The Chancellor did not mention that in his Budget. We must wait to find that out ourselves.
§ Mr. Paterson
If my right hon. Friend turns to page 109 of the Red Book, he will see that unleaded petrol has increased by 17.24p per gallon.
§ Mr. Maclean
I am grateful to my hon. Friend for that observation. Perhaps my maths are as good as the arithmetic of the hon. Member for East Carmarthen and Dinefwr. I thank my hon. Friend for his better mathematical and arithmetic skills.
227 Throughout the Budget statement, the Chancellor spoke about the 10p corporation tax rate and the 10p in the pound income tax rate. There is also 17p a gallon on petrol; that is why he does not mention the figures. That is typical of the 1998 Budget.
Throughout the seven days of the 1998 Budget debate, no one in the House heard the Chancellor or any Treasury Minister mention the new tax that would be imposed on the purchase of a motor vehicle. We had to wait until the appearance of the Finance (No. 2) Bill before that fact was discovered. That is why we can say that this Chancellor is adding taxes by stealth.
I have given examples only of the small things that I, while sitting in the Chamber, have been able to figure out. Goodness knows what will emerge in the next few days and weeks, and when the Finance Bill is published. Goodness knows what underlies some of the Chancellor's bland statements today, which may contribute to the ever-increasing tax burden imposed by the present Government. The past three Budgets have contained tax increases totalling £8.9 billion.
Rural areas have nothing to cheer in the Budget. I suppose that a family on a very low income, with lots of children, living in a rural area and with access to a bus passing close to their door might be slightly better off as a result of the Budget.
§ Mr. Maclean
I hope that they do not smoke; provided that they do not, they may be slightly better off as a result of the Budget.
However, as the right hon. Member for Bishop Auckland pointed out, with the best will in the world, tens of millions of people in this country cannot make use of an integrated transport policy. The motorist has been fleeced in this and the previous two Budgets. The motorist is paying billions into the Treasury and we are not getting that money back in better roads and better-maintained roads; all we get is talk of an integrated transport policy.
§ Mr. Michael Fabricant (Lichfield)
Is my right hon. Friend aware that the latest analysis shows that, for the very first time, the cost of petrol in the United Kingdom is higher than it is anywhere in Europe?
§ Mr. Maclean
I am grateful to my hon. Friend for that observation. I believe that the hon. Member for East Carmarthen and Dinefwr would say that that was part of the Prime Minister's plan to bring Europe into line with what the Government are doing here.
It is outrageous for the Government to keep talking about an integrated transport policy, which might work for a few hundred thousand extra people on the outskirts of Manchester—and perhaps some in parts of London and other big cities—but would not work for tens of millions of our constituents, including nearly all of mine.
My constituents use the train—the west coast main line—whenever possible. I use it constantly to travel to London. I would not dream of driving 300 miles to London—except when, occasionally, I have to empty kit out of my flat—but, to get to that train, there is only one option: the car. For everyone using that line for most of its route between Carlisle and London or between 228 Glasgow and London, the only way to get to the train— the only thing that we have within hundreds of miles of an integrated transport strategy—is the motor car, and those rural motorists are being penalised.
The Government may think, "Ah; rural motorists. They must be awfully wealthy people. Serves them right; they are driving cars." They could not be further from the truth. The right hon. Member for Bishop Auckland is right; the Government are not helping the low-paid in rural areas, or helping people in rural areas to get jobs, by clobbering the motor vehicle.
There are no great bus services in rural areas. The money that the Government announced last year is ludicrous. In Cumbria alone, the money that they have announced to help buses in rural areas has easily been eaten up by one week's loss of income in agriculture, which has been placed under enormous pressure by the Government.
The Budget has attacked the job creators. It has clobbered those in small businesses who want to create jobs for others and create wealth.
As my right hon. Friend the Leader of the Opposition said, and according to some articles in yesterday's press, if the Government want to do anything for business, they should cut regulation, cut bureaucracy and cut some of the 2,000 extra regulations that they have created in their 20 months in power.
In my constituency, elsewhere in Cumbria and in large parts of England and Wales, the proposals for the food tax and the Food Standards Agency will mean that tens of thousands of rural shops, small hotels and bed-and-breakfast outlets will be clobbered by the tax rate that big supermarkets will pay. That is not a Budget for enterprise. That is not a Budget for little entrepreneurs who want to build up their small rural bakeries and so on. The costs of the huge increase in the budget of the Meat Hygiene Service will be passed back to farmers, but they will also clobber large sections of industry, as will the minimum wage and the maximum working week.
If the Government really want to help tackle crime, it is not enough for them to make available a few amounts of money for crime hotspots around the country— electoral bribes, with the local elections coming up. If the Government want to do something to tackle crime, they should stop cutting the police budget. I am delighted to declare an interest in that. I am an adviser to the Police Superintendents Association of England and Wales, and very proud that I was offered that responsibility. However, I am not speaking on its behalf when I speak of the loss of budgets throughout the country for police, policing and police services. Metropolitan police numbers are declining to dangerous levels. For the first time, the Government have insisted that police funding be tied to a 2 per cent. efficiency drive, without saying how they will measure an improvement in efficiency.
The Chancellor boasted about measures for reducing crime. The first and best measure that we have for reducing crime is the British police service—not ideas such as part-time wardens patrolling the streets of Sedgefield.
This and previous Budgets have given us gimmicks and taxes by stealth. The gimmicks include computers or, as we read in the press at the weekend, laptop computers for every teacher to take home. What is the point of laptop computers for every teacher to take home if schools do 229 not have the technology and infrastructure to teach pupils by computers and electronic means so that they may use the programme?
§ Mr. Williams
The right hon. Gentleman says that the Budget is full of gimmicks and then mentions computers, schools and laptops. Even if he is not into information technology, will he concede that £2,000 for books for each school is not a gimmick?
§ Mr. Maclean
I am happy for money to be made available to schools if it is spent on books. I am happy for schools to spend money on technology. Of course I am into IT. I am a child of the new millennium—I surf cyberspace regularly—and I am happy for technology to be used in schools, but let us get the basic technology into schools first. Let us ensure, not only that every teacher has a laptop computer, but that there are proper computers for every pupil to use, and that there are computers on which teachers can access the programmes and print out lessons. Then, teachers might be able to make use of a laptop computer.
I am not an IT whiz kid, but I have learned one thing: the pointlessness of having a laptop computer to cart back and forth unless one has the technology in one's office to enable one's staff to use the material that one plays around with on the laptop at the weekend.
The other point—on which I shall conclude, as many of my hon. Friends and others want to speak—about schools and the £2,000 for books is that that is all very well, provided that the county councils spend that money on the books and on the schools. The lesson that I have learned over the past few weeks is that Labour-controlled Cumbria county council will not spend the full amount of the standard spending assessment allocated by the Secretary of State for Education and Employment on education. The council has siphoned off £1.4 million.
We even had the incredible spectacle of the Department for Education and Employment and the Secretary of State himself issuing a press release condemning Cumbria county council. The council presumably made representations to the Secretary of State, and the press release was withdrawn by the Department. Still, the county council is not putting the full amount of the Secretary of State's money for education into education. It has found savings elsewhere and has siphoned off some of that money.
It is all very well for Labour to boast about the Chancellor announcing money for the education budget to be allocated to schools. Too much of the money is retained by county halls and it is not reaching the chalk face. Similarly, money allocated to hospitals is not reaching them.
What we have heard today from the Chancellor is wonderful soundbite stuff. No doubt, we will read it ad nauseam in the press tomorrow. People in the housing estates in Cumbria and in other Labour areas tell me, 230 and people write to me saying, "I voted Labour, but it is all sound. Nothing is happening on the ground." The nurses and doctors are saying that now.
As people begin to realise that Labour is all soundbite and no substance, the Government have taken an important step to rectify that, as we saw last week. As their initiative to deal with that accusation, they have recruited yet another top BBC executive to go into No. 10 to deal with better spinning. Mr. Bush, recruited as head of research in the news department of the BBC, is to be brought into No. 10 to head up the spin-doctoring on whether Labour is meeting its manifesto commitments.
Last year, no Minister made a speech from the Dispatch Box without saying, "We keep our promises; the Tories do not keep theirs." Ministers have not said it once this year. The Government are recruiting BBC spin doctors into No. 10 because they are breaking their promises and they are being rumbled. We have had a lot of spin today. In a few weeks, the truth will come out as the nurses, doctors and teachers realise that the money is not materialising, as the small businesses realise that they are being clobbered, and as the rural areas realise that they are being crucified by the Government. That will be the real proof of the Chancellor's spinning today.
§ Mr. Derek Twigg (Halton)
I welcome the statement made by my right hon. Friend the Chancellor. His excellent performance today underlined why we are getting the economy right and what was wrong under the Tories. This Budget, like previous Labour Budgets, deals with the legacy left to us by the Conservative party, but it also takes us forward into the millennium and deals with the issues of today and tomorrow.
The Budget rewards work and makes it pay. It offers a better deal for families. It rebuilds our public services. It provides a better deal for small business. It locks into economic stability. The Chancellor made the important point that he was doing away with the arguments of left and right, the notion that there was only one way of doing something, and the public-private argument. We see the Government taking the best of each sector, and using that to make sure that the economy grows; that we get better public services; and that people live better lives.
The connection between greater wealth and the provision of better public services is not often recognised. Greater wealth allows us to invest more in public services, as the Labour Government will continue to do and as the previous Government never did.
The Budget must be seen in the context of the Tory legacy and fundamental weaknesses in the economy left to us by the previous Government: inflation was rising; they had ducked decisions on interest rates, leading to the problems that faced us in the first year of our government; they had lost control of the public finances; and the national debt had doubled.
The Conservative Government wasted important public money on social security. They paid it out but did nothing to help people get back to work. They did not use the money well, so they wasted the Department of Social Security budget. It was all boom and bust under the previous Government—they never aimed at stability or long-term planning.
Another part of the Tory legacy was Black Wednesday, which cost us a great deal of money and caused severe problems for the economy. A further example is the Tory 231 Government's handling of the BSE crisis, which cost £5 billion. Their attempts to deal with the mess that they had created cost another £2 billion. There was also the cheap sell-off of public services. Important public assets were sold off on the cheap, and shortly afterwards we saw the share prices rocket.
§ Ms Diane Abbott (Hackney, North and Stoke Newington)
My hon. Friend referred to the problems caused to the previous Government by Black Wednesday. As he will remember, the problems of Black Wednesday were caused by fixed exchange rates and the unsustainability of such a system. Does it occur to him that, if we went forward into economic and monetary union, which is just another fixed exchange rate system, with no real evidence of the true convergence of the economies, we might experience our own Black Wednesday in due course?
§ Mr. Twigg
The Government have made it clear that certain criteria must be met. Our competence in managing the economy is on a different level from the incompetence of the previous Government. We have only to recall how they dealt with the poll tax. Councils around the country are still paying for it. That is part of the catalogue of Tory incompetence over 18 years in power. As a result, we have had to take some tough decisions early on, to get the country back on the right course and achieve stability.
As a party, we introduce important policies which support work and families, and help pensioners and society generally. The Conservatives oppose the new deal, the working families tax credit, and the national minimum wage. We hear much about America, although America has a national minimum wage. They oppose the cut in VAT—they would raise it further if they were in power. They have opposed the entire plan to improve economic stability. They are not interested in getting the country back on the right track, after the mess that they created.
The Government's economic policy has had a major positive impact on my constituency. The Chancellor is right to focus on economic stability, growth, better public services and more jobs. We are getting away from the boom and bust of the previous Government. Inflation is now close to its target level. We are taking tough action on borrowing. The borrowing record of the Conservatives was astoundingly bad. They took incredible risks with the economy. In the early 1990s, interest rates peaked at 15 per cent. I will not go into what they went up to in just one day on Black Wednesday, but they certainly went up to 15 per cent.
§ Mr. Twigg
For a whole year. Under our Government, interest rates peaked at 7.5 per cent. That is a result of the fact that we have been dealing with the mess and taking decisions that the previous Government ducked. Mortgage rates are at their lowest for 30 years. Interest rates will probably come down again. That helps stability and allows us to plan for the future.
According to a report today in theFinancial Times, a survey by the Office for National Statistics shows that UK manufacturing rose during January. Reports in the local financial press and from various organisations refer to a 232 soft landing for our economy. Again, that is a result of the Chancellor's excellent economic policy. There has even been a rise, albeit small, in high street spending. According to a recent Gallup poll, the majority of fund managers thought that the economy was going forward. All that is confirmation that the Government are on the right track.
§ Mr. Tim Loughton (East Worthing and Shoreham)
The hon. Gentleman cites as a source for his economic criteria fund managers in the City of London. Does he agree with those same fund managers, whose best forecast for GDP growth next year is about 0.7 per cent., which is rather less than half of the top forecast of his Chancellor this afternoon? Were the fund managers right then, and are they wrong now?
§ Mr. Twigg
The Chancellor set out his strategy clearly today. He is confident about the growth factor, as am I. A number of important issues are raised by the Budget, which should be examined in more detail. The Opposition have had a difficult time attacking the Budget. They have gone off at a tangent, with lengthy debates about Europe and other matters that are wholly irrelevant. Conservative Members have real difficulty, because this is a good Budget; it makes good sense to most people and will improve their standard of living.
Conservative Members like to talk a lot about families, but their record in government was one of failure. The Budget supports lower and middle-income families and provides help when it is needed most—when people have children. As a father, I totally and utterly support that. The Conservatives did not provide such support. The child tax credit has been introduced, child benefit has been raised—13,300 families in my constituency will benefit from that—and there will be a major improvement in the standard of living of people with children.
§ Mr. Twigg
In a moment. I have taken two interventions and I want to continue with my speech.
When we came to power, child benefit was £11.40 a week. It is going up to £23 a week, which is a major increase for which we deserve credit. The Conservative party has an interesting record on child benefit—it froze rates between 1987 and 1991—and also froze married couples allowance between 1990 and 1995. That does not support the Conservative Members' view that they have always been in favour of child benefit increases and the married couples allowance.
§ Mr. Sayeed
Has the hon. Gentleman read any part of the Red Book? Would he care to look at page 112? Item 17 shows that the married couples allowance will be abolished from April 2000. That will save the Treasury £1.6 billion, but the children's tax credit will not be introduced that year. Although the hon. Gentleman does not realise it, the Chancellor has fiddled the figures—he has taken money away by abolishing the allowance, but he is not giving money back through the children's tax credit.
§ Mr. Twigg
I am interested in the points that the hon. Gentleman makes, but I would like to hear him praise my 233 right hon. Friend's increase in child benefit. I do not hear that praise, although there has been a major increase. [Interruption.] Does the hon. Gentleman want to praise the increase in child benefit?
My constituency has a large number of pensioners. I often think—wrongly, and I shall explain why—that some pensioners have felt a bit left out of the previous two Budgets, although we have done a considerable amount in terms of the standing fuel charge, extra fuel payments and the cut in VAT on fuel. We have also taken a number of other initiatives. The Budget contains a £3 billion package for pensioners, with an increase in the winter allowance to £100 over the next three years. That means that slightly more than 14,000 pensioners in my constituency will benefit from help towards their fuel bills. That underlines the Government's commitment to helping pensioners and shows that the particular difficulties that pensioners have during the winter have been recognised.
There has also been an increase in the minimum income guarantee for pensioners and it has been related to earnings rather than prices—it was nice to see the look on Conservative Members' faces when my right hon. Friend announced that measure this afternoon; they did not have much to say about it—and 200,000 pensioners will be taken out of paying tax. Many pensioners in my constituency will benefit from that.
My right hon. Friend talked about rewarding and improving our public services. It is useful to put into context what the Government have already done. Like the other improvements in funding, the £19 billion commitment to education in the comprehensive spending review will benefit my constituency. For example, five schools had been waiting for more than 10 years for new classrooms, but, within 18 months of the Government's election, three have had plans for new classrooms approved. I understand that a fourth school hopes to have its plans approved shortly. That money will help with bringing class sizes down, which is another great commitment that is widely supported in my constituency.
Halton borough council has been given £2 million from the standards fund, and five summer schools have been set up to improve literacy and numeracy. Those important developments have been achieved because the Chancellor has made improvements by providing additional cash for schools in his Budgets. Additional money has already been made available for school books and a further commitment, to which I shall refer in a moment, has been made today.
There has been talk about national health service waiting lists. I can tell Conservative Members that my local hospital not only met the reduction in its waiting list last month, but exceeded it by 282. That excellent performance shows that that money is being well spent— and that is not to mention the additional money that has been provided for mental health and other health services in the Halton area.
On transport, there has been significant change and I can see a significant difference between this Government's policies and those of the previous Government. I referred to that matter briefly a few weeks ago in my speech on the local government settlement. For many years, we in Halton have been trying to get extra money to deal with the maintenance problems affecting 234 the Widnes-Runcorn bridge. We were unable to get that money under a Tory Government, but, this year, the Labour Government have allocated an extra £2 million, which is an important investment. Dealing with those problems may prevent more fundamental problems occurring later. There has been additional money for transport generally in my constituency, and the Government's integrated transport strategy is important not only because of the problems with the bridge but because we have a busway and because there is a low rate of car ownership compared with other constituencies.
I am particularly interested in education. The Government have made clear their commitment to lifelong learning, skills and training and, through investment in further and higher education, they are trying to provide a better economic base from which firms can prosper. The further education college in my constituency has an important role to play and the Government have allocated extra money in the comprehensive spending review to be spent on further education and supporting students. The Government recognise the importance of further education to getting the economy on the right track and providing skills and investment in our communities.
There is new investment from the capital modernisation fund, which I am pleased about, and £2,000 has been allocated to each school to buy new books. That is a significant sum for many schools and, although there has been an increase over the past two years, an extra £2,000 for books is important. When I went into schools during my time as a councillor or a governor, I never tired of being worried about, or annoyed by, the state of some of the books that the children had to use. Some books were tattered and torn, or there were perhaps five to a whole class, and it was difficult to get hold of the wide range of books necessary for children of differing abilities.
That problem always worried me, but the Government have acknowledged the problem and have put £2,000 into each school. That is an improvement. One of the obvious problems caused by not having access to books is that children do not pick up a love of reading as well as they might. They do not find it easy to find books to read, and that affects their literacy. The Government have recognised the problem. Although £2,000 per school is a small amount in terms of the overall allocation of money in the Budget, it is important.
§ Mr. Lansley
Like my hon. Friend the Member for Mid-Bedfordshire (Mr. Sayeed), I am concerned that the hon. Gentleman has not read the Red Book. Page 111 makes it clear that the money in the capital modernisation fund—£250 million will be brought into 1999–2000—is expressly drawn forward from later years and is not new money.
§ Mr. Twigg
I do not want to go over the ground that I have already covered—that money is in the fund. I would like to hear the hon. Gentleman and the hon. Member for Mid-Bedfordshire expressing support for the extra £2,000 for each school. I did not hear them doing that—I assume that they do not want to talk about that money—and they may be against investing £2,000 in each school.
The Budget highlighted the £410 million that is being given in respect of access to computers. Some schools seem to be better off than others. Access to computers and training are extremely important, and it is a shame 235 that some children do not have the same access as others or are not able to gain experience and training. My son, who is nine, has been very fortunate in school and has managed to develop his computer skills, but I have seen real problems in other schools that I have visited and the money should be widely welcomed.
There is extra money for public services in the health services, which will be invested in modernising accident and emergency departments. We have all seen problems in our local hospitals, and around the country generally, and the staff of accident and emergency units and their patients have difficulties in respect of both waiting times and equipment. Such investment must be warmly welcomed, and I am sure that it will be. Notwithstanding what others have said today, I think that both NHS staff and patients will welcome the money.
Comments have been made about the £170 million to make communities safer. It is a shame that some Conservative Members have taken the attitude that they have. Under Conservative Governments, crime rose. I am interested by the fact that the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), the former Home Secretary, is not present. He wanted to send more people to prison and subject them to short, sharp shocks; but he did not manage to do anything that reduced crime.
It is clear from what I hear in neighbourhoods in my area that people there are worried about crime, neighbour nuisance and the behaviour of some groups of young people. Some are afraid to go out at night. It is crucial for the money to be spent on dealing with those fears, and improving the situation.
At a recent conference, I spoke about the Government's crime and disorder audit. The police and communities are being brought closer together, along with the voluntary sector and other agencies, to establish a strategy for crime. It is all about creating safer communities. The Conservative party scoffed at the idea, but I do not think that my constituents would consider it a laughing matter, or consider that the Government were wasting money. I think that they would say that this was a positive move to deal with crime and disorder, and to involve local communities in that.
Rewarding work has been a major plank of the Government's policy in the last two Budgets, and also in this Budget. It is worth repeating what has happened, in order to set the scene for today's statement. A total of £3.5 billion was taken from the privatised utilities to pay for the welfare-to-work initiative and the new deal; already 60,000 young people have been helped, and a total of 300,000 have been helped. It is all very well for the Opposition to scoff at the programme, and to have a go at it. Many of them do not support it, and I believe that a number have not even troubled to support it in their constituencies. People like me, however, have worked closely with the Employment Service, with employers and with other agencies to try to ensure that young people and the long-term unemployed are given the best help that is available.
Having talked to unemployed young people, and to adults who have been long-term unemployed, I have witnessed the desperation, the lack of hope and the sense of failure that troubles them. They have been thrown on the scrap heap. The last Government's policy for dealing with unemployment was to take people off unemployment 236 benefit and put them on to incapacity benefit. They had no real policy to return people to work; their policy was, "Let the market decide, and we shall see what happens." The present Government's policy involves working with the private sector, the public sector and the voluntary sector to produce policies to help people into work.
I recently attended a presentation for the Prince's trust, at which 10 young people were to receive awards after taking a course. They had moving stories to tell. Many had been sponsored by the new deal to work with the trust; some who had formerly been shy and introverted, and had problems in communicating, had become outgoing, confident, able young people. That is the sort of effect that the Government's policy is having, and that is why they continue to support the new deal.
I have also talked to employers, and I know that problems can arise. Things are not always perfect. Nevertheless, the employers to whom I have spoken want to get involved: they want to support young people, and to give them the skills and training that they need. I was pleased that the Chancellor made it clear today that the Government's help would continue. Conditions would, of course, be attached, but I approve of that: there must be responsibilities as well. I am glad that is still a major plank of the Government's policy.
Last year saw a proposal to cut national insurance by £65 a year, and a decision by Parliament on the national minimum wage. Those, too, are important planks in the Government's policy of both rewarding work and putting people into work.
Like other Members of Parliament, I have seen factories and companies close in my constituency, but unemployment in my constituency—and around the country—is lower than it has been for 20 years. A better deal now exists, making work pay and encouraging people to work. Under a Tory Government, there was hardly any difference between what could be gained from benefits and what could be gained from work. People had no incentive to work. Most people want to work, but they want to be able to earn a decent living.
The new 10p income tax rate is vital, as is the cut in the standard rate from 23p to 22p. Rewarding work in that way will ensure that families are better off. The working families tax credit has been increased by £2.50; there has been an increase in the minimum income guarantee of £2 a week for full-time working families; and no family earning less than £235 a week will pay tax. That is a major step forward, and an important incentive for families and individuals.
The last Government's use of the benefit system was not aimed at helping people to return to work. That Government were not interested. They paid out benefit, but they did not want to devote any effort or time to assisting people to work. There is a stark difference between this Government's policy and that of their predecessor.
I have already mentioned the new deal. Today's announcement about the new deal for the over-50s and the guarantee of a minimum income of £170 for the first year is very welcome. In my area—and, I am sure, those represented by others—there has been a major shake-up in manufacturing industry over the past 20 years. I should add that, under the last Government, two out of five manufacturing jobs—2 million—were lost. Manufacturing industry was devastated all over the country.
237 Halton, Runcorn and Widnes are in a chemical industry area. The sector employs more than 4,000 people in ICI alone, and probably employs up to 12,000 in the chemical industry and support industries. It is a vital sector in my constituency. Part of the result of what happened during the 1980s and early 1990s was that many people were made redundant and took early retirement, and now find it difficult to return to work because of their age. I welcome the Government's recognition of the problem. I have talked to people in that age group, and they feel that they would be helped to return to work if they could improve old skills and gain new ones.
That is often the problem: the need to acquire new skills, and to secure a chance of obtaining work. In the past, it has not been possible for people to have training and to acquire new skills. The importance of today's announcement should not be understated, and many people in constituencies such as mine who are over 50 and unemployed will welcome it.
The Government's emphasis on the importance of supporting small business is also an important part of our strategy. Ten or 15 years ago, a Labour Chancellor might not have said what the Chancellor did. As I said earlier, I think that being Chancellor means taking the best from both private and public sectors, and supporting businesses as means of wealth creation. The biggest opportunity for businesses to grow lies in the small and medium-sized sector. During the 1980s and 1990s, what I heard about from my constituents who owned businesses were their problems with the last Government: problems in getting loans, problems with red tape, problems with late payments of bills and problems owing to a general lack of support and advice. Those problems were very stark, and one wondered why nothing was done.
It should also be remembered that, under the last Government, there was a record number of bankruptcies. A record number of small businesses went under. Given the legacy that they left, the Conservatives have no right to talk about the importance of supporting small businesses. They destroyed hundreds of thousands of businesses with their boom-and-bust policies.
Small businesses have complained to me about skills shortages, the difficulty of obtaining funds from banks, lack of advice, lack of training and even payroll difficulties. That is interesting, because the Chancellor mentioned it today. I am pleased that the Chancellor is to set up a new small business service, which will be warmly welcomed. Again, the 10p corporation tax rate for small companies will benefit 270,000 companies. It follows the changes in last year's Budget to corporation tax and capital gains, which have been a major incentive and been warmly welcomed by those companies.
Let me emphasise a point that I was making earlier. One small business man showed me the list of electrical contractors that existed in my constituency 10 or 12 years ago, and how many are left—the latest booklet on the figures was published about a year or so ago. Less than half are left. The business man said that he had great difficulty in recruiting skilled people, including electricians, and that, because there were not as many of them, the demand on wages was much greater: the cost of employing people was much greater. He said that that 238 had all happened under the Tory Government—that there had been a complete sea change in the way in which business was able to deal with such problems.
That man, who works very hard throughout the country to get work, said that it had not been worth his while to take on any apprentices, because his profit margin was so tight that he would have difficulty funding new staff. The point about the new deal is that it tries to help towards that problem.
That happened under a Tory Government. That is a real-life case. I saw the figures. There was a complete change in the number of companies that were around.
Some points have been made about manufacturing generally. Of course, I take a different view on manufacturing from the Conservative party. It is an important industry in my area. As I have said, ICI and the chemical industry have been, and are, an important player there.
In my constituency, companies have closed for a number of reasons. Interest rates have caused difficulties for companies such as ICI, but what is interesting is that ICI is saying that these things are cyclical. It expects in two or three years, or even less than that, to do much better.
There has been major world upheaval in the chemical industry. South-East Asia's problems have had a major effect. I recently went to a chemical industries presentation on the chlorine industry, which, again, is a particularly important part of the work of ICI in Halton. Most household products and most drinking water have elements of chlorine, so it is an important industry to the country.
The ICI complex at Runcorn in Cheshire used to use 1 per cent. of the electricity produced by the national grid; it used as much electricity as the city of Liverpool. That is a tremendous amount of electricity and power.
§ Mr. Loughton
Will the hon. Gentleman admit that the chemical industry, which is so important in his constituency, will be hit hard by the energy tax that the Chancellor has announced this afternoon?
§ Mr. Twigg
If the hon. Gentleman will hold his impatience for a second, I will explain exactly why the problem exists.
At the presentation—a number of the hon. Gentleman's colleagues were there, by the way—it emerged that the cost of energy was a massive problem for the chemical and other industries. That problem had been raised with the previous Government on numerous occasions. When the previous Government privatised the power companies, they made things worse: the cost of energy went up. Therefore, not only did the previous Government decimate the manufacturing industry with their economic policies generally but, on issues such as energy, which is so important to manufacturing industry, they got it wrong completely.
I understand what the Chancellor said today about the energy tax. He has made it clear that there will be a reduction in national insurance contributions. I am pleased that he will continue the consultation. I did not hear anything that would in any way damage my particular industry, given the commitments that he made.
239 I was pleased to see the Chancellor's commitment to renewable energy. Because of the problems that the energy strategy and policy of the previous Government caused ICI, it was worth its while building its own power station, or certainly getting a company to build it; Intergen did the work. It is still looking at another source of renewable energy—steam—but it has made numerous savings in energy cost by reusing energy that is produced in its plant. That is the sort of strategy that the Government will want to encourage in the industry as a whole, so good practice is there.
Let me conclude my remarks—[Interruption.]I could also read out the tax increases that the Conservatives introduced when they were in power. If they want to talk about tax, we can do so.
Without doubt, today's was another confident performance by the Chancellor; my right hon. Friend's performances are confident. Even the International Monetary Fund is saying that what the Chancellor is doing should be regarded in other countries as a model of good practice. What a change from what the IMF said under the previous Labour Government. There has been a change in strategy and in the way in which we are dealing with the economy. There is now confidence in the handling of the economy by the Chancellor and Government. This week, the IMF again praised the Chancellor and said that Britain's policy should be used as a good example elsewhere.
The Budget has again been about spreading wealth, helping the low-paid and disadvantaged, and redistribution to the less well off. All the Conservative party was interested in was helping the best off, doing nothing to help people get out of poverty. This is another Budget that deals with redistribution, ensures that people get a fair run at resources, encourages them to get back into work and promotes and encourages incentives, innovation within the economy and enterprise. Public services have also been improved and will continue to improve. It is a good all-round Budget and I am proud to support it.
§ Mr. William Ross (East Londonderry)
I have sat through quite a number of Budgets and I have rarely heard the two Front-Bench spokesmen behave with the vividness with which they both behaved today. Whether there was any more content in it today, and whether it will mean any more at the end of the week than after many past Budgets, remains to be seen.
One of the things that has always concerned me is the public sector borrowing requirement. It seems, from what we are being told, that that, at least, is going very fast and far in the right direction. I have always thought that a nation should try to balance its budgets. I do not see much point in paying a lot of taxpayers' money in interest: we have paid far too much over the past few years.
I welcome many of the minor items—and there were many—that will have a good effect. For example, the 10p starting tax rate is welcome for both business and individuals. I also welcome the fact that the capital expenditure for Northern Ireland will go up by £50 million. In particular, I welcome the announcement that there will be £2,000 for books for each school in the land. What I am not clear about is whether, when the Chancellor was expressing that good news, he was 240 including Northern Ireland—or whether the £2,000 per school is restricted to Britain, as the last announcement was. Perhaps that could be made clear before we leave the building this evening.
I listened with interest to the Chancellor's growth forecasts. I hope, for all our sakes, that we hit the 3.75 per cent. increase that he thinks we will achieve in 2001. As I have said, I have sat through quite a number of Budgets in this place, and I have found out by hard experience over the years that it does not take much to go wrong, and to go from a Budget surplus to a £50 billion deficit. Anything can go wrong given the fragile nature of the world economy. Most people are behaving as though it is in a robust state, but I think that the full effects of last year's Asian crisis have not yet worked through the system.
§ Mr. Tyrie
Has the hon. Gentleman noticed that the Chancellor's growth forecasts are extremely optimistic compared with those being provided by independent forecasters? The Chancellor's forecast for growth this year is 1 to 1.5 per cent., against independent forecasters average forecast of 0.6 per cent. For 2000, the Chancellor's forecast is 2.25 to 2.75 per cent., compared with independent forecasters average forecast of 1.8 per cent. Does it not very much reinforce the hon. Gentleman's point that, if that growth is not forthcoming, the public finances could be gravely imperilled?
§ Mr. Ross
Economics is called the dismal science. As it is such a dismal science, many economists try making a wide range of forecasts, in the hope that at least one of them will be right and happy for a day or two. All Chancellors fall into that general trap. Heaven only knows what the effect on public revenues will be if we have only 1 or 0.75 per cent. growth instead of 3.25 per cent.
I noticed that the Chancellor announced, with much cheer and a great flourish, that the inheritance tax band will be raised. Everyone thought that that was quite a substantial sum. However, a check of the books reveals that the band is being raised only to match the inflation rate of the retail prices index. I wonder by what percentage house values have increased in the past one or two years. I suspect that that increase is rather higher than the inflation rate and the RPI. Therefore, perhaps the Chancellor is not being quite as generous as he is telling us. Whenever I discover the Chancellor telling us one such story, I wonder how much more smoke and how many more mirrors are around the place. Usually, there are quite a lot more.
I do not smoke for many reasons—not least because I could not afford it when I was young and foolish enough to start. When I was old enough to understand the ill effects of smoking on health, I backed away from it very rapidly. However, other people in Britain smoke—a figure of 15 million was mentioned earlier. Only education will stop smoking, if it can be stopped at all.
The Government have previously, through the tax system, applied quite a lot of pressure on people to stop smoking. However, page 149 of the Red Book shows that, in the next few years, the tobacco tax take is forecast to fall. Are the Government trying to tell us that there will be a tremendous decrease in the number of people who smoke? Or are the Government being pragmatic and realising that the tax take will decrease not, because of a drop in the number of smokers but because of a very large increase in the amount of smuggled tobacco?
241 Every year, the Gallaghers firm, in Northern Ireland, comes to see us. In Northern Ireland, 3,000 people are employed in tobacco factories. Gallaghers' representatives told us that, in the United Kingdom, seven out of 10 packets of hand-rolling tobacco are smuggled. An awful lot of that is produced in Ballymena. It goes over to the continent, but is back in a fortnight or less.
Although there is no tax increase on hand-rolling tobacco, there is an increase on pipe-smoking tobacco and on cigarettes. The tax increase on cigarette prices works out at 17.5p per pack of 20. However, where is that revenue disappearing? The reality is that the Government are factoring in a very large increase in cigarette smuggling. This year, the Gallaghers representatives warned us about the problem. I hope that Ministers will take heed of the dangers inherent in smuggling.
I should like also to draw the attention of the House and the Chancellor—if he needs his attention drawn to it yet again—to the road fuel tax. In 1996, Northern Ireland accounted for 2.8 per cent. of the total United Kingdom road fuel market and provided 2.8 per cent. of United Kingdom fuel excise duty. Until today, duty in the United Kingdom was 43.99p per litre for petrol and 44.99p for diesel. In the Irish Republic, duty was 24.54p per litre of petrol and 21.35p per litre of diesel. Today, in the United Kingdom, leaded petrol duty went up by 4.25p per litre, unleaded petrol duty went up by 3.79p per litre, ordinary diesel duty rose by 6.14p per litre and low-sulphur petrol duty by 4.96p per litre.
Smuggling from the Irish Republic into Northern Ireland was already immense, even without those duty rises. A tanker of 25,000 litres gives the smuggler a profit of £4,450 in saved excise duty. Additionally, UK VAT, at 17.5 per cent., also is not paid, taking the smugglers profit to £6,380.50.
Diesel smuggling began in 1997. Large-scale petrol smuggling began after last year's Budget, which increased United Kingdom duty far above that in the Irish Republic. How much is smuggled? Although that is very difficult to determine, a few months ago smuggled fuel was being openly advertised on roadsides. Although the Revenue cracked down on it, the Revenue is short of staff.
We do know that, in the past year, 48 vehicles and 400,000 litres of fuel were seized. However, the Government know that 24 million litres have been smuggled into Northern Ireland in the past year, resulting in a Treasury loss estimated at £100 million. Such extensive fraud is not acceptable to any hon. Member. It is even less acceptable to honest traders in Northern Ireland, who are left in the position of having either to break the law or to close the doors of their businesses. The loss of those businesses would have a real effect on local residents.
Very often, in rural areas and smaller towns, service stations have replaced many corner shops. Local fuel oil and distribution companies are also suffering grievously, as they supply low-volume fuel stations and sustain the operations of smaller companies that the major companies, such as Shell and Esso, simply ignore. They have all been very hard hit. The major oil companies are making an effort to combat smuggling, and have said that their year-on-year losses by value are up to 40 per cent. They are subsidising some of their outlets, but they cannot continue to do so. No one should expect them to do so.
242 Taxes on road traffic affect transport companies, contractors and construction firms and the aggregate trade. They are all being hit very hard. I should like to know how the Chancellor plans to address the issue. Buying smuggled fuel is not a matter of having to go across the channel, but of driving a mile or two down the road, filling up the vehicle and coming back. The difference in large vehicle excise duty between Northern Ireland and the Irish Republic is, in some cases, several thousand pounds. I am speaking specifically about the heavy vehicles used in the aggregate sand quarrying industry, but also about many other types of vehicles.
Some time ago, I tabled a question on the amount of duty paid in each European Union country on comparable vehicles. No one knew the answer—or at least that is what I was told by the Treasury. I leave it to hon. Members to judge whether the Treasury did not know the answer or did not want to tell me the answer. Regardless, the Treasury was not able to tell me, saying that the figures were not available.
Recent reports show that fuel operators in Great Britain have been hit by vehicle excise duty, as they have been hit by fuel duty. Companies are moving across the channel. In the past week, I saw a report in the newspapers on the Stoddart company's decision to consider moving across the channel.
British traders and lorry owners have difficulty in comparing prices between Britain and those on the continent. However, it is not difficult for people who live in Northern Ireland to compare prices with those in the Irish Republic. Nor is it difficult for them to drive down the road. Firms are transferring their vehicle fleets across the border, taxing them there and operating out of the Irish Republic into Northern Ireland. Those Northern Ireland jobs and companies—which are United Kingdom jobs and companies—are being exported because of the tax structure that operates in the United Kingdom.
Although not too many changes have been made today, higher rates will apply to lorries with axle weights over 11.5 tonnes. There are quite a number of those heavy lorries on our roads. Many of them operate on the continent and many of the firms that use them trade with the continent. I suspect that, by upping the tax on heavy lorries that operate out of the United Kingdom, the Government will simply make it easier for firms that operate out of the Irish Republic, France, the Netherlands and elsewhere in Europe. So where is the benefit? If we are trying to get rid of the heavier axle loading in order to save our roads and bridges—after all, we spent many millions of pounds on upgrading them to EU standards to accommodate the 38-tonners—what is the point of making life difficult for the owners of such vehicles in the United Kingdom, given that everyone else can run them much more cheaply? It is just crazy, and the sooner the Treasury wakes up to that, the better. The Treasury should go back and look at it again.
Green Budgets are a very good idea when one is not in competition with others, but, in practical, terms they will produce real greenery—there will be weeds growing in many business premises in Northern Ireland and ultimately Great Britain as well.
I echo the words of the right hon. Member for Penrith and and The Border (Mr. Maclean) on the use of cars in rural areas. I agree with every word that he said. The car is not a luxury for rural families. It is certainly not a luxury in 243 Northern Ireland; it is absolutely essential. People who live in large conurbations with a bus service that actually works and gets them from A to B within a reasonable time can manage without cars. Where I live, there is no bus unless one is going to school. After that, one has to walk, ride a bicycle or drive. If one lives five miles out into the country, one does not walk or ride a bicycle; one has to have a car. We are continually upping the cost of transport for some of the lowest-paid people in the community to get to and from their places of work. It is not fair and it is not right. The whole system of green politics does not work in the real world.
The right hon. Member for Bishop Auckland (Mr. Foster) began by expressing his regrets that he not got a job in the Government, or something like that. I have no spite against the right hon. Gentleman, who is not in his place. In fact, I have known him for many years and I hold him in very high regard. However, I think it is a good thing when a person who has been close to the centre of things in government or in opposition does not get a job because he knows where all the bodies are buried. He is an invaluable source of information to the House and we are glad to have him here. I was most interested in what he said and he made an excellent speech. However, I was disappointed when he said that he was attracted to the single currency—as the Chancellor undoubtedly is—as an aid to trade with Europe.
The hon. Member for West Worcestershire (Sir M. Spicer) spoke about the need to transfer money within Europe. I thought that he was going to refer to the United States, which is often held up as an example when we debate Europe. However, he did not do that. I am sure that he and other hon. Members know that, in the United States, it is not necessary to transfer very much money because, due to their common language and culture, people move to where there are jobs. That does not happen in Europe because the language barrier creates difficulties for workers, so it becomes necessary to transfer money. In my view that is where the euro will run into immense difficulty.
If all our trade were with Europe, the idea of a single currency producing easier trade and simpler systems would have great force, but that is not the case. A great deal of our trade is outside the EC. Whenever we lift our eyes from the channel and look to the open sea that leads to the rest of the world, our perspective changes about where Britain's future lies. I believe that the open sea tilts the balance decisively in favour of retaining sterling for world trade. It also brings into focus the simple fact that the single currency is not just an economic issue, but a political one from which certain economic and revenue-raising implications would inevitably flow.
For example, taxes would have to harmonise right across the Community. They would be set not by the House, but by others who would seek economic and employment benefits for their own communities. They are bigger and stronger than we are and we know that, whenever they have the power, they will seize the advantage. It has always happened and it always will. I wonder whether the Chancellor really wants his successors to become the puppets of others. He may say that the future will be one of equals contending for common policy on revenue and on expenditure, but I do not believe that. I think that it will be dog eat dog and that we will lose out.
244 The real future will be analogous to the position of the old Stormont Finance Minister in relation to the Treasury. Perhaps more right hon. and hon. Members should examine what actually happened then. After the war, the Unionist Government in Stormont took a conscious decision to remain in step with the social and other policies of the rest of the United Kingdom. For them, the fulcrum was not between the haves and the have-nots; it was between belonging to this nation and being different and being shoved out. The fulcrum on which their decisions turned was constitutional rather than economic. For that reason, they decided to remain in step with the rest of the United Kingdom, although that resulted in their position changing from contributors to the Exchequer to net recipients.
The net outflow to that region of the United Kingdom—and to others—has steadily increased from that day to this. The decision put them in a position where they were always supplicants to the Treasury and I think that they were very often short changed. The Stormont Government had taken a cold-blooded political decision to serve a political and constitutional purpose. If we apply that reasoning, that thinking and that standard to the concept of the European single currency, we reach a far more accurate understanding of what is actually involved.
§ Mr. Andrew Stunell (Hazel Grove)
The hon. Gentleman has drawn an analogy between Northern Ireland and the rest of the United Kingdom in relation to the euro. Perhaps he should consider the situation between the Irish Republic and the United Kingdom from 1921 and 1979, when there was a common currency but wildly different social and political policies, particularly during and immediately after the second world war—a period to which he has already alluded. Does that not indicate that considerable divergence is possible within that economic linkage?
§ Mr. Ross
I had considered raising that point, but I left it out as I thought that it would take too long. At the time, the currency of the Irish Republic was tied to, and guaranteed by, the pound sterling, as other minor currencies throughout the world still are. To some extent, the Government of the Irish Republic were, as they believed, puppets of the British Treasury. That is why they saw fit to break the link. Like children let loose in a sweetie shop, they then foolishly went on a spending spree that got them into the most horrendous difficulties. Only when they began to receive the endless torrent of funds that they have enjoyed from Europe in recent years were they able to redeem their position. I hope that that helps the hon. Gentleman. If not, perhaps he will go back and look at the issue in the light of what I have said.
When the House considers the best interests of the United Kingdom and all our citizens, it should come to the conclusion that they are best served by trade with the whole world. That would at least be following in the footsteps of Churchill. The freedom of action that we enjoy in setting our taxes and on economic policy should remain here, with the elected Members of Parliament who represent the people of the United Kingdom. This is where such decisions should be made.
§ Mr. Christopher Leslie (Shipley)
It is always a pleasure to follow the hon. Member for East Londonderry (Mr. Ross), who made an interesting and lively contribution.
245 I welcome the Budget that my right hon. Friend the Chancellor delivered this afternoon. I should like to refer to some of the points made earlier by my hon. Friend the Member for Halton (Mr. Twigg) on the themes of the Budget. I saw two clear themes, which have been evident throughout the Government's tenure of office: stability in an uncertain world climate and tight and prudent fiscal policy, providing a firm foundation for sustainable growth. Those two themes cannot be reiterated often enough. We should recognise that those polices are welcome in today's economic climate. They were woefully missing from the record of the previous Conservative Administration. That helps to explain where the Conservatives went wrong and where we are going right.
My hon. Friend the Member for Halton mentioned the history of Tory stewardship of the economy, eloquently contrasting the Labour Government's achievements with the boom and bust instability that the Conservatives created. The Tory years were marked by recklessness, with fiscal policy all over the place and public sector borrowing and the national debt spiralling out of control. Thank goodness the Labour Government came in when we did, or who knows what would be hanging around the necks of future generations?
Throughout the Budget statement, there was a gleam in the eyes of Conservative Members. They were green around the gills with jealousy. It is telling that we seem to have forced so many of them to vacate their seats this evening. The fact that it is towards dinner time is no excuse.
It is useful to consider the general economic context. Hon. Members have talked about the history of the British economy, but we also need to consider the current worldwide situation, which is full of uncertainty and unpredictability. We have to navigate the British economy through a lot of choppy waters. My right hon. Friend the Chancellor mentioned that a quarter of the world is in recession and the German economy is shrinking. The hon. Member for Bexhill and Battle (Mr. Wardle) ran through many of the problems in the world economy. There are difficulties in Asia and Latin America and a boom in the United States, with the stock market continuing to rise inexorably, propping up a lot of world demand. In this difficult time, it is important to focus on steering a course of stability for the British economy. The Conservatives failed to recognise that in their replies on the Budget this afternoon.
The British economy shows many signs of success. My hon. Friend the Member for Halton referred to the International Monetary Fund, whose article IV consultation concluded last week. The executive board directors made some insightful comments about the state of the economy. The report said:Executive Directors commended the authorities for the United Kingdom's impressive economic performance in recent years and their skilful management of the economy.The report went on to describe many of those skills and how they had manifested themselves, adding later:Several Directors considered that the United Kingdom's experience … could offer useful lessons for other advanced and developing countries.That is an objective ringing endorsement of what the Government are doing.
246 The International Monetary Fund and other external observers are not the only ones who are saying that our economy is on the up. The Ernst and Young Item Club forecasters recently said:Britain is on the verge of a golden economic scenario, with low inflation allowing interest rates to fall towards 4 per cent.The recent DHL international quarterly survey talked specifically about manufacturing industry and the upturn in confidence among exporters. It said last week that 54 per cent. of manufacturing exporters were expecting orders to increase. That is an excellent sign that we are turning the corner and moving towards a more stable, sustainable growth pattern. Even direct foreign investment—we have heard much criticism on that subject from the Conservatives—has improved. The managing director of the French Chamber of Commerce said last month:We have noticed that the number of investments from French companies into Britain has increased quickly in the past two years.He went on to say that the Frenchare also seeing Britain as a good marketplace, whereas it was previously seen as a little complicated.That was the case under the previous Conservative Administration.
Considering the position of the British economy on monetary and fiscal policy is a good way to assess the impact of today's Budget. Inflation is clearly being brought under control, thanks to the independence granted to the Monetary Policy Committee of the Bank of England. I am sure that many people will grow to appreciate that policy, when contrasted with the threat posed by the Conservatives, who would probably scrap Bank of England independence. The Conservatives getting their grubby political hands all over monetary policy again would pose a risk to everyone's prosperity. We shall find out what their policy is in time. If they do not like Bank of England independence, I should like to know what they would do like.
§ Mr. Green
As I understand it, the stated policy of the Labour party is to abolish the Monetary Policy Committee. The hon. Gentleman cannot have it both ways. Either he thinks that the committee is a good thing, and should be allowed to set British interest rates, or he wants to abolish it by entering the single currency—but he cannot have both at once.
§ Mr. Leslie
There is a very long word, Mr. Deputy Speaker—depoliticisation. Labour recognises that it is important to depoliticise decisions on interest rates, and to make sure that the world around us does not fear political tinkering with interest rates. The Conservatives cannot resist such short-term political fixing, and that miserable lot would return to it if they were re-elected.
The IMF report also state:Directors praised the government's efforts to strengthen the framework for monetary and fiscal policy in recent years … The revamping of the framework was most advanced with respect to monetary policy … this framework had worked well in the UK … On the transparency of the monetary framework, Directors considered the UK to be close to the frontier.That is almost like a quote from "Star Trek"—boldly going where others would fear to tread.
247 Recently, I was flicking through the annual report and accounts of a company called Fleming Claverhouse Investment Trust plc.
§ Mr. Leslie
I was doing so because of an interesting quote from the company's investment manager, who said:The new Labour Government gave the Bank of England operational independence … thus reinforcing their pre-election claims of economic prudence and the need for low inflation.That quote jumped out at me because the right hon. Member for Hitchin and Harpenden (Mr. Lilley)—the deputy leader of the Conservative party—is a director of Fleming Claverhouse Investment Trust. His own company is commending the Labour Government's careful stewardship of monetary policy.
Interest rates are down from their peak of 7.5 per cent. to 5.5 per cent. We have the lowest mortgage rates for 33 years, and the lowest long-term interest rates for 40 years—an excellent sign for the future. Cheltenham and Gloucester published an affordability index recently, which said that that represented a fall of more than a quarter in the amount that the average home buyer spent on their mortgage. The company predicted that rates would drop significantly further.
Another study, by the National Institute for Economic and Social Research, predicted that interest rates would fall to below 4 per cent. by early 2001—the lowest level since 1955—as inflationary pressures eased. There are more testimonies to the success of the British economy in terms of monetary policy.
The British Bankers Association highlighted a record £1.21 billion increase in mortgage lending this year. It called that "remarkable" and said that it was "genuine new demand". This will come through the system to ensure not only that we have a soft landing, but that we return to sustainable prosperity and increases in growth over the coming years. The growth forecasts have not changed, and growth will continue, along with low inflation.
The Building Societies Association said:borrowers might find the housing market particularly affordable this year".I am glad to see that things are looking up in that regard. Things can only get better, as we know—and they have got better.
On fiscal policy and national debt, we see a transformation not only in the Government's coffers, but in how much debt is hung around the neck of the nation. We are going into a surplus in the current Budget of at least 0.5 per cent. over the economic cycle, and the tough control of public borrowing—cutting the deficit by about £19 billion in our first year in office—has laid the foundations for a sound revenue base which can pay for the vital public services and the long-term investment that we want.
The Red Book highlights an equivalent of 6 per cent. reduction of debt in terms of GDP over the next six years—a significant achievement for the Government. As we get debt down as a proportion of GDP, we stop having to pay all that interest on the debt. The money that we save in that regard can be used for other parts of public expenditure.
248 My hon. Friend the Member for Halton highlighted the history of the Conservative party's aims in public expenditure, and referred to the way in which the Conservatives seemed to focus on consumption and on throwing money away in debt charges, willy-nilly. They were happy to pay money on interest, rather than using the money to invest in the future and the infrastructure of the nation.
There were significant tax cuts in previous Budgets, with national insurance cut by £69 for each year from April 1999 and tax promises which have been kept with regard to VAT and income tax. We have the lowest-ever business taxes, with the main rate of corporation tax cut to 30 per cent, and the rate for smaller businesses reduced to 20 per cent. The list goes on.
The income tax cuts are a significant achievement— particularly the new 10p starting rate of income tax, which will be welcomed widely across the country. The right hon. Member for Penrith and The Border (Mr. Maclean) said that he was already receiving letters telling him that people did not like the Budget. I have not checked my e-mail this evening, as I have been in the Chamber, but I know that people will be extremely pleased about the new 10p starting rate and, more importantly in some regards, the 22p basic rate from April 2000.
All in all, each year the average household will be £380 better off, the average working household £450 better off and the average household with children £740 better off. The Budget cuts taxes for the vast majority, and I know that my constituents in Shipley will be extremely pleased with it. I expect plenty of letters to come flowing through my door; perhaps I will forward them to the right hon. Member for Penrith and The Border.
We should focus on the capital modernisation fund. It has not been mentioned much, because my right hon. Friend the Chancellor had to rattle through so many excellent reforms. The nation will benefit from long-term investment in infrastructure, and an extra £1.1 billion was announced today on top of the £40 billion for schools and hospitals. For example, there is an extra £470 million for the national information technology strategy and £430 million for modernisation of accident and emergency provision in the NHS.
Under the Labour Government, Bradford royal infirmary will get a new accident and emergency department that will be quintuple the size of the old one. The extra £170 million to tackle crime has already been mentioned. The investment from the capital modernisation fund will be extremely welcome and will start to filter through shortly.
Pensioners will benefit tremendously from the Budget. Shipley has a high proportion of pensioners. They will welcome the increase in the older persons allowance, which will cost the Exchequer £100 million; the increase in the minimum income guarantee, not merely by prices but by earnings, which will cost £220 million; and, most significantly, the £100 winter allowance, which will cost £640 million and be worth every penny—pensioners need that allowance, and they will see even more clearly than before the contrast between our support for people who have worked and saved hard all their lives and the derisory amounts given to them by the Conservative Government.
Enterprise is a theme that pervades the Budget. My right hon. Friend said that he was making seven announcements, but I counted 12 initiatives, including low 249 corporation tax; the extension of 40 per cent. first-year capital allowances for small and medium enterprises, which will encourage reinvestment in production process technology; the research and development tax credit; and something called "university challenge" in the Red Book, which may be more appropriately described as a £100 million boost for university science laboratories. We should not undervalue the benefits brought by that seedcorn money.
The single small business service should not be overlooked in a review of the Government's achievements. It will come to be seen as a radical and enlightened reform. Conservative Members say that anything that the Government introduce adds bureaucracy and red tape, but one of the service's sole objectives will be to help with the administrative burden, cutting through red tape, giving loan guarantees and helping with automated payroll services for small firms. That will be welcomed by many small firms. Some of the biggest costs that they face are caused by the bureaucracy involved in pay-as-you-earn and so on.
I also look forward to announcements on the new competition policy reviews taking place in the Department of Trade and Industry and the Department of the Environment, Transport and the Regions, especially the review of whether it is possible to reduce the cost of water for consumers and to ensure that profit is not always at the top of the privatised utilities' agendas.
One of the Government's themes was helping poor people, especially families with children. The child support provided by the state will double during this Parliament, taking into account the increase in child benefit and the £416 given in the child tax credit. That will mean that the average family with children will be £740 a year better off. That move is very welcome, as are the Government's other initiatives, such as making work pay, the national insurance changes, the working families tax credit, the national minimum wage and the return to work initiative for the over-50s.
I shall conclude my remarks to allow other hon. Members to speak. I look forward to hearing how Opposition Members intend to plug the revenue gap that would be created by the amendments that they propose to the Finance Bill. For the financial year 2001–02, their proposals would reduce revenue by £7.5 billion. Would they plug that gap by cutting public services, by adding extra to tax or by returning to increases in the national debt? What would the Tories do about Bank of England independence? Would they scrap the £40 billion extra spending on schools and hospitals? Given that they would also make no preparations for the euro, their policies represent a significant threat to the financial well-being of every man, woman and child in this country, should the Tories ever get back into office.
The country wants stability in the economy, not the old boom and bust. I look forward to April as the month of delivery. People will start to see the benefits of our changes, including the national minimum wage, sure start, increases in child benefit and the extra £40 billion of the comprehensive spending review. Most of all, I look forward to the day when people see the benefit of the 10p tax rate, which will be extremely welcome. It is an excellent Budget and one that is worthy of this fantastic Labour Administration.
§ Mr. Jonathan Sayeed (Mid-Bedfordshire)
I congratulate the hon. Member for Shipley (Mr. Leslie) on a fluent speech, very little of which I agreed with. For the sake of brevity, I wish to take him up on one issue only. He said that he was delighted with the measures for families and children, but I urge him to read page 112 of the Red Book. Item 17 states that the married couples allowance will be abolished from April 2000, with a saving to the Exchequer of £1.6 billion, but its replacement, the children's tax credit, will not be introduced until a year later. That is the way in which this Chancellor has consistently clawed back money.
In preparation for the Budget, I organised a survey of a large number of organisations in my constituency. Those organisations are not economists, statisticians or even politicians: they are businesses that employ people and produce profits. Out of the employment that they provide and the profits that they produce, they supply the taxes that Parliament spends.
It is against the yardstick of what those businesses think of the Government that we should judge this Labour Chancellor. A wide range of businesses were included. Some are manufacturers, some are in construction; some are in wholesale and others are in retail. Some are in the service sector, and 23 per cent. of what they produce, they export.
Over the past 12 months, business has grown for one third of them, has contracted for one third, and has stayed the same for one third. Before Labour Members congratulate themselves on that stand-still policy, I should tell them that quite a few companies said that they had been doing so well despite the downturn in the economy because they were living off the good times under the Tories.
I asked what the companies predicted for the next 12 months. Anyone who has run a company will know that one knows a lot about what will happen during the next 12 months. One knows one's contracts, wage bills and much else so that one may make a fairly clever, careful prediction. It is true that 38 per cent. of the companies thought that business would improve, but 62 per cent. thought the situation would remain the same or get worse. That is a statement by business that we are in for a period of economic stagnation, and no Government should be satisfied with that.
I thought that I should check that the companies were wide awake and that they were not sitting on their laurels, but looking to the future and trying to invest. I asked whether they were ready for the millennium and whether their computers were ready, the computer chips in their lifts were checked, and their weighing machines with microchips in them were fully tested. Ninety-seven per cent. said yes.
I asked whether the companies were prepared for the euro, and 49 per cent. said that they were, and had been for some time. I asked how many were in favour of joining a single currency, and three fifths said, "No, never." They said that it was perfectly simple to run a business that deals with many currencies—as I have— without the need to join a single currency.
The companies wanted a Government that they could chuck out when they needed to do so. [HON. MEMBERS: "They did that."] They wanted a Government that they could elect when they wanted to. [HON. MEMBERS: "They did that, too."] Labour Members may laugh, 251 but the same may happen to them. However, only if we are a sovereign nation will chucking out a Government matter. Most of the businesses want to be part of Europe, but they do not want to be run by Brussels or Frankfurt.
I asked what the Government had done that most affected the businesses, either positively or adversely. Top of the list for three quarters of them was the European working hours directive. They said that, the Government had increased labour costs by 7 per cent. One commented that no overtime could now be permitted. Administration has become more complicated, and there has been a net increase of 1,980 regulations. They said that, under this Government, administration has become more expensive and less flexible. Shift coverage will be difficult. Put all that together with the minimum wage and the increase in upper levels of national insurance, and the companies are finding life hard.
What do the companies want? They want more flexibility and less bureaucracy. They want reduced fuel taxes. They want the Government to encourage capital investment, and to keep their promise to deal with the payment terms of larger companies. The companies were relieved to hear the Prime Minister recognise at long last that taxes are increasing under his Government, and that they would continue to rise. They said that, until the Prime Minister understood that, there was no chance of taxation coming down.
Cutting taxes matters and that is where the Government fail consistently. They trumpet that they cut corporation tax by £800 million, but what they failed to tell us was that, at the same time, by abolishing advance corporation tax and changing the system of collection, they increased the cost to business by £3.6 billion. We have the headline figure for reduced corporation tax, but the figures for ACT and the system changes are hidden. That happened in the previous Budget, and is apparent again in today's Budget.
It is not only headline figures that matter. The Chancellor claims that corporation tax in this country is the lowest in Europe, but he is wrong. Sweden is in Europe, and its corporation tax is 28 per cent. However, Sweden suffers from a brain drain and a capital drain because all its other taxes are so high. It is the totality of tax that matters.
Foreign companies based in Britain produce 40 per cent. of British exports, so it is essential not only that we get them to invest in this country, but that we keep them here. Those companies owe no loyalty to this country and we shall not keep them here unless we can prove that they have a better fiscal environment here than elsewhere. It is critical that the totality of tax, in whatever form it comes, is lower here than it is in any other place where those companies might want to settle.
I believe that a Budget that lacks transparency lacks honesty. This Budget is at best translucent. However, amid the Chancellor's obfuscation, the hidden figures and the unannounced tax increases, some things are clear: tax is too high; tax on mortgages will go up; tax on marriage will go up; and tax on petrol, company cars, pensions, savings, home purchase and business is set to go up. All that from a Prime Minister who said a few weeks before the election that Labour hadNo plans to increase tax at all".Worst of all is what has been done to the savings of people in this country. It is a monstrous disgrace that the savings ratio has declined so dramatically, from nearly 252 11 to 7.5 per cent. Savings protect the future of the elderly people of our country; they are our future. By damaging that, a Government make certain that more people will be dependent on the state in the future. To damage the savings ratio is a profound mistake for any Chancellor and the current Chancellor has done so in every Budget that he has delivered.
Now and again, we hear nice things, for example, that there will be more money for health, education and the police; but then we read in the Red Book that those modest sums will be paid over three years. Furthermore, it is not new money; it was announced almost a year ago. But then I consider Bedfordshire police and remember that the Labour Government cut the funding to that police force during this financial year. The Government say that they will give money in the future with one hand, but this year they have taken away more money with the other hand.
Some would call the Budget dishonest and they would do so because it hides the truth—[Interruption.]As you see, Mr. Deputy Speaker, I am trying to keep within the rules. What is clear is that the Chancellor is anxious to hide some truths.
The Government are unravelling Britain. The Prime Minister is likely to go down in history as the Prime Minister who broke up the United Kingdom. The Government clearly believe in gutting the constitution. They are undermining parliamentary democracy and making our voting system less democratic. The Government are intent on abandoning our currency and are raising taxes inexorably. The best thing that this Government could do is learn some lessons from the past. There is a very simple lesson that they should learn: when we tax less, we incentivise more. Let the Government get on with that and we might have a worthwhile Budget.
§ Ms Diane Abbott (Hackney, North and Stoke Newington)
It is with considerable amusement that I have sat in the Chamber all afternoon and evening watching the Tories floundering in response to a Budget that is, in many ways, a symphony on their best themes: the family, support for business and enterprise, and low taxation. Of course, it was presented with considerable panache and flourish by my right hon. Friend the Chancellor of the Exchequer.
However, I warn my colleagues who have, again and again, prayed in aid the International Monetary Fund in support of the Government's economic strategy that, if I were them, I would beware of plaudits from the IMF. It is a ferociously monetarist organisation, which is not interested in poverty alleviation, the redistribution of wealth or a strong public sector. Some of my colleagues have said with great pride that one of the Government's achievements has been depoliticising monetary policy. That is a contradiction in terms.
Of course decisions about economic policy are political, but those processes and decisions must be accountable and transparent. We mislead the public when we say that we can depoliticise issues that have a bearing on the life and liberty of our electorate. What some of my colleagues call "depoliticising monetary policy" others might call "abdicating responsibility for monetary policy". We shall see the consequences of that in the long term.
Before I leave monetary policy—some hon. Members may be aware that it is one of my favourite subjects—let me say that it is interesting to note how the Government 253 try to have it both ways. They have abdicated responsibility in favour of that estimable man, Eddie George, at the Bank of England. However, when it suits them, the Government try to claim responsibility for the successes. I heard the Chancellor say this afternoon of monetary policy that "together, we are steering a course of stability." When Eddie George makes unpopular decisions, they are his; however, when those decisions appear to be working, the Government claim that they are steering a course "together". There is no "together" about it: for better or worse, we have given away control of monetary policy.
§ Ms Abbott
I am sorry. I would usually give way, but I cannot do so now as time is short and several of my colleagues wish to contribute to the debate.
The Government have given away control of monetary policy just as we will give away control of other spheres of economic policy if there is economic and monetary union.
Let me move to the substance of my speech. My right hon. Friend the Member for Bishop Auckland (Mr. Foster) said that it is important not to judge Budgets immediately. He is quite right. I sat through 10 or 12 Tory Budgets, and I know from experience that, however much one thrashes around and waves one's arms at the time, the consequences of a Budget are best considered in the cold light of morning. Being neither new nor new Labour, I know enough to understand that a Budget is best judged not by reading the party handouts but by studying the Red Book. When one examines the Red Book, one sees a number of lacunae, which I am not able to shed light on at present.
I was struck by an item in the Red Book that described how the Government would save £500 million in public expenditure by countering avoidance in the provision of personal services. My mind boggled as to how the Government planned to save expenditure on personal services and my curiosity led me to discover what that meant. When I referred to the Red Book and the supporting press releases, I found a press release that said that the Inland Revenue is looking at tax avoidance by people who leave employment and return to the same jobs as consultants. However, it provided no information as to how the Government planned to counter that tax avoidance. So how they can say in the Red Book that they will save £500 million in that area, I do not know. Having sat through 12 Tory Budgets, I strongly suspect that more such scams would be discovered in the Red Book if people only had time to consider it.
I want to address the Budget's effect on families, not only working families—which are the Government's buzz words at the moment—but all families, including pensioners and single parents. I very much welcome the increase in child benefit. It has been established for many years that the most effective way to help children is not fiddling with the tax regime but providing child benefit. Equally, I welcome the Chancellor's decision not to tax child benefit, at least for the time being, because any attempt to do so would unravel the independent taxation of women, which is one of the few economic accomplishments of the previous Tory regime.
254 If one considers the Red Book, however, to try to work out the Budget's effect on families, one notices that working households gain the most. The Chancellor trumpets that as a great accomplishment, but let us think about that. We might think that the people who are losing out are non-working households—people who sit around watching daytime television and smoking cigarettes—but of course most of those households, who gain the least from the Budget, are pensioners, single parents and the disabled. Much as I applaud the Government's focus on work and working households, I must, even at the risk of being considered off-message, draw their attention to the importance of households whose members cannot work. They are not people who choose not to work, but those who have no practical prospects of gaining access to the labour market in the foreseeable future.
One of the interesting points that is hidden—although not very well hidden—in the Red Book and the supporting press releases is that there will be further elements of coercion in the new deal. No doubt, that will be spelt out in the coming days and weeks. Young people will be forced to take part in the new deal and to go to interviews or lose their benefit. My concern is that the creeping element of coercion for young people will, in time, be replicated for other groups, particularly single mothers and disabled people.
Single mothers are a particular concern of mine. I point out in the kindest and most comradely way possible that the Chancellor and the Secretary of State for Social Security know nothing about bringing up a child on one's own. We would hear less glib talk from them about the importance of single mothers going out to work if they had ever had to get up before dawn, put a child in a buggy, take the child to the minder and find themselves a job on public transport or filling shelves so that, at the end of the week, they had a few pounds more than they would have received in benefit.
I say to my colleagues on the Treasury Bench that I went back to work when my son was eight days old, but I enjoyed my job and I had every support. I and many other Labour supporters in the country would be horrified if a Labour Government moved towards coercing mothers of young children back to work. Although Ministers would deny that they are doing so, if we consider the trend in the way that they are structuring social security, we can see that it is a possibility. What is the merit in young, under-educated women leaving their children in the care of other young, under-educated women so that they can go out and fill shelves?
In his Budget speech, the Chancellor spoke of failing to reward those who take the most important responsibility of all. Our attitude to single mothers means that we are failing to reward them. The Government cannot continue to imply that the only way for single mothers, whatever the age of their children, to improve their standard of living is to go out to work. If anything, we should pay single mothers of children under five more benefit because it is their choice to stay at home, and we should not coerce them into going to work by artificially keeping down the levels of benefit and by constant propaganda about entering the labour market and the work force. The reality for those young women is not becoming a Member of Parliament, a merchant banker or some other well paid jobholder, but demeaning, underpaid work, with all the misery and practical problems of using public transport to get to work and to childminders. I am sorry 255 to labour the point, but I feel strongly about it. Ministers overlook it in their obsession with getting everyone into work.
I welcome the fact that the Chancellor of Exchequer has talked much about the books and computers that he will get into schools, but all the books and computers in the world will not matter if we cannot retain teachers. Hon. Members can call me simplistic, but in a market economy, the key indicator is cost. So, if we value teachers, we must pay them.
My son is at a state primary school on the border between Hackney and Islington. Since the beginning of this school term, he has had six different teachers—not because the school does not care, but because it is impossible to retain teachers in inner London on the pay that they are offered. It is no good Treasury Ministers talking about superteachers. Ordinary parents want ordinary teachers to teach their children. I do not know about the rest of the country, but staff in the inner city will be retained only if the average teacher is offered higher pay. We are fooling the public if we pretend otherwise.
I would like my son to have more books and computers, but I would also like him to have a teacher who stays at the school for an entire school year. I would like him not to have to put up continually with supply teachers and a desperate head teacher who cannot retain his staff. On the present salary, young teachers living in London cannot buy a house or have any kind of life. I await the time when Treasury Ministers get up and get real about issues of recruitment and retention in the public sector. They should think not about fast-streaming some, or offering money to superteachers and supernurses, but about reflecting market realities and paying people the proper rates for the job.
I noticed that the Chancellor said that there would be action on competition policy. I welcome that; I hope that it will involve action on competition among newspapers and the Murdoch empire. Action on Murdoch would be widely welcomed both in the Labour movement and among the general public.
I noticed that the Chancellor talked about financial services, which is a very important subject. As we approach the millennium, we are moving into an era in which we are looking to the financial services industry to provide many parts of the welfare state, such as benefits for unemployment or sickness and higher education, which my generation assume will be paid for out of taxation. If colleagues had served, as I did, for eight years on the Treasury Committee and seen the horrors of pension mis-selling and the financial services industry, they would know that it will take more than league tables to get the industry into line on such matters.
I notice in the Red Book that the Government are laying a great deal of stress on the private finance initiative to meet their requirements for capital investment. This is not the debate in which to address the PFI, but the Government are going down a blind alley with it. The PFI is simply not suitable for certain public expenditure, especially in the health service, as the Government will find to their cost.
We have one of the most able, accomplished and intellectually self-confident Chancellors of modern times, yet he has a tendency to dwell on micro-economics, supply-side measures and new computers and books to 256 the exclusion of macro-economic issues, on which ultimately we judge a Chancellor. When we strip out the soundbites and the little tasty things that are designed to affect the elections in May, we will find that what really matters to the economy are prospects for growth, world trade, monetary policy, public spending and the burden of taxation. Only a close study of the Red Book in the coming weeks and months will reveal what is really happening on those issues.
There is much to welcome in this Budget, but, as I have said in the House before, I doubt very much whether the aspirations of Labour voters can be realised within what is essentially—despite the protestations of the Tories—a Tory macro-economic framework.
§ Mr. Damian Green (Ashford)
It is always interesting to follow the hon. Member for Hackney, North and Stoke Newington (Ms Abbott). I do not agree with her that the Chancellor makes a convincing Tory, but I agree that Labour voters will find him unconvincing, whatever clothes he is trying to put on.
The hon. Member for Shipley (Mr. Leslie) cast doubt on whether my right hon. Friend the Member for Penrith and The Border (Mr. Maclean) was in a position to know the instant public reaction to the Budget. I am happy to report to him and the House that, about half an hour after the Chancellor sat down, the hon. Member for Gravesham (Mr. Pond) and I appeared on a radio programme, and that, after the hon. Gentleman had said that the new Jerusalem had arrived and I had said that the Budget was essentially a con trick, members the public were asked their views, and they all said substantially the same thing—that the Budget pretended to give with one hand, while it took with the other, and that there was nothing in it for them.
I am also happy to report that the public's views had nothing to do with my penetrating analysis or eloquence because the interviews were pre-recorded, so the Chancellor can take all the credit for that instant disillusionment with his measures. Obviously, the people of Kent have more savvy than the Labour Back Benchers who waved their Order Papers earlier.
I do not want to travel to the wider shores of macro-economic policy, as so many colleagues have done so. I should like to make three points that are especially pertinent to my constituency and other parts of Kent, and two wider national points on aspects of the Budget that deal with training and lifelong learning.
My first—very practical—point concerns the Chancellor's non-change in alcohol duties. Although that will be welcome, it will not be enough to prevent what is becoming quite a serious fiscal and social problem for the whole country, but especially a social problem for my constituents and others who live in Kent, which is the first port of call for smugglers of drink and tobacco. The Treasury is aware that levels of beer duty, which the Chancellor has left unchanged, are seven times higher than levels of French beer duty, and that that gap provides a straightforward and easy economic incentive to smuggling and fraud.
Every day, about 1.5 million pints of beer are smuggled. One in three pints of beer drunk in Kent is now bought in France. Some of that trade is legal, but the vast bulk of it is illegal, and it costs the Treasury about 257 £900 million a year in lost tax revenue. The Chancellor made some announcements about improving the resources of Customs and Excise to tackle the problem, but he must know that those improvements are only a fig leaf. As long as the economic incentive is there, the trade will carry on.
Alcohol smuggling is not only a fiscal issue but a serious social issue. As a result of keeping tax too high, paradoxically, alcohol is too cheap, because so much smuggled alcohol enters the country, and therefore it is more accessible to children. The journal of the British Institute of Innkeeping drew attention to the fact that a police camera sequence filmed in the centre of my constituency showed youngsters as young as 11 or 12— who, the police discovered, had got drunk on illegally smuggled alcohol—trying, as they put it, to stop the traffic. They were wandering around the streets, hopelessly drunk, putting themselves and other motorists in severe danger.
The fact that our alcohol taxes are too high is not simply a matter of the Treasury losing income and revenue; it is a social disaster happening under the Government's nose. I urge them to set in train a full-scale review of excise duties, because that would be not only in the Treasury's interests but in the wider interests of law and order.
I am sure that the Minister knows that tobacco smuggling poses an equally serious problem. I am sure that every hon. Member approves of the use of high taxation in an attempt to discourage smoking; that is not at issue. However, at the moment, it is not working. One in seven packets of cigarettes smoked in this country is smuggled, so cigarettes are available much more cheaply than the Government, any health professional or any hon. Member would wish them to be. The Chancellor is shooting himself in the foot, and the money that the Secretary of State for Health spends on anti-smoking propaganda is wasted because the Government cannot bring themselves to address the issue. I have been told by my local police that they have known packets of 20 cigarettes to be available in schools in my constituency for as little as 35p. Quite apart from the revenue aspects, a serious health aspect is clearly involved.
§ Mr. Tyrie
Does my hon. Friend agree that the Government should take a leaf out of William Pitt the Younger's book? He faced the same problem. The excise duty was falling because of the increase in smuggling. There were calls to increase the number of Customs officials to go chasing the smugglers. He did the opposite. He lowered the excise duties, particularly on spirits. As a result, revenues increased. He found a superior means by which revenues would increase—lower rates of duty. That is a much better way to deal with the problem.
§ Mr. Green
My hon. Friend makes an elegant historical point.
There is a further serious social issue. The smuggling is attracting professional criminals to what is otherwise a peaceful and tranquil part of the country. The police warn that unpleasant criminal gangs are assembling and taking over local areas. They warn that there will soon be gangland shootings in small villages in east Kent unless 258 something is done about the matter. This is more than a Treasury issue. It is a serious law and order issue which the Government have it in their power to address. Unfortunately, they do not seem to have the will to do so. I urge them to deal with it.
The third issue that concerns my constituents is the accelerating increase in petrol duty that the Government insist on introducing. The right hon. Member for Bishop Auckland (Mr. Foster) referred to it in the context of his constituency. That was many hours ago. Those of us who sat through the speech of the hon. Member for Halton (Mr. Twigg) may think that it happened in a previous lifetime.
For my constituents, cars are not a luxury. They are not even a necessary evil. They are a necessity for people to get to work and to lead an ordinary life. The Government seem to be trying to shove the car into the category of goods which, in principle, they would like to ban. They cannot quite bring themselves to do that, so they will tax its use out of existence. There may be arguments for that in urban areas, but there are no arguments in rural areas.
The Government are making rural motoring impossible for the less well-off. As the right hon. Member for Bishop Auckland observed, the better-off shrug and bear it, but people who have a car as a marginal good and worry about the price of petrol face increasing difficulty. The Government have got themselves on to a treadmill, which they must get off. If not, we can only agree with the right hon. Gentleman's conclusion that the Government have no regard for rural areas and those who live there.
Lifelong learning is one of the Government's great catch phrases, but I am forced to conclude that it is no more than a slogan. The Chancellor devoted part of his Budget statement to individual learning accounts. For anyone who knows anything about the scheme, that section of his speech was slightly surreal. He spoke about how the scheme could be extended, how it would be tweaked, and how it would be tied in with the use of computers.
The fact is that individual learning accounts do not exist. They are chimera in the Chancellor's mind. He spoke of extending them, but he cannot extend them until he introduces them. Last year, the Government produced a Green Paper on the issue and promised us a White Paper. We have seen no sign of the White Paper. The Department cannot tell us when it will come out.
The Government said originally that the scheme would be introduced on 1 April. There are still no details about them. [HON. MEMBERS: "1 April."] I intended to refrain from 1 April references, but, as my hon. Friends have not done so, that may be an appropriate date for the Government to consider introducing the scheme.
The Government say that they will provide £150 a day which, with the £25 a day that the individual claimant must put in, will allow two days of training on Windows. That is all well and good, although it will not transform the life chances of anyone who goes on such a training scheme funded by an individual learning account. So far, those things do not exist, yet the Chancellor devoted a section of his Budget statement to them. I shall be delighted if a Treasury Minister can explain what on earth the Chancellor was on about.
The gap between rhetoric and reality is startling in other areas, such as the new deal for the over-50s, which was much trumpeted. We read about it on the front page of 259 one of the national newspapers in the now-traditional pre-Budget leak. I read with great eagerness table 4.1 on page 58 of the Red Book, where I discovered that this enormously important scheme will have precisely £10 million spent on it this year. To put that in perspective, £820 million will be spent on the new deal for young people. Those over-50s who think that their lives will be transformed by that new scheme will be sadly disappointed.
I wondered whether the scheme was merely a pilot project that would be extended next year, but I discovered that, for every year for the rest of this Parliament, precisely £20 million will be spent on it. This is not a major scheme.
§ Mr. Tyrie
May I give my hon. Friend another example of a surreal aspect to the Budget? We are told that there is £20 million for a venture capital challenge competition. The venture capital industry is to be revived, somehow. Of a total investment in the country of £132 billion per annum, what difference will £20 million make?
§ Mr. Green
As the debate continues, others of my hon. Friends will find more nuggets in the Red Book that reveal the enormous gap between rhetoric and reality. For example, the university for industry, which is one of the Government's big ideas and a major training initiative, has funding of £5 million for 1998–99. That is fair enough, because it is for the start-up costs. Will funding be serious next year, when the university is established? Funding for 1999–2000 is zero, funding for 2000–01 is zero and funding for 2001–02 is zero. There is no money for this major Government initiative to promote lifelong learning.
§ Mr. David Taylor
If the hon. Gentleman reads the Red Book in a little more detail, he will see a footnote that makes it clear that the funding for the university for industry is taken over by departmental totals at that stage. Although the funding does not appear in the table, it is referred to.
§ Mr. Green
I am grateful to the hon. Gentleman, because I was coming on to that point. Footnote 7 on page 58 states:Other costs of the UfI are funded from within departmental expenditure limits.In other words, the funding has been junked inside the Department because the Government do not know what to do with the policy and do not care about it very much. That is symbolic of the Budget: provide a leak, add some gloss, give it some spin and let the policy look after itself. That does not wash and the longer that the Government are in office, the less that will wash. The British people will see through the Budget and, in the long run, it will be judged a failure.
§ Ms Sally Keeble (Northampton, North)
I am pleased to speak in a debate on a Budget that will greatly benefit my constituents. I agree with the hon. Member for Ashford (Mr. Green) that the British public will see the Budget for what it is—they will see it to be a resounding success. In particular, the families and the pensioners who make up the bulk of my constituents will feel the benefits of the Budget.
260 I had a rather rueful thought as the hon. Member for Ashford talked about the problems of smuggled alcohol. Such smuggling has, from time to time, been a real problem in my constituency and an extremely dramatic case was splashed all over the papers. Alcohol was smuggled in from France and sold in the local Conservative club, and there was an extremely high-profile raid.
I want to comment on some of the facts that were put forward by the hon. Member for Mid-Bedfordshire (Mr. Sayeed), who is no longer present. He said that, year on year, the Chancellor had damaged the savings ratio, but, from my understanding of the Red Book, that is not true. The ratio will edge up slightly, from 7 to 7.5 per cent.
I also take issue with the incorrect information that the hon. Gentleman provided about the increase in taxes on ordinary families. What he said was untrue. Page 157 of the Red Book shows that the tax take is lower than it was for most of the Tory years and page 71 shows that it is lower this year for families with two children than in any year since 1992, which—surprise, surprise—was an election year. Apparently, by 2001, the tax burden on families with two children will be roughly half what it was for most of the Tory years. Many families will feel the benefit of that, and will realise that it is due to the Chancellor's sound management of the economy and his generous and thoughtful tax and benefit arrangements.
Let me now deal with the Budget's impact on families. Children's tax credit is to replace the married couples allowance. That will produce real benefits that will be much more carefully targeted. There will be a dramatic increase in child benefit. Moreover, the working families tax credit and child care tax credit will shortly be introduced. Taken together, those measures will radically transform the living conditions of many of my constituents, and, in particular, will end the outrage, which has existed for many years, that children are always those most affected by poverty. Many will be relieved when children receive the greatest support from the Government.
The Budget contains a number of other measures to benefit children, which many families will see coming into effect very quickly. For instance, extra money is being put into education. Cash for books will constitute a substantial improvement for many schoolchildren, while improvements in maternity grants will plug a gap in our tax and benefit system, providing support for women and children at the point at which it is often most needed— the point at which they are most vulnerable. Families of the type that constitute the bulk of my constituents will benefit by roughly £40 a week as a result of all the changes in the Budget.
In my constituency, I have been constantly lobbied by pensioners, not just about the level of their state pensions but about the impact of tax on their incomes, and the importance to them of their long-term savings. I was pleased to hear confirmation that the increase in the minimum income guarantee would be linked with earnings. That will provide a cushion for pensioners who are having to struggle on the lowest-possible incomes. I am sure that the national savings bond for pensioners will also be very welcome in a community in which people understand that, to a large extent, they must provide their own security for long-term retirement.
261 I recently engaged in a consultation exercise with a number of pensioners, from which it emerged that most would prefer to make their own choices, and to have the support and the tax structure that enabled their income to be protected. I was therefore pleased to note that the tax structure would be changed to provide larger allowances for pensioners over 65 and over 75.I am sure that will go a long way towards persuading those whose private income takes them above the minimum level, who have felt bitter about their inability to increase their income, that the Government are supporting them and helping them to make ends meet.
I single out the winter allowance, which, again, for many people addresses a real need: they face real hardship. The increase from £20 to £100 is dramatic: it is beyond what anyone expected. It will make a substantial difference, not just easing the costs of heating, but making people more likely to keep the heating on, rather than turning it off in the coldest months.
One further aspect might be overlooked, but will certainly affect many of my constituents. Most people in Northampton are in work. They will benefit from all the measures that will help families in work. Many people are self-employed or run small businesses. It is a town with a huge amount of enterprise and many small firms, which remain small and do not have any ambitions to grow into multinationals or anything like that.
For those businesses, the 10p tax rate, the continuation of the capital allowances and the changes in the payment of PAYE and national insurance contributions will make a substantial difference in cash terms, and will also make them feel that their enterprise and work are rewarded.
It is not just people in this country who will feel the benefits. The changes in the Budget and the skill with which the Chancellor has handled the economy have made us the envy of the rest of the world. My hon. Friend the Member for Shipley (Mr. Leslie) mentioned the praise from the International Monetary Fund. I quote, perhaps in more practical terms, the fact that, last year, this country had record levels of inward investment—not because it is the sweat shop of the world, as the Tories tried hard to make it, but because of the opportunities and skills that we offer.
People in Northampton, North will find that the Budget echoes all the things that are important in their lives. It will make work pay, reward thrift and planning, encourage saving and reward and help those people who have—[Interruption.] People scoff. At the same time, there is the support for pensioners' savings, and individual savings accounts are coming into line, and they will provide a big draw for people on low incomes who have smaller savings.
The Budget will encourage enterprise and support families. It comes between international women's day and mother's day, and it will be incredibly popular with many women. It will support all those things that make our society work. It will make Northampton, North one of the benchmarks of the country. In future years, it will be seen as a Budget that marked a real turning point for our country and put things on an upward curve for many people.
§ Mr. Tim Loughton (East Worthing and Shoreham)
One Minister leaking to the Financial Times over the weekend promised a "substantial, surprising and important" Budget. What is substantial is the amount of revenue that the Chancellor is filching by stealth from the back pockets of the British public—£40.7 billion over the lifetime of the Parliament. Before he got up this afternoon, £6.4 billion of extra taxes were already guaranteed without his having to say a word.
At least the Prime Minister last week came clean on the tax burden going up under the Government. It is a shame that the Chancellor did not follow his example. The whole Budget was an illusionist's dream. Labour Members cheered the 10p tax rate, but failed to realise that, by scrapping the 20p tax band, the Chancellor was taking it back with the other hand.
There has been no let-up from many of the iniquitous, unfair and shameful tax rises that have already been introduced by the Government. There has been no reprieve for 300,000 non-taxpaying pensioners who will lose their dividend tax credits, or for those people about to sell their lifetime businesses, who will lose out on retirement tax relief. There has been no reprieve from the extra taxes on business of £5 billion over the past two Budgets, which it is now estimated will cost some £20 billion over the next two years.
It was a Budget of failed opportunities, disguised with a series of technical measures for start-up companies, promises of jam tomorrow, recycled announcements that we had heard over the past few months and downright gimmicks.
Tax breaks for small companies, which, by their nature, do not make profits, are not exactly very useful. The truth is that, by 2001, the Budget will increase the tax burden as a proportion of gross domestic product, to 39.5 per cent. or more. That is the highest level in 12 years.
The Government have also vastly complicated the tax system, so that now we have over 54 different rates, three new bands of stamp duty, two rates of value added tax, two rates of insurance premium tax, dozens of rates of capital gains tax, differential rates of vehicle excise duty, five new rates of income tax and five rates of corporation tax. Overall, the Budget contains 23 tax increases.
I should like briefly to mention green taxes. The Minister said in the Financial Times that the Budget would be surprising. One surprise, which has been cleared up, is the absence of the Deputy Prime Minister, who is away scuba diving in the Maldives. That caped crusader for the environment has been sidelined yet again. From a Government who promised to place environmental concerns at the heart of decision making, the Budget has been an enormous let-down. Last year's Budget was described by environmentalists as "as green as mud." Tomorrow, environmentalists' verdict on today's Budget will be less kind.
We have heard so little today about the energy tax. The Marshall report was remarkable in dealing with that tax, and not only because it—a report from a former chairman of British Airways—did not propose applying the tax to aviation fuel. It is a downstream tax. It is not a real carbon tax, as it will not tax energy production at the power station. It also does not discriminate against the least environmentally friendly energy production, such as coal-fired power stations, for example.
263 Yet again, the gas-fired power station industry—which contributed most to reducing our carbon dioxide emissions—is to be sidelined in favour of propping up the coal industry and the Government's friends the miners. The Government's target was to generate 10 per cent. of power demand from green sources by 2010. The Budget will do virtually nothing to achieve that target. For starters, the Government should end the moratorium on gas-fired power stations.
The energy tax—a downstream tax that is not a carbon tax—will encourage a further switch from manufacturing to services. Which sectors will pay most? How will the Government persuade households to use less energy? How will it reduce CO2 emissions by 3 million tonnes? How will the Government hypothecate tax back to different types of businesses? What incentives are there for power generators to fit scrubbers to treat emissions? How much lower will tax need to be if the system is not rigged to be pro-coal? The tax will have an enormous effect on manufacturing industry, particularly in northern Labour constituencies, and especially in the chemical industry.
We heard absolutely nothing today about emissions trading permits. The Budget was tokenism of the worst kind—as demonstrated by the provision of only £50 million to encourage business investment in renewable fuel and cleaner technology. The Government are interested only in gloss. On green taxes, the Budget is a damp squib.
Other minor provisions in the Budget were intended to encourage use of smaller cars and lower-emission lorries, but the Government demonstrated no serious intention to achieve the objectives. Last year's token Budget provisions completely failed to give the Government a veil of environmental friendliness.
On 1 February, in a written answer, the Minister for Transport in London admitted that, in the lifetime of this Parliament, the number of buses that have been encouraged to convert to road fuel gases has risen from 20 to 53. The number of heavy goods vehicles able to use road fuel gases has increased from 41 to 96. That is hardly a testament to the Government's green credentials or to the green measures provided in last year's Budget.
Today's token measures will achieve the same token result. The Budget provides no specific tax incentives to manufacturers of motor vehicles powered by road fuel gases. We need a bold move—of the kind that the previous Government made—to encourage lead-free petrol. We need a five-year plan for the road fuel gas industry properly to establish the necessary capital structure.
The Budget contains nothing to equalise VAT treatment of new-build and green-field sites, renovation of existing properties, and redevelopment of brown-field sites in towns. Landfill tax is to go up, but there is absolutely nothing in the Budget to facilitate alternatives to the 84 per cent. of waste that goes into landfill. There is absolutely nothing in the Budget about recycling, reusables or composting.
Similarly, raising the fuel escalator on petrol—so that a gallon of petrol now costs £3.10—does not reduce car mileage travelled but simply adds £120 per annum to the costs of the average middle-income family and discriminates against those living in the country, those who have to take children to school, and the disabled who rely on their vehicles.
264 On capital taxes, the Government have completely complicated the capital gains tax system. They missed the opportunity to raise CGT allowances to £10,000 which would have exempted about half the people who currently pay CGT, accounting for just £27 million.
The Budget has indeed been substantial, surprising and important, but largely from what it has patently failed to do despite all the warm words that have been piled high on the British public for so long. It is surprising for the audacity with which the Chancellor has attempted to dress up a tax-raising, tax-complicating, regulating and red-tape-generating Budget.
Putting up tax and benefits is not a neutral act, but rather a measure of stealth to extend the hand of the state yet further. While the Chancellor attempts to grab the headlines with a 10p tax rate, he loses no time in simultaneously grabbing that back and more from the wallets of industry, business, home owners, car drivers, pension fund holders, the self-employed, smokers and married couples. When the small print has been studied carefully, the euphoria heard from the Labour Benches this afternoon will soon be but a distant echo.
§ Mr. Andrew Stunell (Hazel Grove)
I am delighted to speak in the debate. First, I have to give credit where it is due and to say that any observer from any part of the House would have to give the Chancellor nine out of 10 for presentation this afternoon. It was very skilfully done, but the words of the right hon. Member for Bishop Auckland (Mr. Foster) must be borne in mind: what seems brilliant on Tuesday can often seem sour on Friday. I wonder whether today's message of tax cuts all round and enhanced public services will stand up to inspection. I have a strong feeling that, when many pensioners in their 80s in my constituency look at the small print, they will be disappointed at the small scale of the largesse that they are to receive.
Having endured cuts of £10 million in the last year of the Conservative Government, and £12 million in the first year of the Labour Government—and having just been confronted with another £4 million in cuts for next year— the chief executive of Stockport council will no doubt find the idea that public services are receiving extra support somewhat hollow.
The chief constable of Greater Manchester has reported that, during the last five years of the Conservative Government, the number of uniformed police officers in Greater Manchester fell by 156; that, in the period between the general election and last September, it fell by a further 34 officers; and that, as a result of the £12 million budget cuts next year, it will fall by a further 130 officers. I have a feeling that he, too, will not be convinced of the largesse that the Chancellor has been handing out.
I shall now concentrate my remarks on the environmental impact of the Budget. Last year, the Chancellor made himself look a little foolish by promising to produce a Green Book to match the Red Book, which would outline measures in respect of the environment. In the event, he produced one page. This year, he has done better; he has produced two pages: pages 84 and 85 of the Red Book.
The Chancellor said that the Government were committed to a target of a 12.5 per cent, reduction in carbon dioxide emissions by 2010. He did not say too 265 much about the domestic target of 20 per cent. which is referred to elsewhere in the Red Book. That set of environmental Budget proposals is intended to reduce carbon emissions by 3 million tonnes a year. In broad terms, that is only 2 per cent. of the target that we need to reach, so there is a very long way to go to achieve even the limited statement of green objectives and results.
I shall comment on two of the proposals. First, we welcome the fact that the Government are taking seriously the Marshall report. We very much hope that it will be implemented in a practical and worthwhile way. We regret, however that what is proposed is not a genuine carbon tax. It does not allow consumers and industrialists to choose to use green and renewable energy and therefore to bypass the tax. Although the measure will no doubt raise money and be an incentive for greater efficiency, it will not promote the use of renewable energy.
The other features of the Budget that the Chancellor waved around to demonstrate his green credentials were the changes to vehicle excise duty and the fuel escalator. It is a great pity that he did not listen more carefully to what the Liberal Democrats have said. We proposed that vehicle excise duty on all vehicles smaller than 1,600 cc should be eliminated. The revenue should be compensated for by an increase on fuel duty of 5p per litre. That would leave any motorist doing less than 23,000 miles a year marginally better off. It would overcome the criticism to which the Chancellor has rightly been subject from hon. Members on both sides of the House—that his proposal will hit rural motorists particularly hard. Under his proposal for a £50 reduction for cars with smaller engines, motorists with cars smaller than 1,100 cc will be in credit for only the first 6,000 or 7,000 miles. After that, they, too, will pay more than before the Budget.
The Chancellor also omitted many other practical and sensible proposals that would have helped him to reach his Kyoto targets and would have benefited the people whom he was anxious to protect—those who live in poverty. A reduction in VAT on energy-saving materials and energy efficiency measures for buildings would have gone a long way towards helping many of the 8 million households living in fuel poverty, who currently spend more than 10 per cent. of their income on keeping warm. It would have helped them to have properly insulated and heated homes and would have helped to avoid the 40,000 excess deaths each winter in this country that result from fuel poverty. That is six deaths per week per constituency throughout the winter. The Chancellor's silence has denied us the chance of that benefit. There is scope, too, for an investment policy that concentrates on renewables. I could say a lot more if the clock were not racing towards 10 pm.
The Budget also lacks a clear policy on integrated transport. It was fine to hear that the Deputy Prime Minister will make a wide, sweeping statement, but we want to know when that is coming. The extra money that we have for rural bus services cannot be used to help existing services, but must be used on new ones. That produces some absurd results in my constituency on the urban fringe of Greater Manchester. To qualify for the grant, the strangest routes have to be devised. They must not run on an existing bus route and must have a qualifying amount of rural road. If that is the best that we 266 can do to create an integrated transport strategy, the Secretary of State needs to come back from the Maldives in double quick time.
There were no proposals for a green-field development tax. We must ensure, particularly in areas such as Hazel Grove, that there is a strong disincentive to build on green-field and green-belt sites. I very much hope that there will be opportunities for consideration of such proposals in further debate on the Budget.
The aim of the Budget was to address some urgent priorities. We share those priorities, including a sound regime of taxation, high-quality public services and a real concern for the environment. Sadly, the opportunities have been missed in many areas. That is particularly true in terms of the environment.
In 2010, the Government's guideline figures become legally enforceable via the treaty into which we have entered. As a result of the Budget proposals we have heard today, we will be well behind the game. We are clearly missing the Kyoto targets with these proposals, and we are missing the opportunity for jobs and investment that worthwhile and vigorous pursuit of those targets would bring.
Worst of all, in the long term, we are heading into a situation where pursuing those environmental targets is seen as something that only people with hair shirts are prepared to pursue. The targets could be seen as a way of improving the quality of life for the people of this country, improving the investment and export potential of its businesses and giving a world lead on climate change. Those opportunities have been missed today. That is a great shame and a great mistake.
§ Mr. David Chaytor (Bury, North)
I am grateful for the opportunity to follow the hon. Member for Hazel Grove (Mr. Stunell), who made some constructive criticisms. It was interesting that both he and the hon. Member for East Worthing and Shoreham (Mr. Loughton) concentrated on environmental taxation—the point that I wish to raise.
If the hon. Member for Hazel Grove looks deeper into the Budget documents, he will find that, in addition to the progress made on environmental taxes today, further announcements will be coming on-stream in due course and further work will be set in train—particularly on the question of tax on aggregates, on pesticides and on water extraction.
Today's Budget is a landmark Budget, in so far as environmental taxation is now being taken seriously. It is crucial that the environmental objectives are integrated into fiscal policy. Some Conservative Members have said that not enough is being done to protect the environment, while others criticise the energy tax and the fuel taxes. There is a schizophrenia deep in the heart of the Conservative party on environmental policy.
The previous Government, to their credit, were the first to initiate environmental taxation with the landfill tax and the introduction of the road fuel duty escalator. However, when the Tories have the nerve to criticise the impact on petrol prices, we should point out that the difference between petrol prices under the Conservatives and under this Government is three Budget increases of 1 per cent.— the previous Government's policy was to increase duty by 5 per cent.; ours is to increase it by 6 per cent.
267 The Budget is important in so far as it restores fairness to the heart of taxation policy. For a generation, it has been impossible to have a serious debate about taxation in this country because of the obsession with the level of taxation and with reducing taxation. By the various measures that my right hon. Friend the Chancellor has announced today, we once again have the concept of fairness at the heart of our tax policy. Many thousands of low-paid workers in my constituency, as well as the 15,000 pensioners, will welcome the new emphasis on fairness.
I wish to concentrate on the environmental measures, and I congratulate my right hon. Friend the Chancellor on grasping the nettle of the industrial energy tax. Had the previous Government not made such a mess of their VAT on fuel policy, that industrial energy tax could have been in place—developing, working and cutting carbon dioxide emissions. We are five years behind where we should be because of the incompetence of the previous Government on VAT on fuel.
Having said that, I urge the Chancellor and the Government to think seriously about the implementation of the energy tax. The ground has been well prepared by Lord Marshall and his colleagues, and most large companies are well aware of the implications of the tax—many are already developing their own internal emissions training systems. However, I fear that many smaller companies have not yet grasped the importance of the energy tax. They have not yet understood how it will impact on them. The Government must take the issue seriously and ensure that advice is available to small companies on how they can not only adjust to, but benefit from, the energy tax.
For many years we have not thought seriously about the use of industrial energy. We have become profligate because we have got used to low energy prices. When companies seriously consider how to conserve energy they will quickly find that they can save a considerable amount on their bottom line; but they can do that only with professional advice.
I hope that the Government will keep under constant review the way in which the proceeds from the industrial energy tax are used. It is right to establish the principle that it should be revenue neutral, but if it is used only to reduce employers' national insurance contributions an opportunity will be lost. If the tax is to work, it must be set against investment in renewable energy. Companies should be able to claim exemption if they can show that they are switching to renewable energy sources. That is one of the most effective ways of reducing greenhouse gases and other emissions.
We should consider the impact on rural motorists of road fuel duty, but we should not overplay the issue— and, when we talk about petrol prices and poorer people, we should remember that the poorest third of households do not have a motor car at all and are not affected. There is no real argument against the principle of the road fuel duty escalator, and there are other mechanisms whereby low-income motorists in rural areas can be protected. One method is to use the standard spending assessment system and adjustment to council tax. One of the most effective ways of protecting those poorer motorists is to adjust council tax to compensate them.
§ Mr. William Ross
On a point of order, Mr. Deputy Speaker. Am I correct in thinking that the hon. Gentleman is wrong in believing that he has to finish his speech by 10 pm? Surely he could resume it tomorrow.
§ Mr. Chaytor
I am grateful for the suggestion that I might be able to finish tomorrow, but I am happy to finish at 10 o'clock precisely.
I welcome the changes in vehicle excise duty and the introduction of a lower rate for smaller vehicles. I especially welcome the fact that, buried deep in the Budget documents, is the proposal that, as of next year, we will have a fully fledged variable excise duty, related to vehicles' emissions ratings. That is long overdue. We should not only reduce the duty for lower-emission vehicles, but increase it for higher-emission vehicles.
The motor car is a key indicator of affluence, and one of the most effective means of introducing fairer taxation is to recognise that better-off people have bigger cars and drive further in them, while poorer people have either no cars or small old cars and do not drive many miles.
We need to be more confident in our support for environmental taxation. The Government need to be up-front in explaining that we are going through an historical transition, away from a tax system that is almost entirely dependent on taxes on labour and towards a tax system that becomes increasingly dependent on taxes on pollution and the depletion of natural resources. That trend is welcome and the public as a whole would appreciate it if it were clearly pointed out to them. We do not need to be reserved or shy. We should stand up for environmental taxation—
§ It being Ten o 'clock, the debate stood adjourned.
§ Debate to be resumed tomorrow.