Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 4:58 pm on 16 March 1983.

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Photo of Mr Hugh Fraser Mr Hugh Fraser , Stafford and Stone 4:58, 16 March 1983

We have heard an interesting speech from the hon. Member for Colne Valley (Mr. Wainwright). I am not sure whether he is speaking for the mass of the alliance or as the shadow Chancellor, because I do not know his position in his party's hierarchy. We have heard two shadow Chancellors addressing the House this afternoon, one a pale shadow of the other, although they denounce any mutual connection.

This debate should be viewed against the general condition of the world economic situation. I am sure that the Conservative Front Bench paid attention to the speech that was made yesterday by my hon. Friend the Member for Bath (Mr. Patten). It is against that general consideration of the world situation that the Budget has to be judged in large measure.

I know that the hon. Member for Colne Valley has something in common with the other shadow Chancellor. They both believe that immensely more should have been pumped into the economy. In my view it would be extremely rash to do that. My right hon. and learned Friend the Chancellor was attacked by the Leader of the Opposition and wrongly compared—as far as the analogy went—to Disraeli's attack on Peel. It is better to see my right hon. and learned Friend as well-spread stuff—muck is always best well spread—almost like Zeus descending on Danae in a shower of golden rain—perhaps so spread as not totally to impregnate any sectors, but nevertheless as one who was able, within the limits, to do a great deal for many people and many industries. For that reason we should welcome the Budget.

Later in my speech I shall mention the construction industry, where it is probably easiest to make injections of private or public capital to decrease unemployment. I agree with one thing that the Leader of the Opposition said yesterday, and that is that the world is suffering from hyper-unemployment, and certainly the construction industry is one area where something can be done in that respect.

I have read the Red Book, and in my view the Treasury forecasts for this year on world trade are optimistic. Naturally I hope that they are right. Certainly it is commendable that last year, for a variety of reasons, this country did not drop back in its proportion of world trade. That was a considerable achievement, to which the Government and the lower value of the pound contributed equally. Nevertheless, it was an achievement.

I have a grave fear that even the American recovery could be something of a flash in the pan. In the past three years Ministers here and in the United States and elsewhere have said again and again that they see a pickup in activity. Of course there is a pick-up in activity when the world has been destocking for three years. There is a cyclical pick-up, which is bound to occur at certain points. However, it would be ludicrous to suggest that this country could be the engine, efficient though it may be, to drag the world out of recession.

The Chancellor has sought to ensure that the economy remains sound. With a sound economy it will be possible for our Prime Minister and the other Ministers who are involved to go to the Williamsburg conference to deal with the great problems of world debt, world interest rates, growing protectionism and massive and continuing currency instability. Until steps are taken to deal with those matters, our internal problems are a battle that cannot be won here or on Wigan pier or on the playing fields of Eton. Measures must now be taken by the leading world powers to make the system wearable and bearable. I have great hopes for what my right hon. and learned Friend can achieve at the conference, but it will not be easy.

In spite of my right hon. and learned Friend's achievement, the International Monetary Fund's wider provisions have still to he ratified by Congress. Therefore, my right hon. and learned Friend is right to back a sound economy in Britain, and the Prime Minister's hand will be strengthened in the difficult days to come.

My right hon. and learned Friend has shown what might be called a microeconomic approach. For the construction industry the Budget is generally good. I know that the hon. Member for Colne Valley does not agree with the help that has been given on mortgages, although I do not know whether he says that to his electors. Repair grants have been increased by 20 per cent.—a process known by the particularly ugly word "enveloping". Towns such as Stoke-on-Trent will benefit considerably from that. It will encourage considerable growth in the private and public construction of homes.

In addition, the new tax regime for the development of smaller fields in the North sea will be a real and important benefit to the construction industry. There will be a reduction of about £800 million in tax over the next four years. As long as oil prices remain stable, that will be a great benefit to the construction industry, especially in Scotland.

My right hon. and learned Friend proposes to increase expenditure on construction by 10 per cent. In my view, more could have been pushed into this year's road programme. In addition, there are two further matters which would help the construction industry to which I wish to draw my right hon. and learned Friend's attention and for which I hope to attract the Government's support. First, there is the need for the Government to back a major construction project supported by private finance. There have been many such schemes floating around.

With hindsight it can be seen that it was a mistake for the Government not to back the North sea gas-gathering pipeline. If national and international banks had been encouraged to spend money on that it would have been a far better investment than to invest money in parts of the world where it is wholly ineffective and inappropriate and is partly responsible for causing distress in the world banking system. I hope that the Government will look carefully at any new proposals that are put forward.

I hope that the House will have been circulated with the proposals for a cross-channel link for road and rail—the Euro-link—which could be privately financed and of which the redoubtable Mr. MacGregor and Sir John Howard and Partners are sponsors. Just as it was a great error that the Government failed to support the gas pipeline, so it would be a great error if they did not consider such a programme seriously. It would create 50,000 jobs in France and 50,000 jobs in Britain. Its need does not so much arise from the Common Market as from the inevitable and current growth of transport requirements between Britain and the continent. I hope that when the scheme is put forward the Government will give it full consideration.

A matter which may seem trivial to some is the development land tax. It is positively holding back development. It is a hangover from the Labour Government's Community Land Act of 1975, which proved to be inoperable and inefficient. But we are still left with this tax, although my right hon. and learned Friend has gone some way towards reducing it. It remains at a high level, despite having been reduced from 80 to 60 per cent., with certain helpful exceptions. It brings in only about £20 million a year. I can assure my right hon. and hon. Friends on the Front Bench that, limited though my experience in business is, that is holding up a considerable amount of development and therefore construction. That is particularly true for older factories in the broad constituency of the Birmingham area. Some old factories there are almost valueless at the moment in terms of what is called "relevant base value" and would be heavily taxed if they were to be developed. There should be a tax, but not at this level, because in addition, an element of capital gains tax also has to be paid.

I do not say that there should not be a tax on unearned increments, but the matter could be better dealt with by a straight capital gains tax of 30 per cent. or by such profits being charged to corporation tax. That would create a different climate in many areas. I declare an interest, because there are two companies with which I am involved and which, because of the huge loss in tax, are hesitant to sell such property, which, on their books, is still of considerable value. An adjustment of this tax would lead to a much quicker reorganisation of British assets.

In a period of industrial decline we should set that in motion as quickly as possible. It would lead to the swifter reconstruction of companies and the redeployment of assets and would push more money into the Treasury at a lower rate of tax. It would also undoubtedly create employment in the construction industry. Many developments are being held up by this rather trivial tax. It is a heavy burden, not perhaps for the nation, but for many of our smaller companies. Above all, it would free more assets for gainful use. Therefore, I hope that the Government will give it their consideration and switch the tax on unearned increments into either capital gains or ordinary corporation tax. That would make a considerable difference. To quote my own experience, were this impediment and tax to be removed new development would provide employment on two sites for at least 400 people in the construction industry. I suggest that for a small sum a considerable step forward could be taken.

In its broader aspects the Budget can be generally welcomed. However, I remind my right hon. and learned Friend and his colleagues on the Front Bench that the real test does not lie in a sensible and reasonable Budget, but in the resolution of the world economic problems in the year to come.