Amendment of the Law

Budget Resolutions and Economic Situation – in the House of Commons at 3:34 pm on 17th March 1987.

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Motion made, and Question proposed,That it is expedient to amend the law with respect to the national debt and 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—

  1. (a) for zero-rating or exempting any supply;
  2. (b) for refunding any amount of tax;
  3. (c) for varying the rate of that tax otherwise than in relation to all supplies and importations; or
  4. (d) for relief other than relief applying to goods of whatever description or services of whatever description—[Mr. Lawson.]

[Relevant documents: European Community Document No. 10155/86, Annual Economic Report 1986–87 and the unnumbered document, Annual Economic Report 1986–87 (final version as adopted by the Council).]

Photo of Mr Neil Kinnock Mr Neil Kinnock Leader of Her Majesty's Official Opposition, Leader of the Labour Party, Member, Labour Party National Executive Committee 4:35 pm, 17th March 1987

May I begin with the usual facilities and congratulate — [HON. MEMBERS: "Felicities."]—the usual facilities of offering the usual felicities and congratulate the Chancellor of the Exchequer on his Budget speech and, indeed, on yet another record-breaking short speech? I am sure that hon. Members on both sides of the House will have reason to be grateful for the fact that he was economical with his words—I use the term in its very best sense-and that he was able to produce such a remarkable anticlimax towards the end which, for those of us with a poetic turn of mind, will be all the more gratifying. The Chancellor may have lost his place in the speech, but with this Budget he has lost his place in history as well.

The Budget is, as we and almost everyone else anticipated, a bribes Budget. It is a Budget that almost entirely ignores the national need for efficiency in the production of wealth and the national demand for fairness in the distribution of wealth. It is a Budget that has little to do with the general good, and everything to do with the general election.

The approach of the Budget to the problems of this country starkly defines the difference between the values and priorities of Her Majesty's Government and the values and priorities of the British people as they express them whenever they are asked. Those priorities are to fight unemployment, to help the old, to help the weak and to reunite the country. Those priorities are held all over the country, except on the Government Front Bench.

The Government have chosen a Budget that produces a short-term consumption spurt, but we and the British people want long-term investment to build up foundations for future strength. The Government choose across-the-board cuts in taxes. We and the British people want across-the-nation cuts in unemployment, but the Chancellor, in his Budget, has again done absolutely nothing to mount any form of serious attack on the 3 million level of unemployment in this country. All that he has done is to continue with the Government's efforts to beautify the figures of unemployment, while doing nothing to deal with the facts of unemployment.

There are elements in the right hon. Gentleman's speech with which we concur. I select particularly the simplification and improvement of the business expansion scheme, and also the corporation tax changes, which appear, certainly at first sight, to be welcome, if with some necessary minor reforms. The improvements in taxation incentives to encourage training are all the more welcome. Indeed, the right hon. Gentleman might have felt disposed to go further than that, given the very sad and inadequate record of investment in training, which is all too typical in this country.

Changes in the system of payment and in the administration of VAT for small businesses is particularly welcome. I think that this will be greeted on both sides of the House, but I must say to the right hon. Gentleman that many people who have small businesses — the vast majority of whom are entirely reputable—will want him to ensure that there will not be an abuse of those changes, which would inflict disadvantages upon honest traders and small producers.

The reliefs on the VAT liabilities of charities are naturally welcome and, indeed, as the Chancellor will be aware, they have been pressed for by hon. Members on both sides of the House. The subsidies to ensure against different and disadvantaged prices for non-leaded oil are also welcome. We commend all these measures and give an easy passage to them, although, naturally, the detail of them must be explored in the appropriate way.

The Chancellor took it upon himself in the Budget to make a drum-banging announcement about the abolition of the Exchange Control Act 1947. I think that that is unlikely to be resisted, as it is a somewhat academic, even otiose, exercise at the present juncture. Indeed, the incoming Labour Government have a much better system for encouraging the return of much needed capital investment. [Interruption.] The repatriation scheme that we propose and will implement has received accolades from many independent observers who consider that the advantages that it will afford to those who move money will provide us with ready and plentiful resources to stimulate just the kind of investment that this country desperately needs. Much of such investment has been lost as a consequence of the huge increase in the outflow of capital investment since the Prime Minister and her colleagues removed capital exchange controls at the beginning of their period of office. This represents a loss in our already under-invested country of about £70 billion net in the past eight years.

The Chancellor has claimed that investment decisions have improved since he made his changes in 1984. He must explain how those investment decisions manifest such an improvement when this year the level of investment in manufacturing in Britain is 20 per cent. lower than it was in 1979 when the Government came into office.

As we listened to the Chancellor today, many of us, on both sides of the House, must have felt a certain familiarity with his Tory themes and the tactics that he is plainly seeking to implement. We recall the dilation of the economy before the election of 1983 and the subsequent action by this Chancellor to reverse the extremely modest expansion that was prompted by his right hon. and learned Friend the former Chancellor of the Exchequer.

The Chancellor's actions in 1984 were part of the Tory tradition that stretches back through Reggie Maudling; and Heathcoat-Amory to the Chancellorship of the late lamented R. A. Butler, a much respected and endearing man in many ways, but he was also the father of the congenital Conservative practice of making concessions before an election and, if successful in buying votes, taking those concessions back after the election. [Interruption.] That, indeed, is precisely what R. A. Butler did in 1955 when he presented the April Budget. I am sure that you, Mr. Deputy Speaker, will recall that Budget, as you were active in the engineering business at that time.

In 1955 Rab Butler took 9d off the standard rate of income tax and raised tax thresholds. Just three months later, after the election, he introduced special measures. In October he brought in a special emergency Budget to reverse all the tax changes. [HON. MEMBERS: "Oh."] Those actions are memorable, not only because of the cynicism that they engendered, but because of the unforgettable appeal that the late Lord Butler made to the nation to respond in pursuit of his demands for stringency. I am sure you will recall, Mr. Deputy Speaker, as I do, that Lord Butler said that the nation should not drop back into easy evenings with port wine and overripe pheasant. In our prefab I clearly recall that my mother and father gave up port wine and over-ripe pheasant for the duration. As I recall, they even gave up dressing for dinner.

Even more memorable from that period was the fact that that Budget marked the onset of the "stop-go" era in the British economy—an era that has cost our country so dear. There was the periodic "go" for consumption and mainly "stop" for investment. As we listened to the Chancellor today, that is exactly what we heard all over again — "go" for consumption, and "stop" for investment. Of course, it was wrapped up in a great deal of talk about "recovery", "strength", "buoyancy" and "prudence", as if the Budget was a carefully compiled climax to all the years of prudence and planning undertaken by the Government. The trouble is that, for the Government, all the facts belie any claims of prudence, buoyancy, recovery and care.

The fact is that we have a Chancellor who, just three months ago, in December, was saying that he doubted very much whether there will be much scope for reductions in taxation in next year's Budget.

For once, the right hon. Gentleman absolutely meant it. It was not part of a disinformation campaign to persuade people that there was nothing much coming so that there would be great delight when something did come. The right hon. Gentleman meant his publicly expressed doubt about the prospect for income tax reductions. It was the confession of a man who knew very well that the reality of unplanned public expenditure overruns and an oncoming balance of payments deficit, together with his mismanagement of both interest and exchange rates, was catching up with him. There was no talk then of "lucky Lawson", and that was only 12 weeks ago.

It is no wonder that there was no such talk, because the Chancellor was also aware of the fact that, after nearly eight years of Conservative rule, the economy was still not back, as represented by all the important indicators, to the performance standards that were inherited in 1979.

We have had nearly eight years of oil-rich Conservative rule—some seven and a half years—with £60 billion net oil revenues and all the immense advantages of the saving son the balance of payments because we were an oil-producing, oil-exporting country. With all those advantages, the Government still blew all the great opportunities that went with being oil rich.

As I said earlier, manufacturing investment is now 20 per cent. lower than it was in 1979. The manufactured trade surplus that the Government inherited in 1979 was £2·7 billion. This year the manufactured trade deficit is approaching £7·5 billion, even on the Chancellor's admission. In the years from 1979 manufacturing exports have certainly gone up by 15 per cent., but manufactured imports have gone up by 48 per cent. in volume over the same period.

In the early part of his speech the Chancellor spoke of a great productivity surge that has taken place under the Government—unbeatable, unrivalled by other countries. The Chancellor forgot to tell us about the starting point. He also forgot to say how that productivity surge has been achieved under the Government. It has been achieved by fewer people making fewer things. Indeed, 28 per cent. fewer people make 4 per cent. fewer things, because manufacturing output in Britain is still, in 1987, 4 per cent. lower than it was in 1979. So much for productivity Tory style.

What of taxation, the centrepiece of today's Budget? The tax burden as a proportion of the national income was still, in 1986, 18 per cent. greater than it was under the previous Labour Government. As a consequence of today's changes, that figure will not have altered significantly. To bring down the level of the tax burden, as a proportion of national income, to the 1979 figure the Government would have had to cut tax today by £15 billion.

The tax burden on the average household — the people who are supposed to concern the Prime Minister very much and who are said to want additional sums net of tax to be able to look after themselves, which is an instinct that I well understand—under this so-called tax-cutting Government has gone up by 10 per cent. To bring their tax burden down to 1979 levels there would have had to be a cut in the standard rate to 23·5p in the pound. [Interruption.] I realise why those figures make Conservative Members so agitated. They represent the shattering of every one of the central promises that they made to the people in 1979 and in 1983.

The Prime Minister says that she wants the citizen to be able to keep the lion's share of his earnings, but it is obvious that the Government have never practised what they have preached, except for the top 10 per cent. of earners. For the other 90 per cent. of British earners and pensioners, national insurance contributions, rates rises and VAT increases have all ensured that they have kept less of their incomes post-tax than they did in 1979.

The Government are not only the biggest taxers in modern British history, but the biggest job destroyers and biggest poverty spreaders. They have presided over an increase of 2 million in unemployment and of 2¾ million in the number of men, women and children in poverty. That is the Government's record. The real state of our economy and society is that after eight years the country is more divided and more impoverished with higher taxes, higher unemployment, and higher crime rates as well under this Government of law and order. In the middle of all that mess, along comes the Chancellor of the Exchequer with a Budget that completely ignores each of those realities and attends only to tax cuts which, to his surprise, he is now able to offer. Lucky for him, but I wonder whether it is so lucky for the country.

To answer the question whether it is lucky for the country, we have to investigate the sources of these funds: the causes of the Chancellor's so-called "room to manoeuvre". First, it is resourced from the privatisation swag—the proceeds of the once-and-for-all sale of what the late Earl of Stockton called the "family silver". Secondly, the windfall comes from an increasing corporate tax take, as the Chancellor said. This is the corporate tax take by a Chancellor who removed investment allowances and, in the process, gained himself additional revenues to fund a tax giveaway and extra consumption. The awful irony is that the consumption boosted by that process will be the consumption of imported finished goods.

We have a Chancellor who has been disabling this country's investment while increasing the consumption of the produce of our competitors. Such consumption provides the third source of revenue for this give away. Much of the revenue has come from VAT levied on imported manufactured goods bought on tick in a Britain now undergoing its biggest ever credit spree—a credit expansion that has doubled household debt in seven years and been the major source of what expansion there has been in the economy.

I heard the Chancellor giving us a lecturette on the way in which those who had argued that fiscal expansion was necessary to bring about an expansion of the economy had been vanquished. He did not say that one does not need fiscal expansion so long as one is massively increasing the debt of households and financing recovery, or attempted recovery, in the economy by that means. Indeed, one does not need fiscal expansion in great measure when the level of that debt is up over those seven years, from £80 billion to £210 billion.

Most people know, as the Chancellor knows, and as you, Mr. Deputy Speaker, and I know, that that cannot last. It will not last because, as the oil runs down, as the productive sector stands almost still, and as the trade deficit grows, the real economy is not strong enough to sustain that credit bubble. That is why it was all the more essential for the Chancellor to take the opportunity today of the revenue windfall, to count his blessings, and to use that temporary and unexpected bonus to address the economy's real problems. Instead of spraying Britain with across-the-board cuts, he should have been using those funds to combat unemployment, to mitigate poverty, to stimulate investment, to build houses, to develop industry, to invest in education and to encourage and improve training and research.

Those were the priorities that the right hon. Gentleman should have adopted. There was no shortage of prudent and productive options. He could have restored the lower tax band and assisted people, especially those on lower incomes, so that they were eased into payment of tax. He could have used resources to start making up the losses which the Government have inflicted on pensioners by breaking the link between average earnings and pensions. As pensioners look forward to an 80p a week increase for the single pensioner and £1·30 a week for the pensioner couple, they must ruefully reflect on the fact that, had that link been maintained by the Prime Minister and her Government, in 1987 pensioner couples would be £11·40 a week better off and single pensioners £7·20 a week better off.

For £3 billion, the Chancellor could have obtained 90,000 new houses or 250,000 repaired houses. He could have obtained 1·5 million nursery school places or 210,000 extra further education places. For £3 billion, he could have obtained a computer for every secondary school child, day centres for 2·5 million old people, or treatment for 3 million hospital cases. He could have exercised any one of those options. For that £3 billion he could have given every old-age pensioner an extra £6 a week. Instead of adopting the attitude that he has taken today, he need not let them go through another winter in which they have to see what the temperature is before knowing whether they can afford to put the heating on. Housing, education, care, health services, support for the old and support for the disabled cannot be improved by tax cuts—whatever else the Chancellor may do with tax cuts — and the British people know that.

There was another choice for the Chancellor. He could have targeted his billions on jobs that this country needs, to be done by people who need to do them. He could have used £3 billion of targeted resources to generate 300,000 jobs in Britain. Instead, his tax cuts will secure, over two years, at best an extra 80,000 jobs in Britain. What a wilful waste of resources and of opportunity, especially as the British people strongly prefer investment in jobs, in economic strength and in modern social, health and education provision. They emphatically and repeatedly record their view that they want cuts in unemployment and in waiting lists and reductions in poverty and division more than they want concessions in income tax. They understand that failure to invest in those advances guarantees a future of insecurity, under-performance and unemployment for our country. In that understanding they show far more prudence and far more patriotism than either the Chancellor of the Exchequer or the Prime Minister.

That is why, despite the pre-election largesse, despite the giveaway, despite the bribes, the Chancellor of the Exchequer, with this Budget, invites not the celebration of the British people, but their contempt.

5 pm

Photo of Mr Julian Ridsdale Mr Julian Ridsdale , Harwich

In reply to the Leader of the Opposition I would simply say, "It's better under the Conservatives." The country knows it, and when the time comes I am sure it will keep it that way. In his heart of hearts the Leader of the Opposition knows this. His criticism today reminded me of a man whistling to keep up his courage. The only snag is that he had to go on whistling for rather a long time.

I congratulate the Chancellor most warmly on his Budget. It is the result of careful and prudent husbandry which has seen us through the Falklands war, the miners' strike and the severe drop in the oil price last year. I shudder to think what would have happened if the Opposition had been in power in those years, knowing their tendency to spend up to the hilt of their income and even more—at least that was the record when they were in power.

Last year's prudent Budget is the background to the rosy position in which we find ourselves today. Unemployment has fallen in the past five months and is now lower than a year ago—but not a word of praise for this from the Leader of the Opposition. How glad I was to hear the Chancellor say that unemployment had fallen by 100,000 since last July and that the youth unemployment rate in the United Kingdom is now below the average for the European Community and is falling, too. There are now a million more jobs than there were in 1983 and we have a faster rate of increase in employment than the whole of the European Community put together. Job vacancies in the past three months have been at their highest level since 1979.

Privatisation has gained increased momentum. Fourteen major businesses with 500,000 employees have been privatised so far. The number of individual shareholders has more than trebled since 1979. How encouraging it was to hear the Chancellor say that shareholders at present number 8·5 million. What a long way we have come since I introduced my employee share ownership scheme in 1978, and how encouraged I was to hear the proposals for a profit-related pay scheme. This will help the people on the shop floor and those in industry. How disparaging the Leader of the Opposition was about the performance of manufacturing industry today. He ought to be aware how much manufacturing output is going up.

Turning to investment abroad, the figure given by the Chancellor of the Exchequer of £100 billion net assets is a new one today. It is very encouraging for our economy because it means that we have been under-estimating the present income that our foreign assets are earning annually; the present figure is £5 billion.

What a difference from 10 years ago when we had a hung Parliament ruling this country. Because overspending, capital spending had to be pruned by 25 per cent., expenditure on the Health Service was slashed by more than 30 per cent. and on major roads by 31 per cent.

The Leader of the Opposition talked about the pensioners. Let us remember that twice in those years the Christmas bonus for pensioners was cut—and all those promises——

Photo of Mr Julian Ridsdale Mr Julian Ridsdale , Harwich

If the Leader of the Opposition wishes to interrupt me, I will sit down. I do not like his interrupting from a sitting position.

Photo of Mr Neil Kinnock Mr Neil Kinnock Leader of Her Majesty's Official Opposition, Leader of the Labour Party, Member, Labour Party National Executive Committee

I would just invite the hon. Gentleman to go to any old age pensioners in his constituency and compare what they receive now with what they received before 1979 when there was a link with average earnings. He will find that over those years the rise in real terms in the value of the pension was 20 per cent.; under this Government it has been 4·5 per cent.

Photo of Mr Julian Ridsdale Mr Julian Ridsdale , Harwich

The right hon. Gentleman may deal in figures, but I know my constituency very well. It has 30,000 pensioners. I can assure him that what they value more than anything else is stability in prices, not the kind of inflation that they had under the Labour Government. Nor has there been a word of welcome from the Leader of the Opposition for the generous help that the Chancellor is giving to the over-80s. These are the people who have had difficulty, and I would have thought that the Leader of the Opposition might have said something about them, since he professes to care and criticises us for not caring.

I welcome the changes that have been made. It was a difficult judgment for the Chancellor to get the right balance between helping over the public sector borrowing requirement and so lowering interest rates. I hope that because of this judgment we will see a big reduction in the next few months in mortgage and interest rates — something that will help manufacturing industry far more than the wild promises of the Leader of the Opposition today.

I welcome, too, the help given to the blind, as will people in my constituency. Then there is the help given by the reduction of 2p in the rate of tax, which is worth £3 a week for the average earner. This will help to improve our already growing productivity.

I underline the help given to small businesses. We know how much small businesses are taking off in our constituencies. The kind of encouragement given them by the Chancellor today will be of great assistance to them.

I now turn to the wild promises of the Labour party which have been costed at £28 billion. It all sounds like a repeat of the disastrous policies between 1974 and 1979 which led to runaway inflation and the erosion of the lifetime savings of pensioners. They will never forget that, and I must point this out to the Leader of the Opposition. The same sort of runaway inflation would happen again if we were to have the policies which he is at present trying to sell to the country.

As regards the alliance, who really thinks that an incomes policy would do any good or that we can increase public spending when it is already at 44·5 per cent. of national income? Yet the alliance now wants to do this. I know that alliance Members here at the moment are laughing about that, but these are the words of a former spokesman of the Social Democratic party, John Horam, which he uttered just recently when he crossed the floor from the SDP to the Conservatives. How much we welcome him in the Conservative party today.

It would be wrong of me not to point out the nearly 30 per cent. increase in rates that we face in Essex as a result of the hung council at county hall. My local district council, which is Conservative-controlled, has been able to peg its rates this year, but the warning is there. We must remember the hung Parliament of 1974 to 1979 which led to such disastrous rates of inflation and the hung councils which throughout the country have led to a heavy rate burden, not as costly as those of Labour-controlled councils but steep nevertheless.

Do not let us have any more hung Parliaments or councils. It has been difficult enough to get the Treasury to reform local government finance. The ratepayers in north-east Essex cannot have a general election soon enough to return a Conservative Government so that we can reform local government finance.

Against the background of this Budget, for which we all thank the Chancellor most warmly, we can look forward to the future, locally and nationally, with confidence and optimism, as long as we do not let hung councils or a hung Parliament hang our country. It is better under the Conservatives. Let us keep it that way.