The Tory party can indeed display morality, but it is sometimes reasonable to say that the modern Tory party does not display the wish for consensus and social cohesion as much as it might. I am simply trying to explain why I think that these tax cuts are permanent and will not be reversed, even when the present Conservative Government ultimately lose power. I believe that there has been a profound shift in taxation policy which reflects social changes. That shift is very well illustrated on page 58 of the Red Book, which shows that income tax as a proportion of general Government receipts dropped between 1979 and 1988 from 29 per cent. to 23 per cent.
One of the great successes of the present Chancellor's regime—here I feel that he is entitled to describe his activities as almost historic—is his change in the structure of corporation tax. He has succeeded in turning a voluntary tax into a low-rated tax paid by everyone, and abolishing the various tax havens in the corporation tax structure. As a result, corporation tax as a proportion of general Government receipts has risen from 6 per cent. in 1978–79 to 9 per cent. in 1988–89. The Chancellor has been very successful in that regard, and in increasing the yield from VAT and excise duties.
There has been a fundamental change in the way in which the state raises its revenue—a change that is reflected in the extraordinary silence of Opposition Members, who are not saying that they will reverse these tax reliefs. They know that it would he unwise to say that, because, whatever they may say about the greed that undoubtedly exists in all of us, that greed also exists in their supporters, who will be delighted at the tax cuts. They will also notice that the cuts do not go only to the rich; They go on the standard rate, on the allowances and to all the lower-paid people whom the hon. Member for Durham, North-West represents with such force.
Although the tax reliefs will not be reversed, they will be a very important change in the climate of opinion, which will last long after the present Chancellor is as well remembered in the House as Mr. Chancellor Heathcoat-Amory is now.
Let me conclude by referring to a real dispute which I do not think the Budget has settled. Often, when there is the most noise, there is the most agreement, but although the dispute between my right hon. Friends the Chancellor and the Prime Minister has been private and quiet, it has been long-standing. It depends on very different attitudes towards the management of the economy, both here and in other countries. The 1979 theory of free markets depended on the proposition that it was impossible to rig exchange rates, although it might be desirable to do so, and that is also the lesson of the Louvre agreement. Let us take two examples of the way in which it has not worked.
Before the crash, the Americans were promising, under the Louvre agreement, that they would take all the necessary steps to hold up the value of the dollar against that of other currencies. Once the crash came, and it became obvious that the cost of holding up the dollar was higher than they were prepared to sustain, political support for the actions necessary to the Louvre agreement went, and all the other countries that had been buying dollars like mad to support the agreement were left with dollars that were quickly worth 10 per cent. less than they had been. Poor old Britain, and poor old Bank of England; they had bought $20 billion, and they were left with a 10 per cent. loss—apart from the question of how they funded the intervention. That did not work because the political will to support the external agreement was not there.
The Friday before last, the Governor of the Bank of England and my right hon. Friend the Prime Minister disagreed with the Chancellor, and also with the Louvre agreement, which contemplated—as does the European monetary system—the fixing of the pound against the deutschmark. When the Chancellor said, "Let us intervene, or, for the sake of argument, let us drop interest rates," the Prime Minister said no. There were, she said, signs of severe overheating in the economy, and dropping interest rates would give inflation a further push. Intervening would be very expensive, and might add to the money supply. There was not the political support for rigging an exchange rate mechanism.
There is also a dispute of substance between my right hon. Friends the Prime Minister and the Chancellor about whether the best indicator of future inflation is to be found in the exchange rate or in the consideration of the money supply, however that is indicated. Until that dispute has been publicly resolved, and proper disciplines exist and are known to be followed in the economy, there will never be such stability. I accept that there never can be total or certain stability, but an element of stability in public policy is required.
I am opposed to the Louvre agreement, opposed to the EMS and opposed to the attempts to rig our economy according to an exchange rate mechanism. In one way Mr. Sam Brittan had it right when, on Thursday of last week, he wrote:
The DM3 free link was not the only possible nominal framework. By nominal I mean one which will allow for reasonable growth but not accommodate inflation. Monetary targets have been tried. A nominal gross domestic product objective was tried half-heartedly. But in the last year or two the sterling—D/Mark link was the only game left in town and now there is no game left at all.
There must be some clear discipline if the economy is not just to drift along being fine tuned and fiddled according to whatever are the electoral requirements of the moment. There may be respectable arguments as between fixing the economy to the exchange rate or fixing it to some measure of the money supply, but there can be no respectable argument for a vacuum at the centre of policy.