Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 6:25 pm on 17 March 1988.

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Photo of Mr William Ross Mr William Ross , East Londonderry 6:25, 17 March 1988

The right hon. Member for Shropshire, North (Mr. Biffen) reminded us of the words uttered by the hon. Member for Wolverhampton, South-West (Mr. Budgen) yesterday. I wish to remind the House of something else that the hon. Gentleman said. He pointed out that the present Administration were elected first to control and then to eliminate inflation. Like the right hon. Member for Shropshire, North, I detest inflation as the theft of people's work, their thrift and their efforts to provide for the future, and I applaud any Government who succeed in bringing it down.

The Government were also elected on a pledge to reduce Government expenditure, but that pledge seems to have vanished into the mists of time and to have been replaced by calls for greater efficiency in the way in which the expenditure is used. To give credit where credit is due, the Government have brought inflation down to 4 or 5 per cent. for the past several years. As that seems to have been deliberate policy, I wonder when they intend to squeeze the last 5 per cent. out of the economy. If they were letting it run at that rate to ease the financial pain of those who overreached themselves in the late 1970s, that need has passed and it is time to bring inflation down still further to give more protection to those on fixed incomes who are hardest hit by inflation.

When I first came to the House, the air was full of arguments about the public sector borrowing requirement. The Chancellor told us the other day that that problem had been relegated to history. I hope that he is right, but I am not sure that he is. We must see what happens next year. I was pleased that the Chancellor used some of the surplus to repay debt, as the Prime Minister put it. I do not wish to hurt anyone's feelings by talking about selling the family silver, but if the family silver has to be sold, the proceeds should certainly be used to reduce the overdraft. If that has been the case to some extent in the past year, so much the better. Page 58 of the Red Book shows that 10 per cent. of Government expenditure goes to pay interest charges on this country's existing debts.

It is perhaps not a fair analogy, but if I were running a household and constantly had to use a large part of my income to pay the interest on my overdraft, I would expect my bank manager to be very worried. Over a long period, balanced or surplus budgets should gradually reduce interest payments. That too is money saved, although I have not heard any economists making that comment. If I am wide of the mark, I hope that the Minister will take this up when he replies to the debate. As I foolishly took on a very early morning engagement in Northern Ireland tomorrow, I must apologise for the fact that I shall not be here for the winding-up speeches, but I shall read with great care the Official Report of the Minister's response.

If the Government wished to make massive tax cuts, they were wise to do so on this occasion. If one does not get round to doing it in the first Budget after an election, it will certainly not be done in the last Budget before the next election, so this is indeed the time to do it. The Government have, by so doing, got rid of what is bound to be most offensive to their principal political opponents at the earliest stage of this Parliament and taken all the flak that will come in order to get it over and done with.

I quibble with the statement that we are down to two levels of income tax. We still have differing rates of national insurance contributions, which can be considered part and parcel of income tax. If they are taken into account, we still have five or six rates. Perhaps the Government made a serious error in allowing national insurance contributions to cut off, rather than carrying them through all levels of income. That would have diminished, to some extent, large tax decreases for the highest paid, and made them rather more acceptable to many people in the country.

Given that the Government have made a commitment to get income tax down to 20 per cent., we can look forward to certain adjustments in coming years, with the Government perhaps tying together national insurance contributions and the basic tax rate, so that there will be a reduction in one and an increase in the other. In that way, when we get down to a basic rate of 20 per cent., people will pay a basic rate of 25 or 26 per cent. in real terms, taking national insurance contributions into account. Most people would like that, as they would know where they stood.

The Government must also face the fact that the cut of 20 percentage points in the top rate of income tax is equivalent to a massive pay increase for people on very high incomes. I have been a Member since 1974, and I remember endless rows about people receiving huge pay increases of £10,000 or £12,000 a year, so as to put a few hundred pounds in their pockets at the end of it all. Can we be assured that there will not be such increases for those people this or next year? They have already had their 20 per cent., and not many people in the country will get 20 per cent. — mighty few will have 20 per cent. more in real terms in their pay packets.

It was all very well for Governments to give these massive increases when inflation raged at 15 or 20 per cent., or even 26 or 27 per cent. But now inflation is down to 5 per cent., and all the chickens that were let loose in those days of high inflation by those paper increases have come home to roost. I appreciate that this Administration were not responsible for that inflation —the Labour Government were — but the Government must take account of the problem. We cannot forget the consequences of that inflation. I abhor allowing inflation to get out of hand to that extent.

In the coming months and years, more thought must be given to, and more action taken for, people who are truly unemployed — there are many of them —and whose weekly income is tiny. They suffer real hardship. My hon. Friends have objected strongly to many of the things that the Government are bringing into operation in April. I hope that, although those changes will be rushed through now, they are only the beginning of a serious look at how to care for those who are unemployed, chronically ill and unable to work. There is real hardship in that section of the community. We should recognise that, and do our best to help them.

The Chief Secretary told us—truthfully—that lower taxes create jobs. In the long term, provided that we manage to defeat terrorism—there has not been much evidence of that lately—that will be of great benefit to Northern Ireland whenever foreign firms, especially the Americans, are looking around for places in which to put their money. Such firms will compare Northern Ireland not with Scotland, Wales and England but with what else can be found on the island of Ireland.

The Republic's corporation tax was reduced this year from 50 per cent. to 47 per cent., going down to 43 per cent. So even Mr. Haughey, who has not yet been mentioned, is following the taxation policy of the Government. The rate of income tax in the Republic, which a comprehensive article in The Economist recently pointed out was driving the best people out of the Republic, still starts at 35 per cent., rising to 58 per cent. The comparison between the Republic and Northern Ireland will be wholly to the advantage of Northern Ireland when people look for places in which to site their factories and jobs in the future. I welcome that, and I hope that the Government will maintain that gap for a long time.

Finally, I refer to the enormous help that reforms in recent Budgets have given to capital taxation, especially for small family-owned firms and, above all, for owner-occupier farmers in places such as Northern Ireland. The teeth of capital transfer tax were drawn when its name was changed to inheritance tax 14 or 15 years ago. This year, the re-basing of the capital gains tax from 1965 to 1982 will have an astonishing effect on farmers' liability to the tax. In 1982–83, and just before, land prices were at their highest and if anything they have declined since then. That means that many small owner-occupiers and family farms will wind up paying no tax on that score. I hope that that is a long step on the road to the end of that tax.

The increase was a paper increase in value, which the person concerned never got his hands on. The farmer who worked all his life to build up his farm to a reasonable size and left it to his son or daughter was leaving a burden of debt to them that they found it difficult to meet. It is welcome that the Government have got rid of that devastating burden on the agricultural community. These two taxes have been the cause of much heartbreak in small family firms and in the farming community. I am glad that they have been so diminished in scope.

Although we do not like some parts of the Budget very much, there is much in it that we welcome and I am glad that the Government are trying to reduce taxes. That can only be good for the economy in the long run.