Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 7:37 pm on 21st March 1988.

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Photo of John Redwood John Redwood , Wokingham 7:37 pm, 21st March 1988

I hope that, as a proportion of gross national product, that will happen before the end of this Parliament. If not, it will certainly happen before the end of the subsequent Conservative Administration, during which the Government will continue their policy of tax reduction to below a 20 per cent. standard rate. A rate of 20 per cent. is a feasible objective for this Parliament.

The Opposition's desire for an increase in spending on health has also been met. As a proportion of total public spending, health spending will rise from 11·9 per cent. in 1979 to a projected 14·1 per cent. in the early 1990s, and the increase already stands at more than 13 per cent. Spending on health has increased as a proportion of a total which, in itself, is rising, thanks to the increase in real expenditure made possible by the large amount of tax revenue generated by our economic success. I hope that Opposition Members welcome those moves.

On the issue of fiscal balance, I greatly welcome my right hon. Friend the Chancellor's decision to run the economy with a £3 billion surplus in the ensuing year. Opposition Members find problems with that, too. I remember debating with some of them, outside the House, what would be an appropriate level of deficit or surplus for the coming year. I have always said that it would be right to run it at about a nil balance — no borrowing —because that would help the economy to grow strongly. Opposition Members and media figures told me that there would be a recession, which had to be taken into account. Indeed, if there were to be a major international recession this year, a borrowing level of about 1 per cent. of GDP would be appropriate. However, I stressed that that would be extremely unlikely and that, instead, we would witness another year of good growth. I very much welcome the fact that Britain will have another year of satisfactory growth, which will be even better than expected, so that we can make a welcome repayment of debt from the public sector and so reduce the crippling interest burden that this Government inherited from the Labour Administration.

I welcome the joint decision of my right hon. Friends the Chancellor and the Prime Minister to allow interest rates to fall. In the circumstances of the past couple of weeks, they rightly decided that the sterling exchange rate had to move upwards. It makes little sense to spend cheap pounds buying dear deutschmarks simply to nurse a loss on the foreign exchanges. It is quite clear that our currency is very much more attractive than many other currencies because of the robust health of the British economy and the level of real interest rates in the United Kingdom compared with Germany and elsewhere. However, it was also right to allow interest rates to be nudged downwards, and they may have to come down further if the flow of hot money into this country continues and puts further pressure on exchange rates. I do not believe that that will result in a major inflation problem, because the money figures have been greatly distorted in recent months by that very intervention itself. Not all of it has been properly funded because it occurred on such a large scale.

If we move towards a policy of little or no intervention in exchange markets, and if we produce a prudent balance between the levels of exchange rates and interest rates, there can be both a low or nil inflation policy and a further attractive reduction in interest rates for house buyers, industry and other investors. That can be accommodated quite easily, because there remains in our economy a substantial surplus capacity—for example, derelict land, the unemployed and other factors of production—all of which can be applied as we spread prosperity ever more widely across the country. We can now bid those factors into use without running many, or even any, inflationary risks.

I very much approve of the moves to deal with some of the tax dodges that have been a feature of recent years, partly due to the high tax structure. It is better to have a simple, two-band system, because that will reduce the number of dodges that the rich can take to protect their wealth and their incomes if they want to keep them in this country. The changes on forestry, covenants and company cars go in the right direction, and are entirely at one with the strategy of lower tax rates, but more tax income because of the enterprise effect.

My right hon. Friend the Chancellor is perhaps being unduly cautious in estimating £2 billion as the cost of cuts in the higher tax rates. As people of enterprise, the risk takers, come into this country, the benefits will be so great that the cost of the tax cuts will not amount to anything like £2 billion. I am sure that before the end of this Parliament the rich will be paying yet more as a proportion of the total. I do not understand why Opposition Members are looking so concerned; surely that is exactly what they want. Perhaps it is merely jealousy on their part. They cannot bear to think that more well-off people will come to this country, bringing with them their investments and their incomes to spend on creating jobs in Opposition Members' constituencies. I, for one, would greatly welcome that.

I have only one minor criticism of the Budget, which is that I am a little concerned about mortgage relief for first-time buyers in high-cost housing areas. I understand the need to produce equality of treatment, at least between married and unmarried people, but I am also well aware that in many parts of the south-east house prices are such that it is extremely difficult for people to get started on the home ownership ladder with only a £30,000 mortgage. I hope that there will be second thoughts about that.

It is a splendid Budget. It is a Budget for more jobs, more prosperity, lower tax rates and better public services. I look forward to the conclusions of the health review and the health pay award, because I think that there will be more surprises in store for Opposition Members. I am sure that by the end of the next financial year my right hon. and hon. Friends will have produced a system for health management and improved services of which we can also be proud.