I beg to move, that the Bill be now read a Second time.
This is the Government's 12th Finance Bill and it incorporates the proposals set out in my right hon. Friend's Budget last month. It was a substantial Budget and continues our strategy of tax reform and tax reduction within a framework of sound public finance, firm control of public expenditure and progressive reductions in public borrowing. Those policies have now brought us a balanced Budget.
In conjunction with other policies, this strategy has without doubt transformed the British economy. The extent of the change in performance and confidence is remarkable. In the 1960s, the British economy was clearly in a poor state. In the 1970s it worsened. We were known, with some justification, as the sick man of Europe. That label and all that went with it have now disappeared. In the 1980s the British economy has become the fastest-growing in Europe and, in 1987, the fastest-growing of all leading industrialised countries.
During the 1960s we praised and envied the German economic miracle. In the 1980s the position has been precisely reversed. The House need not necessarily take my word for that. I shall quote briefly from one of Germany's leading liberal newspapers, "Die Ziet":
In the past the German model was praised in an almost embarrassing manner and compared with Great Britain's bad example. Now it is the other way round".
That transformation has occurred because of the policies that we have followed and continue to follow in this Finance Bill, and each and every one of them has been consistently opposed by Opposition Members, who later today will vote against tax reductions, against fair treatment for married couples and against a raft of measures designed further to improve our economic prospects. Let no one believe that economic Luddites no longer exist, for they sit opposite us and will demonstrate that fact later today.
The evidence since the Budget confirms that Britain's economic success continues. The latest figures show that between February and March unemployment fell by 28,000. It has now fallen for 20 months in succession, by 706,000 in total and by 533,000 over the past year. It is now at its lowest level for more than six years.
It is equally relevant that the numbers of those in employment, apart from demographic changes, are continuing to rise strongly. In the fourth quarter of 1987, they rose by 146,000. That means an increase of more than half a million in 1987 as a whole. Over the past four years, the United Kingdom has created more jobs than the sum total of all the rest of the European Community added together. That is the scale of the change coming over our economy.
More evidence of the health of the economy was provided only this morning by the results of the CBI's latest industrial trends survey, carried out in the first half of this month. I shall illustrate some of its findings. It states:
Business confidence remains high … The rising trend in optimism is broadly based … Strong demand has been met by increased manufacturing output … Investment intentions have strengthened substantially and 86 per cent. of firms report their capacity at least adequate to meet expected demand.
The hon. Gentleman should understand that one of the significant reasons for the balance of trade deficit is that the British economy is growing noticeably faster than those of any of our European competitors. If he examines the structure of the balance of trade deficit, he will notice that a good deal of it is semi-manufactured goods that are entering the country and will be re-exported.
Is my right hon. Friend aware that unemployment in Lancaster has fallen twice as fast as the regional and national drop? Does not the CBI survey to which he referred destroy the Opposition's pessimism, which says that every time people have more money in their pockets they will spend it on foreign goods?
My hon. Friend clearly illustrates the fact that prosperity is increasingly spreading to all regions of the United Kingdom and that unemployment is now falling in every region. I appreciate that the Opposition do not know how to achieve success, but it is a shame that they cannot even recognise it from time to time.
What is vital, and unusual for post-war recoveries in the United Kingdom, is that this continued improvement in the labour market and sustained growth in the economy has been achieved without a resurgence of inflation. Retail prices in the last three months are less than 3·5 per cent. higher than a year earlier, and 1987 was the first year since 1964 when the rate of growth exceeded the rate of inflation.
It is a welcome fact, moreover, that the economic resurgence is not confined to London and the south-east. The unemployment figures show that every region is sharing in the strength of the economy. That is reflected in the fact that the steepest falls in unemployment during the past year have been in the west midlands, the north-west and Yorkshire and Humberside. I hope that that is exceedingly welcome to the whole House.
Throughout the country, there is increasing evidence of improving performance and a spread of the enterprise culture. Between 1979 and the first half of 1987. manufacturing productivity in Scotland increased by an average of 5·5 per cent. a year as compared with overall growth in the United Kingdom of just under 4 per cent. Over the decade to 1986, output in high technology manufacturing in Scotland increased by 170 per cent. and in electronics by 210 per cent. In Wales, the number of self-employed people has gone up by nearly one third since 1981, and now stands at more than 14 per cent. of the working population—one of the highest proportions in the United Kingdom. Since 1983, employment has risen in every region of the United Kingdom.
There is a further factor—confidence in the United Kingdom is increasingly attracting overseas investment into this country. Since 1983, direct investment in the United Kingdom from abroad—leaving aside the North sea—has grown on average by 13·5 per cent. a year in real terms. By contrast, it fell between 1974 and 1979 when the Labour party was in office. This investment is benefiting every region. The Bill is designed specifically to encourage that process to continue.
Wales now has the greatest concentration of Japanese manufacturing units in Europe. Japanese car manufacturers are a valuable part of the economy in the north-east. The west midlands has picked up fast in the plastics industry and instrument engineering. In the north-west, old industries are adapting to new technology and new industries are being introduced.
The right hon. and learned Gentleman clearly does not understand the interaction between financial measures in this Bill and others and the success of the economy.
The image of the parts of the country that I have mentioned, which is sedulously cultivated by Opposition Members as scandalously depressed, is gradually being changed. Business men and investors know better than the Opposition what is now happening in the regions.
To what extent does the right hon. Gentleman believe that the British economy is dependent on the United States economy? What would be the impact on the British economy if, for example, there was a political change in the United States next year and the budget deficit and the trade deficit were cut during the next few years?
The principal impact and concern regarding the British economy is the success of our economic management, our competitiveness and our practices. Those are the matters that are wholly within our control and they are the matters which have been dramatically improved during the past few years.
The right hon. Gentleman did not include Yorkshire in his list of regions and successes. Would he care to comment on the fact that I can guarantee that most of the jobs advertised in the window of the Bramley jobcentre are part-time, low-paid jobs? Is that not the reality of the increase in employment? It is not the increase in full-time, permanent work which the right hon. Gentleman suggests.
As it happens, I did mention Yorkshire, several parts of which are growing exceedingly rapidly. There is growth in part-time jobs, for which there is genuine demand. Many people welcome that growth. I do, and I hope that the hon. Gentleman does. There is also substantial growth in full-time jobs which is reflected in all the available statistics.
The confidence that we can now see is the direct result of our economic management over the past nine years. The attractiveness of the United Kingdom as a place to invest was given an enormous boost by the changes that my right hon. Friend the Chancellor of the Exchequer made to corporation tax in 1984, which gave the United Kingdom what is still one of the lowest corporation tax rates in the industrial world. This Budget gives a further boost to businesses that are already here and it will make the United Kingdom yet more attractive to businesses that are still thinking of coming here.
Again, the House need not just take my word for it. ICI called it the most radical Budget since the war. The CBI said:
This is the Budget we have been waiting for … it will promote enterprise … it will provide greater incentives for all in British business.
The Association of British Chambers of Commerce said:
We wanted incentives. We have got them. Now let us make them work".
The Small Business Bureau's description was:
A shot in the arm for the smaller business".
The message is crucially and critically clear—the Budget provides a challenge which British business men are ready to grasp. We look to them to do so in the months and years ahead.
That is the economic backdrop to the Bill. The Opposition may not welcome it, because economic success for Britain means political oblivion for them, but the economic success is a reality.
This is a substantial Bill. It runs to 139 clauses and 10 associated schedules. The centrepiece is the income tax changes in clauses 22 to 24 which affect all taxpayers. They create in Britain the lowest basic rate of income tax since the second world war. The basic rate is now down to the same level as the reduced rate under the last Labour Government and personal allowances are now 25 per cent. higher in real terms than they were in 1979. The United Kingdom will also have one of the simplest personal tax structures in any country and one of the lowest top rates.
The logic of these reforms is accepted throughout the world by Governments across the political spectrum. It is plain common sense that incentives are vital to improve economic performance. The Opposition do not necessarily accept that. Their anxieties about tax changes are consistent and have been with them for many years. We have been in this situation before. Last month's' ritual denunciation of the higher rate cuts had a familiar ring about it.
I remind the House of what the Opposition spokesman —the right hon. Member for Bethnal Green and Stepney (Mr. Shore)—said when winding up the debate after the Government's first Budget in 1979. He justified voting against cutting the top rate of tax from 83 to 60 per cent. with these words:
the Chancellor of the Exchequer is looking for … an effort, in income terms, by the existing elite of British industry, commerce and administration. For several reasons, I believe that is a nonsensical expectation. Of course, the recipients of his largesse will be pleased. However, will they work harder and more productively than at present? Will they be galvanised, to use that new and fashionable word? Will they be encouraged to invest more? … Previous experience, when Tory Chancellors cut surtax and income tax, reveals no correlation in the United Kingdom between the performance of economy and the levels of personal taxation."—[Official Report, 18 June 1979; Vol. 968, c. 1028.]
As we have cut taxation, the economy has continued to improve. The right hon. Gentleman now has his answer, which is clear to everyone. The evidence is that, far from the then Chancellor's expectations being nonsensical, the right hon. Gentleman's strictures were wrong. The result of the increased effort, high productivity and, indeed, galvanisation, is an upsurge in revenue from higher rate taxpayers. Despite the top rate cuts, and despite the abolition of the investment income surcharge, the top 5 per cent. of taxpayers paid one third more in income tax in 1987–88 than when we took office.
Now, even the right hon. Member for Islwyn (Mr. Kinnock) says that it is "highly unlikely" that Labour would reimpose a top rate of 80 or 90 per cent. It is highly unlikely, of course, that Labour would have the opportunity. It is limping along in the wake of Conservative policy. Even now, after nine years in Opposition, Labour has no coherent tax policy. All it offers is a tone of envy in general and nothing in detail.
Does the Minister consider the reduction in income tax as the jewel in the Conservative crown? Has he seen the figures that his right hon. Friend the Chancellor of the Exchequer gave me in answer to a parliamentary question? The burden of taxation as a whole, including national insurance and VAT and everything else has hardly moved since 1979. It is 39·3 per cent. at the moment. It was 39·36 per cent. in 1979. In virtually every single year that the Government have been in office, the real tax burden has been higher than it was in 1979.
Do I take it that the hon. Member for Nottingham, North (Mr. Allen) will encourage Opposition Members to vote for the tax reductions in the Budget and then to vote for more tax reductions? When one costs their programme, it is clear that taxes would go up beyond any capacity to pay.
I make a prediction to the hon. Gentleman. Just as no credible economic spokesman for the Labour party now proposes a return to 83 per cent. or 98 per cent. taxation, nor, after their next election defeat, will any Labour economic spokesman demand the reimposition of a 60 per cent. top rate. For by then we will have seen the economic benefits which flow from this further measure to boost enterprise, effort, productivity—indeed, as the right hon. Member for Bethnal Green and Stepney once put it, to "galvanise" our most talented and skilled people.
f by then the Labour Front Bench has still not learnt that lesson, we may find a place in our public expenditure plans to buy them one-way tickets to Australia and New Zealand for urgent discussion with their Labour colleagues who have discovered the advantages of cutting taxes. It would be money well spent to send them there. If they learn the lesson, it might even be worth paying for return tickets to bring them back.
The controversy over the higher rate cuts has overshadowed the important measures in clauses 22 and 24 —the reduction in the basic rate of tax to 25p in the pound and the double indexation of allowances. Clause 22 means that we have achieved the target we set in 1979: to provide a marginal rate of tax of 25p not just for the 4·5 million who were in Labour's reduced rate band, but for 23 million taxpayers—94 per cent. of the total. Clause 24 takes further the increases in allowances.
The married man's allowance is now at its highest level since the war. We could have achieved our basic rate objective far earlier had we not devoted resources to increased income tax allowances. But we believed then and we believe now that allowances in 1979 were too low, and that too many people paid tax on too modest incomes and we wished to take action to alleviate that. The effect of those increases is that 1·7 million people, nearly one quarter of them elderly, who would have been paying tax if we had simply kept allowances constant in real terms, now pay no income tax at all as a result of the changes.
Lower personal income tax opens the way for further reform to the tax system. There are provisions in the Bill to clamp down on a range of unjustified tax breaks—clause 44 reduces the under-taxation of company cars. Even so, the tax valuation for tax purposes will still fall far short of the true value of the benefit.
Clause 63 will bring to an end the abuse of forestry relief as a tax shelter. In future, Government assistance to forestry will be better targeted through a new grant scheme which will better realise our environmental objectives. Under the new scheme, grants will be available for planting to improve landscape, habitat and recreational amenities as well as timber production. All woodlands will be subject to clear environmental guidelines. Some people have criticised the fact that conifer planting will continue to receive support. They should remember that broadleaves cannot be grown in all areas and that the main market for timber in this country is for soft wood.
Clause 42 abolishes mortgage interest relief for home improvement loans, thus targeting relief on the main objective of home ownership and removing the scope for abuse about which the Public Accounts Committee has expressed concern. The Bill also removes top slicing reliefs for lump sum payments such as golden handshakes, which are no longer justified with lower tax rates.
The point about mortgage interest relief is that it should be put to the purpose for which it was intended. The Public Accounts Committee expressed concern that that was not necessarily the case for mortgage interest relief on home loans. I draw that distinction for the hon. Member for Berwick-upon-Tweed (Mr. Beith).
The Finance Bill also contains important measures to simplify the tax system—not least in the nightmarishly complex area of non-charitable covenants and main-tenance. Clauses 35 to 39 will sweep away a complex set of rules which involve the taxpayer in a lengthy process of claiming relief or repayments from the Inland Revenue. New covenants, apart from covenants to charity, will be taken out of the tax system altogether. New maintenance payments will be free of tax, and tax relief for the payer will be subject to a limit.
These changes will make the system much simpler all round. In particular, they will reduce the tax burden for separated and divorced wives on modest incomes, and limit the tax relief available to wealthy husbands. They will also remove a disincentive on wives who want to work, who will no longer have some of their personal allowance used up by their maintenance.
Clauses 31 to 34 and clause 98 introduce independent taxation for married women—perhaps the single most important innovation in the 1988 Budget. I must say that I am a touch surprised that the Opposition have given this measure so little recognition. I will not dwell in detail on the anachronisms of the present system, which treats a married woman's income and gains as if they belonged to her husband, nor shall I attempt to explain in detail the new provisions, which we shall have the indubitable pleasure of discussing in Committee.
The crucial point is that the system we propose will give all married women full independence and privacy and achieve this sooner than the other alternatives canvassed. It will continue to recognise marriage. It will give all women a personal allowance and capital gains tax annual exemption in their own right.
There is a further point. It will bring significant financial benefits to a very large number of elderly married women with small incomes who receive pensions on the basis of their husband's contributions. At present such a pension is taxed at the husband's rate. Under independent taxation it will be treated as the wife's income and elderly wives will have their own age-related personal allowance to set against it. I think that the effect has not yet been fully appreciated but, in fact, around 160,000 elderly couples —nearly 15 per cent. of the total—will be taken out of tax altogether as a result of the change.
The Minister is not telling the whole story. The marriage tax allowance is still given to the man and can be transferred to the woman only with his consent. If the Minister is serious about creating equality of opportunity for women, why is there no tax incentive for workplace nurseries, as that would stop the taxing of toddlers?
The hon. Lady's latter point is a non sequitur. Her first point raises the problem that to allow choice would place substantial cost on the whole system of independent taxation. That is the difficulty that we face. The rules would be more complicated for taxpayers and for the Inland Revenue and would compromise privacy and independence. Most important, it would not have been possible to implement the scheme by 1990. I understand and appreciate the hon. Lady's point, but we had to take a judgment, so we took the choice to which the hon. Lady refers. Her second point was not a matter arising out of this Finance Bill.
There is a further point concerning the penalties on marriage, which the hon. Lady nearly encouraged me to forget. As well as removing the unjust treatment of married women, the Bill also removes, for all practical purposes, the discrimination against marriage which exists in the tax system. Clause 41 will apply the limit on mortgage interest relief to the house or flat so that married and unmarried couples will get the same amount of relief. Under clause 29, an unmarried couple living together with children will get only one additional personal allowance between them, so that they get no more tax relief than a married couple.
In addition to these substantial reforms of the income tax system, the Bill includes a number of significant changes in capital taxation which build upon earlier reforms. Clause 91 will mean that only real capital gains are taxed, ending the injustice of taxing paper gains. This will benefit the economy by unlocking many assets acquired pre-1982 and free the resulting capital for new and productive investment.
Clause 92 will charge gains at income tax rates, reducing the incentive to convert income into gains, purely to avoid tax. It will mean that basic rate taxpayers see a reduction of five percentage points in their rate of tax, while higher rate taxpayers will see an increase of 10 per cent. on their capital gains. That reform is possible only because we have reduced the top rate of tax.
The Bill also contains provisions to reduce the burden of inheritance tax significantly. Clause 127 introduces a flat 40 per cent. rate with a threshold over twice as high in real terms as in 1979. And the number of tax-paying estates will be reduced by one quarter, allowing many more people to inherit the family home entirely free of tax.
These changes will be of particular and enormous help to those running family businesses. They are of social as well as economic importance, too, because they allow the family business, the small shop, or the small farm to be passed on intact between generations. That is critical to maintaining the social fabric of many of our small towns and villages. We have come a considerable way from the capital transfer tax that we inherited, with its threshold of only £25,000 and its 17 rates on gifts and 14 rates on bequests.
Before the right hon. and learned Gentleman grows too excited about that, I remind him that when the last Labour Government were in power charities and political parties were treated in precisely the same way for tax purposes. The position is exactly the same now. The right hon. and learned Gentleman ought to look at the history of his own party before criticising the Government's legislation.
So far, over 3,000 companies have raised over £750 million under the business expansion scheme. An independent study in 1985 by Peat, Marwick, McLintock found that only a third of BES finance would have been raised as equity without the scheme. When my right hon. Friend introduced the scheme in 1983, the venture capital industry in this country was still in its infancy, and unquoted companies of all sizes often found it difficult to raise equity finance from outside investors. Five years on, we have now reached a point where the United Kingdom venture capital industry has been so revitalised that larger companies can now readily raise equity finance without the need for special tax relief.
Accordingly, clause 50 reduces the relief available by introducing a limit of £500,000 on the total investment in a company which can qualify for tax relief in any one year under the scheme. That is intended to concentrate relief on investment in smaller local companies who find it more difficult to raise equity capital outside the business expansion scheme.
There is a further change to BES in clause 49, which extends the business expansion scheme to investment in companies specialising in letting residential property on new-style assured tenancy terms only. As the House knows, these will provide security of tenure for tenants. Landlords will be able to obtain possession on only limited grounds, broadly similar to those applied by existing Rent Acts.
The lack of a private rented sector has long been a barrier to job mobility and job creation. People who want to move to find work have been prevented by the difficulties of obtaining council housing and by the problems and cost of buying new homes. This new relief will give a kick start to the provision of readily available rented housing to help people move to new jobs more easily. Moreover, by increasing mobility around the country, it will ease skill shortages and help to reduce the disparities of regional unemployment.
We are determined that there should be a flourishing private rented sector to give people a real alternative to owner-occupation or to what is all too often simply a place on a council waiting list.
The Opposition will seek to conjure up the vision of a return to Rachman.
The hon. Gentleman says, "Precisely." He makes the point extremely eloquently, but to do so is to trivialise the debate.
It is only in this country that the very existence of a private rented sector is a matter of political dispute. Elsewhere a choice between owning and renting in the private or public sectors is the accepted norm because it allows people a flexibility which our system does not permit. In Germany, the latest figures show that 43 per cent. of property is privately rented, in France the figure is 36 per cent. and in the USA it is 33 per cent. In the United Kingdom it is less than 10 per cent. because of the hostility of the Labour party to the privately rented sector. We are absolutely determined that British families should enjoy not only the right to buy but the right to move. This will provide it for them.
I am grateful to the Chief Secretary for giving way in his usual courteous manner. Is it not a fact that the Rent Act 1957, introduced by a Conservative Government, was supposed to lead to a far greater amount of rented accommodation in the private sector? However, it led to the Rachmanite scandal and to a reduction in the amount of privately rented accommodation.
Is the right hon. Gentleman aware that apart from the Rachmans of the past there is Nicholas Hoogstraten, a notorious landlord whom the Secretary of State for the Environment has been trying to get into court, but to no avail? It is precisely that person, and those like him, who will do best out of this legislation.
The hon. Gentleman is wrong about that. I share his distaste for the Rachman-like methods of years ago. This provision applies to assured tenancy schemes only. I agree with what I take to be the hon. Gentleman's view, that the impact of Rent Acts over a period of time has severely diminished and destroyed the privately rented sector. We wish to deregulate and to provide a privately rented sector, not least to expand choice and to provide an opportunity for mobility. We hope that the Opposition will not place the same impediments in the way of success as they have placed in the past.
What does the Chief Secretary have to say about the view of the Institute of Housing about this matter? Its view is
that it will not really have much of an impact in terms of meeting housing need. Our concern is its short-term nature (5 years) and the obvious incentives to obtain vacant possession at the end of that period.
If the hon. Gentleman is making the case that at the end of the five-year period we should extend it, am content to listen to any representations that he has in mind, but this is a time-limited scheme. The intention is to give a kick start to the privately rented sector.
We wish to ensure that a good deal of the accommodation that could be made available is made available, to provide a better total quantity and quality of accommodation for people to live in. It is one of the great tragedies of post-war social history that for dogmatic and theological reasons the Labour party has constantly opposed the provision of privately rented property.
If the Chief Secretary is serious about increasing mobility and choice, rather than giving a tax handout to those who would speculate in providing rented property, would it not be better to restore the same amount of money to individuals by way of housing benefit so that they would have beter purchasing power and would be able to exercise choice, including being able to move to this part of the country where houses are so expensive? All that the Chief Secretary seems to be doing is exhuming Rachman and wishing him the best of luck.
My right hon. Friend has been more than polite in pausing on this point because I know that he wishes to speak on many other matters. However, he may take it from me, as one who has lived for many years in the United States, that that very mobile society has been able to provide a rental market of a quality and price that is attractive to large numbers of ordinary people who wish to move, because the rented sector has been able to work out the market. This country has been damaged by the inability of the market to work. I wish my right hon. Friend well with his clause.
Does my right hon. Friend recall that when we introduced the right to buy in what is now the Housing Act 1980, the Opposition were strongly opposed to that provision? Will my right hon. Friend reflect on the fact that now that the Opposition are opposing our measures to bring into use property that is at present empty or underused, and to attract private money into building new property for renting, they are just as out of touch about the prospective tenants whose champions they claim to be as they were about the right to buy?
My hon. Friend, who is a distinguished former Minister of Housing, is entirely right. I confirm the message that he essentially gave. We need no lectures from the Labour party about how to produce good housing or about the right either to enjoy ownership or to rent. The Oposition were wholly wrong about the right to buy, and they are wholly wrong about the right to move.
The Bill contains a range of other useful measures affecting businesses. I shall mention only the most important—and I may say to the right hon. and learned Member for Monklands, East (Mr. Smith) that I am moderate by instinct. That is a virtue I offer Opposition Members as well.
In parallel with the basic rate tax cut, the small companies' rate of corporation tax falls to 25p, which is the lowest level since the war. Capital gains tax rebasing will enable many companies to unlock pre-1982 assets for new investment and reduce their tax bills by £235 million in 1989–90. Clause 132 will abolish the capital duty levied on companies being formed or expanding, so removing a significant proportion of the cost of capital issues. That is the fifth major tax to be abolished by my right hon. Friend the Chancellor of the Exchequer, who has now abolished more taxes than the right hon. Member for Leeds, East (Mr. Healey) introduced. In all the circumstances, the House may consider that to be a remarkable record.
The Bill will modernise also the rules on company residence and migration, removing the Treasury's outdated discretionary powers and replacing them with new, straightforward and objective rules. It will respond to representations from the building societies by removing the present tax obstacles in the way of societies seeking to convert to public limited companies. The Bill will improve administrative arrangements for taxing Lloyd's members in line with our objective of ensuring that they are taxed effectively but fairly, in a way that reflects the special features of Lloyd's operations.
The Bill contains a package of measures designed to implement reforms of tax administration advocated by the Keith committee. It is a balanced package providing for both relaxation and tighter rules where justified. Clauses 112 to 121 give the Inland Revenue appropriate powers to uncover tax defaulters. Those measures result from extensive consultation with representative bodies and with the public, and they have received overwhelming support.
Clauses 11 and 12 increase Customs and Excise powers for dealing with fraud and commercial smuggling, bringing the legislation more closely in line with mainstream criminal laws. As well as those tightening measures, the Bill includes some easements of the VAT civil penalty regime, which will be of considerable benefit to businesses.
Clause 10 updates the Customs' power of search of person contained in section 164 of the Customs and Excise Management Act 1979. That section has remained virtually unchanged for 30-odd years—a period during which drug smuggling has become a widespread and serious problem. The clause will bring Customs' power of search more closely into line with the police, with the various additional safeguards proposed by the Keith committee. It clearly defines categories of search and provides necessary powers of detention for search.
No one likes being searched—it can be extremely distasteful. Nevertheless, that power is necessary if we are to have any power over smuggling. The updated power provided by clause 10 will equip Customs officers with sensible methods of detecting and deterring smugglers while reinforcing the statutory safeguards provided for suspects.
Last month's Budget repeated 1987's economic hat trick of tax reductions, higher public expenditure and sharply reduced borrowing. This year my right hon. Friend is planning for a public sector debt repayment of £3 billion. That is a remarkable achievement by any yardstick.
Can the Chief Secretary confirm that he has the money to relieve the suffering of pensioners as a result of the changes made to housing benefit? Can he confirm also that instead of giving tax cuts to the 1,000 richest people in the country, he could have paid the £70 million that is the cost of relieving the capital level for pensioners from £6,000 to £10,000? Can he further confirm that it is not an absence of cash that prevents the Government from acting on this important issue but a complete absence of compassion?
I assume that that was a trailer for the hon. Gentleman's speech, and we shall await it with considerable interest. I may tell the hon. Gentleman that the results of the Government's economic policies have enabled us in the past few weeks to meet in full the pay review awards to nurses, doctors, dentists and those serving in the armed services.. That could not have been done if the public finances were not in good order.
The right hon. and learned Member for Monklands, East could have spoken in this debate, had he wished to do so. Perhaps he will permit me to finish— [Interruption.] The Chancellor is not shouting like a banshee from a seated position.
In our debate on the public expenditure White Paper, the hon. Member for Dunfermline, East (Mr. Brown) said that to exclude an increase for the National Health Service from the Budget would be
an unprecedented act of malice."—[Official Report, 24 February 1988; Vol. 128, c. 319.]
The hon. Gentleman now has his answer. More importantly, the nurses, the doctors and the dentists have their money, and the hon. Gentleman was wrong as usual. Not only will they benefit from the 2p cut in the basic rate of tax in the Finance Bill, and from the doubling of personal allowances, but they will now receive a pay increase everaging 15·3 per cent.—ranging as high as 60 per cent.
Much of that is the direct result of the agreement on the grading review reached with the nurses as long ago as last December. It is a cost that the Government will fund in full and a cost that the Government can meet in full only because of the strength of our public finances and the control we have kept over expenditure.
Only the British Labour party retains its dinosaur attitude to tax reductions. It is ironic that in the same week that the Labour party in Westminster was digging into its entrenched opposition to the higher rate cuts, one of the party's paymasters—the Transport and General Workers Union—was robbing the Scottish people of 1,000 jobs in Dundee. That is a timely reminder of Labour's priorities of increased taxation and a return to trade union restrictive practices—both calculated to destroy jobs and not create them.
Our Budget encourages enterprise and creates incentives and it stimulates success and promotes jobs. It is a Budget designed to achieve greater opportunity and prosperity. The measures to achieve them are in the Finance Bill and I commend it to the House.
The one point on which both sides of the House are agreed is the fundamental importance of this Finance Bill. However, what the Chief Secretary described as an economic miracle will be unknown to 2·5 million people who are unemployed, and to 18 million who are on low incomes. In his naive belief that the nurses' settlement, however welcome, will solve the problems of the National Health Service, and in his vigorous defence of the Bill—as befits a Minister marked out as the Cabinet's fastest rising star since the Secretary of State for Social Services—the Chief Secretary seemed to go out of his way to avoid mention of the central fact that informs the entire Bill. That central fact is that, as a result of the changes in top rate tax and personal allowances——
I said 18 million, and I defend that figure. That is the figure published by the Department of Health and Social Security, which gave 16 million as the number of people on low incomes, on the latest figures that were available to it. When that figure is updated as a result of all the changes made because of the social security cuts, we arrive at a figure of 18 million people on low incomes. That includes mothers, children and wage earners—[Interruption.] I should have thought that Conservative Members would be concerned about the poverty and destitution throughout the country. I should have thought that, instead of laughing about housing benefit cuts and the freezing of child benefit, they would be anxious to do something about problems that affect 18 million people.
The central fact that underlies the entire Bill is this. Taking together the top rate tax reductions and other changes, the top 1 per cent.—who are uniquely privileged as a result of previous decisions by Chancellors of the present Government—gained more than the majority of people in this country put together. In one line of one sentence of one clause of the Bill, £2,100 million in a full year is given away to those who previously faced taxation at the very top rates.
Can the hon. Gentleman tell me straightforwardly whether he prefers a higher top rate of tax for high earners, which none the less produces a lower return for the Exchequer, or a lower top rate of tax that produces a higher return?
I am grateful to the hon. Gentleman for intervening at this stage. I had expected the question, but thought that it might come later, when we had addressed some of the problems in the Bill. Obviously the hon. Gentleman has been told to ask it very early.
Having expected the question, Opposition Members did some research. Let me say to the Chief Secretary and the Chancellor that if the top 5 per cent. in this country are paid increases which they advocate that their own workers should not receive, but which amount to 300 per cent. over the past eight years, and if the rest of the country receives substantially smaller increases, we would expect—even with the reduction of top rate taxes in the economy—the share raised from the top 5 per cent. to be higher.
If the hon. Member for Amber Valley (Mr. Oppenheim) thinks that it is axiomatic that the reduction of top rates will raise higher revenues, let him look at the Red Book produced by the Chancellor, in which the Treasury sought to make the best estimate of the effect of the top rate tax reduction in a full year. The answer that it came up with was not an increase as a result of the change in revenues but a reduction of some £2 billion.
Let the Financial Secretary give me proof of what those changes in behaviour are likely to be. I had thought that the Treasury was under some obligation to produce the best estimate that it could deliver. If the best estimate that can be delivered is that £2 billion is being sacrificed as a result of the top rate tax cuts in a full year, that is the estimate that we must go on.
Let me also say to the Financial Secretary that the last budget director who gave us the impression—in America —that top rate tax reductions would raise far higher revenues was Mr. David Stockman, who had to recant just about everything that he had said about the Laffer theory and everything else in a highly publicised book. He spoke the truth when he said that the agreements for top rate tax reductions that were extended on the basis of some such economic theory as the Laffer curve were simply a Trojan horse to allow the rich to get richer without making any increased contribution to the economic efficiency of the country.
I shall give way in a minute.
The fundamental feature of this Bill is the growing gap between rich and poor that will result from the tax changes announced by the Chancellor. That commitment to widening inequality—even at the cost of those who will experience deepening poverty—infuses just about every major clause of the Bill. Only 35,000 people will benefit from changes in inheritance tax that will cost the rest of the nation £200 million. No more than 100,000 people are likely to benefit from the £235 million exemption on capital gains before 1982. Only a few hundred are likely to benefit from the changes in the business expansion scheme described by the Chief Secretary this afternoon, to which we shall return later.
I predict that the biggest gainers from what should have been a major reform in independent taxation will be couples with substantial sums of unearned income and capital gains, both of which will be disaggregated as a result of clauses in the Bill. That will be its most costly feature.
Let me finish.
The Bill widens the gap between rich and poor so much, and inequality is so much its central feature, that it is hardly surprising that a Conservative Member said on Budget day, "There are just not enough noughts on my pocket calculator to work out my winnings."
The hon. Gentleman said that the tax reductions in the United States of America had had no serious effect. Does he deny that there has been an increase of 8 million in the number of people employed in America while those tax reductions have taken place? Has not unemployment in this country fallen by 1 million because there have been tax reductions, and because those who benefit from them are the people who invest in and expand new businesses?
I do not know whether the hon. Gentleman is advising the Chancellor how he should run his economic policy. I must tell him, however, that one reason for the substantial budget deficit in the United States is that the predictions made in the early years of the Reagan revolution that top rate tax reductions would yield massively increased revenues have not proved correct.
The Chancellor is unique among Chancellors through-out the world in regard to change in the top rates of tax. We are mentioned in New Zealand, Australia and everywhere else, because he alone has chosen to cut the top rates without making any substantial impact on the number of tax loopholes that make it possible for people earning substantial sums to avoid tax liabilities. If the Chancellor doubts what I am saying, let him read the parliamentary answers that I have been given by the Financial Secretary.
In one instance I asked the Chancellor what would be the tax liability of someone earning £1 million who chose to use many of the tax devices invented by the Chancellor and his predecessor since 1979, such as the business expansion scheme and enterprise zones, in which unlimited sums can be set against tax. The answer that I received from the Financial Secretary was that a person earning £1 million, if he used all the loopholes available to him, could end up with a tax liability of nil. How does he defend the fact that someone earning more than £50 a week pays tax at a rate of 25 per cent., that a couple earning more than £80 a week pay tax at 25 per cent., but that a person earning £1 million a year can end up with a tax liability of nil?
The Chancellor's changes have not been so inventive that they have prevented people from taking out loans on the basis of their investments and having sufficient spending power as a result, for example, of off-setting the rents that they earn from enterprise zone properties against the interest they have to pay to the banks. Uniquely, such people not only have the capital gains in the future and the tax reductions in the present, but sufficient money to live on at the same time, giving them a high standard of living.
I want to look at how the Budget will affect the majority of my constituents as well as some Conservative Members. I have to tell the Chancellor that, despite the talk that everybody will receive a 2p tax reduction, helping those at the bottom end in exactly the same way as those at the top, there are people on £100 a week, low wage earners, getting by on family credit and housing benefit, whose net gain from the Budget, after the withdrawal of housing benefit because of the tax cuts, will only be about 9p a week, or £4·68 a year. Then there is the family on £120 a week, with housing benefit not yet taken away by the Chancellor and family credit, who will receive about 30p a week as a result of the tax changes in the Budget and the resulting withdrawal of benefits.
If the Chancellor and Conservative Members believe that I am talking about special cases or isolated instances, as they thought when we first mentioned the problems of the housing benefit changes, let me tell them that, in addition to the 8 million or so people who cannot benefit from a tax cut because their earnings are so small, there are 2·5 million people throughout Britain whose average gain as a result of the Budget changes is 13p a week—a gain that is almost entirely wiped out by the electricity price rise that was ordained by the Secretary of State for Energy just before the Budget.
But the real beneficiaries of the Budget are those at the top. I do not know whether the Chancellor realises it, but if someone is earning £50,000 a year his net gain from income tax is £75 a week; on £70,000 a year it is £152 a week—more than £7,500 a year; on £100,000 a year, it is £268 a week, or more than £12,500 a year. The man on £200,000 a year is getting £650 a week as a result of the Budget changes and the richest earner in Britain will receive an automatic windfall as a result of the Chancellor's changes of £500,000 a year.
The real truth about the biggest beneficiaries of the Budget was admitted in an answer given to me by the Financial Secretary on 28 March when I asked him who gained most from the top rate tax reductions. It is not the scientists, the engineers, the teachers and the lecturers—the people whom the Chief Secretary continues to mention —who are the true beneficiaries of the Budget. What the Financial Secretary had to tell me was that the real beneficiaries, those who gained the most, those who received windfall sums, were the 140,000 people on the top rate tax band of 60 per cent. who cumulatively received £1,700 million in a full year as a result of the Budget. In other words, 80 per cent. of the gains from the top rate tax reductions have gone to a small number of people—140,000; less than 1 per cent. of the population of Britain.
Why did the Chancellor decide that those people were to be so uniquely privileged that they should be targeted for special help? Since 1979 they have already received more than £13 billion in tax cuts. As a result of this Budget they have received an extra £1·7 billion.
A few weeks ago I heard the Chief Secretary telling ordinary earners that, as a result of the Budget tax cuts, to keep pace with inflation they need ask for wage rises of only 2 per cent. a year. He was suggesting, as the Secretary of State for Trade and Industry did in the other place, that, the proper negotiating level for wage increases in the next year should be in the order of 2 per cent.
When the Chancellor made his decision about the top rate tax reductions, did he consider the position of those people in that 1 per cent? Did he recall—as is confirmed most recently in the top salaries review document—that those very people, at the same time as they have been telling others to mitigate their wage demands, have been awarding themselves rises of up to 20 per cent. a year? Did he look at the Treasury's own calculations that the very same people would this year be awarding themselves wage rises of about 12 per cent?
Did he then say that, as a result of the wage rises that he expected them to have in order to keep pace with inflation, there should be a levelling through the tax system? Not at all. What the Chancellor did was to accept that the top people in Britain, those earning £50,000, £70,000, £100,000, had been paying themselves wage rises of between 10 to 20 per cent. every year, and will pay themselves a wage rise of 12 per cent. in the coming year, and then he awarded them a tax cut worth 10 per cent.
The hon. Gentleman has been talking about high earners, but will he turn his attention to a man on average earnings with two children who, under the Labour Government, had an increase of 0·5 per cent. in real terms, compared with a 27·5 per cent. increase in real terms under this Government? Does not that underline why men on average earnings vote Conservative?
That is exactly what the Chief Secretary was suggesting to us at Treasury questions only a few days ago, and I have no doubt that his supporters have been briefing the hon. Gentleman. But let him look at the Government's record on taxation since 1979. Let him look at the cumulative effects of income tax, national insurance and VAT. He will no doubt find—this is something that horrified the Institute of Directors, which demanded before the Budget that the average tax rates be cut—that the total tax take from the average earner with two children has risen from about 23 per cent. to 25 per cent., despite our being told that every Budget of the past nine years has been a tax-cutting Budget. The share of the ordinary earner's income taken in income tax, VAT and national insurance has risen, and that is the real position under this Government.
I have listened carefully to the hon. Gentleman and he is making some important points. However, as one who has had the fortune, or misfortune, to listen to some 24 Budget debates in the House, let me say that there is one big difference. The hon. Gentleman is saying that some people at the top gain too much and others at the bottom gain too little. I understand what he is saying, but does he accept that the time was, when the Labour party was in office, when everybody lost—the disabled, small businesses, pensioners and the country? Now we are arguing about who should gain. That is the big change: we are talking about gains, not losses.
Tomorrow, during the debate on housing benefit, the hon. Gentleman will realise that not everybody has been a gainer under this Government.
The issue of this debate is this. When I see that, as a result of the social security changes, an unemployed young person in my constituency will receive £26·05 a week; when I see that a pensioner will receive only £41·15 a week; when I see that a family of four will receive only £79 a week, and when at the same time I see Conservative Members defending a situation whereby people at the top are given tax cuts that are worth more in a week than such families and pensioners will receive in total benefit in a year, I ask myself what possible justification, in merit, in need, in contribution to the community, in anything to do with the ideology of incentives, there can be for such inequalities.
I find that there is no respectable evidence; there is no authority to study; there is no definitive survey. There is nothing at home or abroad that can justify the ideology of incentives producing the results that have been claimed for it by this Government.
I want to look at one of the main arguments that the Chief Secretary has used, because the Prime Minister made great play of it immediately after the Budget. We are told by the Chief Secretary and the Government that, as a result of these top rate tax cuts, people who left this country will return and people who may think of going will no longer leave. We are told that these people are doctors, scientists, engineers and university academics. We are told, further, that those people can be persuaded to stay or persuaded to return to this country.
Let us leave aside for the moment the issue that the average engineer earns £19,000, the average doctor between £25,000 and £30,000 and the university lecturer between £20,000 and £25,000. That is according to the figures that we have available. Let us also leave aside the fact that these people are not the big gainers from the Budget. The big gainers are those people earning £50,000, £60,000 or £70,000, which are salaries that engineers can never hope to have in this country.
Let us look at the argument on its own merits. We were told after 1979 that top rate tax cuts would bring all these people back—the engineers and the scientists. However, the evidence is that they have departed at even a faster rate. When the Prime Minister told us a few days ago that since 1983 more people than ever had returned to this country, she forgot to tell us that more people than ever were leaving. We know that the number of professional and managerial employees leaving this country has doubled. Britain contributes more scientists and engineers to what is called the transatlantic brain drain than all other European countries put together.
We also know that a former Minister with responsibilities for higher education, when writing in The Times in 1987, said quite specifically about the top rate taxes and everything else—[Interruption.] Perhaps the hon. Member for Pembroke (Mr. Bennett) will listen to me. A former Minister with responsibilities for higher education said that young scientists and engineers are refugees, not from the Treasury but from the cumulative effects on British science of educational, fiscal and cultural failing. If doctors are moving abroad, it is not because of the top rate taxes that have to be paid. It is because the facilities are not here for them to do the research that they want to do.
The House of Lords Select Committee confirmed that only a few days ago. If scientists and academics are leaving the country it is because, as the Vice-Chancellors' committee has said, they no longer have any reliable career structure and they find they have better facilities abroad. The most worrying aspect of all, as the Royal Society said recently, is that if academics in the science sector are leaving it is because they believe that cuts in basic research and scientific support mean that science in Britain is being progressively marginalised.
The answer to the problem that the Chief Secretary identifies is not that we impose top rate tax cuts on those earning more than £50,000 a year. The real answer to that problem is for that money to be used properly to fund science, technology, education and training, our univer-sities and colleges, our Health Service and our medical research. This was not a Budget for meritocracy but a Budget geared more to the aristocracy in Britain. [Interruption.] I have to say to the Chancellor that he perhaps has not looked at all the calculations that he has made.
He probably knows that, having halved the number of people, for example, liable to inheritance tax, he is proposing very substantially to reduce the numbers again. Someone who inherits an estate of £1 million would get a benefit of £150,000 as a result of this Budget. However, some of these people do not pay the tax at all. The changes in capital gains tax give substantial amounts of money to people who were the beneficiaries of the property booms of the late 1970s.
I answer the point of the Chancellor and the Chief Secretary by saying that in this Budget they have not closed the tax loopholes. If they look at the enterprise zone scheme and the business expansion scheme, and look at all the schemes that exist for people to set their earnings against their tax, they will find that for every loophole closed by the Budget, another has been opened, which the tax planners and the tax avoiders will use to the full.
No. I will not give way again.
The Chancellor of the Exchequer is unable to argue that these top rate tax cuts can he justified on the grounds of incentive, because he has produced no evidence whatsoever. He cannot say that they will prevent migration. He cannot say that they will prevent evasion, which has risen sevenfold during this Government's period of office, according to the published figures. He cannot look at the figures and argue any of these things.
In that case, what is the Chancellor's new argument? His new argument was launched again on Sunday in the programme "This Week, Next Week". It is that, somehow, by top rate tax reductions, the poor will benefit through the increase in charitable donations. That seems to be the best argument that the Chancellor can put forward—as The Financial Times, in a recent headline to one of his other speeches, said,
The moral basis of tax cuts".
The right hon. Gentleman may think that the key fact is that charitable donations have increased twofold since 1979, but to people on the Opposition Benches the key fact is that the need for charitable donations has increased as a result of this Government's policy. Charitable donations may have increased twofold, but poverty among families has increased fourfold according to the estimates of the Government. Evictions have increased tenfold.
I am sure the hon. Gentleman will not wish to mislead the House. May I say to him that the definition that he is using of poverty is a definition that is distorted by rising levels of benefit that this Government have introduced. That is a matter that is demonstrably clear to anyone who cares to look at the income support levels upon which he is basing his definition.
That point will be entirely lost on the pensioners of this country, whose income support level, which the right hon. Gentleman says is generous, is £44·05 as a result of the changes in the Social Security Act. It will be entirely lost on the many thousands of pensioners who, because of the capital limit that has been imposed—imposed during the time that the Minister was a Minister in the Department of Health and Social Services—have lost housing benefit because of the removal of exemptions. The truth is, as the Chief Secretary knows, and as the Chief Secretary is ashamed of, that the numbers of people in poverty in this country are rising. The social security changes have resulted in the numbers of people in poverty rising even further.
The Chancellor says that the number of people giving to charities has doubled, and that the amount of money given to charities has doubled. I accept that point. Is he saying that, in future, charity has to bridge the gap between the rich and poor in this country? Does he believe that charitable donations can make up for the £800 million lost through all the changes in social security benefit? Does he believe that charitable donations can pay the £1 billion and more that is still needed properly to fund the National Health Service this year? Does he say to Conservative Members on the Back Benches who have troubled consciences and who have many constituents affected by the housing benefit changes, that the best hope for the future is not to ask the Government to change the wrong policy, but that these people should beg and borrow from charities and voluntary organisations?
Well, if the Chancellor thinks that is not the case and that is not the policy that has been pursued by the Government, what do the new regulations that govern the social fund really mean? In the Act which governs the social fund and in the regulations, social fund officers are asked to look at how voluntary organisations and charities can help. That is exactly the position in which members of the Department of Health of Social Security have been put as a result of this Government's policies. I hope that the Chancellor—who appears to be in total ignorance of what has happened as a result of these regulations—will read the social fund regulations and respond to them in this House.
No industry is better prepared for the future as a result of this Finance Bill. No health authority is better funded as a result of the changes in the Finance Bill. Many health authorities throughout the country are waiting to know what the Government will do about increasing the number of nurses and about improving the capital programme for these hospitals. I advise the Chancellor that none of the poorest in our society are better off as a result of the Budget.
Last weekend, like many Conservative Members and many of my hon. Friends, I held constituency surgeries. In the years that I have been a Member of Parliament and involved in politics, I have never seen so many people so demoralised, so desolate and so devoid of hope—and that after the path-breaking Budget about which the Chief Secretary boasts.
A widow came to see me who has a pension of £41·15, who has received, and still receives, industrial death benefit because her husband died of asbestosis. She told me that she had counted the pennies for years and that she had made every economy that the Prime Minister had asked of her. She said that she had prepared herself for a rent rise of £1·50 but suddenly found that she was facing a housing benefit cut of more than £20. She said, "I thought that the Prime Minister had already taken from me everything that she could. I did not think that she would take any more."
What is the Government's response to the problem of poverty? The training manual for social fund officers suggests that such a pensioner lives on stale food, buys dented tins, grows her own vegetables, invests in tinfoil, avoids biscuits and jams, and states:
Don't shop when hungry, you may be tempted to buy more than you need.
What sort of society is the Chief Secretary justifying when a widow in my constituency, on £41·15, loses £20 per week as a result of the housing benefit changes? What sort of society is he justifying when that happens and when, in one line of one sentence of one clause of this Finance Bill, so few people get so much?
In the past, Chancellors have come to the House to say that because revenues are rising, all will benefit and all will share. Other Chancellors have had to come to the House —from both parties—and say that because revenues are falling or because the economy is in difficulty, all must make sacrifices—[Interruption.] Conservative Chancellors as well—and that the sacrifices will be equally shared. No Chancellor until this one has come to this House and said that because revenues are rising as a result of North sea oil and everything else, the rich will get the benefit——
Is the right hon. Gentleman aware that North sea oil accounts for around £4 billion? Is he aware that no Chancellor until this one has had £5 billion a year in privatisation revenue? Is he aware that the reason he has been able to give tax cuts, mainly to those at the top, is that revenues from North sea oil and privatisation were available to him that were not available to any Labour Chancellor in the past?
No, I shall not give way.
No Chancellor until this one has come to the House and said that because of the money that is available to him, the rich will get the benefits and the poor will make the sacrifices. Past Conservative Governments have lived with a two-nation Britain. Some Conservative Governments have even sought to do something about it. However, no Conservative Government until this one, no Chancellor until this one, have so deliberately sought to make inequality and social division the main weapon of their economic and social policy. That is why we shall vote against the Finance Bill, and that is why, in so doing, we shall have the public on our side.
It is the fate of Chief Secretaries, after the glamour of Budget day, to regale the House with the details of the Finance Bill. However, my right hon. Friend's speech had a great deal more wit and cogent argument than some of his predecessors managed to exert when going into the nitty-gritty detail of the arrangements set out in successive Finance Bills.
This debate traditionally has two themes: on the one hand, it is a discussion of the specific tax proposals and, on the other hand, it embodies a wide-ranging financial debate. As the House knows, the Treasury and Civil Service Select Committee has traditionally taken the view that it is right to concentrate on the underlying economic situation and to analyse that, rather than to go into the detailed tax measures which are more appropriately discussed either across the Floor of the House or in Standing Committee, where the matters are typically debated on party lines. None the less, although I want to say something about the Committee's report, I begin by commenting on some of my right hon. Friend's specific tax proposals and more especially on the remarks of the hon Member for Dunfermline, East (Mr. Brown).
One might reasonably say, or paraphrase, "Happy is the Opposition spokesman who has no history," because the reality is that the contrast is not between this or that group which will benefit from the Finance Bill, but between those who are benefiting under the Bill and other measures that my right hon. Friend the Chancellor has introduced on previous occasions, and what happened under Labour Governments. That contrast is remarkable.
However, I fear that in presentational terms we are not making the best of what my right hon. Friend has been doing, and not least of the fact that raising the tax threshold at which income tax becomes payable, which has risen twice as fast as is necessary to compensate for inflation, combined with the reduction in the standard rate of income tax, involve tax concessions for those at the bottom end of the income tax scale which are far bigger than anything that I can recall under any Labour Government. We need to get that point over strongly.
In addition, the revenue which will be raised as a result of the Finance Bill is providing massive resources on a scale that was undreamt of under Labour Governments, and which will help alleviate poverty and distress. I was astonished by a remark by the hon. Member for Dunfermline, East—that the Finance Bill does nothing to help the National Health Service. Of course, the proposals on the National Health Service were set out on a White Paper before the Budget, but they involve an extra £1 billion this year, an extra £1 billion next year and an extra £1 billion the year after that on the National Health Service.
On top of that, the full funding of the nurses' pay award, which was announced a day or two ago, amounts to about £750 million—approximately three quarters of a billion pounds. Therefore, the extra expenditure on the Health Service this year, provided for and financed by this Finance Bill, amounts to about £1·75 billion. Even allowing for inflation and everything else, there is no precedent of any Labour Government spending anything like that amount on the National Health Service as an additional amount.
What advice would the right hon. Gentleman give to health authorities that have unfilled nursing vacancies and will now receive applica-tions from people who wish to train as nurses but do not have in their budgets the sums available to pay those nurses now that they have received their pay increase? I should add that it is very good that the Government have funded that pay award fully this year, but whether they will fund it fully next year is another question. What should health authorities do if they wish to employ extra nurses but do not have the funds?
I advise the hon. Gentleman, in the clearest possible terms, that the success of the Chancellor's economic policy has enabled us to spend a massive record extra amount on the Health Service as a whole, including on nurses' pay and on funding that award in full, with the result that the contingency plans that have been made for reducing shortages elsewhere in the Health Service will no longer be necessary. That is something of which this Conservative Government can rightly be proud. Successive Labour Governments should have been ashamed.
I turn from that point because I want to say something about the more detailed aspects of the Finance Bill, and especially about the underlying background to it, which were set out in the unanimous report of the Treasury and Civil Service Select Committee. As I have said, the Committee eschews comments of the kind that I have just made. On the Floor of the House, one can reasonably take up such matters.
Despite the tax cuts in the Budget and the massive increases in public expenditure, my right hon. Friend has achieved a balanced budget. Not only that, but he has ensured that such public sector borrowing as is necessary can be fully funded. In addition, the means necessary to sterilise the effects of intervention in foreign exchange markets have been fully funded.
On all previous occasions, we have been inclined to think that the effect of having a PSBR frequently not fully funded is the source of an increase in the money supply which gives cause for concern. What is interesting, after what has emerged from the analysis in the Treasury and Civil Service Select Committee's report, is that, once one draws back the curtains after balancing the budget and fully funding the operation of central Government, one sees none the less a substantial increase in credit. That is a cause for concern.
The Governor of the Bank of England pointed out in his evidence to the Committee that private borrowing since 1983–84 has continued to rise and is now estimated to be 12 per cent. of GDP. He also pointed out that domestic private sector borrowing has accelerated at over 20 per cent. a year in the past two years. Therefore, although it is unfashionable now to concentrate on the money supply as a measure of what is happening in the economy, the expansion of credit and perhaps the expansion in monetary aggregates gives us cause for concern.
Examining that more closely, as the Committee never ceases to do in pointing out that the private sector continues to borrow voraciously, how is that to be brought under control? What emerged very clearly in the evidence for instance of the Chancellor, who said that the essential instrument of monetary policy must remain short-term interest rates, or of the Governor of the Bank of England who said that the only effective instrument of monetary policy is the short-term rate, was the way in which that weapon seems to be remarkably ineffective. Therefore, because the PSBR funding point has become irrelevant in the present context, the weapon available to control the expansion of credit is not so useful as we might hope or think.
That situation gives us considerable cause for concern about future management of the economy, and the expansion of bank credit. It is particularly worrying that, despite the fact that public borrowing has been reduced to a point where the budget is balanced, there is still some concern about overheating in the economy, for the reasons that I have just mentioned.
The Committee rightly draws attention to the way in which the inflation rate has been brought down and is now flattening out. Against that background, the point that I made a moment ago is important, not least in the context of our international competitiveness. The forecast for the GDP deflator this year for the United Kingdom is 4·7. For the United States it is 3·4, for Germany 1·8 and for Japan 1·6. There is some danger, as the Governor of the Bank of England pointed out in evidence to the Committee, that we have become complacent in believing that somehow an inflation rate of 3, 4 or 5 per cent. is quite satisfactory, and everyone can be happy about it. Against the background of other countries' success in controlling inflation, we should not be complacent about that.
My third point relates to use of the exchange rate as an economic instrument. There has been much comment in the press about the differences that are said to exist—some, indeed, are admitted to exist—between the Chancellor of the Exchequer and the Prime Minister on exchange rate policy. In particular, the Treasury and Civil Service Select Committee usefully tagged on to an exotic expression of my right hon. Friend the Prime Minister, that in exchange rate policy matters one cannot "buck the market". Some of the press comment since the report was published concentrates excessively on personalities. It is a useful shorthand, but the Committee seeks to analyse the underlying dilemmas. I am sure that is the right approach. There are genuine dilemmas over policy. Therefore it did not seem to us in the Committee to be appropriate to come down in favour of one side of the argument or the other, in black and white terms, but rather to concentrate on the underlying issues.
Does the right hon. Member not see that it is a great pity that the Committee did not make a clear distinction between the views of the Prime Minister and the Chancellor of the Exchequer? The Prime Minister clearly tried to pre-empt the Chancellor's discretion in dealing with the exchange rate. That is of great importance. If the Chancellor of the Exchequer, who won the election for the Prime Minister, is not the master of exchange rate policy, that is a serious matter, and I do not know what the Chancellor has left. It is a great pity that the Treasury and Civil Service Select Committee has so muddied the waters that one cannot see what it had in mind.
The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) has intervened in every speech that I have made in the past 15 years on a Finance Bill, but he is not usually witty on these matters.
I was seeking to say that there is much in favour of the arguments on both sides. That is what the Committee has sought to point out. Our conclusion is that if bucking the market means intervening, and buying and selling different currencies, that can be done reasonably in the short term to smooth the transitional arrangements, but one cannot buck the market in that way if it becomes very costly to do so.
On the other hand, if use of the other two major instruments of economic policy—interest rates and fiscal policy—is said to be bucking the market, one can do it, because the underlying fundamentals will be affected. Essentially our view is that one can buck the market by using interest rate policy and fiscal policy.
As the Chancellor said in answering a question from the Committee, there is no doubt that if one were to cut interest rates, that would probably cause downward movement in the exchange rate. That would buck I he market. Similarly, if the tax concessions that my right hon. Friend has given in the Budget had been fewer, to that extent one might buck the market.
What worries me is a matter that was referred to in paragraph 53 of the Committee's report. The present situation gives cause for concern. When the sterling exchange rate broke through the DM3 barrier, the rise in the exchange rate would have indicated a tightening of monetary policy. It would have been possible at that point to reduce interest rates and, at the same time, achieve some exchange rate stability while maintaining —I stress that word "maintaining"—downward pressure on inflation.
What happened at first as a result of not doing that was that we were tightening inflationary pressure. We sacrificed exchange rate stability in relation to the deutschmark. It is clear from paragraph 53 of our report that we were very doubtful about that. It is not seem by industry or others as a sustainable change in the exchange rate. It is unlikely to have a long-term effect.
On the other hand, if one allows the pound to go up rather than stay in line with the deutschmark as it was it is likely to create a dangerous position when it comes down again. Rather than seeking a temporary tightening of anti-inflationary pressure, it would have been better to stay within the 3 deutschmark line and to maintain the undoubted downward pressure on inflation, while at the same time maintaining some exchange rate stability.
I agree with the hon. Member for Ashton-under-Lyne that it is essential to have a clearer statement of exactly what the policy is. There is some danger that we have moved from the early period when the monetary aggregates, particularly M3, were said to be all-important with the consequences which then followed in 1979–80, to a period of considerable uncertainty about exactly what the policy is. That uncertainty, combined with the difficulties associated with the expansion of credit and the ineffectiveness of the interest rate weapon in that context, causes anxiety.
We are doing all that against a favourable background, which the Government have created and which has enabled my right hon. Friend the Chancellor both to make massive tax cuts which provide tremendously important incentives, and to increase hugely the resources going to the NHS and elsewhere. Those are all signs of his success in managing the economy. It is important to ensure that we continue that progress and I believe that that is possible. I hope that this Finance Bill will be welcomed by the House and the country, and that it will mark a further step forward in the advantages, now being seen, of the attitude of the Chancellor, the Chief Secretary and other Treasury colleagues.
The House must always pay its tribute to the right hon. Member for Worthing (Mr. Higgins) for chairing the Treasury and Civil Service Select Committee which produces its reports in good time for us to consider them. On this occasion it is only just in good time and we have not had a chance to digest much of the information conveyed in the report. Nevertheless, it is valuable and we know the time constraints under which the right hon. Gentleman and the Committee and their advisers work. We are grateful to them.
It is a pity that there seemed to be greater divisions than usual in the consideration and preparation of this report. I understand the problem: Government and Opposition Members cannot always see eye to eye. But in the past they have tried to limit their differences and to come up with something that represented rather more than this cocktail.
Perhaps the most important matter facing us is the crucial central question of the exchange rate. I support the Chancellor of the Exchequer on this. My support will not do him much good, but in this place properly held views should be put across and, at least on occasion, be subject to critical assessment rather than taken as yet another attack. That might have been the attitude of the Select Committee.
The Chancellor was right when he said that it was not sensible to discuss these market-sensitive matters in public as much as they were. That is a serious criticism of the Prime Minister. The Chancellor was in a powerful position, having contributed so much to winning the general election for the Prime Minister, and he found himself pre-empted by her in a statement in this House about bucking the market. She laid it down clearly that she disagreed with him immediately before the Budget. By saying that, she sought to bring him into line and to carry out her views. It is to his credit that he did not follow that line or do what Francis Pym and others have done, conceding victory to the Prime Minister on a matter on which they thought she was wrong. The Chancellor contained the problem.
That was serious, because the whole international financial world knew that there was a division between the Prime Minister and the Chancellor. That made it clear that the level of the pound could rise above DM3, and it did. As soon as the disagreement was known, the financial community had an incentive to test where the upper limit was. Such arguments can take place, but they should never take place at such an exalted level in public. That was a great pity.
Paragraph 5 of the report states:
We remain somewhat puzzled by the Chancellor's continued insistence that there has been 'no change in policy', … although … the reduction of inflation has been the overriding objective.
That refers to the monetary policy. We all know that the Committee did not need to use such muffled language.
The Government tied themselves to the dogma of impractical theorists, they were taken over and they plunged the nation into wreckless industrial decline. The three years of unparalleled austerity, so ably predicted by the right hon. Member for Shropshire, North (Mr. Biffen), meant the foreseeable and unnecessary assassination of thousands of viable companies which were liquidated by this spasm. The money supply was the touchstone, and the exchange rate, as the Committee reports, was not even mentioned in the early Red Books in which the basic philosophies of this Government were laid down.
But now the Chancellor has learnt that the exchange rate is extremely important. It lies at the heart of our economic management and it is the critical test of his Chancellorship. Getting it right will determine the balance of payments, the advance of exports, the deterrence of imports and the relationship of our economy to the world at large. It determines the outcome of more than anything else that the Chancellor can do. As I said on a previous occasion, it represents the maximum of his power and influence.
If one wanted power, one might well ask for the power to determine the exchange rate, giving the Chancellor everything else. The international effect of that kind of control is massive. The exchange rate is the precursor of future trade patterns. It determines the level of the order books of our most important industries, it affects the level of unemployment and jobs, and it anticipates the real level of industrial prosperity.
The Prime Minister, who is rather more relaxed about the pound going up or down in response to market forces, may recall what went wrong between 1979 and 1981. The pound went up sharply and it came down sharply and we paid an enormous price. By the time the exchange rate had come down again one third of the firms in my constituency had closed their doors. I am sorry to return to this, but I have to bring it into most of my speeches because it has had the greatest impact on my constituency in my 24 years of representing the people there.
That also caused my greatest political wretchedness. We do not have any large firms in my constituency. They are typically medium-sized firms which employ between 40 and 80 people. They are valuable firms doing jobs for—example, engineering or mid-tech—such as one sees in every country, however advanced their economy. The danger is that what we are doing now is similar to what caused that disaster, although with a lesser effect.
It is important to understand that in the end our prosperity depends largely on our manufacturing industry. The trouble is that in discussing so many economic matters we need agreement in the whole House on certain essentials. We want at least to agree on the structures of our taxes. The rates will always cause divisions between us. There is some agreement. We have not changed the basic structure of income tax, except for higher rates just recently, and we all agree that income tax should play an important part, although we disagree, of course, on the levels of tax.
What worries me, however, is that there is no agreement on manufacturing industry. We believe that there should be some incentives to manufacturing industry, because it is the basis of our prosperity. The Conservative party does not believe that; far from it. So we find ourselves altering the pattern of our relationship to manufacturing industry, depending on which party is in power. We need a consensus on certain aspects of our economy. By all means let us change rates of tax and certain attitudes that apply in these matters, but there should be certain minimum areas of agreement.
As I have said, I believe that our prosperity depends in the end on our manufacturing industry. The idea that the service sector alone can provide us with a high and expanding standard of living is a fool's dream. The service sector has too often been hailed as the indicator of the sophisticated, advanced economy of the future. I read an important article the other day in the Siemens Review—that is the big electrical engineering firm. The article was called "The myth of the post-industrial economy" and it pointed out that most celebrations of the shift from industry to services compare this shift with that from agriculture to industry. But what has happened with agriculture is not that we produce less than we did 40 years ago but that we produce with fewer people. We have become more efficient; we are producing more and importing a smaller proportion.
What we are seeing in manufacturing, however, is a replacement of our industry by imports from our competitors. The next stage in the development of our economy needs to be not a movement away from manufacturing industry as a total of the amount produced and its replacement by the service sector, but the increasing efficiency of our manufacturing sector. Then the surplus labour needs to be going into more productive areas of activity. The decline in manufacturing is leading to two things: the servicing, in the widest sense, of the products of a relatively diminishing manufacturing sector, and unemployment.
It is no accident that the success of the two powerful economies of the world, those of Germany and Japan, is due to their manufacturing dominance. Nor is it an accident that the emerging nations which are successful, particularly in the far east, owe their success also to their industries. None of the countries that I have mentioned has such a dominant service sector as we have.
Much of the distortion of our economy is due to the centralisation of our industry here in London. We are an extraordinarily centralised country as far as our industries are concerned. In 1969 I went to the various regions of the country to look at manufacturing industry and industry generally. I went all over the country—Scotland the north-east, the north-west, the south-east, and so on. I took as my guide The Times top 100 companies in Britain.
To my surprise then, and to my surprise now, 95 of the top 100 companies had their headquarters in London. That is astonishing centralisation and a complete distortion. In America, 29 of the top 100 companies have their headquarters in New York. In Germany, the Lop companies are scattered all over the place. Even in France they are scattered. Here, even the Distillers Company, with its business in whisky in particular, has its headquarters in London. The National Coal Board has its headquarters in London.
This creates an enormous distortion. It means that things are seen from the London aspect, and particularly from the City of London aspect. I am not decrying the City of London, but it takes too high a proportion of the ability that we have in this country, and this has a distorting effect. I believe that some of the distortion is caused by our having so much of our wealth abroad. Dividends are obtained on it and it is a valuable asset, but we must be aware of the distortion it creates.
I had responsibility 14 years ago, when I was in charge of the Civil Service Department, as it then was, for the dispersion of civil servants throughout the country. I had a scheme, in accordance with the Hardman report, for sending 30,000 civil servants to various parts of the country. I believe that that was enormously important. If centres of ability, power arid influence are scattered all over the country, there will be a rather different regional approach. And if we get some of the big industries to have their headquarters outside the capital, there will be a better regional balance.
Increasing house prices are a serious matter. It is worrying that the Government have not acted to control or delay their effect or to impede it. Indeed, they have added fuel to the fire again and again. This was true of previous Governments—and it is even more true of the present Government. Home ownership has the advantages of capital gains tax, inheritance tax, absence of schedule A, mortgage relief and now the poll tax. A property-owning democracy is becoming an over-housed upper end of the market, where people join the helter-skelter to move into more and more unjustifiably expensive houses; and, because prices rise so rapidly, it is held that interest rates must also be high to dampen the rise. So we are having an argument for increasing interest rates because of the serious situation caused by the money going into housing.
This will have its effect on manufacturing industry, which will pay the price for this great trading-up process in housing. The housing ladder has now become a speeding escalator through which great damage is being caused. There is ever-increasing investment in housing— investment that should be going into industry. Interest rates are being pushed up to counter inflation, whereas they should be brought down to assist industry.
I am very sorry indeed that the highest level of income tax has been brought down to 40 per cent. I am really outraged that the difference in the taxation levels of the person near the bottom and the person at the top has been so narrowed. Twenty-five per cent. plus 9 per cent. national insurance contribution makes 34 per cent. If one is starting to pay tax, one pays 34 per cent., and if one is at the top one pays 40 per cent. This is an incredible compression of the difference between the tax of the lower paid and the tax of the highest paid. The progressive tax system has been nearly eliminated.
When I asked the Financial Secretary to the Treasury a question recently, he pointed out how much more tax those with large incomes paid. But, if there were one rate of tax for everybody, that would still be true—but it would not be a progressive tax system, and all previous Governments have accepted the need for such a system. When the income tax system was brought in 200 years ago, it was based on the idea that there should be some relief for those at the bottom and some sort of progression was later adopted. This reached its conclusion in the surtax levels introduced at the beginning of this century. Up to the 1950s there were three rates of tax at the lower level before one came on to the full standard rate as it was then, and there were several rates above that. Now we have 34 per cent. for most people and 40 per cent. for the rest, whatever the income may be. I find it quite impossible to understand how anyone can accept this.
The progressive tax system was not the prerogative of the Labour party. It was confirmed by Conservative Government after Conservative Government. We used to argue it, and we still do, as an egalitarian necessity. Conservatives used to argue it on the basis that it is right that the broadest backs should bear the greatest burdens. All these arguments seem to have gone and the great principle of a fair tax system covering all the people in the country is being thrown out. This is one further measure of the extremes to which the Government have gone. It is a great pity for all parties, and a great pity particularly for the House of Commons if it passes this legislation and a great misfortune for the people who will have to bear these burdens.
It is always a pleasure to follow the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). I am sure the whole House will agree that stability in exchange rates is highly desirable for the economy, but I think that the right hon. Gentleman overplayed the difference which he tried to imply there was between my right hon. Friend the Prime Minister and my right hon. Friend the Chancellor of the Exchequer.
The right hon. Gentleman believes that the future prosperity of the country depends upon manufacturing industry. I do not think that everyone would go along with him on that. I am not suggesting for one moment that our economy could be based only on service industry, but service industry contributes about £600 million a month to our balance of payments. Does it matter whether the country gets $1 in foreign exchange for a manufactured item or $1 for a service item? There is no difference: it is still the same dollar.
Of course manufacturing is important but we must consider the underlying reason why we have ceased to have manufacturing industry. Because of overmanning we could not compete. It is no good Opposition Members shaking their heads. They know that that is true. How is it that we are producing more steel today with half the labour force that we used to have? That is proof positive of what I have said.
If the hon. Member for Dunfermline, East (Mr. Brown) were in the House, I am sure that he would agree that his speech was one more of envy than of content. It is rich for anyone on the Front Bench of such a high-tech party, with the policy which eventually led it to the International Monetary Fund, to criticise anything that we do.
I welcome the strategy in the Budget, which is a continuation of our strategy since 1979. My right hon. Friend the Chancellor has been congratulated many times by my hon. Friends. He performed a hat trick in the Budget. He got taxes down: he got public expenditure on the National Health Service, education and all the rest up, and he repaid part of the national debt. He achieved those three things in his Budget.
Consequently, we realise that what the hon. Member for Dunfermline, East said about high taxes producing higher revenue is a fallacy. In 1978–79 the top rate of tax was 98 per cent.; it was 83 per cent. on so-called earned income and 15 per cent. on investment income. In 1978–79, 24 per cent. of all the income tax collected came from 5 per cent. of taxpayers paying the top rate of tax. In 1988–89, we will have a top tax rate of 40 per cent. The same 5 per cent. of taxpayers will pay 28 per cent. of the total income tax take. No one can refute these arguments. Consequently, it is a fallacy to think that high taxes produce extra revenue. They do not. In fact, they kill initiative, and down goes our productivity and competitiveness.
The critics of the Budget originally referred to nurses' pay, but they seem to have dropped that. In an excellent speech, my right hon. Friend the Member for Worthing (Mr. Higgins) mentioned the £1·1 billion extra which the Health Service will get next year. In that there must have been some estimate for what nurses would get in their pay review. I do not know what it was—perhaps 4 per cent. or 5 per cent.—but the nurses got just over 15 per cent. on average, with some getting more and some less.
If in the £1·1 billion 4 per cent., say, was allocated for an increase in nurses' pay, that meant that someone had to find the extra money. It is not the Chancellor. I wish people would stop saying that the Government are keeping the money back, that the Government are not doing this and that the Chancellor is not spending the money which he has got. Everyone should remember that it is the taxpayers' money we are talking about. To fund fully the increase in nurses' pay the Government will have to find £600 million, £500 million or whatever, but I remind the House that in the Budget the Chancellor had a contingency reserve of £3·5 billion. It is sufficient for him to fund whatever increase the pay review body recommended.
When we came into office, the top rate of tax was 98 per cent. and the standard rate was 33 per cent. My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) cut the top rate to 60 per cent. Subsequently the standard rate came down to 27 per cent. Now the standard rate is 25 per cent. and the top rate is 40 per cent. I welcome those rates of tax.
I welcome too the change in capital gains tax. As everyone knew, it was a tax on inflation. Indexation since 1982 has been welcome. Under the Labour party, inflation went up to 26 per cent. or 28 per cent. Indexation from 1982 did not take account of the inflationary build-up until 1982. Now we have a change, with the 1982 value being used for capital gains tax purposes, which meets some of the criticism of a tax on inflation.
How does the hon. Gentleman explain that taxes as a share of national income have risen from 34 per cent. to 38 per cent., if we take the fact that income tax is down but taxes on spending have gone up? How does he explain that poorer households pay almost one quarter of their income in indirect taxation, whereas richer households pay only 16 per cent?
If a household is earning more money, it will probably live better, but it is a fallacy to suggest that if a household with a low income pays 25 per cent. in indirect taxation, a household with double that income will necessarily spend 25 per cent. as well. It depends on what the hon. Gentleman is taking 25 per cent. of.
That brings me to the next point. It is wrong to suggest that cutting the income tax rate will reduce the gap between the rich and the poor. Cutting tax rates will not necessarily help the poor. It did not help when the Labour party was in power and the so-called rich were paying 98 per cent. tax.
Reference has been made to charities. I watched the television programme on Sunday. It is wrong for the Opposition to say that my right hon. Friend said that people should have recourse to charity. [Interruption.] He did not say that at all. Opposition Members should get a video of the programme and they will find that he did not. I thought that he was interviewed by a hostile person. All my right hon. Friend said was that he was helping charities, and that is a good thing.
There have been accusations about privatisation. Privatisation is not meant to balance the budget. Of course it helps, but the idea is to spread the wealth of the nation. I remind Opposition Members who grin at that remark that in 1979, when we came to power, there were 2·75 million shareholders; I am not talking about rich institutions. Today there are nearly 9·75 million shareholders. That shows the turnround in our economic fortunes. The Labour party does not realise what has happened. [Laughter.] It is no good Opposition Members laughing. This is a distribution of wealth. This is what we want to do. The trouble with capitalism is that there are far too few capitalists.
Thank goodness that, since 1979, we have increased the number of capitalists in this country. In addition, two families out of three now own the house in which they live. That is a complete turnround in the economic fortunes of this country.
I welcome the landmark in 1990 of separate assessment for husband and wife. That will not be easy. If there are to be no losers, we must add the single allowance to the married allowance. That is what a married couple receive at present, if both husband and wife work. If there is to be a single allowance for each partner, and to avoid anyone losing, the allowance should be raised to £3,350. At present, the single allowance plus the married allowance add up to £6,700 for a working couple. At today's figures, that change will cost the Exchequer about £5·4 billion.
Leaving aside the question of transitional provision so that there are no immediate losers, what does the hon. Gentleman think is the logic of indefinitely providing an additional allowance to a married couple, both of whom are earning? What is the logic of providing them with a greater allowance than two people would otherwise have?
For a married couple, both of whom are working, not to lose, we must provide them with a single allowance of £3,350. will help the married couple in those cases where only one person is working. It means that the tax threshold is that much higher. It will take more people out of the tax bracket and provide privacy between the spouses.
The other landmark that I welcome in the Budget is the target of 20p in the pound, but the real success is the management of the economy, particularly in respect of the public sector borrowing requirement. Next year we shall have a negative PSBR balance. I remind the House that, during the previous regime, the average PSBR overspend-ing as a percentage of the gross domestic product was 6·75 per cent. The average since we have been in power has been 2·75 per cent. Next year and the year after, it will be a minus percentage. As has been mentioned, the 25 per cent. rate has been a great help to business, particularly small businesses.
I wish to draw my hon. Friend's attention to the present burden on industry. We must alleviate the burden on industry, particularly the service industries, of the phenomenal number of regulations in the Financial Services Act 1986, which are expensive to operate. Let us take, for example, any small company that employs 50 or 100 people. In addition to the burden of collecting PAYE and filling in the associated forms, there is now form P11(D) which lists the various perks that an employee may obtain. In such cases, an employee is defined as a director —I accept that; it means that he is in a different bracket —or any employee earning more than £8,500 a year, including any perks that he may obtain.
The average wage is now about £200 a week. If one indexed the £8,500 figure, which was fixed in 1978, up to 1988 figures, it should be £18,200. I believe that the minimum figure for an employee should be increased. It would relieve the burden of many employers in respect of form P11(D). I remind my right hon. Friend that, recently, the EETPU did a deal with employers, so that all its members would have their BUPA subscription paid by the employer, although it would then have to go on form P11(D).
Most economic pundits, including the Confederation of British Industry and the Institute of Directors, agree that the economy is in good heart. Wage rates may be becoming too high, the estimate for production may be just a little too optimistic but, if one takes the economy as a whole, one can see that unemployment and inflation are coming down and that the reserves are excellent.
I remind those Opposition Members who criticise us about the balance of payments deficit of £1·5 billion, £2 billion or £3 billion that our reserves are at present £143 billion and that that deficit is quite sustainable on our overseas balance of payments. I remind the House that, when the Labour Government were in power, they had a massive deficit each year on their balance of payments. Since 1979, even taking into account last year's deficit of £1·5 billion to £2 billion, the total surplus of our balance of payments adds up to £20 billion. That is rather different from the deficit left by the Opposition.
The only thing that could upset our economic progress would be if we were to adopt the policy advocated by he Labour party. Our policy is working. We have been steadfast in our policy and in no circumstances should we change it because that would be disastrous. If we maintain our present policy, the 20p in the pound target and further prosperity is in sight during this Parliament.
I shall try to comply with your request, Mr. Deputy Speaker.
I should like to comment on one point raised by the hon. Member for Croydon, South (Sir W. Clark), which has also been mentioned by the right hon. Member for Worthing (Mr. Higgins), in respect of the Government's increased expenditure on the National Health Service. The Government have increased expenditure, but the right hon. Member for Worthing, above all, should have had recourse to the report of the Treasury and Civil Service Select Committee, which he chairs, and on which I serve, and which report preceded that which features in today's discussions. In that report we pointed out how difficult it is to use those figures, because the effects of inflation, both in general and in the specific form in which it hits the National Health Service, have to be taken into account.
It is true that the Government have provided additional resources for the NHS, but those resources do not keep pace with the effects of inflation on the NHS, or even with general inflation. If we take general inflation into account, it leaves the Health Service with only a little over 1 per cent. extra, but, if we take into account the relatively higher rate of inflation which affects the NHS, we discover that that leaves the NHS with, in real terms, fewer resources than it had before, with which it has to deal with a growing range of problems, not the least of which is the increased number of people having recourse to its facilities.
The Committee has considered in detail the impact of inflation on the NHS. It is now recognised that it is a much wider issue than the general comments by the Government about increased funding suggest.
Yes. That disappears quickly, if we consider the increase in demand for the Health Service in line with the population increase, especially in the groups most likely to make use of the NHS, and the relatively higher prices in the NHS. It was this Government who came before the House with proposals for increased prescription charges, which were justified on the basis that the cost of prescriptions—one of the items in the Health Service budget—was increasing faster than costs in the economy generally. There is now a more widely recognised problem, and it means that one cannot just bandy general figures on the Government's Health Service record.
We are also getting older as a nation and we demand more money spent on the NHS. People have paid their taxes and deserve to be looked after in their old age. Does the right hon. Gentleman agree that the family practitioner committee section of the Health Service is not cash-limited and that an increase above the average places an even more unfair burden on the hospital and community health sector?
That is a fair point. However, I must stop these digressions, or I shall fail to meet the requirement that you have set for me, Mr. Deputy Speaker.
The Finance (No. 2) Bill incorporates a Budget strategy which is unfair, unsound and far from reforming. We must set it against a background of mounting confusion over who is in charge of economic policy. There was a stage when it seemed that the Chancellor could not put his head around the door of No. 10 Downing street for fear that the Prime Minister would bellow at him because of his latest act of intervention on the exchange rate.
The Chancellor has made some attempt to reassert his position, and it was noticeable in his radio interview on Sunday. I noted not so much what he said about charity as what he said about the undesirability of public comment by Ministers on exchange rate policy, which I presume was aimed not only at the Prime Minister but at other Ministers. The Secretary of State for Trade and Industry is not averse to getting off a train in Manchester and making a few well-publicised comments on the exchange rate over breakfast.
If the Chancellor is to be put in charge, so much the better. Nevertheless, it was perhaps too much to expect the whole Treasury and Civil Service Select Committee to agree with my amendment to the effect that it was
unsatisfactory that the Chancellor should not … be wholly in charge of … exchange rate policy.
I suspect that, even though all members of the Committee did not vote for my amendment, many shared that view.
Quite apart from the general advantages of having the Chancellor, rather than other Ministers, in charge of Britain's economic policy, the right hon. Gentleman appeared to take the more widely supported view—that use of exchange rate policy as the primary instrument to control inflation was likely to have unacceptable consequences and that one had to have regard to the effect of exchange rates on industry. As the Select Committee has pointed out, there is no reason to assume that a stable exchange rate brings about an ineffective climate of inflation control.
Some doubt can be cast on how effective exchange rate measures are in inducing companies to take a particular line with wage settlements, as beyond any doubt is the fact that a continuing high pound causes severe problems for manufacturing and exporting industry, of the kind to which the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) referred. Successful manufacturing and exporting industries and successful service industries producing export earnings do not want an unrealistically high pound, and that factor must be a consideration in exchange rate policy.
Matters of disagreement run wider than those aspects. In taking evidence from the Chancellor, I sought to elucidate the Government's view on Britain's entry to the European monetary system. The idea that the Government are waiting to enter when the time is right is a ludicrous myth which should be exploded. The Government are divided on this matter.
It is not wholly dishonourable to be divided; in fact, the Select Committee was fascinatingly divided on this point. When I sought to secure a vote in favour of early entry, I had the support of the hon. Member for Durham, North (Mr. Radice), although one other Labour Member abstained and a third Labour Member voted against me, along with no fewer than three different wings of the Conservative section of the Committee.
That illustrates the widespread division. Those most concerned with economic policy, including the Chancellor, wish that Britain could soon be brought into the exchange rate mechanism of the European monetary system, not least in time for our conclusion of the internal market.
There are other aspects on which there seems to be some division of policy, not least on the relative acceptability of inflation at about 3 per cent. At times, the Chancellor has appeared to believe that inflation at that level is probably preferable to the measures that would have to be used to drive it down below that level. It is not that it is not desirable to have inflation at that level but that the measures which might have to be used to bring it down further could he more painful and damaging than if inflation persisted at that level for a time.
The Select Committee pointed out that the Government's inflation targets have slipped badly. It is for the Government to say what they regard as acceptable measures to reach their ultimate aim of zero inflation and to say whether they include measures that could severely damage industry and growth.
The repeated message from the Budget has been its unfairness, and that message has been compounded by the effects of other measures which we have been discussing at about the same time—social security and the poll tax. When Conservative Members talk about the importance of having a no-losers approach to some of these problems —referring to the ways in which arrangements for taxation of married couples are designed to avoid creating losers —if makes us wonder why a no-losers approach was not taken to some aspects of the social security measures.
One example has been brought home to me by numerous people who have been to my constituency surgeries. Miners' widows, who receive a cash allowance in lieu of concessionary coal, because they cannot burn coal in their homes, face substantial rent increases. They will lose benefit because of the social security measures. There is no no-losers provision for them. There was no no-losers provision for the people who had saved up their mobility allowance to buy an adapted car. They have found that they have gone over the £6,000 limit and have become losers. No transitional protection was provided for them.
No transitional protection was provided for the family with a 19-year-old at school completing A-levels who had been ill for some of the time in which he would normally have completed the examinations. Because of the change in the rules, the family cannot get benefit. As a result, it will be £20 a week worse off. The no-losers doctrine did not seem to apply to those people.
As well as the manifest and widely felt unfairness of the Budget's tax cut provisions, it is striking that the Budget continued to preserve those tax breaks and benefits to the wealthiest in society, which they should not need if they were getting all the benefits of tax cuts. One of the classic examples to which reference is made in the Select Committee's report, in a different context, is mortgage interest tax relief at above the standard rate of tax.
I still cannot understand the Government's logic for arguing that, with rising house prices, it is necessary to give those who can most easily to afford to buy a house—by definition, because they are on the higher tax rates—a higher rate of subsidy to take out a mortgage than those on standard rates of tax. I should be grateful if the Government can explain that. The argument for it is wholly political. It does not emanate from the Treasury. Like the exchange rate policy demands, it emanates from No. 10. The Prime Minister has concluded that she wishes to retain the support of this group, but there seems to he no logic in it, and it adds to the Budget's unfairness.
Similar criticism can be made of the reform of the taxation of married women. It will give the largest advantage to the wealthy two-earner couple opting for separate taxation. Such a couple will benefit from the disaggregation of their incomes—together they would. be in the higher rate tax bracket, but separately would each be in a lower rate—and they will get the additional married couple's allowance. A massive benefit is flowing to a relatively wealthy group. It is difficult to argue that this produces any kind of fair Budget strategy, even in the context of a part of the Budget in which everyone agrees that some kind of reform is necessary.
Will the hon. Gentleman explain why a married women who is better off is less entitled to her independence than a married women who is less well off? Is not the basic principle behind the reform that of giving dignity and independence to married women, whatever their income?
I do not disagree with that at all, but perhaps the hon. Lady can explain to me what the hon. Member for Croydon, South failed to explain; why such a married woman needs to be in receipt of a married couple's allowance—as one of a couple. One can see why, in the short term, we do not want to make losers of such couples, but why there should be an additional allowance for a married couple indefinitely into the future I cannot understand. I cannot see that it serves to increase the independence of married women. That independence is secured by ensuring that they have separate taxation.
Another area in which the Government have preserved massive unfairness and have not carried out the reforms that would seem natural and logical is national insurance contributions. People earning between £100 and £300 a week pay 34 per cent. of their income in tax and national insurance contributions, but those earning between £300 and £450 a week pay only 25 per cent. of their income. The Government's failure to tackle this mess is another illustration of the fact that the Budget is not only unfair, but is also not a reforming budget.
Shortly after the Budget, the Chancellor said that he had more or less completed his task of reforming personal taxation. If he thinks that, he does not deserve to be credited even with the ambition of being a reforming Chancellor, let alone with having achieved it. Apart from the things that I have mentioned already, he has done nothing to move towards a tax benefit system on tax credit lines, for which previous Conservative Chancellors have argued. He has not tackled one of the greatest weaknesses of the present inheritance tax system. His changes do not encourage a wider dispersal of wealth, which an accessions tax could do.
The Budget was unsound because it ignored some dangers to the economic growth and security that the Government are trying to develop. It ignored the danger to the balance of payments of a substantial increase in private consumption, and did so at a time when there was an obvious need for some increased expenditure in parts of the public services on which large sections of society depend.
It was unacceptable that the Chancellor could say at the time of the Budget that things had turned out much better than he had expected, that he had more revenue at his disposal than he had thought and that he would therefore give more favourable tax reductions than he had planned. Yet he felt himself precluded from saying that, because things had turned out better than he had expected, he proposed to divide what was available to him between further tax cuts and benefits to various public services in need of assistance. He argued in this way because the public expenditure White Paper was published in November.
The Treasury Select Committee tried to put forward one way in which to get over this difficulty. Where there's a will there's a way, and the Chancellor was not really precluded, in the certain knowledge that he has far greater means at his disposal, from disbursing some of these means to urgent needs in the public service——
I said at the outset that I would try to keep to Mr. Deputy Speaker's injunction.
The Budget is also profoundly worrying on the issue of inflation. The Government have not helped their own case by imposing on nationalised industries price rises that they did not regard as necessary and which bear heavily on some sections of the community. In a number of areas of the economy the Government seem to be fuelling the very inflation that they believe they should be trying to control. I mentioned the example of mortgage tax relief. In the course of this year, there will be not only the continuing effects of higher rate mortgage tax relief but the short-term push to house prices, particularly in London, from the changes that the Government are making in the multiple tax relief on a single property—changes for which I accept there is justification. Nevertheless, the alteration will fuel price increases.
Other parts of the Finance Bill deserve considerable examination in Committee and show that the Government seem to have failed to take the steps they should have taken. It is impossible to understand why the Government should seek to allow the real price of alcohol to fall year by year. That is particularly true of spirits, on which the Government have imposed no increase. It is difficult to square that with the activities of the Leader of the House in his ministerial committee on alcohol policy. The proposal on low-alcohol drinks in the Budget was meant to be a gesture towards that ministerial activity, by trying to get a concerted policy on alcohol. It is difficult to see the logic in that, given that the Government believe that alcohol consumption needs to be reduced or controlled —so why reduce its real price year by year?
Although we share the Government's objective of wider share ownership, I continue to argue that the Government maintain a hopelessly inadequate personal equity plan scheme. They could have reformed it in the Budget if they had wanted to. It does not draw in new investors to any significant extent. Its main attraction is to those who have used up their other tax reliefs and want the additional tax relief that the scheme offers. It is not a great attraction to investors.
There will be a great deal of examination of the business expansion scheme proposals on rented housing. There is no reason in principle why the Government should not take steps to encourage private capital into housing. With the problem as desperate as the housing problem now is —and it had got worse—we should be foolish as a nation if we did not try to attract private capital into the solution of the problem. But there are serious worries about the scheme. It is difficult to argue that relief at the higher tax rates is necessary for an investment that is primarily in property, which gives considerable security. It is difficult to imagine that the investment could be secured only by having tax relief at the higher rates.
Secondly, it is worrying that the whole scheme must be geared to the Government's new assured tenancies with no additional protection for the levels of rent charged or against any of the other worries that tenants have. It looks as if, without some modification to the scheme, it could attract capital into unsatisfactory forms of rented housing, in which the tenant is exploited. If that happened, it would be an unfortunate step to take at a time when the housing crisis is so severe.
Many people in this country want an enterprising society with a fair tax and benefit system and good quality public services. It is essential to have all those things, but they are not all provided by the Budget's strategy. Take, for example, good quality public services. It is an insult to the nurses to imply, as the Chief Secretary did, that by providing a much better pay increase for them than that of previous years, and fully funding it, the Government have dealt with the whole of their grievance. Many nurses took to the streets in orderly demonstrations in their own time not only because they were worried about nurses' pay but because they were worried about the state of the Health Service.
I have found, during my visits to hospitals, that I am much more likely to be challenged and questioned by nurses about the level of staffing in the wards and their back-up in the job than about nurses' pay. I have had far more queries from nurses about the standard of service that they can give than about their own pay. That is a sign of their dedication and professionalism.
Because it fails to meet the needs of social justice and decent public services, this Finance Bill will take the people of this country further from, not nearer to, the objective of a successful society with social justice and good public services. Inequity gives enterprise a bad name. That is tragic. It is vital to get across the fact that the benefits that we need to bring to those who are worse off in society cannot be achieved if society is not successful economically. But what is the point of economic success if it is not accompanied by an attempt to tackle those social problems?
If an advertising agency had been hired to tell the Government how to get their message across, it would have told them to repeat it day by day in a similar form. That is what the Government have done. On day one, they gave us a Budget which expressed a message of unfairness. On day two, they gave us the social security changes, which bring home in harsh terms to many hundreds of thousands of people the Government's message of unfairness. On day three, they brought before the House a poll tax, which is perhaps the unfairest tax devised for centuries. The message has got home. It is a sad message for a society which has an opportunity to combine success with social justice.
The House will be glad to learn that I do not propose to detain it for 22 minutes.
The continuing simplification of the taxation system is an extremely important part of the Bill. The simplification is to everyone's benefit. If the minutiae of the tax system become complicated, as they have, the whole system becomes incomprehensible to the ordinary person. Any change makes the whole edifice quiver as changes in one part of the system have a knock-on effect in others. When the structure becomes so complex, the only people to benefit are tax accountants who are paid vast sums to unravel what legislation has created. The changes embodied in the Bill are therefore much to be welcomed, except, possibly, by tax accountants.
We have already heard about the scandal of wives and husbands being taxed together and husbands being responsible for their wives' tax returns. I do not want to get involved in the argument about whether the allocation of allowances benefits or disadvantages certain groups. One tremendous advantage of the proposed change is that it creates no losers. I should like to dwell for a moment, however, on the natural justice of the change.
It seems to me axiomatic that a husband should not be responsible for his wife's tax return. I should like to give a personal illustration. My wife is rather better educated than me. She has a master of business administration qualification from one of the best business schools in Europe, she earns her own living, she is responsible for a great many other people's lives and she has much more financial responsibility than any mere Back Bencher could dream to aspire to. In short, she has all the qualifications to be able to sign my tax return, knowing far better than me what is in it. Instead, since we have been married, I have had to say that what she has written in the tax return is correct.
That is ludicrous. It is to me that the Inland Revenue has turned for assurances that we are doing everything properly. It is a monstrous system. Indeed, it is an insult to my wife. It is ludicrous and the change goes a long way towards remedying it.
One matter disturbs me, however. My right hon. Friend the Chief Secretary to the Treasury mentioned it and I know that we shall return to it. I refer to the married couple's allowance being given to the husband and the couple being unable to opt for who should take it. In many cases, no serious injustice will occur, but if a wife's marginal rate of tax is 40 per cent. and the husband's is 25 per cent., the couple will unquestionably lose out as compared with a couple in the reverse situation. That is obviously unjust, and I should like the anomaly to be ironed out, although not perhaps this year because of the cost. Husbands and wives should be taxed independently.
I greatly welcome the change in the structure for payments in kind. I greatly welcome the raised tax charge for company cars. I would like it to go further. I would like tax scales raised to the point at which an employee is indifferent as to whether he is paid in cash or with a motor car. I should like that principle applied to every other benefit in kind.
I cannot believe that it is right, or to the advantage of employer or employee, for work done to be paid for in goods rather than money. As long as the tax system enables employees to benefit distinctly from having a car rather than cash, we shall prolong a distortion in the financial system which is greatly to be regretted.
There should be no benefit to employers paying other than in cash and employees should want to resist being paid any way other than in cash. The tax system has a great responsibility to iron out those problems. We have not yet got there with the motor car, because the scale bands are too low and because of the effects of national insurance on the employees' side of the bargain. When an employee is below the national insurance limit, it is to the employer's benefit to pay with a motor car rather than with cash.
We should have a tax system which is neutral about how people are paid. We are on the way, and I greatly welcome it. The 40 per cent. band will help in that direction. I should like to echo what my hon. Friend the Member for Croydon, South (Sir W. Clark) said. We have lived for a long time with the £8,500 limit for higher paid employees. That limit is, with a simpler tax system, unjustified. Relieving people of the need to complete a form P11(D) and a tax return each year will save much administrative time among employers, the Inland Revenue and employees. I hope that that improvement can be made soon.
My hon. Friend said that the limit should be close to £20,000. A more modest rise would achieve a major benefit. It is quite wrong, however, that people who earn less than £10,000 a year should have to go through so much administration with tax returns.
Because of the simplification which it proposes, I strongly welcome the Bill. I also welcome the greater financial strategy. Simplification, however, is of the essence.
I am grateful for the opportunity to speak in the debate. I begin by referring to the report of the Treasury and Civil Service Committee on the Budget.
As a new member of the Committee, I was surprised to find that traditionally the Budget report of the Committee deals with the economic context of the Budget and not with the specific measures that involve taxation. However, I realise that those details are dealt with in the Standing Committee on the Finance Bill, which will begin its work shortly. As a result, the Select Committee's report deals with the less controversial elements of the Budget.
However, one controversy which surfaced in the Select Committee was the dispute between the Chancellor of the Exchequer and the Prime Minister about exchange rate policy. I do not apologise for putting that in personality terms. It is alarming when the Prime Minister and a senior member of the Government are seen to be at odds over such a fundamental aspect of our economy. There were discussions in the Select Committee about the over-simplified and misleading words, "You can't buck the market." The Committee looked at ways in which the market might be bucked.
I was glad that the Committee expressed concern about the effect of a high pound on industry. Like my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), I remember the period between 1979 and 1982 when the pound was artificially high. In the European Parliament constituency of South Tyne and Wear, which I then represented, many jobs were lost and many industries disappeared completely.
We know that markets are not always rational in their views about the health of particular currencies at particular times. The Chancellor himself has been quoted as saying that very often the market is not reflecting economic fundamentals at all. We do not want British industry to he further undermined by an artificially high pound or by irrational speculative behaviour.
The report of the Select Committee deals with many other useful matters, in particular the concern of many hon. Members about our worsening balance of payments. It seems that the Treasury has estimated a deficit on the balance of payments this year of some £4 billion. Yet in the first two months of the year there was a deficit of £1·5 billion. If the Treasury forecasts are to be realised, there will have to be a dramatic improvement in the situation.
The Committee also expressed fear of a consumer boom sucking in imports, and the fear of adding to the already great burden of personal debt which may be encouraged by some of the tax reductions.
However, as I have said, the Committee report, by its very nature, does not get to grips with the real controversies and passions aroused by the Budget. It is the most unpopular and contentious Budget in recent times because of the tax reductions, and in particular the unjustifiable reduction in the top rate of tax to 40 per cent. and the allied measures which represent a dramatic shift in the distribution of wealth from the poor to the rich.
It has been pointed out many times that the Chancellor had an embarrassment of riches at his disposal. Unfortunately, he used it to embarrass the rich with his generosity—at least, he will have caused embarrassment to any rich person with even the faintest stirring of a social conscience.
Why did the right hon. Gentleman do that? One argument is that it will be an incentive and that somehow the cuts in the top rate will cause people to work harder. That argument ignores the findings of Professor Brown of Stirling university, a copy of which should be distributed to all hon. Members. It ignores, too, the evidence from Japan and from other countries where there are high top rates of taxation. It also ignores the fact that people often work because they are interested in their work. When I was a university lecturer, the salaries were not high, but many of my colleagues worked flat out for all the available hours, not because of the income they received but because they had a passionate interest in the subject in which they worked.
Another argument is that higher top rates of taxation encourage people to evade taxation. The argument is that most people seem to evade taxation. I do not know whether the Government are saying that the top people are uniquely dishonest, but I find that argument very unconvincing.
The consequences of the Budget measures are unequal in their effect. A financier earning £100,000 a year will gain an extra £4,000, a qualified nurse earning an average of £7,800 a year will benefit by just £26, or 50p a week, and a low-income worker on £90 a week will have his pay packet increased by only 27p.
The Low Pay Unit estimates that about 550,000 families caught in the poverty trap will face effective marginal tax rates of more than 70 per cent. due to the withdrawal of means-tested social benefits. It is absolutely vital that we look not only at the Budget measures but at their overall economic context. The benefit provisions have lagged very much behind the growth in incomes. That is absolutely clear if we consider pensions, child benefit and housing benefit. The hardships caused by the cuts in housing benefit will be highlighted effectively later this week.
A telling argument in The Guardian yesterday shows that the Treasury has managed to save £4 billion—just about the same figure as its privatisation receipts this year —by its niggardly and mean approach to benefits. That is disgraceful, especially when we know that money is available.
The word "unfairness" will be long associated with the Budget, but it will also be remembered for its short-sightedness and short-termism. The tax cuts will fuel imports at a time when public capital expenditure has been falling. Therefore, we have failed to lay the basis for the renewal of our infrastructure and of our industries which will be vital in future. The long-term bill for refusing to take the necessary action now will be very heavy indeed.
The Budget and the Finance Bill will be remembered for their unfairness and for their tragic short-termism. The Chancellor will be remembered not as a great reformer but as a wrecker and destroyer of the hopes of creating a fairer tax system properly related to ability to pay. He will be remembered as a destroyer of the hopes of creating conditions for genuine long-term economic prosperity in this country.
I do not think that the Budget can sensibly be described as a short-term Budget as the hon. Member for Gateshead, East (Ms. Quin) sought to describe it. It is important to consider the Budget as one of a series, starting with the 1979 Budget, all of which sought to create the climate and conditions for long-term economic growth, for the improvement of Britain's economic performance and for the increase in industrial investment which is now happening.
The background to this debate is one of strong economic growth at a sustainable pace. It is not altogether surprising that the hon. Member for Dunfermline, East (Mr. Brown), speaking from the Opposition Front Bench, did not devote much of his speech to the state of the economy today. Instead, rather uncharacteristically, he made a number of doubtful statistical assertions, including the extraordinary assertion that 18 million people in Britain are living in poverty. When questioned on that, he revealed that he was including children in his calculations of people on low incomes.
I am sure that the hon. Member will recall the debate on child benefit when the hon. Member for Kensington (Sir B. Rhys Williams) put a question to the Minister and received the reply that 18 million people in Britain live on or below the bread line. Is the hon. Gentleman disputing a fact given by his own Government?
The difficulty about assertions of poverty is that, every time the income support level is increased, we increase the level of poverty, so 18 million people are asserted to be living in relative poverty. If we compare their incomes 10 years ago under a Labour Government with their incomes today, we see that everybody is far better off. We should be looking for an absolute rather than a relative yardstick, because the Government are the victims of their own success. It is important that people should understand what is meant by poverty and that they should also understand that, year in, year out, the threshold is being raised as social security benefits are raised.
The second extraordinary assertion of the hon. Member for Dunfermline, East is that tax evasion is rising. He can have no evidence to support that statement, since nobody knows the size of the black economy. He probably meant that the Inland Revenue is now having considerably more success in detecting tax evasion, with the result that more tax revenue is now being received from people who formerly were part of the black economy. That is a very satisfactory state of affairs.
The third extraordinary statistical or factual assertion by the hon. Gentleman is that North sea oil revenue is rising. He is three, four or probably five years out of date. Anybody who looks at the Red Book can see that the income from petroleum revenue tax now forms only a very small proportion of total Government revenues.
The assertion that the background to this debate is a strong economy has widespread support. The Japanese ambassador told us so not so very long ago. Today the magazine Fortune has said the same. The CBI's industrial trend survey has reported today more good news from industry.
There is another report, also today, about the visit of the Chancellor of the Duchy of Lancaster to the city of Leeds. The article explains that his tour coincides with new business confidence and continues:
Economic pointers look favourable not only in Leeds, but over large areas of the Midlands and the North-West. There are real signs that those parts of the country that seemed left lagging by the booming South-east are beginning to share in the recovery.
Even the hon. Member for Leeds, Central (Mr. Fatchett) said:
The city is doing fairly well, with quite a bit of investment coming in.
The good news is that economic recovery is moving slowly north, through the midlands and now, as the hon. Gentleman told The Times today, to the city of Leeds.
I am grateful to the hon. Gentleman for giving way and for sending me a note saying that he intended to quote that passage from The Times. However, he will recognise that that was not an endorsement of the Government's economic policies. My argument in The Times and the one that I make in this place is that the success of Leeds is due largely to the partnership between the public and the private sector that has helped to refurbish and redevelop various sectors of the inner city. I suspect that the difference between us in this debate is about the role of the public sector. Leeds's Labour-controlled council has played a crucial part in stimulating inner city investment. Unfortunately for the hon. Gentleman, his problem is that that success comes from a cause that he finds it difficult ideologically to understand and appreciate—the role of local authorities.
I have no difficulty about that whatsoever. I am very glad to know that there is a sane Socialist authority in Leeds. There are sensible local authorities all over the country that have done a great deal to attract investment, including the one in which I live, the Conservative-controlled London borough of Wandsworth. News of that kind is obviously welcome to those who live and work in Leeds. I gave that only as an example of the way in which economic prosperity is making its way through the country.
The result of the successful economic management over which my right hon. Friend the Chancellor of the Exchequer has presided is substantially rising tax revenues. Buoyant tax revenues have enabled my right hon. Friend the Chancellor of the Exchequer at one and the same time not just to balance the Budget but to budget for a surplus and substantially to cut taxes.
The 25 per cent. standard rate of tax is most welcome and should not be underestimated. In the nine years since 1979, there has been a reduction of one quarter in the standard rate of income tax, from 33 per cent. to 25 per cent. Every taxpayer in the United Kingdom will benefit from the Budget. Of course there will be major beneficiaries of the reduction in the top rates of tax, but no Government should pursue a policy of penalising success. They should set a top tax rate that will ensure that revenue is maximised. We heard earlier that during the last nine years the top 5 per cent. of taxpayers paid a larger proportion of the total amount of income tax than was previously the case. I am sure that in two or three years that process will be repeated with the new top rate of tax.
There are, nevertheless, two aspects of the income tax changes that cause me concern. The first was mentioned by the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). He said that the top rate of tax is now 40 per cent., that the marginal rate of tax, taking into account national insurance contributions, is now 34 per cent. and that the differential is too narrow. I agree. The Treasury should give the highest priority to reducing further the standard rate of income tax from 25 per cent. to whatever is seen, in all the circumstances, to be a reasonable figure. I was glad that in his Budget speech my right hon. Friend the Chancellor of the Exchequer said that he intended to do that during the lifetime of this Parliament.
Does the hon. Gentleman intend to recommend to the Treasury that the national insurance contribution should run all the way up the income scale and that it should not be cut off arbitrarily halfway up it?
The difficulty about that proposal is that it would further undermine the contributory nature of the national insurance scheme, which it is important to retain. If the hon. Gentleman is suggesting that earnings-related pensions should rise by an equivalent amount, I might agree with him, but as I know that he is not suggesting that, I do not think it that would be a reasonable step to take. I hope that it will be possible soon to reduce the standard rate of income tax to the 20 per cent. target that has now been set.
My other concern about the income tax changes is the position of retired people who are able to take advantage of the age allowance but who find themselves in what is called the clawback area of income of between £9,000 and £11,000 when the age allowance is clawed back from them. The rate at which age allowance is clawed back is 41·6 per cent. It is unfortunate that that rate of clawback should be higher than the top rate of tax. I hope that it will be possible to widen the income band from which the age allowance is clawed back, to ensure that, at the maximum, it is 40 per cent., and preferably less.
There are two changes in the Finance Bill that I particularly welcome. My right hon. Friend the Chief Secretary to the Treasury referred to changes in the business expansion scheme and mentioned that my right hon. Friend the Chancellor of the Exchequer had decided to introduce a limit of £500,000 for any one company's investment in any one year and to introduce tax relief for business expansion scheme funds at the time when the cash is invested in the fund. Those two changes will do a great deal to focus tax relief on investment opportunities that involve a higher degree of risk.
Those who have taken advantage of this relief have naturally taken the least possible risk. However, if one is offering a substantial tax relief of that kind, it should be focused on riskier areas of investment where there may be an equity gap, which is in the £75,000 to £250,000 area. With that in mind, those two changes to the BES are particularly welcome and should do much to ensure that money is invested in riskier, high-tech projects.
The second change I wish to mention is that to chapter II of the Bill, relating to clause 79. I shall not go into detail, but I commend my right hon. Friend the Financial Secretary to the Treasury for the manner in which those provisions were devised. There is always a degree of mutual suspicion between tax practitioners and the Inland Revenue, which is not surprising given that they have diametrically opposed objectives in life. However, my right hon. Friend went about making changes by setting up a working party that comprised representatives of the Inland Revenue and of taxpayers, which has had a most satisfactory outcome—something that is both workable and practicable.
The bottom line for the average taxpayer—my hon. Friend the Member for Pembroke (Mr. Bennett) referred to this earlier—is whether or not he personally is better off. At Treasury Question Time the week before last, my right hon. Friend the Chief Secretary to the Treasury said, in answer to a question from my hon. Friend the Member for Harrow, West (Mr. Hughes), that the contrast between the performance of the Labour Government between 1974 and 1979 and that of the Conservative Government between 1979 and the present day was that a married man on average earnings with two children had seen a rise in his real take-home pay of one half of 1 per cent. in a five-year period. In the following nine-year period, the corresponding figure was 27·5 per cent.—55 times better. For as long as my right hon. Friend the Chancellor of the Exchequer is able to preside over the economy in such a way that we see continuing improved performance leading to rising tax revenues, falling tax rates and rising standards of living, we shall continue to have a Conservative Government that will be widely supported by all taxpayers. That is most welcome.
There is a general feeling that in the next 18 months to two years, this country will be faced with sharp economic difficulties, particularly arising from what is likely to happen in the United States after the presidential election. The Government boast about the recent growth in the economy, but manufacturing output has just about reached the level of 1979. The economy basically remains in a fragile state, but has been much boosted by consumer spending and by domestic credit expansion.
I shall concentrate my remarks on the changes in income tax to which the Bill gives effect. I am one of those who shouted, perhaps more than once, "Shame!" when the right hon. Gentleman the Chancellor of the Exchequer made his Budget speech and announced that the top rate of income tax would be reduced to 40 per cent. I believe that I was right to do so, and I offer no apologies.
The feelings of the Labour Benches on that development are undoubtedly shared by the majority of the people of this country. At a meeting with the Chancellor during the Treasury and Civil Service Select Committee, I asked him about the lack of popularity for that measure. He told me it was not designed to secure a response in the opinion polls. However, his decision doubtless received a positive response among the richest and most prosperous in the country.
At that same meeting on 30 March, I asked the Chancellor what he would say to a pensioner, no matter on whatever limited income, whose housing benefit had been withdrawn because of the new capital limit of £6,000. In view of the widespread stories in the press to the effect that Ministers are looking at that provision again, it is of some interest that the Chancellor fully justified the cut-off point for housing benefit. He said:
I think it is perfectly fair that somebody who has £6,000 or more of free capital—free capital"——
the emphasis on "free capital" is his—
should not be in receipt of housing benefit.
That view is not shared by many right hon. and hon. Members on the Conservative Back Benches. They know from their own surgeries, postbags and meetings with constituents how unpopular is that decision. It is nonsense that people who have saved during their lifetime—and at present-day levels, £6,000 does not add up to much, particularly if it includes redundancy pay—should be penalised by the Government and denied housing benefit. One compares that situation with the way in which the most prosperous members of the community will benefit.
A lead story in The Daily Telegraph yesterday, repeated in today's newspapers, reported that senior Ministers, including those from the Treasury, are hurrying around in an attempt to put together a package for our debate on housing benefit tomorrow that may not satisfy the Opposition but might at least satisfy their own Back Benchers. Tomorrow, we shall learn the outcome of those talks. I say to the Financial Secretary and to the Economic Secretary to the Treasury, both of whom are present, that if they believe that some modest tinkering with housing benefit will satisfy their Back Benchers and the rest of the country, they are wrong. Drastic changes need to be made to the arrangements for housing benefit, including those which penalise the many people—my own constituents among them—who have no savings.
One must compare the situation of others earning £150,000 a year, rather than having £6,000 capital or less and a modest retirement income. They will enjoy a total tax gain of £23,000—almost double the average earnings of male employees in this country. Someone earning £100,000 a year will gain more than £13,000. Half of all the Budget tax cuts will go to the top 10 per cent. of taxpayers. Is there a single Conservative Member who really believes that substantial cuts in taxation will act as an incentive to the wealthy to work harder? Does anyone really believe that? Are we to believe that the most prosperous people in the country will now say to themselves, "I have not worked hard enough. I do not get out of bed early enough in the morning and put in enough working hours. But I will now work harder. I shall get up earlier and stay longer at the office before leaving for the golf course. I shall not take Fridays off because of the tax concessions"? To believe that people will think that way is to believe in a fantasy world.
Is the hon. Gentleman aware that when the top rate of tax was 83 per cent., or 98 per cent. on unearned income, the people to whom he is referring spent most of their time trying to devise schemes to avoid paying tax? Today, they spend most of their time creating wealth.
There is very little evidence that they are creating wealth. As to avoiding tax, the hon. Gentleman may be more expert in that field than I can claim to be. Like the poll tax, the purpose of the Budget tax cuts has nothing to do with incentives. Everyone, including Conservative Members, knows that to be true. Their purpose is simply to reward the rich: no more, and no less. It is understandable that, throughout the country, the Government are increasingly seen as being of the rich, by the rich and for the rich.
Those on small incomes, certainly our constituents outside London and probably those in the London area as well—people earning £5,000, £6,000 and £7,000 a year—will gain a very modest amount from the reductions in the standard rate of taxation. It should not be overlooked, moreover, that the amount that can be inherited will now be taxed at only 40 per cent. instead of 60 per cent., and it will he much easier to pass on substantial private fortunes. There will be further tax loopholes to assist the wealthiest.
In my view, the rich should pay a much higher rate than 40 per cent. When I pressed the Chancellor on the subject in Committee, I asked a simple question: could he name the European countries in which the top rate of tax is 40 per cent? The Chancellor thought for a moment, and then told me that that applied in Switzerland. Switzerland! One might expect it there.
I believe—and my view is clearly shared, not merely in the parliamentary Labour party but in the country at large —that those who earn substantial sums, and certainly those who have inherited them, have a duty and a responsibility to pay their fair share in taxation. While I cannot deny that reducing the standard rate has a populist appeal—[HON. MEMBERS: "A popular appeal."]—I believe that it is not always right for that rate to be reduced. That is particularly so, in view of the requirements for essential public expenditure.
Of course Conservative Members sneered when I said that reducing the standard rate had a populist appeal. In France, for example, the Fascist Le Pen has two main planks to his policy. One is to limit and chuck out those who come from abroad, particularly from the African and Arab countries; the other is the reduction of income tax.
If hon. Members believe—as I strongly do—in adequate funding for the National Health Service, proper rates of benefit, including uprated child benefit and adequate provision of essential public services such as housing, education and transport, it is nonsense and economically illiterate for them to argue at the same time, for the repeated reduction of the standard rate of tax. That is a contradiction in terms. I am being consistent. I should like more tax concessions for those on limited incomes, and I believe that those on very modest incomes, certainly those in retirement, should pay no tax at all. I am glad to see that the Financial Secretary at least approves of that. But if we believe that the National Health Service and other essential services are underfunded, it is inconsistent to say that the standard rate should be repeatedly reduced.
The point that I am making is that the reduction in the standard rate has led to a starvation of essential services. I do not know about the hon. Gentleman's constituency, but in mine, far from there being adequate funding, a large extension to the general hospital which will be completed later this year will not be fully operational next April—as it should be— because there are not enough funds. That is not denied, and the position of other essential services strengthens my argument rather than the hon. Gentleman's.
The business expansion scheme will now include tax relief for private landlords. It will provide a tremendous tax shelter. Although some landlords may be responsible people, there will be quite a few Rachmans among them. In my borough there has been no building of council houses or flats for nine years, and it is not likely to occur as long as the present Government remain in office. Yet there remain a large number of people—I am sure that the same is true of other constituencies—who are on the waiting list and desperate either to be housed in the. first place by the local authority, or to be rehoused.
That applies to many of my constituents—some of them with two children—in multi-storey blocks, who have been waiting for years to be offered a house. When they write to me or come to my surgery, I cannot respond, "Get a mortgage." They simply have not the means to do so. It is highly irresponsible for the Government to pursue a policy of ensuring that no council accommodation is built. They are indifferent to the hardship being caused, but they are happy to give nice business expansion schemes to potential Rachmans.
We know that public services are being starved of funds. We know of the public squalor and neglect. It is not even necessary to go to our constituencies: half a mile from the Palace of Westminster, an increasing number of people can be seen spending their nights in wooden boxes—far more than in previous years. They are not all tramps or irresponsible people. Some, undoubtedly, have been faced with matrimonial and other personal problems. But obtaining rented accommodation is out of the question for them.
Do we want what we see in America? I concede that many ordinary people there live in comfortable conditions, far more no doubt than here. I have been to the United States, and I know the standard of living. Accompanying that, however, is so much squalor and neglect. In some parts, certainly in New York, one sees the sort of conditions that are more associated with the less-developed world. I do not want to see that here. The counter-revolution of the past few years has tried to reverse all the beneficial changes that have taken place since 1945—to a large extent, until 1979, under successive Governments. All those changes are being eroded and undermined by the present Administration.
Although the Labour party has been unsuccessful in recent years in winning the public argument—if we had won it, we would not be sitting on these Benches—it is encouraging that the opinion polls have demonstrated, as I believe the approaching local elections will demonstrate, that people are beginning to recognise that what we say is right. We have a Government who are of the rich and dedicated to their cause. They are indifferent to those in need, and to the public services. They are a selfish and a hard Government, made up of hard people whose concern —as the Budget has shown—is to reward the wealthy. That is why, with my right hon. and hon. Friends, I shall take much pleasure in voting against the Bill.
Only the hon. Member for Walsall, North (Mr. Winnick) could describe the present condition of our economy as fragile and then go on to suggest that a Labour Government would return to a high-tax economy in the hope of squeezing in the pounds to spend more on public services. It is clear that the hon. Gentleman and his colleagues have learnt nothing from their sad experiences when exactly those policies brought Britain to its knees and them politically to their knees. Long may they remain there.
In the debate on the public expenditure White Paper, I suggested to my right hon. Friend the Chancellor three priorities for his Budget—first, to eliminate the need for any public sector borrowing requirement, secondly, to reduce income tax at every level, and, thirdly, to tackle at long last the reform of the taxation of married women. His Budget and the Finance Bill meet all three of my requirements. Indeed, he did much better than merely eliminating the need for borrowing. He plans a £3 billion debt repayment this year, as for the past year—two years in a row. He announced the much overdue reform of the taxation of married women, he has achieved the 25p target for the standard rate of income tax set by his predecessor in the first term of this Administration, and he has exceeded my hopes by achieving a 40p top rate of income tax.
The envious and malicious tendency of Socialism was much in evidence in the remarks of the hon. Member for Dunfermline, East (Mr. Brown). I regret that that was echoed in the contribution of other Opposition Members. We have heard a great deal about the scandalous benefits which will accrue to the rich. Anyone not listening too closely to the hon. Gentleman might have thought that he was describing some enormous state pensions that were being dished out to the idle and undeserving rich. He enunciated once again the Socialist view that every penny of income and wealth should belong to the state and that it should be for the state to decide how much of it should be doled out to various deserving categories among our people.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) came near to falling into the same trap with the implication that there is something intrinsically good about raising taxes and then the Government deciding how those moneys should be spent. There was no hint from the hon. Member for Dunfermline, East that the so-called largesse that was being distributed to the rich was just a matter of allowing individuals to keep a little more of what was already their own. Tax cuts do not involve giving away; rather, they involve taking less away from those to whom it already belongs. That is an essential truth which one day Opposition Members might recognise.
It would be churlish of me to criticise the hon. Member for Dunfermline, East for making so much of the benefits accruing to the higher income groups because it became increasingly apparent as his speech unrolled that he had few arguments to deploy. The bogus pre-Budget argument that the Budget should have been about NHS spending has now given way to the rather strange notion that the nation's resources are being squandered on tax cuts for the rich.
I was not surprised that the hon. Gentleman was reluctant to be tempted by the intervention of my hon. Friend the Member for Pembroke (Mr. Bennett) to consider the effects of tax cuts on taxpayers on average incomes. Few, if any, of my constituents are among the undeserving rich who have been castigated so roundly by the hon. Gentleman. Nor, indeed, are many of my constituents as well off as the average Labour Back Bencher. Therefore, they have a rather close-to-home attitude to the importance of the impact of tax on their incomes and the lifestyles of their families. But with a booming local economy, largely the result of nine years of sound economic management and tax changes which have restored incentive and freed enterprise, many of my constituents prosper on the much higher level of average earnings which we now enjoy under the Government.
If one looks back at the changes that have been made over nine years of Conservative Government, both in the over-indexation of tax allowances and in reductions in the standard rate from 33p in the pound to 25p, one finds that a single man on average earnings receives an extra £15·90 a week in his pocket, over and above the amount that he would have had if the previous tax regime had continued with the Labour Government's 33p in the pound basic rate and personal allowances merely indexed in line with the retail price index. For a married man, the figure is over £18 a week.
Those are not insubstantial benefits for my con-stituents. They understand when they are better off. They understand such basic facts of life rather better than Opposition Members who are cosseted on income levels of twice average earnings. My constituents remember what life was like under a Labour Government's high tax regime. That is why they continue to send me to the House and not a representative of the Labour party. Because I and many of my hon. Friends have constituents who are prospering on average earnings and are allowed to retain more of those earnings in their own pockets to spend on themselves and their families, they vote for us, not for the defeated colleagues of Opposition Members.
Several Opposition Members poured scorn on the proposals to stimulate the expansion of the private rented housing sector through the business expansion scheme. My right hon. Friend the Chief Secretary was right to argue that an expanded private rented sector is essential for greater labour mobility. Every week one of my local newspapers, the Slough Eton and Windsor Observer, has a supplement of job vacancies which runs to between 30 and 40 pages. Clearly, that offers many job opportunities for those who are unemployed in parts of the country where the low rates of unemployment that we enjoy in Slough have not yet been reached—perhaps refugees from the constituency of the hon. Member for Walsall, North.
I had a letter recently from a man who had come from the midlands and had secured a good job in Slough but whose wife and children remained in the midlands. He cannot buy a house in Slough for the amount that his house in the midlands would realise and he has no prospect of council housing—[interruption.]—nor would he even if there were a much bigger public housing programme, because we have always known that local authorities favour those with local connections and will continue to do so. An expanded private rented sector could offer a solution to the problems of that man and his family and others who face similar circumstances.
Similarly, Opposition Members have been critical of the raising of the threshold for inheritance tax. My right hon. Friend explained that that would mean that in many cases the family home could not be inherited without attracting any tax burden. However, as property prices continue to rise, particularly in the south-east, that will increasingly not be the case. The impact of inheritance tax could give rise to serious problems. I do not speak hypothetically but as a result of a case drawn to my attention by a constituent.
Some people—usually single women who have devoted themselves to looking after aged parents—have no home apart from that which belongs to their parents. On the death of the surviving parent they will be faced with the prospect of finding a substantial sum of money to meet an inheritance tax bill or they will have to leave the family home. There may be a strong case for some further measure of relief when the property that a person is inheriting is his or her only home. I understand the argument that, as there will probably already have been one tax-free inheritance from, say the father to the mother, that cannot continue indefinitely and eventually the Exchequer must get its slice. If that is the case, there could be a good case for deferring the payment of tax until the property is subsequently disposed of, either by its sale or on the death of the person who inherits.
The Finance Bill is but one part of the Budget hat trick to which some of my hon. Friends have referred. The public finances are in robust good health, with a more than balanced budget. The strength of the economy has allowed further increases in public expenditure. For example, the full cost of the restructuring of nurses' pay has been accommodated easily within the reserve which was set by my right hon. Friend the Chancellor. I hope that some Opposition Members, including the Leader of the Opposition, will hang their heads in shame at their despicable campaign in advance of the Budget, when they suggested that nurses and the Health Service were being sacrificed on the altar of tax cuts. We know that the truth is that we are able to provide both for tax cuts and increases in expenditure and. indeed, for the Government to pay their way and to repay debt.
Opposition Members have argued that the burden of taxation is too high. However, paradoxically, they still intend to vote against the Bill and the tax cuts which it embodies. I agree with the Opposition that the burden of taxation is still too high, even with the reductions embodied in the Bill. However, unlike them, my vote will be consistent with the argument that I have deployed. I shall vote enthusiastically for the Second Reading and for the tax cuts in the Bill. In so doing, I shall urge my right hon. Friends not to rest on their laurels, but to press on with all speed to achieve the next target of a 20p standard rate of income tax.
I think I can say without fear of contradiction to any reasonable person in this House—and, although all my hon. Friends may not agree, I believe that some of the dissidents on the Government Benches are reasonable people—that this is the most regressive Budget that we have had this century. It marks the complete abandonment by the Conservative party of any belief in the ability to pay as a means of taxation. I am not the only one who says that. The day after the Budget the Financial Times also agreed that the Budget was far too one-sided. Further, there is nothing in the 139 clauses of the Bill to suggest that it is any different from the Budget.
Many of my hon. Friends have already pointed to the social injustice in the Budget and in the Finance Bill. I want to concentrate on the impact on our manufacturing industry. Employers and employees alike have complained that the Government have sold manufacturing industry short. As my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said so eloquently, the fundamental problem of our economy in the manufactur-ing sector goes back to 1979 and 1980, when the pound was drastically overvalued, killing off more than 2 million jobs in two years. Companies in my constituency have made it clear that, although a few extra jobs have been found in the past two or three years, nothing like those 2 million jobs have been replaced.
It is not only the Labour party that is saying that; the CBI is also saying it. In the March edition of the magazine that all Members receive, the CBI made it clear that it believed interest rates were far too high for manufacturing industry to compete in the world market. It further stated in this month's edition of the magazine, with the hindsight of the Budget, that, unless we get training right in this country, with levels comparable to those in Europe, there is not much hope for the future.
People in manufacturing industry, particularly in the north-east, say that, welcome as the 2,000 new jobs are at Nissan in Sunderland, they do not compensate for the 30,000 jobs lost during the 1980s in the shipbuilding and engineering industries.
The Government tell us that there is money in people's pockets, and that that proves that there is prosperity. Of course there is prosperity in some parts of the country and in particular sections of the community. What the Government do not tell us is that the increased consumption has been satisfied only by an increase in imports. The trade figures tell that story. As against a surplus in manufacturing products in 1979, we now have an £8 billion deficit. What is equally alarming is that from 1979 to 1988, when we should have been investing for the future and using our oil revenues productively, we have paid for unemployment with the oil revenues.
Since the Budget there have been further signs of a weakening of the British economy. The continued overvaluation of the pound—I am glad that the Chancellor and the members of his team understand this, even if the Prime Minister does not—threatens our exports and encourages the growth of imports. The overvaluation of the pound, combined with excessively high interest rates, has begun to have an impact on our manufacturing output. It is not welcome news to any of us that manufacturing output has dropped 3 per cent. in the last month. Such unwelcome developments have other serious consequences.
The Chancellor has made estimates in his Red Book of the tax revenue for his financial year. However, if the other sums are wrong, it raises questions about whether public expenditure targets can be met. Other questions are raised on the timetabling of privatisation measures. More seriously, as I tried to point out to the Chief Secretary earlier in the debate, what really worries me is that the deficit on our balance of trade is the second largest of any OECD country, at a time when we are supposed to be prosperous, and it shows further signs of increase. Exports last month were 5 per cent. below the level of 12 months ago. The January and February trade figures show that, contrary to Treasury estimates, the deficit will be £8 billion and not the £4 billion previously forecast.
The key question that this country faces, and that we should be facing in the Finance Bill, is what we shall do when our North sea oil revenues run out. It is not only a question of revenue; it is also a question of the effect on the balance of payments. How do we pay for our future consumption? How do we control our balance of payments? How can we finance future investments, when today manufacturing investment is still 11 per cent. below the level of 1979? The Prime Minister said, "You can't buck the market." I say to the Prime Minister that we cannot duck the real economy. Some people say that it is alarmist to argue this point. Some people in the City will argue that when the oil revenue runs out, the revenue from the City will bridge the gap.
The hon. Gentleman referred to manufacturing output. I wonder whether he has looked at the Red Book. On page 30, he will see that, between 1973 and 1979, output per head increased by three quarters of 1 per cent., whereas between 1979 and 1987 the annual rate was 4 per cent. The latest figure for 1986 to 1987 is 6·5 per cent. Does not that show an overall strengthening of the economy, which is what everyone else in the world seems to believe, rather than the weakening which he is suggesting?
The hon. Gentleman is taking up the time of his hon. Friends by intervening. He misses the point that the increase in output between 1974 and 1979 was at a higher rate per annum than the increase between 1981 and 1988. That is the real test, if one discounts the period between 1979 and 1981.
To set the record straight, if the hon. Gentleman is talking about output, the fact is that, under the previous Labour Government, output fell, whereas it has risen under this Government.
I do not accept that as being statistically accurate—[Interruption.] Well, I can provide figures to show that growth and output were at a better rate during the period that I mentioned than in the period post-1981. I shall be happy to exchange those figures with the Minister at a later date.
It has been alleged in some newspapers that Labour Members spend most of their time in the bars of the House of Commons. Most of us recognise that we have a duty to do other things. I recognise that part of my duty is to be a missionary. I have been in the City for lunch on a few days in the recent past. I put it to some of my friends in the City, and perhaps to some of your friends——
I can introduce you to some, Madam Deputy Speaker.
The question that I put to my friends in the City was, how long will that invisible income compensate for the loss in manufacturing income and for the loss in oil income? In 1986, the deficit in manufacturing products was £5·5 billion—I accept that the surplus on invisibles was £8·5 billion—but the dramatic change between then and now tells another story. Those are the figures that the Chancellor included in the Red Book. By 1988, the manufacturing deficit was £8·5 billion and the invisible surplus was still only at the same level. What happens when the deficit in manufacturing is greater than the surplus on invisibles? What will happen to our balance of payments? What will happen to our interest rates? They will be too high even for the Prime Minister. Can domestic deflation be avoided? What are the other implications for our manufacturing sector?
It is said that we should be preparing for the single market in Europe, but unless there is a turn in our economic fortunes and our economic policy, the challenge will not be how much we shall gain, but how much we stand to lose; and what alternatives would we then have to get any benefit from the single market?
I know that time is limited, Madam Deputy Speaker, so I shall draw my remarks to a conclusion. I want to make some positive points about what could have have been included in the Budget and the Finance Bill.
I should have looked for assistance to industry in the north. It is nonsense that we should be continuing to encourage economic activity in the south with the ridiculous business expansion scheme and the extension of rented accommodation, which even the director of the CBI in the north has pointed out is ridiculous. What we really need are positive measures to bring real jobs to the north so that we can have greater efficiency in the country as a whole from greater labour mobility. What we should have been debating this evening is how we would introduce things such as regional differentials in national insurance contributions to encourage employers to move their business to the north and to encourage employees to move to the north.
We could have been discussing things such as rebates in national insurance for companies and institutions which are good trainers, because we all recognise that in this country training is dreadful. Of course there should be penalties for those who are not prepared to do what is necessary on that. The same could apply to research and development. We all recognise how little we spend in this country on research and development in comparison to others. We could have been debating what the Finance Bill could do to give incentives to institutions throughout the country to improve their R and D.
The wealth of our country, and especially of the north where my constituency is, has always depended on our ability to use our labour talents to make things that people in other parts of the world want to buy. We cannot survive any other way.
A Second Reading of this Finance Bill will further dent our already damaged economy. Far from the financial prudence that the Chancellor claims, this Bill is nothing more than a rich man's profligacy. I urge Conservative Members, especially those thinking Members who have been prepared to stand up for standards of decency in this country, who share our belief in the need to retain Britain as a manufacturing nation, and who care about economic development in areas other than the south of England, to join us this evening in the Lobby in voting against the Second Reading of the Bill.
This is the first Finance Bill debate that I have had the privilege of hearing from the Floor of the House. I have listened to many Budget debates on the radio, and I must say that this year's was quite the best Budget that I have ever heard.
Most hon. Members will have welcomed the sudden emancipation of women and the removal from tax of woodlands, covenants and maintenance payments. The slashing of the higher rates of tax was more controversial, but those of us who are concerned about regenerating the growth of this country, and those of us who would like to see an end to the philosophy of, "It does not matter how much money one gives to the poor; what matters is how much money one can take away from the rich," will also have welcomed the slashing of the higher rates as a brave and necessary step.
In his Budget speech, my right hon. Friend the Chancellor said that it would be a tax reform Budget, and so it was. He has a reputation for wanting to be a tax-reforming Chancellor and we can see from the Bill that he is very good at it. However, there is a niggling worry that it might not go far enough because there is a fear—there is always a fear—that the Inland Revenue may produce Bills that need a second bite at the cherry because the reforms do not quite reach the conclusions that they should. In the changes to capital gains tax, which I welcome, adding such gains to a person's income and taxing them at the marginal rate of tax are excellent moves but they produce the opportunity for further amendments to the capital gains tax legislation.
I wonder whether it is necessary to continue with the disincentives that prevent people from converting income into capital. If income is to be taxed at the same rate as capital gains, the conversion of that income is no longer nearly so beneficial. It is true that there will be some benefits—for example, the additional threshold of £5,000 for capital gains tax and the indexation of capital gains tax.
Two points can be made about that. First, the threshold of £5,000 is likely to have been used already by people who are interested in conversion of income to capital. Secondly, if the Government are serious about reducing inflation to nil, as I hope and expect they are, the indexation of capital gains should become increasingly irrelevant.
It seems a little odd that indexation should continue to exist, partly because this Government have abolished stock relief, presumably on the ground that they have inflation nearly under control. That ground is valid. Continuing with hideously complicated schemes for the indexation of capital gains seems a pity, especially when one has the simplification of adding capital gains to income tax, about which I have already spoken.
One of the changes introduced by the Bill, that of rebasing capital gains to 1982, is welcome because it deals with the largely inflationary gains of pre-1982. One factor about indexation is that it was introduced pre-1982, at roughly the time when inflation began to come under control. I believe that exactly the same thing happened with gilt-edged stock and national savings. Just when inflation was coming under control, indexation was introduced—just when it became a little less valuable to the investor.
That is the reason for re-basing the tax to 1982. That is done in clause 91, which also states that the clause may not be used either to create or to increase a loss if the loss would have occurred under the previous legislation. That may have been thought to be necessary, but in many cases it will mean that people will need to do two computations of tax, one under the old system and another under the new system. That will be a pity.
It also means that pre-1982 shares which were pooled cannot be combined with post-1982 shares. That is also a pity, because, as my hon. Friend the Member for Fulham (Mr. Carrington) said, the simplification of tax ought to be one of the major aims of the Bill.
Coming back to the main thrust of my speech, I should love to see a reduction in the number of measures dealing with tax, so that ordinary people can understand it. In particular, I should like to see the removal of disincentives to convert income into capital. For example, is it necessary for the controlled foreign companies legislation to continue to exist? Is it necessary for the offshore funds legislation to continue? Can we do away with what used to be section 460 of the Income and Corporation Taxes Act 1970, which is now clause 703 of the Income and Corporation Taxes Bill 1988? Can we also legislate on the basis of the marine Midlands case, as I believe is contemplated? Do we need to apportion the income of closed companies?
All those things and many more could now be looked at because of the brave reforms that my right hon. Friend the Chancellor has made. This is an excellent Budget, but I ask whether it goes quite far enough.
In looking at the Budget, I am struck, as so many of my hon. Friends have been, by the fact that the world really is divided into two. What is particularly intriguing is the way in which the human race is divided in two in relation to what motivates it. Psychology textbooks usually deal with sticks and carrots. In this context there seems to be one breed needing carrots, which is basically the rich, and another needing sticks—basically, the poor.
The combination of the Budget and the social security reviews is the most regressive approach to the poor of any Prime Minister. I could go back further than most, and say that we need to go back to the time of Walpole for a comparison. He was the last Prime Minister of whom I am aware who did not believe in progressive taxation. He thought that the country needed regressive taxation in order to encourage people to escape from taxation. That is what we have here.
No-one has succeeded in convincing the Opposition that the tax concessions given to the well-off will spur them to further activity. The concessions given so far, if they were designed to be the spur, should have encouraged people to be very active. No-one has been able to demonstrate how the extra money in the pockets of wealthy people will spur them into extra financial activity.
Since the social security rules have changed, constituents have been mobbing our surgeries. One cannot explain to them the psychology of the Chancellor of the Exchequer or the Department of Health and Social Security. What can I say to them? I should like the Minister to answer.
What do I say, for instance, to Sergeant William Hemphill, formerly of the Argyll and Sutherland Highlanders, who led his platoon with conspicuous gallantry in the north Africa campaign, and in doing so lost an arm? Since then, he has received a war disability pension. Because of that, in the recent social security changes, he has to pay £38 a month extra in rent. What do I say to him? Why has he been targeted in this way? Why has he been chosen to receive less income, whereas the wealthy young man who was referred to by my hon. Friend the Memberfor Walsall, North (Mr. Winnick) has been chosen to receive extra income?
In whose interests is that? I cannot find an answer to give to Sergeant Hemphill. Is the reason that the loss of an arm has been fully paid for now? Is it because he is, at the age of 76, too dependent upon his pension and needs to be taught a lesson? What has he done, and what is wrong with his behaviour that merits his being singled out now to pay nearly £10 a week extra in rent? We receive no answer from the Minister in that case. But that £10 is part of Sergeant Hemphill's extra taxation under the Budget and the social security changes. He has to pay the poll tax in addition.
The Government have broken the link between earnings and pensions and they are perhaps £4 billion better off now as a result. Why has Sergeant Hemphill been singled out in this way? Why does he not need incentives in exactly the same way?
I am delighted that many of my hon. Friends who have spoken in the debate have been concentrating upon the decline in manufacturing industry. This was done earlier particularly eloquently by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon). He saw the same article as I did, published in Siemens Review, which is a valuable illustration of the point that we are making.
We believe that the Government have taken the wrong model. In a simplistic way, the Government think that there was an agricultural revolution, followed by an industrial revolution. Now they think that they are moving to a services revolution. But it is not like that at all. As my right hon. Friend says, people certainly moved away from living directly on the land, but many people still live by the land. The food processing industry and parts of the chemical industries, and many people, are still dependent upon the produce of this earth for their living.
Similarly with the industrial revolution. We need to demonstrate that fewer people will be employed in manufacturing industry in future. The Labour party accepts that, and that it is necessary to get maximum productivity. But the health and strength of that manufacturing industry is absolutely the key to development of the service industry. These are services, but for what? This is marketing, but for what? What are the legal services and accountancy services for? They cannot simply take in all their own washing all the time. There has to be a very healthy manufacturing base in this country; otherwise our current growth will fizzle out. When the oil revenues go and there ceases to be income from privatisation, and when all the one-off benefits have gone, what will this country live on?
The obvious question to ask is why are we so confident that we shall hold on to our services industry. Like my hon. Friend the Member for Newcastle-upon-Tyne, North (Mr. Henderson), I have been trying to understand the City. I know that they are scared stiff of the Japanese moving in at present and taking an ever-increasing market. But certainly we need to follow the example of the West German and Japanese economies to ensure that we have a strong manufacturing base to keep this country going.
As my right hon. Friend the Member for Ashton-under-Lyne was saying, parts of the country that we represent have never recovered from the slaughter of 1979–82. We really cannot understand why the Government are so blasé and indifferent towards manufacturing industry. We plead with them to look afresh at this issue.
I also agree with my hon. Friend the Member for Newcastle, North about the importance of education. No sane country with our bad record on education and training would be cutting our universities or failing to press ahead with an expansion of nursery education. We have the worst record in Europe.
The Government must answer those key issues. Why do they divide the population into those who need sticks and those who need carrots, and why are the sticks always administered to those at the bottom and the carrots to those at the top? Why do they neglect manufacturing industry? Why do they not see how far they lag behind our competitors in providing an education system from cradle to grave and of the highest possible quality?
I feel considerable gratitude for at least one measure in this Budget—the independent taxation of man and wife. It is perhaps somewhat overdue, for the present tax system dates back 180 years to when not only was a women's property regarded as her husband's, but she herself was regarded in some way as his property. From then until the mid-1970s, when the equal opportunities legislation was passed, a women's right to vote, to earn her living and to be hanged was recognised, but not her right to be taxed independently.
The equal opportunities legislation recognised financial discrimination against women. It gave women, for the first time, the right not to be discriminated against in such areas as the provision of mortgages and hire purchase arrangements, when hitherto they had often been required to have a male guarantor sign any financial agreement. Yet the Labour Government, who were implementing legislation which gave greater financial independence to women, did not see fit to extend it to taxation. A woman was still regarded as a second-class citizen in terms of taxation and has been until this major, significant, reforming Budget.
One would have thought that Labour Members would have given a rousing welcome to this measure. Perhaps their lukewarm reception stems partly from their envy, which they always seem to postulate, of the financially successful, partly from their envy of a Government who have their act together, and partly from shame that they did not implement this long-overdue measure. When they seek to decry it, they do so saying, "Ah well, it favours the rich and the better-off because you will now disaggregate" —that is the fashionable word for the good old-fashioned word "separate"—"the income of male and female; thus higher taxation will not be applied when previous aggregation was subject to higher taxation." That is a good reason for this measure. The old system undoubtedly constituted a tax on marriage in exactly the same way as the former allowance of double tax relief on mortgages for unmarried persons was a tax on marriage.
The removal of those taxes on marriage is important, not just because it may make some women or couples better off—that is not the aim—but because of the social recognition, first, of a woman in her own right and, secondly, of the independent role of a wife. That is the crucial philosophy behind removing taxes on marriage. It is not merely an encouragement of the family or the sorting out of an anomaly, but a long overdue social recognition of the role of a woman.
Furthermore, the measure allows for the first time privacy between the partners in a marriage. In many marriages that is not regarded as necessary, and financial privacy is seen to have no role. But there are marriages in which one partner is a more prudent saver than the other, and marriages which are perhaps going wrong and one partner wants to start making provision for an inevitable break. Frequently, the woman has been the partner in either of those two categories. This reform not only preserves privacy, but helps women in those difficult circumstances.
Above all, the measure recognises a simple truth: that the person who is responsible for earning money, saving it, putting it towards a pension, winning it or whatever, is also responsible for its taxation and for paying the dues on it.
This is the most significant fiscal and social reform for well over a decade. I believe that I speak not only on behalf of married women who are my constituents, not only on my own behalf, but for married women everywhere and, indeed, for single women who will hail this measure as one of the greatest steps forward this century in social justice and the recognition of women.
Neither the nation nor most people will benefit measurably from the Bill. The Government are practised at making up proportions of gainers and losers. They have been rumbled by their own Back Benchers on their claims for housing benefit; they will be found out by the country on their claims for this Budget.
We know what sort of average the Chancellor has targeted. The hon. Member for Halesowen and Stourbridge (Mr. Stokes) gave the answer when he spoke during questions to the Prime Minister in strong support of the nobility and gentry as against the interests of working people. The Budget gainers are people like Mr. and Mrs. N.L., who profit from an income tax cut of more than £70 a week. While their neighbours, with whom they are hardly on speaking terms, also gain nearly £4,000 a year, millions of people on low incomes will take home only a few pence more, only to lose what little they have gained from direct taxation in rises in the cost of gas, electricity and petrol forced on them by the Chancellor. While the Chancellor and his Cabinet colleagues have gained almost £80,000 a year from the Budget's tax cuts, 1 million people have lost housing benefit.
The Chief Secretary mentioned a raft of economic measures. He did not say that his raft is buoyed up by pensioners, the low-paid, the poor and the unemployed. The Chancellor has found a new seam to mine to finance tax cuts for the well-off, and that seam is the poor. He has taken £4 billion from pensioners alone to provide for the 40 per cent. tax ceiling and for incentives to landlords—in short, for this year's tax cuts. All that has been made possible by the Chancellor fixing the weekly retirement pensions of individuals and couples at £9 and £14 below what the rates would have been if the pensions had remained pegged to salary rises. The Government have struck it rich by mining the poor.
Conservative Members may be sceptical, but they need only look at page 6 of the Red Book to see that the Government have raised over £2 billion more than they spent, not to help the Health Service and not to reimburse the pensioners or to give them a raft—to use the Chief Secretary's phrase—but to prepare the way for helping those who have, at the expense of those who have not.
Nor have the poor been protected by increased social security spending. The rise in social security spending has been forced on the Government by their own policies, which have doubled unemployment and tripled the numbers who depend on slate benefits. Of course the Government are spending more money on state benefits than the last or any other Labour Government, because the present Government are the first to drive people into poverty and then to boast about it, and at the same time they have increased the burden of taxation on everyone else. It is shameful that the Chancellor should claim to have reduced the burden of taxation in Britain when he has hoisted it to some 4 per cent. above the rate that existed a decade ago.
The saddest thing about the increased tax burden is that the poor have to pay disproportionately more than the well-off in tax, and it is they who have suffered from day one of the first Budget of this Government. That sacrifice has not helped to improve our manufacturing base or our home investment and production. Instead, we have seen the economy built on the shifting sands of North sea oil, national asset-stripping and a credit explosion, with a massive trade deficit as a direct result.
Some of the microeconomic aspects of this Bill have been raised; others require to be stressed. Personal credit has never been more readily available, nor has it ever been so irresponsibly given. Appendix 12 of the Treasury and Civil Service Committee report details the mushrooming of buying on the never-never. Not that the £30 billion currently being borrowed by individuals is being used for British goods; the Government's policies have left our home-based industries ill-prepared to meet consumer demand. We can expect to see imports continue to soar as a result of the Budget.
The continuation of the high pound will serve only to exacerbate the trend. Indeed, the Government's official prediction of the trade deficit given in chapter 3 of the Red Book as £4 billion appears to be highly optimistic when compared with the predictions of all respectable economic forecasters.
We know that the Budget will fuel an irresponsible credit boom. We see with sorrow the likely increase in imports, to the detriment of home-based industries. We wince at the "kick start" for private landlordism—an unfortunate metaphor used by the Chief Secretary today —since my experience when chairing the housing committee in Edinburgh was of unscrupulous private landlords kicking tenants. Exploitation is rife in the private sector and any attempt to strengthen the rights of private tenants has been frustrated by the Secretaries of State for the Environment, for Scotland and for Wales.
We can also predict that the Budget, with its disproportionate tax benefits to the better-off, will stoke up spiralling house prices, and not just in the south-east. Many of my constituents in Edinburgh are appalled as house prices rocket. Three-bedroom flats are regularly changing hands at £60,000 and more, and these, as well as smaller flats, are beyond the purchasing power of very many of my constituents, especially couples starting out on modest incomes—incomes which, sadly, merit little support from this Budget.
The Budget not only aims to refuse help to those on modest incomes, but does not seek to reinvigorate British industry. It does nothing to regenerate our tattered economy. That is why I and my hon. Friends will join the country in rejecting it.
Mr. Quentin Davis:
The more I look at the Bill, the more I feel that we are facing a most distinguished piece of potential legislation. There are three aspects of the Budget that I believe deserve the cliché "historic" and I think that in retrospect they will be recognised in that way.
The first aspect is the removal of the existing discrimination in our taxation system against women and against marriage. My hon. Friend the Member for Maidstone (Miss Widdecombe) has already spoken very eloquently about that. Suffice it to say that I believe that within a generation or two it will seem quite as unbelievable and primitive that in the late 20th century we discriminated against women and marriage in this way as it seems to us now that until the last century married women were not allowed to own property of their own and until this century women did not have the vote.
The second momentously historic feature of the Budget is the tax cuts, and particularly the cuts in the standard rate and higher rates of income tax. Those higher rate reductions have already generated a great deal of emotion among Labour Members and I am afraid that much of that emotion may have been expended rather needlessly, indeed rather wastefully.
The hon. Member for Dunfermline, East (Mr. Brown) who opened the debate for the Opposition, said that he regarded the tax cuts as representing—I hope that I am quoting him correctly—the widening of inequality at the expense of the deepening of poverty. If I really believed in that analysis of this Budget, I should be delighted to follow the hon. Gentleman into his Lobby after the debate—at least I do not know that I should do it delightedly, but I should certainly feel that it was my duty to do so. However, I believe that the Budget represents precisely the opposite case, where it is pre-eminently right to use fiscal action to make the rich richer, because that is the most effective way of making the poor richer too.
Perhaps it is a little difficult for Opposition Members who have little experience of business and commerce to appreciate to the full the psychological effect on a business of reducing taxes in the way that we are about to do: the effect on motivation, the effect on work and the effect, above all, on risk-taking. Perhaps that effect is most powerful on those people who are contemplating setting up a new business or those businesses that are contemplating new ventures.
If Opposition Members do not like anecdotal evidence of this kind, I refer them to orthodox financial theory, which tells us that, if we increase the reward while the risk remains the same, more investment will take place. It is as simple as that, and surely a reduction in tax rates, whatever else it may be, is incontrovertibly an increase in the potential reward.
If Opposition Members do not like standard financial theory either, perhaps I could refer them to some of the empirical work that has been done on this subject and particularly to a study completed in the last few weeks by the macroeconomic research unit of Liverpool university, which has calculated that the effect of the higher rate tax cuts being brought in by my right hon. Friend will be an increase in national income of some one full percentage point in a given year; and that the effect of the reduction of the standard rate to 25 per cent. will be an increase in national income of some £1 billion a year. That would imply an increase in the resources available to the country as a whole of some £4 billion to £5 billion in a year—a very remarkable achievement.
The third aspect to the Budget which I believe deserves the epithet "historic" is the fact that we have now achieved a budget surplus. We have not only achieved a balanced Budget, but have gone into surplus. For those of us of my generation that is something that has not happened before, at least in our memory, although it may have in our lifetime. In order to get the measure of the achievement one has to set it in its international as well as its historical context. I am sorry that, so far as I know, no one referring to this matter has yet done that in the House or, indeed, in the media.
I believe that I am right in saying that we are the only one of the principal developed Western countries currently to have a balanced budget or a budgetary surplus. Other Governments have been equally, perhaps they would say more, committed to financial rigour—the Germans, for example—but they have certainly not yet achieved a balanced budget. If there was an international Olympic games for Finance Ministers, the Chancellor of the Exchequer could not in my opinion under any circumstances be denied the gold medal.
The hon. Gentleman falls right into the trap. He demonstrates by his intervention that the Labour party still believes that there is some trade-off between growth and a balanced budget or, in other words, that there is a positive correlation between a fiscal deficit and the rate of growth. We have proven in the best way possible, in practice, that that relationship does not exist. We have proved that the relationship is negative because we now have the fastest growth rate in Europe and also the only budget surplus.
The achievement of the balanced budget brings me to a few reflections about fiscal policy. It has been a general consensus in the academic world, widely subscribed to on the Government Benches for the past 10 years or so, that the fiscal policy pursued by Governments of both parties in the 1950s, 1960s and 1970s, which sought to smooth the fluctuations of the economy, was fundamentally miscon-ceived and that such fine tuning, as it was known, was at least as likely to exacerbate volatility as to reduce it.
A second consensus existed on the Government Benches for many years before 1979. After 1979 we were able to do something about it. The consensus was that there was a great danger in a fiscal deficit or PSBR—the phrase that we lived with for so long in political debates and in the media—and that that inherent danger existed because, even under the best circumstances, if a PSBR was fully funded, it would crowd out borrowing, and therefore investment in the private sector.
And there always was the danger, which over the years was ever more likely to become a certainty, that a time would come when full funding could no longer take place, that the borrowing Government would lose the confidence of the markets, and that that Government would therefore only be able to face the growing burden of debt service by resorting to a destructive and indeed disastrous inflation. So we took it as an autonomous aim of our policy, to be pursued for its own sake, to reduce that deficit. We have done that, and it is a magnificent achievement.
Where do we go from here? What will be the role of fiscal policy from now on? That is not a purely academic question. As we discuss the matter today, we know that monetary policy has been used in recent weeks to address the danger felt in some quarters of overheating in the economy. The effect of using monetary policy by increasing interest rates to address that problem brings about two perverse consequences.
The first effect of raising interest rates is to draw in capital across the exchanges from abroad, pushing up the parity of sterling. That means that any dampening of demand achieved through that mechanism falls particularly hard on the internationally traded sector of the economy, including manufacturing. That is a major problem with that approach, which has been generally recognised.
The second perverse effect of the use of monetary measures in those circumstances is to exacerbate a balance of trade deficit, which was probably one of the signals that appeared to indicate the existence of potential overheating in the first place. Had fiscal measures rather than monetary measures been used to address the problem, those perverse consequences would have been avoided. I leave aside for the moment whether other perverse consequences would have occurred.
There are good reasons for what I understand, without inside knowledge, to be the hesitation of the authorities to use fiscal measures in this way. There is the fear of reverting to the old bad days of fine tuning. That fear also is somewhat misconceived, because the difficult decisions of what one might call market management—the decision whether to intervene and, if so, in what direction and to what extent—has to be taken whether one is adopting fiscal or monetary measures.
There is the psychological principle to which many of us are committed, that it is a major element of the new confidence that has been established that we have clear annual budgets which are kept to and we do not have sudden emergency fiscal measures, which were a speciality of the Labour party when it was in power. There are also the technical factors that monetary measures appear more flexible and have always been regarded as such.
This is not the place to answer those questions. I merely set them down. I have no doubt that my right hon. and hon. Friends on the Treasury Bench and their officials have been giving these matters considerable deliberation over a long time, but perhaps with particular intensity over the last few months. Whether now or on another appropriate occasion, I hope that we may hear from them what they think about these important matters and how they will address the future of fiscal policy in the new age which we have reached and for which I salute the Government, in which we have got rid of that terrible British institution, the PSBR, and have a fiscal surplus.
That is not the first sermon that I have heard from the hon. Member for Stamford and Spalding (Mr. Davies) on the perfect working of the market, but it assumes a mathematical and calculus model of society which ignores the people. It is the view of the Labour party that Budgets should deliver social justice to all the people.
When my hon. Friend the Member for Dunfermline, East (Mr. Brown) mentioned that 18 million people in Britain were on the breadline, Conservative Members thought it unbelievable and challenged his figure, despite the fact that the hon. Member for Kensington (Sir B. Rhys Williams) drew the attention of the House to the figure when speaking in the debate on child benefit.
Conservative Members have no concept of the scale and extent of poverty. Do they realise that over 3 million wage earners do not benefit at all from the tax cuts in the Budget because they earn too little to pay tax? Effectively the Budget is writing off one third of the population-18 million people. It is writing the poor into the margins of society.
Conservative Members accuse us of preaching the gospel of envy when we make challenges on behalf of the poor. What do we get? We were told earlier that we needed more capitalists. Perhaps we should all emulate the 20,000 millionaires in Britain. There is an assumption that everyone wants to be a millionaire. I am tempted to reflect on the example of Howard Hughes who lived alone in his castle, wandering around eccentrically in the dark in his carpet slippers. He was to be pitied rather than envied. What everyone wants is the opportunity to live a decent and happy life.
Do Ministers know that officers who will administer the social fund will advise claimants to obtain from a library the "Charities Digest" to see whether they can ring up charities for the bare necessities that they need? Do Ministers know that the advice in a leaflet handed out to claimants at social security benefit offices instructs them to look more carefully at how they spend their money? Under the heading "Shopping on a Budget", it gives people the following advice:
1. Shop around—if necessary, visit a number of stores and compare prices …
4. Some shops reduce goods at or near the 'sell by' date, or if the packaging is damaged. These may still be worthwhile buys if used quickly …
5. Remember—special offers are good but only if you really want the item …
6. Read and compare labels to check prices and amounts, eg a 400 g pack of biscuits @ 28p … 7p/100 g, 300 g pack of biscuits @ 24p … 8p/100 g. Don't be deceived by bulky packaging.
7. Use a shopping list and keep to it as far as possible." And finally, worst of all—
8. Don't shop when hungry—you may be tempted to buy more than you need.
I suggest that those people who pay the price for the cuts in social security can well do the arithmetic when it comes to shopping. I wish to try and warm the heart of the hon. Member for Stamford and Spalding by reading to the House a brief poem, called, "The Shopper". It reads:
Just before Christmas 1983, the Prime Minister said:
There is no Government definition of poverty …".
That remark has been echoed today.
The fact remains that people living in need are fully and properly provided for.
That is manifestly untrue and the Budget builds the untruth of that statement into the structure of our economy and the people of this country are now increasingly aware of that.
I am no poet, but the points made by my hon. Friend the Member for Leeds, West (Mr. Battle) are well made.
When the Chancellor of the Exchequer introduced his Budget, he set himself four basic principles on personal taxation. The first was to reduce tax rates where, he said, they were clearly too high. He appears to have failed in that objective. If one studies the Inland Revenue booklet "International Comparisons of Direct Taxation on Employment Income", published at the end of last year, one finds that, before the Budget, the marginal tax rates for a married man on, for example, £75,000 per annum were lower than those in France, Germany, Italy, Japan and the Netherlands. They are now also lower than those of the United States. But if we contrast that with a man earning £5,000 a year, we find that his marginal rate of tax was the highest of those countries and that is still the case.
When we consider tax and national insurance as a percentage of earnings, we see, for example, that a married couple with two children, on half the average earnings, in 1978–79, when the Government took office, were paying 14·5 per cent. The figure is now 15·4 per cent. However, if we contrast that with somebody on 1,000 per cent. of average earnings, we see that his rate has fallen from 65·6 to 37 per cent. A minority of the population has benefited. The tax rates are too high for the low-paid and too low for the highly paid. In addition, the balance is going the wrong way. That is the main reason why we object to the underlying philosophy of the Budget.
When we consider national insurance, which is quite a substantial burden on the low-paid, we again see anomalies. There are no allowances set against national insurance. They are raised on gross income and, for some reason, they stop at the magic figure of £15,860. We know that there is a disincentive at a certain stage when one goes from 7 per cent. to 9 per cent. of contributions. Many people working regular overtime meet that problem.
We also have to consider how badly those on low incomes have been hit as a result of the benefit changes and Government-inspired inflation. Electricity prices have been driven upwards to fatten up the electricity industry for privatisation. From that, as well as increased rents and the introduction of the poll tax, we can see that those who are worse off have a higher marginal tax rate and have to meet other costs. At the same time, the better-off are paying less tax in real terms.
Will the hon. Gentleman explain how he he has the nerve to refer to Government-inspired inflation, when, under his party—admittedly, before he came to this place—inflation did not need to be inspired? It just went on and on and up and up. This is the first Government who have curbed it.
With respect to the hon. Lady, my recollection is that inflation went up quite dramatically shortly after her Government assumed office in 1979. However, I concede that it has come down since then. The Government-inspired electricity price rises will have an effect on industry and on the price of goods, as well as a direct effect on those who use electricity in their homes.
Many of my colleagues found very upsetting the laughter from Conservative Benches when my hon. Friend the Member for Dunfermline, East (Mr. Brown) said that 18 million people were living in poverty. When he said that that figure included children, there were roars of laughter from Conservative Benches. Surely it is common sense that, if a person's mother and father are poor, the chances are that that person is poor too. That is quite obvious.
I cannot understand why—no Conservative Member has made this point—a rich person needs more money to make him work harder, whereas a poor person needs less money to make him work harder. That is one of the great mysteries that no Conservative Member is prepared to explain.
The second objective that the Chancellor set himself was to reduce or abolish unwanted tax rates. I refer yet again to the business expansion scheme. It is ironic that a subsidy has been given to those who want to invest in property speculation when, at the same time, the poorest people in society, who have to live in rented accommodation, find that their subsidy from the state, by way of housing benefit, is being reduced, if not taken away. It is common sense that, if one is serious about helping people who are looking for accommodation, the subsidy should be paid to them so that they can shop around. They can then exercise the choice that the Government say is so important.
It was said earlier that there are plenty of jobs in Slough. The most important thing that we can do is to encourage jobs to move away from the south-east; therefore, encouraging more people to come to the south-east appears to be counter-productive. I thank my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) for his remarks on decentralisation of industry. We in Edinburgh know only too well the difficulties of encouraging firms to move their headquarters and the control of their businesses from the south-east to Scotland and other regions.
The third objective which the Chancellor set himself was to make life a little simpler for the taxpayer. Again, there is a contrast. For the richest in society there certainly has been simplification—simplification of the capital gains tax and inheritance tax. We are told that these steps are necessary because, if they are not taken, accountants will ensure that tax is avoided or evaded.
Surely we are not saying that, just because some people do not pay tax, we should make life even more simple for them. If that is so, surely there would be a deputation of accountants coming to see us to complain that they were being done out of business. The more the well-off are helped, the more the accountants will carry on burrowing away to ensure that their clients benefit even more.
At the same time as matters are made simple for the better-off, they are made simple, I must confess, for the poorest. Housing benefit has been made simple for a large number of people—they simply do not get it. That is the simplest form of benefit that one can contemplate. Why, when the Government say that they are concerned about fringe benefits, do they not impose a tax on them? Why do they not tax them in the hand of the employer? That is what Australia and New Zealand are doing—countries constantly held up to the Opposition as examples to which we should look. That is a fine example of something at which the Chancellor might look. It is an easy and efficient method.
The fourth objective set by the Chancellor was to remove some of the manifest injustices from the system. Far from removing them, he has created more. We should look, for example, at the treatment of capital for tax purposes and for benefit purposes. A pensioner with savings of £3,500 is deemed to receive £1 per week for every extra £250 in savings. If we disregard the £3,000, that is an investment rate of 21 per cent. That is what the pensioner is supposed to be getting from each extra £250. Under the present regulations there is a disincentive to save.
That pensioner may be contrasted with a well-paid company director who invests £3,000 a year in a personal equity plan. He is provided with a concession because tax is not paid on reinvested dividends and he is exempt from capital gains tax. A press release handed out on the day of the Budget said of the personal equity plans:
Investors do not need to keep records, or declare their dividends and gains on their tax returns—hence a personal equity plan does not give rise to any involvement with the Inland Revenue whatever.
That is very nice indeed—as Arthur Daley would say, "A nice little earner." It is available only to the better-off, not to those who need it.
If the Government are interested in equity and are genuinely interested in reforming, they should give tax breaks to the poor and not to that small, narrow band on whom the Government's economic policy seems to concentrate. We would do well to remember that those whose standard of living has improved over the past seven or eight years owe that not just to our improved balance of payments, because of North sea oil, or to privatisation proceeds but to the large amount of money that has been plundered from the worse-off, through fewer benefits and the change in pension arrangements.
We are living off the poorest in society. Anyone who has gained the advantages that this Government extol must remember that. It is wrong. The hon. Member for Croydon, South (Sir W. Clark) said that privatisation was spreading popular capitalism. We should remember that, outside the south-east of England, about 9 per cent. of the population bought shares. That does not take account—because it cannot be readily calculated—of how many unloaded the shares at the first opportunity.
We would also do well to remember that, although many individuals are better off, we as a country are all the poorer because part of the tax handouts is funded through a steady and relentless cut in public services. Why is the value of public services so denigrated by the Government? All of us, especially the better-off, benefit from public services—education, both at schools and universities, the use of our roads and our hospitals. If one has enough money, one can purchase a private hospital plan, but the private hospitals live off the NHS.
All of us use public services. It is not just the province of the poor. The Government have a very short-term policy towards public services. They are being systematic-ally run down, and the Government will rue the day that they embarked on that policy. They seem to have a Brazilian idea of the economy: pour money into the hands of the few and just forget the rest and hope that they will survive.
We must make a contrast in this land of plenty where there have been gainers and there are people doing well. Often not very far away from the man who is spending another few hours on the golf course is the pensioner who is presenting himself or herself at the local DH SS office for a payment from the social fund—the latter-day soup kitchen of the 1980s. That is an indictment of the Government.
We do not dispute that this country is doing better than it was five or six years ago. Indeed, it is perhaps doing better than in Gladstonian times, but so what? The question is how the division of spoils is made. It is in that division that the Government are found sadly wanting. The better-off are getting more and those who are not are losing out. That makes this country as a whole much the poorer, and that is the indictment of the Bill.
The Budget, the poll tax, the social security changes and the other Bills which we shall discuss this Session are a culmination of nine years of redressing the balance in British society and of redistributing wealth and power away from working people and their families in favour of privileges for the wealthy. The Government have created a yawning gap between rich and poor, between the industrial inner cities and the more prosperous suburbs.
Families in Yorkshire and Humberside spend, on average, £60 a week less on goods and services than families in the south-east. When we consider that the south-east figures include some of the most deprived areas, in terms of the inner-London boroughs, we can see the enormous gap between the standards of living in, say, the Thames valley and in northern industrial towns.
During the Budget debate, the right hon. Member for Chesham and Amersham (Sir I. Gilmour), whose ideas and understanding of social and economic processes are far superior to the present incumbents of the Government Front Bench, with some understatement, said:
I believe that it is more than a little insensitive to hand out quite so much money to the rich … especially at a time when next month quite a lot of people will find their social benefits markedly reduced.
More tellingly, the right hon. Gentleman went on to say:
The Government are taking some unwarrantable social risks."—[Official Report,16 March 1988; Vol.129, c.1143.]
I have had several letters from pensioners and others in my constituency about the social conditions of today, and I had intended to read them. Instead, I shall refer to one small incident from my constituency.
A woman lived in a council flat that caught fire. A single parent with children, she lost all her possessions in the fire. The woman was rehoused immediately, humanely and helpfully by Bradford council, but she is now in a flat with no furniture, curtains, carpets, cooker or beds. What are her options? Is she to go cap in hand to the social fund and obtain a loan when she cannot even pay for insurance to protect her property? How on earth can she repay a loan like that? That is modern Conservatism; it is Disraeli's one nation stood on its head. That shows the compassion of Ministers who benefited personally by £80 a week from the tax cuts in the Budget.
The Government have not done much for people on average or somewhat above average income, either. Fifty per cent. of the tax cuts went to the top 10 per cent. in society, while only 10 per cent. of those tax cuts went to the bottom 50 per cent. of income earners. Overall taxation, including indirect taxation and National Insurance contributions, has increased from 34 per cent. to 38 per cent. under the Government. That taxation hits working people and the poorer members of society much harder than others.
Manufacturing investment is now between 9 and 11 per cent. below what it was in 1979, and manufacturing production is now only equal to its peak of eight years ago. The increase of between 4·5 and 5 per cent. in the past financial year must be set against the decline of the pound against the dollar in the preceding period, a process that has now been reversed as against the dollar and the deutschmark. That will hit British exports and British manufacturing industry hard in the near future.
Michael Prouse in the Financial Times made the point that the much-vaunted increase in productivity still leaves Britain with between one third and one half of the level of the individual productivity of its major competitors. The Government's most notable achievement has been to be the first in British history to preside over a net deficit of trade in manufacturing, which is now predicted to reach £14 billion.
When the Chancellor's predecessor removed hire purchase restrictions in 1982, the volume of national credit was £9 billion. In the first seven months of 1986, it had risen to £17·75 billion. In May last year, the Bank of England commented on the sharp increase in personal debt. It stated, for instance, that the number of houses taken into possession in 1985 was seven times the number so taken in 1979. That shows that in any sort of recession even those who benefited slightly from the Budget and who feel that they are a little better off than their fellow citizens would face a nightmare, with unemployment going hand in hand with large personal debts from the recent credit boom.
In recent months, Conservative Members have repeatedly raised the idea that the service sector of the economy can somehow replace manufacturing. That is a profound error. In a report entitled, "Services—The Second Industrial Revolution", the Institute of Manpower Studies questioned the view that more service jobs could compensate for the loss of manufacturing employment. The report predicted that the process fo technological advance, mergers, economies of scale and the desire to reduce unit labour costs would accelerate, and inhibit job creation in much the same way as has already happened in manufacturing.
The report examined seven growth areas, including distribution, banking, hotels, catering and professional services. The conclusion was that, although those industries will grow, their job-creating potential is diminished and their wealth-generating potential is not on the same scale as that of manufacturing. That was said before the stock exchange recession and before the disastrous bank profit figures that arose from the Third world debt were announced.
The world trade in services is only one quarter of that in physical goods and it cannot easily turn to foreign markets if home demand slows. More and more service jobs depend on manufacturing, a point that was made brilliantly by Akio Morita, the chairman of Sony Corporation. Conservative Members have trumpeted the remarks of the Japanese ambassador, Mr. Yamazaki, but not those of Mr. Morita. His speech in London in late November was summarised in the February issue of the Director. I can assure the Guardian columnist, who paid me the kind tribute of describing me as Bradford's distinguished Trotskyist, that the Director, together with The Wall Street Journal, is part of my bedtime reading. Perhaps at my age there is little more I can hope for.
Mr. Morita said:
There is no doubt that this shift from manufacturing to services is now well advanced in the United States. Since 1950, the United States has lost half of its manufacturing jobs, while three-quarters of all jobs are now service oriented.
So much for the eight million extra jobs in America to which Conservative Members have referred this afternoon.
The UK trend is similar. What I would like to suggest is that this trend, far from being the matured progression of a maturing economy and something to be encouraged, is destructive. For in the long run an economy that has lost its manufacturing base has lost its vital centre. A service-based economy has no engine to drive it. Thus, complacency about moving from manufacturing to a haven of hi-tech services, where workers sit at computers and exchange information all day, is entirely misplaced.
This is because it is only manufacturing that creates something new, which takes raw materials and fashions them into products that are of more value than the raw materials they are made from. It would seem obvious that the service elements of an economy are subsidiary and dependent upon manufacturing. When manufacturing prospers, all industries connected with it prosper—not only are more components, parts and salesmen needed, but more accountants, more dentists, more gasoline stations, more supermarkets and more schools.
When the manufacturing engine of an economy stalls, all these things are in less demand. You do not build dentists' offices or department stores unless you have a population with the resources to take advantage of them—and these resources in the long run can only come from jobs that add value to goods—that is, manufacturing jobs.
That is what Mr. Akio Morita, chairman of the Sony Corporation—one of the world's most successful manufacturing firms—said.
Michael Prouse of the Financial Times wrote:
Future living standards in the UK will depend in large measure on the success of manufacturing. This is both because the sector is the main source of productivity growth and because further substantial improvements in the non-manufacturing trade balance are improbable. The food and raw material balances are unlikely to strengthen further, the fuel balances will deteriorate as North Sea fields mature.
That is a damning condemnation of those who are responsible for the rundown of manufacturing industry in Britain during the past nine years.
The Chancellor of the Exchequer mentioned in passing that the biggest danger to the British economy is a world recession and the volatility of exchange rates. I return to what Mr. Morita said:
It is perfectly clear that the world economy is now in crisis. The burgeoning federal and trade deficits of the US are still out of control. Three-digit inflation rages throughout the Third World, whose own debt continues to grow unabated. The recent terrible wrenches in the stock market reflect everyone's uncertainty as to what lies ahead. There are cries for protectionist legislation from those who seek easy solutions, while there is a realisation from others that protectionist laws would only smash our system of international trade, quite probably tipping us over into a worldwide recession.
I am reading quotations which I imagine are of interest to anybody who takes a serious interest in the future and our economy.
The trouble is that, for America to solve its problems, it has to cut both its trade and its budget deficits. It can do that only by cutting its trade with the rest of the world. The effect of that in Britain would not be as great as in America or Japan, but it would have an effect. In such circumstances, however, the Japanese and the Americans would seek increased trade in Europe, especially Britain, and that would present a nightmare for the British economy.
In the past nine years, there has been a political, social and economic swing to the Right in British society. I believe that these measures mark the end of the swing. The pendulum will now begin to swing back. We may not swing the vote in the Chamber tonight, but we shall swing the votes in next week's local elections. I warn Conservative Members that their move to the Right will be countered by a move to the Left.
We have had a good debate this evening. I listened with particular interest to my hon. Friend the Member for Bradford, North (Mr. Wall), to my hon. Friend the Member for Edinburgh, Central (Mr. Darling) who spoke before him and to my hon. Friend the Member for Leeds, West (Mr. Battle) who spoke before him. Therein lies a most interesting aspect of the debate. The Conservative party has no speakers who wish to defend this iniquitous Budget. Indeed, more Labour Back Benchers than Conservative Back Benchers have spoken.
I listened with interest to the right hon. Member for Worthing (Mr. Higgins), the Chairman of the Treasury and Civil Service Committee, to my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) the Chairman of the Public Accounts Committee, and to the hon. Member for Wanstead and Woodford (Mr. Arbuthnot). I hope that hon. Members will forgive if I dlo not reply directly to many of the points that were made, with some of which I agree. I even agree with some of the points made by the hon. Member for Beaconsfield (Mr. Smith)—and that is saying something. My hon. Friend the Member for Gateshead, East (Ms. Quin) made some excellent points, and my hon. Friend the Member for Walsall, North (Mr. Winnick) was absolutely right when he said that this is government by the rich, of the rich and for the rich.
My hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson) spoke about manufacturing arid made the very important point that Budgets should be about the creation of wealth and the creation of income and not just about the distribution of income. This Budget had nothing to say about that. My hon. Friends the Members for Clydebank and Milngavie (Mr. Worthington) and for Edinburgh, South (Mr. Griffiths) also made some very useful comments.
In stark contrast to the attitude of some Conservative Members who have been servile to the wishes of the greedy and the super-rich and unrepentant in trying to justify the tax bonanza that has been given away, the Labour party has shown that we are concerned about the lack of finance for the Health Service, the cuts in social security and housing benefit and the increasing number of our citizens who are committed to living in poverty.
The Budget does nothing for the unemployed, the ill or the poor. It does nothing for those on average earnings. [Interruption.] The hon. Member for Lancaster can interrupt from a sedentary position as much as she likes. Her behaviour speaks for itself.
The Budget does nothing for those on average earnings or below average earnings. It is true that the basic rate of income tax has been reduced from 27p in the pound to 25p in the pound, but that has been at the expense of the neglect of our schools over such things as the provision of books, the maintenance of buildings and the availability of good, nutritious and cheap or free school meals. It has been at the expense of our road maintenance programme and at the expense of the National Health Service. In spite of what the right hon. Member for Worthing said, waiting lists are increasing and wards are closing down. Emergency units are refusing admission at certain times to cut costs. Patients are dying for lack of treatment. Above all, the Budget has been at the expense of the poor.
On what conceivable basis can the hon. Gentleman argue that this Budget is at the expense of the Health Service? This year, an extra £1·75 billion will be spent on the Health Service. Next year an extra £1 billion will be spent and another £1 billion will be spent the following year. The hon. Gentleman cannot conceivably argue that more is not being spent on the Health Service.
I respect the right hon. Gentleman, who is an expert on finance, but he must agree that simply saying that so much extra in real terms will be spent on the National Health Service is not the end of the story. He must consider the change in the demography of the country and the fact that as a nation we are older. He must have regard to the RPI for medical costs and he must consider the extra costs due to illness because of the doubling and trebling of unemployment. He must consider the fact that the family practitioner committee is not cash-limited and that any extra money it spends must inversely come off the hospital and community health sector budget. He must have regard to all that.
It is not true that the Government have spent more on the National Health Service and that everything is all right. It is not all right. Instead of giving money to the super-rich, the Opposition's charge, as has been demonstrated adequately tonight, is that the Government could have put some of that money into public services and that it is to their shame that they have decided not to do so.
The average man and woman in the street have been hit in two ways by the Chancellor and his Budget. First, their moral integrity has been assaulted because of poverty. Officially, 18 million people are living in poverty.
I shall allow the hon. Gentleman to intervene for the last time, but I hope that it will not be about those figures. He can look them up; they are available. Children are human beings, the same as adults.
I do not know. I could make an estimate, but it would be better for the hon. Gentleman to look up the figure. I apologise to him for not having it. I would not want to mislead him by making an estimate.
Besides assaulting the moral integrity of the average person in the street, the Chancellor of the Exchequer has attempted an enormous act of deception. The average man and woman is told that 2p will come off income tax but the Government do not tell them that that could and should have gone towards rebuilding our public services, the National Health Service and the decaying infrastructure, which is visible everywhere from Land's End to John O'Groats. His attempted deception does not end there. Even reasonably prosperous people do not get very much out of the Budget, a point to which I shall turn later.
It would be sensible to comment on the Chancellor's macroeconomic strategy, as it is obvious that there continues to be an argument between the Chancellor and the Prime Minister over exchange rates and bucking the market. It may have been true to say that the stronger an economy is growing the stronger the pressures of inflation, but that is not true now and it is misleading of the Chancellor so to claim. He claims it by boasting that it is an unusual achievement to have a period of steady growth without any rise in inflation, but any Government's powers of interference are much more limited now than they were. Importers will readily meet at short notice unfilled demand in the United Kingdom market. That will act as a downward pressure on inflation, but it will also have a horrible effect on our balance of payments.
I shall not give way again. Conservative Members have had a good innings and I hope that they will forgive me. I am sure that the hon. Lady will wish to serve on the Standing Committee on the Finance Bill, when I shall he happy to debate with her at length every point that she seeks to make.
The country's balance of payments is a serious issue that the Chancellor cannot duck for very long, and it should not simply be dismissed in the way that it was by the hon. Member for Croydon, South (Sir William Clark). I am not attacking him, but the hon. Gentleman said that the balance of payments was a minor matter and did not play a large part in the present economy. I beg to differ with him. It is right that the Opposition should ask the Chancellor what he intends to do, but the only answer in the Budget seems to be that the spending spree about to be undertaken by the super-rich will make matters worse.
The Government have abandoned their monetarist dogma and their primitive belief that inflation can be controlled solely by controlling broad money. I am sure that it is only a matter of time before the Government realise that high interest rates alone are insufficient to control inflation. Last week's money supply figures showed a 20 per cent. increase in broad money, which will give rise to serious problems. It will exacerbate the balance of payments deficit and encourage an increased rate of inflation.
If steps are not taken to correct the balance of payments, there will, some time, be an economic crisis in this country. Interest rates can be kept high to fund the deficit but that means an over-valued pound with consequently fewer exports and an even larger balance of payments deficit. That is a problem not just for the Chancellor but for the whole country. It is something that any responsible Treasury Minister would have addressed by now. It is a pity that the Budget is concerned only with redistributing money to the rich, with greed, with avarice, and with making the rich richer still.
I turn to the Bill's fiscal measures and to the way in which the Tory Administration have treated their citizens over the past nine years or so. How could the Government, when they first came to office, double and then treble the number of those out of work? Even now they preside over an unemployment rate that would have been thought beyond belief 10 years ago.
How could the Government cut the link between the old-age pension and rises in average earnings, so that a pensioner couple are £14 worse off every week than they would have been under a Labour Administration? [Interruption.] It is no use Conservative Members complaining, because under a Labour Administration a pensioner couple would be better off.
How is it that the Government have failed more than once fully to uprate child benefit in line with inflation? How is it that they have made unemployment benefit taxable? Earnings-related supplementary benefits have also disappeared. The cost to the Government of single parents as part of income support has just been halved; how can the Government defend that? It is an attack on the poorest sections of society. Board and lodging allowances for the under-25s have also been abolished. The list seems almost endless.
The House will recognise that all that amounts to a well-planned policy by the Treasury of cutting benefits and increasing taxes on the poor in the unsubstantiated belief that it will make the poor grateful to their mistress for the crumbs once the loaf has been taken away. In the recent social security changes, more than 2·25 million people received not a penny more but are worse off because there will be no uprating. Another 2·5 million people will receive an increase, but it w ill not catch up with, or compensate for, inflation. A further 1 million people will be worse off. In other words, two thirds of the 8·5 million people I mentioned will be poorer as a result of the changes.
On the other hand, a family of four with an income of £100 weekly and claiming family credit and housing benefit will receive only 5p more a week as a result of the tax cuts. The tax cuts may apply to them, but all the other changes will mean they will gain by only 5p a week. That is the measure of the Government's generosity towards some of the poorest sections of society.
I compare those people with others at the opposite end of the socio-economic spectrum. Let us consider what will happen to people who already have money and wealth. Without any substantiation being made or attempted, the Government clearly believe that the super-rich need extra money in order to be of more benefit to the country. My hon. Friend the Member for Edinburgh, Central (Mr. Darling), was right in what he said on that subject.
Let us consider what it implies in respect of the Budget. First, the top rate of tax was cut from 60 per cent. to 40 per cent., which means that half of all the tax cuts went to the top 10 per cent. of taxpayers. The hon. Member for Croydon, South shakes his head. If he does not agree, lie should give his figures. With the reduction of income tax from 60 per cent. to 40 per cent., some £2 billion was given to 3·7 per cent. of taxpayers—about 700,000, give or take a few; I am not being absolutely accurate. I am glad to see some measure of agreement from the hon. Member for Croydon, South at last.
Lord Hanson gets £4,728 a week, cash in hand, in notes. Sir Ralph Halpern gets even more: £5,134 a week. [Interrruption.] The hon. Member for Tatton (Mr. Hamilton) is now trying to barrack me. I wonder whether he has any morality at all, and whether he can appreciate what the average old-age pensioner on £40 or £50 a week net thinks of that. The gentleman to whom I referred receives more in a week than old-age pensioners get in a year. I do not see much morality in that, and I do not think that any Conservative Member would dare to stand up and justify it now. What evidence is there that the rich need incentives to work harder, and that the poor need to be repressed and taxed harder to work harder? What Conservative Member can justify that?
The hon. Member for Slough (Mr. Watts) said that the tax cuts meant individuals keeping a little more of what is already owned. I do not think that it was their own in the first place. I think that they hijacked it from the companies for which they work—[HON. MEMBERS: "Shame!"] I do not think that they earned it. There is no question of Sir Ralph Halpern earning £5,134 a week.
I am sorry; I must make progress. I hope that the hon. Gentleman will forgive me. Because of all the interventions, I have used up 15 minutes of my speech, and I am only half way through it. I do not wish to take up any of the time available to the Financial Secretary.
Let me bring the facts home to Conservative Members. A single person on 10 times average earnings, earning about £127,000 a year, will receive £369·40 a week in income tax cuts. By contrast, someone on the average income of £244 a week will receive only £4·36 a week. Not many of my constituents earn £244 a week. Many would be glad of that salary. Moreover, that £4·36 a week is at the expense of the National Health Service, the schools and all the other services that the Government should be looking after. This is only the latest in a long line of giveaways to the super-rich.
That is not all. The Tories have decided to cut the top rate of inheritance tax from 60 per cent. to 40 per cent. They have done that despite halving the number of estates liable for the tax over the past two years. In 1986–87, the number was about 39,000; in 1988–89, only 20,000 are expected to pay. But each estate will now benefit by an average of about £30,000. It can readily be seen that that is a measure on behalf of the super-rich. Only 5,200 taxpayers paid inheritance tax at rates above 40 per cent. last year. That demonstrates the length to which the Government will go to please their masters and mistresses.
Capital gains tax cuts will also help the well-off.
I wrote it, and I am prepared to stand by it. The obvious discomfiture of Conservative Members only shows that I am stating some home truths.
There are not many payers of capital gains tax in my constituency. In fact, less than one taxpayer in 100 pays the tax. Yet, again, a large measure of the Finance Bill is concerned with capital gains tax, although only a small section of society pays it.
The hon. Gentleman makes the point. He follows the line of the Chancellor at the Dispatch Box a few weeks ago. However, the hon. Gentleman has not thought hard about the problem. In reality, those gains were not just inflationary. There were real gains, especially in the property market. Conservative Members must remember that schedule A tax was abolished in the early 1960s, resulting in real gains in property. For that reason, it is wrong that capital gains tax should not have been completely abolished before 1982. I am glad that Conservative Members are silent on this issue.
Those gains were real gains and what the Chancellor has done in the Budget will not help the ordinary citizen who owns and lives in his or her house, because that has always been exempt from capital gains tax, but it will help —wait for it yet again—the super-rich, the property speculators, and there were plenty of them 20 years ago, and the neo-Rachmans of this world who are about to be given a new lease of life with the changes in the business expansion scheme.
Then there is the disaggregation of investment income for married couples [yet another measure for the super-rich. It is worth as much as £1 billion in all, but only to the very few in Britain who do not make the mistake of thinking that women will have independent taxation. They will not have independent taxation, as can be seen from page 21 of the Finance Bill, which says:
If the claimant proves that for the whole or any part of the year of assessment he is a married man whose wife is living with him, he shall be entitled to a deduction from his total income of £1,490.
A relevant paragraph follows later. That talks about the man, not the man or woman. It could have been drafted in such a way that there was equality between the sexes.
The Government maintain that all the giveaways in income tax, capital gains tax and inheritance tax are necessary to motivate the rich to work harder or to attract to or keep in Britain the internationally mobile. Our scientists, engineers and researchers do not have the incomes necessary for them to benefit from this Budget. The top scale for university lecturers is about £20,000 a year, and the average salary for a professor is about £28,000 a year. I do not see how such people in our universities will pay top rates of tax and so benefit from the Government's handouts in the Budget.
Even if our scientists and engineers were to benefit from the Budget, it is equipment, resources and funding that are important for their research. That is what will make them stay in Britain, not the amount of money that they get in their pockets as a result of the Budget.
A constituent of mine paid £140 out of his own pocket to attend a day-release course in his spare time. He was made unemployed and the unemployment benefit office paid him for four days a week for about four or five weeks, then stopped his money. He tried to get income support, but was unsuccessful. My constituent had been trying to improve himself, but he was unable to do so because he could not obtain support from the Government.
Contrast that constituent of mine with a reasonably prosperous or average middle-class family with a son or daughter wishing to educate himself or herself. They will have a little more money with which to keep their son or daughter at home. They can even pay for him or her to go to university. But covenants have been stopped, which shows that the Government are not really worried even about the average prosperous family. They have stopped covenants for non-charitable purposes and there is no way that such families can, in a tax-efficient way, help their offspring.
Contrast such people with the super-rich. They will be able to continue to transfer taxable income from a parent to a student by means of a settlement of capital or a capital trust. They will not suffer. The Chancellor leaves them unscathed and again shows clearly that this Government are in favour of the super-rich. They do not care too much about the people on average earnings. They are keen to repress the poor. The Chancellor cannot deny that in the first case I cited, he is intent on keeping the poor in poverty. Where is his sense of fair play with regard to this matter?
The House will not be surprised to learn that there are even more benefits for the super-rich in this Budget. Each spouse will have a separate £40,000 annual limit in the business expansion scheme. The transferable allowances will not just be transferable allowances for earned income. There will he two sets of allowances for capital gains tax exemptions as well.
A further tax dodge for the super-rich will be the two zero-rated band for one family. The really wealthy will be able to pass on wealth on the death of the first spouse. It will not pass to the other spouse, but on to the offspring. That is another tax dodge opened up by this Budget. [Interruption]" If hon. Members will give me just one more minute, I hope to finish.
There are other points worth noting. There is the rise in electricity prices, which hits the ordinary man in the street. There are the car taxation scale increases—which I support —which hit the average man with a company car and not the really wealthy executive. There is the fact that national insurance has not been made more progressive, that services have been downgraded elsewhere, and that housing benefits have had a capital limit imposed. All these things serve to underline my theme.
This Budget has not reduced the overall burden of taxation; it has merely given vast amounts to a few super-rich at the expense of the poor. In 1988–89 taxes, as a share of GDP, are forecast to remain the same as in 1987–88–37·9 per cent. However, in 1978–79 taxes accounted for just 33·9 per cent. of GDP. Which is the taxing party? It is the Conservative party.
This Budget has done nothing for the poor and the unemployed. It has done precious little for the average man or woman in the street. It has done nothing for industry. Yet this Government have had all the benefits of North sea oil, selling the family silver and obtaining money by crucifying the poor. It is this Government who are the taxing party. The poll tax will be seen to be a Tory tax when the next election comes along.
This Chancellor has the cheek to say that the gap between the rich and poor is not something to be determined. He has determined the gap between the rich and the poor. He is continuing to determine the gap between the rich and the poor in favour of the rich getting richer at the expense of the poor getting poorer. For that reason I hope that all the hon. Members of the Conservative party will join me in voting against this iniquitous and immoral measure tonight.
I agree with the hon. Member for Wrexham (Dr. Marek ) that this has been an interesting debate. A number of speeches have gone rather wider than the Finance Bill, and I hope that my hon. Friend the Member for Stamford and Spalding (Mr. Davies), who made a most interesting speech on wider issues, and my right hon. Friend the Member for Worthing (Mr. Higgins) will forgive me if I do not comment on some of the points that they made, but comment only on the points about taxation.
The hon. Member for Dunfermline, East (Mr. Brown) spoke about the interaction between taxation and the economy when he said that the Chancellor of the Exchequer was awash with money. He implied that my right hon. Friend had been over-cautious and, perhaps, should have borrowed rather more money as opposed to repaying debt. The hon. Member, with some of his hon. Friends, seemed to show no understanding of how the buoyancy of revenue has been achieved.
The hon. Gentleman seems to forget that he said that other Chancellors had not always found themselves in as fortunate position as my right hon. Friend. He is quite right; Labour Chancellors did not find themselves in the same fortunate position as my right hon. Friend. As my hon. Friend the Member for Croydon, South (Sir W. Clark), and my right hon. Friend the Member for Worthing said, it is precisely because we have controlled public expenditure, and we have had tax cuts and measures to improve the supply side in the past, that we are in the fortunate position of having buoyant revenue, which has enabled us to cut taxes and to increase spending.
The hon. Member for Dunfermline, East may prefer to forget this, but perhaps he will remember when I remind him that he gave himself away when he said from the Dispatch Box that all the tax cuts were due simply to North sea oil and that it was North sea oil that had produced the revenue. North sea oil not only represents under 2 per cent. of revenue, but it has halved since 1985–86, so what the hon. Gentleman said was completely ridiculous.
Other hon. Members, including the hon. Member for Nottingham, North (Mr. Allen), made much of the point that the burden of taxation has not been reduced. That is hardly a state secret, as my right hon. Friend the Chancellor announced in the Budget that the burden of taxation was not being reduced as a proportion of GDP. Therefore, I find that an interesting point for hon. Members to make.
I agree that we should like the burden of taxation to be reduced further, but two points need to be emphasised. First, the fact that the burden of tax overall in the economy has not been reduced shows precisely what we always say: one can cut tax rates and keep up revenue. Secondly, it shows that Opposition Members do not know which way they are facing because they have opposed every tax cut that has ever been made by this Government.
The answer to that is shown in the figures for take-home pay and living standards, which take account of increases in indirect taxation. Those figures show that in every multiple of average earnings there have been substantial increases in living standards.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) doubted whether this was a reforming Budget. In that, he disagrees with many observers, including, for
example, The Independent, which is not always a supporter of the Conservative party and which, although awarding the prize for tax reform to New Zealand, stated:
We certainly now have a superior tax system to almost any country in Western Europe.
Yes, tax reforms should be judged by the criteria of equity, but also by simplicity, neutrality and what they do for the supply side of the economy. My hon. Friend the Member for Fulham (Mr. Carrington) talked about what has been achieved in terms of simplicity. We have a much simpler system now. We have no tax rate over 40 per cent. We have a single rate of inheritance tax, whereas previously we had seven. Indeed, it requires something of a feat of memory to recall that in 1979 we had no fewer than 11 rates of tax on earned income and a further two rates of tax on investment income. Other changes such as those relating to maintenance and non-charitable covenants will also greatly simplify the system.
I believe that the strategy should be to reduce marginal rates, increase incentives and increase average rates by blocking artificial loopholes. Opposition Members have not woken up to some of the provisions in the Bill that block some of those loopholes. We have heard about forestry and cars. I noted that my hon. Friend the Member for Fulham said that he felt that we should increase that tax even further.
Other steps have been taken which should be close to the hearts of Opposition Members. We have increased the tax on golden handshakes, and we have increased the tax on capital gains for higher rate payers. We have also reduced markedly the incentive to convert income into capital, which was one of the greatest avoidance devices. We have increased the tax on share options for higher rate payers. Normally one simply needs to mention share options to get the Opposition jumping up and down like a lot of war-fevered dervishes.
The alignment of capital gains tax with income tax was not mentioned by the hon. Member for Dunfermline, East or by the hon. Member for Wrexham, or by the right hon. and learned Member for Monklands, East (Mr. Smith) when he spoke the other day. The Opposition have not once mentioned the alignment of capital gains and income tax.
I confess that perhaps the silence of those sitting behind me shows that the rapture of my hon. Friends for the measure is somewhat modified, but when it was introduced, I should have thought that Opposition Members would cheer it to the rafters. It sharply reduces the incentive for the better-off to arrange matters to their own convenience. The fact that Opposition Members did not mention it shows all too clearly that they are determined to caricature the Budget and to make it fit their image rather than describe what it really does.
I agree very much, once again, with my hon. Friend the Member for Fulham that many of the accountants who have been employed, I dare say gainfully, in converting income into capital will find something more productive to do elsewhere.
Another measure of reform is that of independent taxation, which again the hon. Member for Dunfermline, East chose to dismiss. He implied that the measure, and indeed the Budget as a whole, is just for pipe-smoking rich women. The Opposition do not seem to realise that this radical step towards independent taxation is of benefit to millions of ordinary people. The hon. Gentleman concentrated his remarks on women with large investment incomes, but does he not think that there is an important principle here? Is it not wholly wrong, in all the circumstances, that a woman's income should be aggregated with that of her husband and, if so, is the hon. Gentleman for or against it or does he think that the principle can be divided?
The hon. Member for Dunfermline, East is not only equivocal on the principle but wholly wrong on the facts. The facts are that married women with small incomes from savings will gain, and 1·2 million wives with incomes of less than £5,000 will gain. The elderly will be major beneficiaries of this measure, and about 900,000 elderly wives who are almost all on low incomes will gain from the disaggregation of savings. A considerable number of pensioners who have earned their pensions through their husbands' contributions will also gain.
The hon. Member for Redcar (Ms. Mowlam) raised the question, as did my hon. Friend the Member for Fulham, why the married couple's allowance was not given to whom the couple chose. It has already been explained that that would certainly delay the implementation of our reform, and a good feature of the reform is that it will be implemented in 1990, which advances the date previously thought possible. Although I recognise the validity in principle of what my hon. Friend says, and perhaps the problem can be addressed one day, in only a tiny number of families—about 0·25 per cent.—will the wrong result be achieved by our proposals in the Bill.
Several Opposition Members, including the hon. Member for Dunfermline, East, criticised and repeated their hostility to the business expansion scheme. It was all very different from the reaction of the Leader of the Opposition two years ago when we expanded the scheme. Then, he thought that it was very good.
I should have thought that hon. Gentlemen would welcome the limitation and capping of the size of project that can be financed by the scheme. We have undertaken the measure for precisely the reason that Opposition Members have criticised it in the past: there have been too many asset-backed investments of a kind that could easily get finance from the capital market.
We make no apology for extending the business expansion scheme to encourage investment in rented property. We need a supply of decent rented property. Other countries in Europe have a large amount of it, and it is only the dogma and political threat from the Labour party that has prevented us from establishing it.
I do not know what the regional CBI feels, but I remain firmly in favour of this measure because we need a supply of decent rented accommodation.
At present, for many local authorities, choice, where it exists, is in the hands of bureaucrats. That is how Opposition Members prefer it. They prefer planners to choose the location, architects to determine the style and the housing department to determine the number of rooms. When one want to move or take up a new job, there is a waiting list, complexities and delay in arranging a transfer. The country needs to encourage rented property; that is in the interests of all British people.
This Bill is unambiguously for tax cuts and growth. Britain now has one of the lowest tax regimes in the world. Overnight we have become more competitive and a better place in which to do business. The point on which Opposition Members seem to be mostly silent is that the previous cuts in the higher rates, which were larger than those in this Budget, have more than paid for themselves. The top 1 per cent. of taxpayers, 3 per cent., 5 per cent. or even all higher rate payers are paying a higher proportion of income tax than they did in 1979, and they will continue to do so after this Budget.
In that sense, higher earners as a class are more heavily taxed than previously. When Opposition Members say that the rich should shoulder a greater proportion of tax, they should face the fact that that is precisely what has happened. We have cut top rate taxes and we have generated more revenue. The hon. Member for Dunfermline, East put this down simply to people paying themselves more, and he produced some extraordinary statistic that the top 5 per cent. had increased their salaries by 300 per cent. A more accurate figure would have been 30 per cent., which is not out of line with the general rise in living standards for most of the population.
The Opposition can never understand that. They always view wealth as finite, so they are interested only in its distribution, never in its creation. They want wealth, yet they hate wealth creators. A few weeks ago we had many newspaper articles about the 200 wealthiest millionaires in the country. What struck me was how many of those people had started their business or expanded it, and how many represented new names in our high streets. Hon. Members have referred to them and the high salaries that they command, but we have not heard of the jobs that they have created or the businesses that they have started.
It has been pointed out that many countries are moving towards lower taxation at the top end. Fewer and fewer countries equate social justice with confiscatory marginal rates. Why do Opposition Members think that the United States, New Zealand and Australia are all following the policy that we are following? Presumably because they, like us, believe that confiscatory taxes are counter-produc-tive and easily evaded. They, too, believe that lower taxes increase competitiveness, attract managers, encourage entrepreneurs and create new businesses. Opposition Members do not believe that. The hon. Member for Dunfermline, East said that there was no study, survey or academic research to show it, but there is. That is not the point. [Interruption.] The evidence is all around us. It is in the tax cuts that we made in 1979 and in the United States.
The hon. Member for Dunfermline, East, when he makes such remarks, reminds me of the Bishop of Durham, who, when he was opposing the deregulation of buses, said that he was against it as an act of faith. Good Lord, whatever next?
I was referring to Professor Lindsay; the right hon. and learned Gentleman perhaps had in mind Professor Brown. That simply shows that there are two studies, not one, and that one is worth while and one is not.
The Opposition do not understand about wealth creation. The British people know that they do not understand. We know that they do not understand. Furthermore, they themselves, in their heart of hearts, know that they do not understand.
I was fascinated to read in The Guardian earlier this week about the leaked document from the Labour co-ordinating committee, of which the hon. Members for Islington, North (Mr. Corbyn) and for Dagenaham (Mr. Gould) are members:
The state of political education in the party and the trade unions is appalling. Many party activists are positively hostile to the idea that the party should have something to say about productivity, competitiveness, efficiency or enterprise.
Those are wise words, and there are even wiser words to come, because it goes on:
In so far as the electorate remembers Labour's rule in the Seventies, they associate the decade with economic crisis, strikes and hyper-inflation. In contrast, Thatcherism projects an image of economic strength.
Those are wise and realistic words. We should simply like to see them followed up by wiser policies from the Opposition.
The Opposition, particularly the hon. Member for Wrexham, keep contrasting the gains from this Budget for the highest paid with losses from the social security reform, as he puts it, for those on the lowest incomes. They assume that tax and social security are just alternative ways for Government to confer benefits on people. But the two are not the same. The tax system is there not to give people benefits but to take money from them in a way that does the least damage to the economy. The object of reductions in tax rates is to improve the performance of the economy by encouraging and rewarding enterprise. The reason is that if one encourages enterprise one will get more of it. The evidence is that this is precisely what has happened since this Government first began cutting taxes in 1979.
Opposition Members remind us of the poorest, and they have a right to do that, but their case would be more persuasive if occasionally they reminded us that there is also quite a bit of prosperity around as well, and a lot more prosperity than when they were in office. They used statistics and language as though they were describing Ethiopia rather than England, but much of the prosperity has reached the poor as well. Yes, the rich have got richer, but many of the poor have also become better off.
The real take-home pay of a single person on half average earnings has gone up by 26 per cent. under this Government. Under Labour, it fell. What happened to the burden of tax for the lowest paid under Labour? The Labour Government increased the number of taxpayers by 10 per cent. They brought into tax almost 3 million low-paid people who had not paid tax before. How can they claim to be the guardians of the poor when they wrecked and bankrupted our economy and it was the poor who suffered most?
This Bill cuts by significant amounts taxes for all taxpayers. The Opposition scoff at 2p off the basic rate, but I do not remember when the Labour Government were ever able to cut tax by 2p in the pound. Twenty-three million people will benefit from the basic rate cut; 750,000 people will be taken out of taxation. When the Opposition say that this Budget is predominantly a Budget for the rich, they should remember that 75 per cent. of the cost of the changes in the Budget has gone on basic rate and allowances. They used to have a 25p reduced rate band. We have got everyone on 25p and eventually we will get everyone on 20p.
The British people have rejected the politics of redistribution because they were tried and have failed. They want growth rather than redistribution because that will do most for the poor and give the greatest opportunity to the majority of the people. This is a Finance Bill for all the people, whatever they earn and wherever they live.
|Division No. 277]||[9.59 pm|
|Adley, Robert||Davies, Q. (Stamf'd & Spald'g)|
|Aitken, Jonathan||Davis, David (Boothferry)|
|Alexander, Richard||Dorrell, Stephen|
|Alison, Rt Hon Michael||Douglas-Hamilton, Lord James|
|Amery, Rt Hon Julian||Evans, David (Welwyn Hatf'd)|
|Amess, David||Fallon, Michael|
|Amos, Alan||Favell, Tony|
|Arbuthnot, James||Fenner, Dame Peggy|
|Arnold, Jacques (Gravesham)||Field, Barry (Isle of Wight)|
|Arnold, Tom (Hazel Grove)||Forman, Nigel|
|Ashby, David||Forsyth, Michael (Stirling)|
|Aspinwall, Jack||Forth, Eric|
|Atkins, Robert||Fox, Sir Marcus|
|Atkinson, David||Franks, Cecil|
|Baker, Nicholas (Dorset N)||Freeman, Roger|
|Baldry, Tony||Garel-Jones, Tristan|
|Batiste, Spencer||Goodhart, Sir Philip|
|Beaumont-Dark, Anthony||Gow, Ian|
|Bellingham, Henry||Gower, Sir Raymond|
|Bendall, Vivian||Grant, Sir Anthony (CambsSW)|
|Bennett, Nicholas (Pembroke)||Greenway, Harry (Ealing N)|
|Benyon. W.||Greenway, John (Ryedale)|
|Bevan, David Gilroy||Gregory, Conal|
|Biggs-Davison, Sir John||Griffiths, Sir Eldon (Bury St E')|
|Blackburn, Dr John G.||Griffiths, Peter (Portsmouth N)|
|Blaker, Rt Hon Sir Peter||Grist, Ian|
|Body, Sir Richard||Ground, Patrick|
|Bonsor, Sir Nicholas||Hamilton, Hon Archie (Epsom)|
|Boscawen, Hon Robert||Hamilton, Neil (Tatton)|
|Bottomley, Peter||Hampson, Dr Keith|
|Bottomley, Mrs Virginia||Hanley, Jeremy|
|Bowden, A (Brighton K'pto'n)||Hargreaves, A. (B'ham H'Il Gr')|
|Bowden, Gerald (Dulwich)||Hargreaves, Ken (Hyndburn)|
|Bowis, John||Harris, David|
|Boyson, Rt Hon Dr Sir Rhodes||Haselhurst, Alan|
|Braine, Rt Hon Sir Bernard||Hawkins, Christopher|
|Brandon-Bravo, Martin||Hayhoe, Rt Hon Sir Barney|
|Brazier, Julian||Hayward, Robert|
|Bright, Graham||Heathcoat-Amory, David|
|Brittan, Rt Hon Leon||Heseltine, Rt Hon Michael|
|Brooke, Rt Hon Peter||Hicks, Robert (Cornwall SE)|
|Brown, Michael (Brigg & Cl't's)||Higgins, Rt Hon Terence L.|
|Browne, John (Winchester)||Hind, Kenneth|
|Bruce, Ian (Dorset South)||Hogg, Hon Douglas (Gr'th'm)|
|Buchanan-Smith, Rt Hon Alick||Holt, Richard|
|Burns, Simon||Howard, Michael|
|Burt, Alistair||Howarth, Alan (Strat'd-on-A)|
|Butcher, John||Howarth, G. (Cannock & B'wd)|
|Butler, Chris||Howell, Ralph (North Norfolk)|
|Butterfill, John||Hughes, Robert G. (Harrow W)|
|Carlisle, John, (Luton N)||Hunt, David (Wirral W)|
|Carlisle, Kenneth (Lincoln)||Hunter, Andrew|
|Carrington, Matthew||Hurd, Rt Hon Douglas|
|Carttiss, Michael||Irvine, Michael|
|Chapman, Sydney||Jack, Michael|
|Clark, Sir W. (Croydon S)||Jackson, Robert|
|Conway, Derek||Janman, Tim|
|Cope, John||Jessel, Toby|
|Jones, Gwilym (Cardiff N)||Riddick, Graham|
|Jones, Robert B (Herts W)||Ridley, Rt Hon Nicholas|
|Kellett-Bowman, Dame Elaine||Ridsdale, Sir Julian|
|Key, Robert||Roberts, Wyn (Conwy)|
|Kilfedder, James||Rossi, Sir Hugh|
|King, Roger (B'ham N'thfield)||Rost, Peter|
|Kirkhope, Timothy||Rowe, Andrew|
|Knapman, Roger||Rumbold, Mrs Angela|
|Knight, Greg (Derby North)||Sayeed, Jonathan|
|Knowles, Michael||Scott, Nicholas|
|Knox, David||Shaw, David (Dover)|
|Lamont, Rt Hon Norman||Shaw, Sir Giles (Pudsey)|
|Lang, Ian||Shaw, Sir Michael (Scarb')|
|Latham, Michael||Shephard, Mrs G. (Norfolk SW)|
|Lawson, Rt Hon Nigel||Shepherd, Colin (Hereford)|
|Lee, John (Pendle)||Shepherd, Richard (Aldridge)|
|Lightbown, David||Shersby, Michael|
|Lilley, Peter||Skeet, Sir Trevor|
|Lloyd, Sir Ian (Havant)||Smith, Tim (Beaconsfield)|
|Lloyd, Peter (Fareham)||Soames, Hon Nicholas|
|Lord, Michael||Speed, Keith|
|Luce, Rt Hon Richard||Speller, Tony|
|Lyell, Sir Nicholas||Spicer, Sir Jim (Dorset W)|
|Maclean, David||Squire, Robin|
|McLoughlin, Patrick||Stanbrook, Ivor|
|McNair-Wilson, M. (Newbury)||Steen, Anthony|
|McNair-Wilson, P. (New Forest)||Stern, Michael|
|Major, Rt Hon John||Stevens, Lewis|
|Malins, Humfrey||Stewart, Allan (Eastwood)|
|Maples, John||Stewart, Andy (Sherwood)|
|Marlow, Tony||Stokes, John|
|Marshall, John (Hendon S)||Stradling Thomas, Sir John|
|Marshall, Michael (Arundel)||Sumberg, David|
|Martin, David (Portsmouth S)||Summerson, Hugo|
|Maude, Hon Francis||Tapsell, Sir Peter|
|Mayhew, Rt Hon Sir Patrick||Taylor, John M (Solihull)|
|Mellor, David||Taylor, Teddy (S'end E)|
|Meyer, Sir Anthony||Tebbit, Rt Hon Norman|
|Miller, Hal||Thatcher, Rt Hon Margaret|
|Mitchell, Andrew (Gedling)||Thompson, Patrick (Norwich N)|
|Mitchell, David (Hants NW)||Thorne, Neil|
|Moate, Roger||Thurnham, Peter|
|Monro, Sir Hector||Townend, John (Bridlington)|
|Montgomery, Sir Fergus||Tracey, Richard|
|Morris, M (N'hampton S)||Tredinnick, David|
|Morrison, Hon Sir Charles||Trippier, David|
|Morrison, Hon P (Chester)||Trotter, Neville|
|Moss, Malcolm||Twinn, Dr Ian|
|Moynihan, Hon Colin||Vaughan, Sir Gerard|
|Neale, Gerrard||Waddington, Rt Hon David|
|Nelson, Anthony||Walden, George|
|Neubert, Michael||Walker, Bill (T'side North)|
|Newton, Rt Hon Tony||Waller, Gary|
|Nicholls, Patrick||Ward, John|
|Nicholson, David (Taunton)||Wardle, Charles (Bexhill)|
|Nicholson, Emma (Devon West)||Watts, John|
|Oppenheim, Phillip||Wheeler, John|
|Page, Richard||Whitney, Ray|
|Paice, James||Widdecombe, Ann|
|Patnick, Irvine||Wilkinson, John|
|Patten, John (Oxford W)||Wilshire, David|
|Pattie, Rt Hon Sir Geoffrey||Winterton, Nicholas|
|Porter, David (Waveney)||Wolfson, Mark|
|Portillo, Michael||Wood, Timothy|
|Powell, William (Corby)||Young, Sir George (Acton)|
|Rathbone, Tim||Tellers for the Ayes:|
|Redwood, John||Mr. Mark Lennox-Boyd and|
|Renton, Tim||Mr. Tony Durant.|
|Rhodes James, Robert|
|Abbott, Ms Diane||Barnes, Harry (Derbyshire NE)|
|Adams, Allen (Paisley N)||Barron, Kevin|
|Allen, Graham||Battle, John|
|Alton, David||Beckett, Margaret|
|Archer, Rt Hon Peter||Beith, A. J.|
|Ashdown, Paddy||Bell, Stuart|
|Ashley, Rt Hon Jack||Benn, Rt Hon Tony|
|Banks, Tony (Newham NW)||Bennett, A. F. (D'nt'n & R'dish)|
|Bermingham, Gerald||Foster, Derek|
|Bidwell, Sydney||Foulkes, George|
|Blair, Tony||Fraser, John|
|Blunkett, David||Fyfe, Maria|
|Boateng, Paul||Galbraith, Sam|
|Boyes, Roland||Galloway, George|
|Bradley, Keith||Garrett, John (Norwich South)|
|Bray, Dr Jeremy||Garrett, Ted (Wallsend)|
|Brown, Gordon (D'mline E)||George, Bruce|
|Brown, Nicholas (Newcastle E)||Gordon, Mildred|
|Buchan, Norman||Gould, Bryan|
|Buckley, George J.||Graham, Thomas|
|Callaghan, Jim||Grant, Bernie (Tottenham)|
|Campbell, Ron (Blyth Valley)||Griffiths, Nigel (Edinburgh S)|
|Campbell-Savours, D. N.||Griffiths, Win (Bridgend)|
|Carlile, Alex (Mont'g)||Hardy, Peter|
|Clark, Dr David (S Shields)||Heffer, Eric S.|
|Clarke, Tom (Monklands W)||Henderson, Doug|
|Clay, Bob||Hinchliffe, David|
|Clelland, David||Hogg, N. (C'nauld & Kilsyth)|
|Clwyd, Mrs Ann||Holland, Stuart|
|Cohen, Harry||Home Robertson, John|
|Coleman, Donald||Howarth, George (Knowsley N)|
|Cook, Frank (Stockton N)||Howell, Rt Hon D. (S'heath)|
|Cook, Robin (Livingston)||Hoyle, Doug|
|Corbett, Robin||Hughes, John (Coventry NE)|
|Corbyn, Jeremy||Hughes, Robert (Aberdeen N)|
|Cousins, Jim||Hughes, Roy (Newport E)|
|Cox, Tom||Hughes, Sean (Knowsley S)|
|Cryer, Bob||Illsley, Eric|
|Cummings, John||Ingram, Adam|
|Cunliffe, Lawrence||Janner, Greville|
|Cunningham, Dr John||John, Brynmor|
|Dalyell, Tam||Jones, Barry (Alyn & Deeside)|
|Darling, Alistair||Kaufman, Rt Hon Gerald|
|Davies, Rt Hon Denzil (Llanelli)||Kennedy, Charles|
|Davies, Ron (Caerphilly)||Kinnock, Rt Hon Neil|
|Davis, Terry (B'ham Hodge H'I)||Kirkwood, Archy|
|Dewar, Donald||Lamond, James|
|Dixon, Don||Leadbitter, Ted|
|Dobson, Frank||Leighton, Ron|
|Doran, Frank||Lestor, Joan (Eccles)|
|Douglas, Dick||Lewis, Terry|
|Duffy, A. E. P.||Litherland, Robert|
|Dunnachie, Jimmy||Livsey, Richard|
|Dunwoody, Hon Mrs Gwyneth||Lloyd, Tony (Stretford)|
|Eadie, Alexander||Lofthouse, Geoffrey|
|Eastham, Ken||Loyden, Eddie|
|Evans, John (St Helens N)||McAllion, John|
|Ewing, Harry (Falkirk E)||McAvoy, Thomas|
|Ewing, Mrs Margaret (Moray)||McCartney, Ian|
|Fatchett, Derek||McFall, John|
|Faulds, Andrew||McKelvey, William|
|Fields, Terry (L'pool B G'n)||McLeish, Henry|
|Fisher, Mark||Maclennan, Robert|
|Flynn, Paul||McNamara, Kevin|
|Foot, Rt Hon Michael||McTaggart, Bob|
|McWilliam, John||Rogers, Allan|
|Madden, Max||Rooker, Jeff|
|Mahon, Mrs Alice||Ross, Ernie (Dundee W)|
|Marek, Dr John||Rowlands, Ted|
|Marshall, David (Shettleston)||Sedgemore, Brian|
|Marshall, Jim (Leicester S)||Sheerman, Barry|
|Martin, Michael J. (Springburn)||Sheldon, Rt Hon Robert|
|Maxton, John||Skinner, Dennis|
|Meacher, Michael||Smith, Andrew (Oxford E)|
|Meale, Alan||Smith, C. (Isl'ton & F'bury)|
|Michael, Alun||Smith, Rt Hon J. (Monk'ds E)|
|Michie, Bill (Sheffield Heeley)||Snape, Peter|
|Michie, Mrs Ray (Arg'I & Bute)||Soley, Clive|
|Millan, Rt Hon Bruce||Spearing, Nigel|
|Mitchell, Austin (G't Grimsby)||Stott, Roger|
|Moonie, Dr Lewis||Strang, Gavin|
|Morgan, Rhodri||Straw, Jack|
|Morris, Rt Hon A. (W'shawe)||Taylor, Mrs Ann (Dewsbury)|
|Morris, Rt Hon J. (Aberavon)||Taylor, Matthew (Truro)|
|Mowlam, Marjorie||Thomas, Dr Dafydd Elis|
|Mullin, Chris||Thompson, Jack (Wansbeck)|
|Murphy, Paul||Turner, Dennis|
|Nellist, Dave||Wall, Pat|
|Oakes, Rt Hon Gordon||Wallace, James|
|O'Neill, Martin||Wareing, Robert N.|
|Patchett, Terry||Welsh, Michael (Doncaster N)|
|Pendry, Tom||Williams, Alan W. (Carm'then)|
|Pike, Peter L.||Wilson, Brian|
|Powell, Ray (Ogmore)||Winnick, David|
|Primarolo, Dawn||Wise, Mrs Audrey|
|Quin, Ms Joyce||Worthington, Tony|
|Randall, Stuart||Wray, Jimmy|
|Redmond, Martin||Young, David (Bolton SE)|
|Rees, Rt Hon Merlyn|
|Reid, Dr John||Tellers for the Noes:|
|Richardson, Jo||Mrs. Llin Golding and|
|Robertson, George||Mr. Allen McKay.|