Orders of the Day — Budget Resolutions and Economic Situation

– in the House of Commons at 3:45 pm on 20th March 1989.

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[Relevant documents: European Community document No. 8887/88, Annual Economic Report 1988–89 and the unnumbered document, "Annual Economic Report 1988–89" (final version as adopted by the Council).]

Photo of Mr Norman Fowler Mr Norman Fowler Secretary of State for Employment 3:47 pm, 20th March 1989

One of the central achievements of the Budget has been to tackle some of the outstanding barriers to employment that still remain in this country. Employment is already at an all-time record with more people in employment now—more than 26 million—than at any stage in our history. Unemployment has fallen at a record rate since the 1987 election and has fallen by more than 1 million since then. However, my right hon. Friend's Budget recognises the potential for further improvement. It sets out ways that new employment can be created and, above all, it sets out those proposals at a time when the labour market is changing rapidly.

Perhaps the Budget measure that gives some of us on this side of the House most cause for satisfaction is the abolition of the pensioners' earnings rule, because that removes a major disincentive to people who want—it is their choice—to work beyond the statutory retirement age. It means that men between 65 and 69 and women between 60 and 64 will no longer be faced with the loss of pension income if they remain in employment. We previously raised the earnings limit, but that still meant that anyone earning more than £75 a week had the disincentive of a reduced pension if they remained in employment.

The abolition of the earnings rule means that there is substantially more choice for men and women in their sixties. If they choose to work on—whether full-time or part-time—it will not affect their pension entitlement; while, of course, if the man or woman does not draw his or her pension at all, he or she builds up an increased pension. In other words, the Budget achieves an increase in flexibility and choice for the older worker. That recognises the changing nature of the British labour market.

I am probably the first Employment Secretary in 20 years to come to a Budget debate to say that, now, our priority is to increase the supply of labour to meet the rising demand that we will face in the years ahead. In the next seven to eight years we will face, for the first time, a relative shortage of new school leavers coming to the labour market—there will be a drop of a quarter by the mid-1990s. That is in stark contrast to the position in the 1970s and most of the 1980s, when our central concern was to find jobs for young people. That position is now changing radically, and for the better.

In the past two years, unemployment among young people has fallen substantially. The United Kingdom now has a lower unemployment rate for the under-25s than any other major European Community country, with the exception of Germany. Today, the prospects for well-qualified young people have never been better, but we must recognise that the supply of new school leavers will not be sufficient to keep up with demand in the manufacturing and service industries or in the public services, such as the Health Service.

One of the aims of policy, therefore, must be to look at new sources of recruitment. One course is to attract back married women, and a range of employers are currently pursuing that policy. A less obvious but vital course is the recruitment and retainment of older workers.

Photo of Mr Paddy Ashdown Mr Paddy Ashdown Leader of the Liberal Democrats

I am sure that the right hon. Gentleman is aware of the woefully low level of over-16s who go on to further education in Britain. I am sure that the right hon. Gentleman agrees that there is a need to raise that percentage towards the levels enjoyed in Germany and Japan—60 per cent. and 90 per cent. respectively. Will he give an undertaking to the House that no deficiency in the labour market will stop the Government seeking to raise the numbers who go on to further education and to better qualifications?

Photo of Mr Norman Fowler Mr Norman Fowler Secretary of State for Employment

Yes, Sir. I will give such a commitment, as it is entirely correct. We want people aged between 16 and 18 to be as well educated and as well trained as possible. The fact that there will be fewer young people coming on to the labour market underlines the importance of that, but it is a question not just of education, but of training. The whole aim and purpose of policy must be to improve the professional standards of all people not only young people.

The abolition of the earnings rule takes a giant step towards more choice for older workers. As a nation, we have not sufficiently valued the contribution that older workers can make. At a time when people are living longer, we have become preoccupied with earlier and earlier retirement. I believe that debate should be about maximum flexibility and about maximum choice for people.

Photo of Mr Ron Leighton Mr Ron Leighton , Newham North East

The Secretary of State mentioned the need to attract married women back into the labour market. Can he tell us why the Budget did not abolish the tax on women using workplace nurseries? Was that not a mistake?

Photo of Mr Norman Fowler Mr Norman Fowler Secretary of State for Employment

I do not think so. We are witnessing the unprecedented development of the exact measures to attract women back to the labour market. A whole range of employers are undertaking developments that are not only right—of course, they get tax relief on them—but in their own interests. I can hardly think of a time when there has been more development in such measures.

Photo of Mr Christopher Hawkins Mr Christopher Hawkins , High Peak

On the last available figures, GDP per head has been rising at about 2·6 per cent. per annum. The Treasury is forecasting that the economy will grow in the coming year by only about 2·5 per cent. The labour force is rising. If output rises by 2·5 per cent. and productivity goes up by more than 2·5 per cent., it is impossible for unemployment to go on falling, even without increasing the labour force as the Government are suggesting. Would my right hon. Friend please comment on that?

Photo of Mr Norman Fowler Mr Norman Fowler Secretary of State for Employment

I will comment on that at some length at the relevant stage in my speech.

The second major change in the Budget concerns national insurance. That proposal will bring gains to nearly 19 million workers at an annual cost of about £2·8 billion. Every employee with a weekly income of £115 or more will gain £3 a week. Everyone with a weekly income of more than £75 will gain between £1·50 and £3 a week. The change will particularly benefit those on half average earnings, where the national insurance charge is of crucial importance.

Just as important is the fundamental change which my right hon. Friend the Chancellor of the Exchequer has introduced to the system of national insurance. In 1985, the Government introduced lower rate contributions for the lower-paid. That was a welcome step, but a major problem remained. When an individual crossed the lower earnings limit of national insurance, he had to pay 5 per cent. on all his earnings. If he earned £1 more than the lower earnings limit of £43, he lost £2·15 through national insurance. Not surprisingly, many people were deterred by that cliff-edge effect from crossing the lower earnings limit. Among other things, they were excluded from a range of national insurance benefits.

The changes introduced by my right hon. Friend the Chancellor means that those earning below £43 a week will continue to pay nothing. Those with earnings above the lower earnings limit will pay 2 per cent. on the first £43 —that is, 86p—and 9 per cent. on the rest, up to the upper earnings limit of £325. The 86p earns entitlement— I must stress this—to contributory benefits including the basic retirement pension.

In summary, those changes will remove a disincentive for employees to increase the hours that they work. They will also generally increase incentives for people on low incomes. They should contribute to employment where growth has already been so remarkable.

The 1988 labour force survey, published last week, shows that there has been a real and dramatic improvement in employment in this country. It shows that there are now 1 million more people in employment than in 1979. It shows that, in the year to September 1988, total employment increased by more than 730,000 and that 85 per cent. of those new jobs were full-time posts. It also shows that self-employment has increased by 1·1 million since 1979 and by 125,000 in the year to September 1988. It shows that, over the past two years, we have had the fastest employment growth since 1945.

Photo of Mr Win Griffiths Mr Win Griffiths , Bridgend

Despite those impressive figures, will the Secretary of State accept that in the standard planning regions in the United Kingdom of Wales, the west midlands, the north-west, the north, Yorkshire and Humberside, Scotland and Northern Ireland, there are still 800,000 fewer jobs than in 1979 despite this economic miracle? Virtually all the jobs have been created south of a line between the Severn and the Wash, and most of them are part-time.

Photo of Mr Norman Fowler Mr Norman Fowler Secretary of State for Employment

That is not true of the growth in employment or of the fall in the rate of unemployment. The rate of unemployment has come down fastest in many of the areas to which the hon. Gentleman referred including the west midlands, Wales, the north and north-west.

Photo of Mr Norman Fowler Mr Norman Fowler Secretary of State for Employment

I want to continue for a moment.

The labour force survey shows that there is absolutely no truth in the suggestion that unemployment has not been falling at the rate shown by the monthly unemployment count. On the contrary, it shows that, in the 12 months to June 1988, unemployment fell by 500,000 on the international definition of unemployment used in the labour force survey and on the figures recorded by the unemployment count.

Furthermore, the survey confirms that unemployment fell because of the record number of new jobs created. In the 12 months to June 1988, employment increased by 870,000, more than matching the fall of 540,000 in the number unemployed. In other words, more than enough jobs were created to bring about a fall in unemployment and to provide employment for a 300,000 increase in the labour force. Those are the facts about Britain's employment position.

Only the hon. Member for Oldham, West (Mr. Meacher) seeks to contradict that improvement. He is on record as saying that the labour force survey would show unemployment at 2·6 million in the spring of 1988. He is on record as saying that both in the House and outside it as well. The hon. Gentleman is wrong to the tune of 200,000. Last Thursday, the hon. Gentleman made another prediction: Unemployment has fallen as far as it can go with current Government policies. With the hon. Gentleman's record, that prediction must be the best news that the unemployed have had for a very long time.

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North

Would it be true to say that one of the reasons that unemployment has dropped so dramatically over the last couple of years or so is the large amount of inward investment we have had into this country— particularly from Japan and countries like that? Would my right hon. Friend confirm that one thing that would put off the Japanese and other people wishing to invest in our productive and successful economy would be the institution by him or somebody else of some airy-fairy concept like a Ministry of Innovation or, alternatively, a system of picking winners, whereby my right hon. Friend would take more tax from some companies so that he could expend his largesse on various political operations that he thought might be beneficial?

Photo of Mr Norman Fowler Mr Norman Fowler Secretary of State for Employment

I am sure that my hon. Friend is entirely right. We do not even need to consider the hypothetical situation. We can see what happened in respect of inward investment at Dundee, where the threat of industrial action, and the rest, deterred valuable inward investment. Worst of all, the hon. Member for Oldham, West, who leads for the Opposition on employment, did not at any stage have the courage to condemn the action that was taken at Dundee. That is the condemnation of the Labour party.

Photo of Michael Meacher Michael Meacher Shadow Secretary of State for Work and Pensions

Is the Secretary of State really bragging about the fact that unemployment is still over 2 million and still twice as high as it was in 1979? Is he aware that the latest labour force survey figure shows also that, in the period following the end of March 1988, which is the half-year for which figures are available, jobs increased at only half the rate of the year before, showing that the jobs boom is clearly over and that unemployment is clearly bottoming out? Is the right hon. Gentleman aware also that vacancies have fallen by 39,000 net over the past year, which is a trend normally associated with rising unemployment? Is he satisfied that adult male unemployment is still twice as high as the European average?

Photo of Mr Norman Fowler Mr Norman Fowler Secretary of State for Employment

I am not bragging about the employment or unemployment situation. I am saying that the hon. Gentleman not only got his predictions wrong but self-evidently wrong, and that if he had any courage at all, he would get up and apologise to the House and to the country for his inaccurate statements about the fall of unemployment. The fact remains that unemployment has come down, but that the hon. Gentleman has sought month after month to fiddle the unemployment figures upwards. His claims have now been shown to be entirely bogus, which comes as no surprise to those of us who have known the hon. Gentleman over the years.

Photo of Mrs Elaine Kellett Mrs Elaine Kellett , Lancaster

Will my right hon. Friend commiserate with the 1,000 workers in Liverpool who have lost their jobs because of the Luddite tactics of the antiquated unions there?

Photo of Mr Norman Fowler Mr Norman Fowler Secretary of State for Employment

My hon. Friend is right. The part of the Transport and General Workers Union in that dispute needs to be examined, and people need to learn what is going on.

Let me take up what the hon. Member for Oldham, West has just said about vacancies. The significant point about unfilled vacancies is how the number has kept up. On Thursday, the hon. Gentleman issued a press release in which he talked about the alarming fall in vacancies. He said that vacancies had fallen by 1,000 in jobcentres over the past month, and if he wants to deny that we have it on record. There are now nearly 230,000 vacancies in jobcentres alone, which means that in the economy generally there are probably between 600,000 and 700,000.

Photo of Mr Norman Fowler Mr Norman Fowler Secretary of State for Employment

I would like to make progress.

In such circumstances, it is entirely right for the Chancellor to remove barriers that stand in the way of those jobs being taken up, and to take away obstacles that prevent new jobs from being created.

Photo of Mr Norman Fowler Mr Norman Fowler Secretary of State for Employment

I would like to make progress, if my hon. Friend will forgive me.

My right hon. Friend has done that by ending the pensioners' earnings rule for men and women in their sixties. He has done it by reforming the national insurance system, which I should have thought would be welcomed by hon. Members on both sides of the House. He has also done it by increasing corporation——

Photo of Mr Richard Holt Mr Richard Holt , Langbaurgh

I am sorry that my right hon. Friend does not wish to hear the good news from Teesside that I would like to give him. The latest newsletter from the Teesside chamber of commerce shows that 28 per cent. of firms anticipate taking on new labour in the next few months, and that the vacancies advertised in the newspapers in that location are running into pages and pages. Last Friday, there were five pages of vacancies.

One reason why the number of vacancies registered with the jobcentres is not as high as it was may be that jobcentres are no longer a source of labour. Jobs are being advertised in newspapers, as has been the case historically, and in Teesside they are booming.

Photo of Mr Norman Fowler Mr Norman Fowler Secretary of State for Employment

I am grateful to my hon. Friend, and I apologise for not having given way to him earlier. It was unforgivable of me not to allow him to give news of that kind. I should like, however, to make a few minutes' progress with my speech before giving way to any more hon. Members on either side of the House.

By increasing the corporation tax threshold for small companies, my right hon. Friend has reduced the corporation tax burden for 20,000 small companies. He has simplified the tax regime for small business men and raised the compulsory threshold for VAT. By any standards those are significant measures, but of course other barriers to employment exist.

At the same time as making those reforms, it is right for us to consider other measures to improve employment levels. As my right hon. Friend said in his Budget speech: The task of business and industry is to control their pay and other costs. The more successfully they do so, the less costly in terms of output and employment the necessary adjustment will be."—[Official Report, 14 March 1989; Vol. 149, c. 245.] As the House knows, we have been reviewing the closed shop, particularly the pre-entry closed shop. The effect of the closed shop is to limit employment opportunities and to reduce the supply of labour. At the same time, it limits the employer's freedom to decide whom to employ and whom not to employ, and the employee's freedom to decide whether or not to join a trade union in the first place.

As part of the review, I commissioned a special survey of the extent of the closed shop, which shows that the number of jobs covered by the closed shop has fallen from a peak of 5 million in 1978 to just over 2·5 million today. Nevertheless, the survey found that one worker in 10 said that the most important reason for union membership was that it was a condition of having the job. The survey also shows that 1·3 million jobs are the subject of a pre-entry closed shop. To get the job, one needs a union card. That is substantially more than previous estimates and, in effect means that there are still 1·3 million jobs which are closed to anyone who is not already a member of a trade union. We have already taken action against the post-entry closed shop whereby the employer may take on a non-unionist, so long as such a recruit joins the union shortly after starting the job. In such a case, the victim of the post-entry closed shop can go to an industrial tribunal with a claim for unfair dismissal.

As I said in my December statement, I believe that the time has now come to act against the pre-entry closed shop. I am publishing today for consultation a Green Paper which for the first time gives a similar remedy to anyone who is excluded from a job because of the pre-entry closed shop.

At the same time, we need to recognise that bad industrial relations can also provide a major obstacle to employment growth. Strikes export jobs to our competititors. In the 1970s, this country lost on average 13 million working days a year because of strikes. At this time 10 years ago, we were in the immediate aftermath of the winter of discontent which did so much damage to the reputation of this country.

Working days lost through strikes are now down to about 3·75 million a year. The number of working days lost in January of this year was the lowest in any month since August 1940, but although the position has improved, there are still areas where I believe that action should be taken.

We are particularly concerned with secondary industrial action. Although the 1980 Act took important action in this area, the position remains that as the law stands at present immunity can apply to organising certain forms of secondary action. The Government's view is that there is no good reason why employers who are not party to a dispute should be at risk of having industrial action organised against them.

For example, secondary action can deter employers from starting up for the first time in this country—in a situation where secondary action is threatened among workers in the new firm's customers or suppliers with the aim of forcing the new enterprise to accept certain terms and conditions. Indeed, exactly that sort of threat was made at Dundee, when the American Ford company planned to establish a new factory. Dundee, above all, shows the link between industrial relations and jobs.

Photo of Mr John Townend Mr John Townend , Bridlington

I welcome the news about the closed shop, but will my right hon. Friend deal as soon as possible with that relic of the corporate state, the national dock labour scheme, as a result of which the container terminal in Hull remains shut, jobs are being lost and trade is going to other ports?

Photo of Mr Norman Fowler Mr Norman Fowler Secretary of State for Employment

My hon. Friend will not be surprised to learn—if he is, I apologise for it—that my right hon. Friend the Prime Minister gave an exact reply to his question on 19 January. I have nothing to add to what my right hon. Friend said then. My announcement today will enable the reform of industrial relations to go forward. There will be a step-by-step reform of industrial relations law. I am glad that my hon. Friend welcomes the proposals.

A range of measures is being taken to tackle barriers and obstacles to employment, but the Budget goes beyond that. It also gives opportunities for employment itself to be more attractive. It gives employees further opportunities to participate in the success of their firm. It recognises the impact that successful employee participation schemes can have on staff commitment and the business performance of the company. The experience of many leading British companies bears this out. So the Budget includes important new proposals on employee share ownership, profit-related pay, and pensions, including personal pensions.

In all these areas, the Budget builds on the substantial progress that has already been made. More than 1·75 million employees have already benefited from approved employee share scheme. They have received shares or options for shares worth some £4 billion. The tax relief on profit-related pay, which came into effect only 18 months ago, already covers more than 120,000 employees and profit-related pay worth more than £100 million. In this Budget, my right hon. Friend the Chancellor has proposed significant improvements which will give further encouragement to those important developmemnts.

First, increased benefits will be available under employee share schemes. The limits will be raised so that firms will be able to give staff more shares free of tax. Secondly, the Budget proposes a new tax relief which is specially designed to help companies that set up employee share ownership plans. My right hon. Friend also proposes to increase the maximum of profit-related pay which can attract tax relief.

For the individual worker, the new personal pensions and money purchase pension schemes are making it substantially easier for employees to move from firm to firm and take their pension entitlement with them. That is a substantial advance in the rights of working people.

Personal pensions have been a major success story. One million people have already taken advantage of the new opportunities that have been available since last July. Money purchase schemes can be used to contract out of the state earnings-related pension scheme. Already, more than 8,000 schemes have been established, including some industrywide schemes, such as those in engineering, construction and the footwear industry.

The Budget changes will allow greater flexibility in pension provision. They will improve the arrangements for personal pensions and make very significant increases in the contribution limits for people over 35 who, as a result, will be able to make better provision for their retirement. They will make it easier and more attractive for employees to pay additional voluntary contributions to secure better benefits, simplify the rules for occupational pension schemes, and reduce the administrative burden on employers.

All in all, the Budget proposals offer employers a range of important opportunities to increase employee participation in the prosperity of their firms. They will give a further impetus to developments which have already proved successful, effective and popular with employers and employees alike.

There are other issues that affect workers' and staff commitment. At the beginning of this debate on Wednesday, the shadow Chancellor, the right hon. and learned Member for Monklands, East (Mr. Smith), referred to the importance of investment in training. I agree about its importance. That is why the Government are investing £3 billion in training for young people and the long-term unemployed—£3 billion made possible by the Chancellor's policies. It is also why we are setting up training and enterprise councils around the country—to achieve more training by employers and more training generally, geared to the needs of the local labour markets.

It is because of the crucial importance that we attach to training that I published two White Papers last year proposing important changes in our arrangements.

On training, we are entitled to say to the Opposition, "We hear the words, but we remember the action." We remember that, when the employment training programme for the long-term unemployed was launched, it was bitterly opposed by the Labour party conference. We remember that, although—to his credit—the Leader of the Opposition backed the programme, the Trades Union Congress rejected his advice. We remember that the shadow spokesman on employment, to his great discredit, took the easy way and campaigned against a training programme for the long-term unemployed.

Photo of Michael Meacher Michael Meacher Shadow Secretary of State for Work and Pensions

If the right hon. Gentleman is so pleased with his employment training scheme, will he explain why, after six months, only 50 per cent. of the target number of places have been filled and why a large number of companies, including McAlpine, which has close associations with the Tory party, refuse to have anything to do with it?

Photo of Mr Norman Fowler Mr Norman Fowler Secretary of State for Employment

I thought for a moment that the hon. Gentleman might have been getting to the Dispatch Box to deny that he has been campaigning against employment training. His intervention establishes and underlines what I was saying. I shall answer the hon. Gentleman directly. At the moment, we are getting about 40,000 entries to the programme each month. There are now about 170,000 people on employment training. Therefore, given that employment training has been going for only six months, the programme is off to an extremely good start by any standard. The new job training scheme, which the hon. Member for Oldham, West also tried to sabotage, attracted only 30,000 people after 12 months. After six months, 170,000 people are on employment training.

What I find so distasteful about the hon. Gentleman's attitude is that it entirely confirms what I said. Although the Leader of the Opposition had the guts to get up and back employment training, I cannot say the same for the Labour party spokesman on employment.

A whole range of companies is involved in employment training, including IBM, Sainsbury, Laing and many other major companies. McAlpine occupied a special position in Yorkshire. The hon. Gentleman's only contribution to training in the past 12 months has been to try to prevent training in Britain. We shall not take lectures about training from the shadow Chancellor at least until he gets rid of the Opposition spokesman on employment, and that can only be a matter of time. I notice that we shall not have the pleasure of hearing the Opposition spokesman on employment reply to the debate. Obviously, he is on the substitutes' bench in these matters.

The Budget builds on the policies which have made possible the record growth in jobs and the record fall in unemployment in Britain. Since the last general election, unemployment has fallen by more than 1 million. Over the last year, the rate of unemployment has fallen faster in this country than in any other major industrialised country. Unemployment in Britain is now well below the European Community average, and below the figures for France, Belgium, the Netherlands, Spain, Italy and Ireland.

Contrary to what the hon. Member for Oldham, West suggested, the 1988 labour force survey published last week has confirmed the record of rapidly falling unemployment which the monthly unemployment count has shown for the last 31 months. It also confirmed that unemployment has fallen, because record numbers of new jobs have been created.

At the last general election, the Labour party promised to reduce unemployment by 1 million within two years. Part of its plan for achieving that was to extend early retirement to 160,000 people in Britain, and a whole range of similar measures. However, since the election this Government have reduced unemployment by more than 1 million in less than two years, and our policies have reduced unemployment by creating real jobs—more than 1·75 million new jobs between March 1987 and September 1988 and a total of more than 2·5 million since 1983.

The truth is that the Opposition have nothing to offer except a return to a high taxation, low incentive and a low-growth economy. My right hon. Friend's Budget is a budget for investment, for continued employment growth and for a strong economy. I commend it to the House.

Photo of Mr John Garrett Mr John Garrett , Norwich South 4:24 pm, 20th March 1989

I regret that about half an hour before the debate we, or rather I, learnt of the indisposition of my hon. Friend the Member for Dagenham (Mr. Gould). I am sure that we all wish him a speedy recovery.

Our view is that once again the Budget has failed to provide for a fair society and a strong economy. It does nothing to strengthen our economy. The 1988 Budget gave tax breaks to the rich when any economic scribbler knew that resources should have been spent on the supply side—education, research and development and training. The overheating caused by boosting demand and neglecting supply has led to savage increases in mortgage interest rates and we all know from our advice surgeries how much suffering that has caused to our constituents. This version of the Barber-boom is over and we have to ask two basic questions: first, when will interest rates come down and, secondly, when will the balance of payments improve?

The Budget insults the low paid. After last year's giveaway to the rich, the decent thing would have been to have given something to the poor this year. However, analysis shows that for those earning under £100 a week the gain is only £1 and for the ordinary working family it is just £3. That should be compared with last year when a person on £100,000 a year was given an extra £260 a week —more than the average family will receive in a year from the 1989 Budget.

Many tax dodges still exist to be exploited by those who can afford accountants. The Government's latest contribution to the condition of the, low paid has been to attack the wages councils, so the poorly paid will lose the only defence that they have had in past years.

The Government tell us that Budgets are to increase incentives. Is it efficient to discourage women from going to work by failing to end the tax on workplace nurseries? Is it efficient to increase loopholes for the rich by tax relief on private health schemes or to throw money around to encourage share ownership simply to ensure that privatisation works? The Budget shows that the economy and the Chancellor have grave problems. Despite having accumulated a Budget surplus of £14 billion over the past year when the Chancellor forecast £3 billion originally, he has been unable to reduce the burden of taxation or to begin investing in the supply-side measures that Britain needs. He should have begun the supply-side revival by targeting expenditure on training, research and development and our deteriorating infrastructure. Not to do so is folly, not prudence.

Photo of Mr John Garrett Mr John Garrett , Norwich South

Not for a minute.

Those long-term problems are the outcome of 10 years of Government economic mismanagement. Our problems are coming home to roost in the appalling balance of payments deficit—a deficit that the Chancellor admits is here to stay as far ahead as we can see because balance of payments deficits of over £10 billion a year are forecast in the Red Book over the planning period. The deficit is the product of 10 years of under-investment in the productive strength of the British economy. In those 10 years manufacturing investment has never returned to the 1979 level. It has been 10 years of a growing trade deficit in almost every sector of British industry.

Photo of Mr John Garrett Mr John Garrett , Norwich South

I will give way to the hon. Gentleman in my own time, not his.

Let us look at some of the most noticeable loopholes in the Budget. Let us look at those affecting corporate management, such as personal equity plans. That pet scheme of the Government flopped last year. Now, in their passion to make it work, they have created an even bigger tax loophole. Before now, only new money could be used to invest in PEPs to gain from the tax breaks that were offered. Now, privatisation shares taken up outside PEP schemes can be transferred into them, tax free. Tax-free privatisation is now the Government's policy.

Photo of Andrew MacKay Andrew MacKay , Berkshire East

The hon. Gentleman has just criticised my right hon. Friend the Chancellor for not further reducing the tax burden. This seems a suitable opportunity for him to tell us what the basic level of taxation would be under a future Labour Government. Would it be above or below 25 per cent? That is not clear at the moment.

Photo of Mr John Garrett Mr John Garrett , Norwich South

I do not need to take instruction from any hon. Member on that. I am here to discuss the Budget and that is what I intend to do. My duty is to examine the Budget in terms of its effect on industry and the economy.

Another corporate issue is company cars. Understandably, the Chancellor has reduced the tax benefits accruing from having a company car. That seems fair enough, but he has failed to distinguish between those for whom cars are essential for work and those for whom a company car is a tax perk. The health visitor. for example, has been hit as hard as the company director.

We now have a simpler system for the assessment of the earnings of directors. Directors will now pay tax on the amount that they receive in the tax year, rather than the amount they earn or accrue in the tax year. Clearly, that can be exploited, giving company directors the ability to minimise tax bills by choosing when they receive income.

I want to consider the effect of the Budget on industry and the economy generally. Instead of strengthening the trading industries of Britain—the industries that must capture new markets abroad and defend markets at home —the Government's high interest rate strategy hits investment, building up yet further problems for the future. It is no wonder that we find the Chancellor's trade forcasts incredible. In his Autumn Statement, five months ago, he forecast that in 1989 exports would grow by 7 per cent. and imports by 5 per cent. The export forecast has now been reduced to 5·5 per cent. and the import forecast has been revised up to 5·5 per cent. as well. Even so, the Chancellor is assuming that the growth of exports will have to accelerate from 0·5 per cent., which it is today, to 5·5 per cent. and that imports will have to fall from a rate of growth of 13 per cent. to 5·5 per cent., while he keeps interest rates up and the pound high.

The Government's failure over the past decade has led to a massive increase in the percentage of products in the domestic market that are imported. I shall give a few examples. In 1978, 18 per cent. of colour televisions were imported. From January to September 1988, the figure was 40 per cent. For telephone receivers, the figure has increased from 2 per cent. to 41 per cent. and for buses and coaches, from 3 per cent. to 38 per cent. In my own constituency, 4,000 to 5,000 people are still employed in the footwear industry. There is great concern that imports of footwear have risen from 30 per cent. to 47 per cent. The Government boast that investment is booming, but as investment in manufacturing is down on 1979, the main growth areas have been investment in distribution and the financial sector—aiding the financing and distribution of imports.

Growth in the past year has been fuelled by a massive consumer boom, irresponsibly stoked up by the Government. The boom has been paid for by growing personal debt. The ratio of debt to income in Britain is now the highest in the western world, threatening the future of individual families and the future stability of the economy. In the past year, the amount of mortgage lending would have bought all new housing stock twice over.

The Chancellor has admitted that inflation will rise to over 8 per cent. before falling back towards the end of the year. That fall will be caused not by any slackening in the rate of price increases, but because year-on-year comparisons will be with the high inflation months in the second half of 1988.

Photo of Tim Yeo Tim Yeo , South Suffolk

Will the hon. Gentleman give way?

Photo of Mr John Garrett Mr John Garrett , Norwich South

No, although I know that this is a debate.

Photo of Frank Dobson Frank Dobson Chair, House of Commons (Services): Computer Sub-Committee, Shadow Leader of the House of Commons

My hon. Friend should ignore the hon. Member for Suffolk, South (Mr. Yeo). He is a ratbag. He is a person who interrupts.

Photo of Mr John Garrett Mr John Garrett , Norwich South

I do not care whether the hon. Gentleman is a ratbag or not. That is my hon. Friend's opinion. The hon. Gentleman may be a good husband and father, for all I know.

There are substantial and mysterious anomalies in the Red Book. I was trying to draft some questions for the Chancellor on those when I was hauled in here, protesting, half an hour ago. These questions really are my questions and I am trying to get at the truth of the matter. The Red Book tells us that underlying inflation is continuing to fall. Yet if I look at table 3·9 on page 34 of the Red Book, which deals with the increase in output prices over the previous year, I see that in 1987 the increase was 4¼ per cent. In 1988 it was forecast at 4¾ per cent. and for 1989 the forecast is 5½ per cent. However, the Chancellor forecast a fall in inflation, as measured by the retail price index in 1989. The only way that that can be achieved is if he is right in his assumption that interest rates will stop rising, that is, unless he tries to fiddle the RPI by taking mortgage interest out of it.

Photo of Tim Yeo Tim Yeo , South Suffolk

I know how difficult it must be for the hon. Gentleman to know his party's policy on income tax, so I shall not ask him any questions about that, but he may like to recall a historical fact. Can he tell the House the lowest rate of inflation achieved by the previous Labour Government?

Photo of Mr John Garrett Mr John Garrett , Norwich South

As I recall, when the Labour Government left office inflation was 7 per cent.—and it was falling. But what is the point of discussing that when we are talking about the Chancellor's forecast? I am simply saying that the Chancellor's forecasts of inflation do not gel or make sense. If output prices have risen by 5 per cent. on the year before, how does he expect the cost of living to fall as he forecasts?

Photo of Mr Paddy Ashdown Mr Paddy Ashdown Leader of the Liberal Democrats

Perhaps I can assist the hon. Gentleman on this point.

Photo of Mr John Garrett Mr John Garrett , Norwich South

I thank the hon. Gentleman but I do not need any assistance with my speech and if he catches your eye, Madam Deputy Speaker, the hon. Gentleman can make his own speech later.

When reading the newspapers over the weekend, I noted that the Americans are planning to push up interest rates, which will inevitably lead to a round of interest rate increases throughout the world in which we shall have to take the lead, as at the moment. With the forecast balance of payments deficit running at well over £10 billion into the future, the pound will not be sustainable at its present level without further interest rate increases. Think of the personal misery that interest rate increases cause. Think of the mortgage foreclosures and of the people I have mentioned who come to my surgery in tears because they cannot continue to maintain their mortgage interest repayments.

In recent years we have had a novel development in economic policy—the repayment of the national debt. According to the Government, that is a new triumph, and I am willing to believe them up to a point. However, the Government also say that it represents the repayment of the debt that Labour incurred in its years of government. When one considers it, it is, in fact, the Tory debt that has been run up in the past eight years. It is the bill for unemployment.

The biggest mystery is why, when the Government forecast a repayment of £3 billion for 1988–89, they repaid £14 billion. We can piece together some of the answers. There was, for example, a £2 billion overrun on privatisation receipts and a £1·5 billion shortfall on fixed investment by the Government. There was also excess revenue from income tax, national insurance contributions and VAT because the Government could not control inflation. Receipts were increased by the Government's own inflation. I am sorry to have to say that those figures also include a £0·3 billion saving on transport spending —which is a matter of some resonance given recent news.

The Chancellor's Budget shows no recognition of the hard landing forecast in his predictions for British industry. The Budget and the public expenditure programme that preceded it do not help the reconstruction of industry and do not provide the training, the education or the infrastructure that our economy must have in order to be efficient and competitive. Worse still, the Budget does nothing for our new underclass, such as the homeless young people whom one can see sleeping in cardboard boxes across the river at Waterloo on any night of the week; the confused who have been discharged from mental institutions; single parents or for the great grey army of the unemployed. The Budget combines incompetence with inhumanity.

Several Hon. Members:

rose——

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. Before I call other hon. Members, I must tell the House that Mr. Speaker has determined that, because of the number of hon. Members who wish to speak, there should be a 10-minute limit on speeches between the hours of 7 pm and 9 pm.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup 4:38 pm, 20th March 1989

I was somewhat taken aback by the abrupt end of the hilarity promoted by the hon. Member for Norwich, South (Mr. Garrett).

I shall concentrate on two main points. Before I do so, I agree with the praise by my right hon. Friend the Secretary of State for Employment for the measures which the Chancellor of the Exchequer has taken in respect of the benefit system and, in particular, of the abolition of the earnings rule. I utter just one word of caution. I am not convinced that, although desirable, the abolition of the earnings rule will lead to a great increase in production or employment. Those who were affected by the earnings rule usually found ways and means of achieving their ends without necessarily having the rule abolished or falling into trouble. But its abolition is a sound measure, and one which we have wanted for a long time. I hope that it leads to a solution of the problem.

My one reservation about my right hon. Friend's speech concerns his comments about training. I shall say much more about that point later on. He mentioned that we had the utmost difficulty in finding jobs for young people in the 1970s. I ask him to take further advice from his Department on that point. As we had 580,000 unemployed when we left office in 1974, there was no problem about finding jobs for young people—they were all in jobs. It was only in limited areas where we had any serious degree of unemployment.

I now refer to the two points on which I wish to concentrate, although fairly briefly. First, this Government have now been in power for a decade. The debate is an opportunity to look at matters over the decade, in the light of the Chancellor of the Exchequer's Budget. On this occasion, the Chancellor of the Exchequer has proved himself to be a wise man. He is not a far-seeing man, that we must know—[Interruption.] He will agree that, in his previous Budget, he did not foresee that his surplus would be four or five times that which he calculated. He is not a well-informed Chancellor. The reason for that is that the Prime Minister's campaign against the worthless bureaucracy has so affected the statistical department of the Treasury that it often does not know what is going on.

But the Chancellor is wise. The reason I say that is that he has got himself and the country into a position in which he does not know what to do. He has therefore very wisely decided to do nothing. It may be for that that we should be grateful.

As the Chancellor knows, he is my favourite one-club golfer. On the last occasion, he made a splendid drive from the tee. Enormous reductions in taxation were widely hailed. He now finds himself in a bunker, and he is discovering how difficult it is to get out of a bunker with the wooden club with which he drove off. All I ask is that he should now reconsider his bag of clubs and perhaps embrace a few more.

Why did I say that I want to examine matters over the past decade? It is because we have been through a decade which has not been altogether different from the decades since the second world war. The sooner we recognise that, the better. It is true that, at the beginning of this decade, the depression was lengthened because of the measures taken by the Government at the time, in particular by imposing a drastic increase in indirect taxation and allowing the pound to rise to heights which put our businesses out of practice. Our exports were seriously damaged, and they have never been able to recover. Since then, we have had the upward graph and now, undoubtedly on the Chancellor's calculations, we are at the top of that graph and are on the downward slope again. Nobody challenges that.

I accept that we have gone through that process yet again. It is the fourth time that that has happened in my time in the House of Commons. Quite honestly, I am getting rather bored with it. Every time, it has happened to a greater and worse degree.

We have heard the employment figures. Increases in the number of people employed are welcome, but there are still more than 2 million unemployed. On the basis of the statistical adjustment that is made at the end of the month, according to the season, the figure is just under 2 million, but the number of people who do not actually have jobs is over 2 million. [Interruption.] Well, that is the figure, which is seasonally adjusted. I have not forgotten completely my days as Minister of Labour. The problem is that, for the first time when we have been at the top of the cycle, we still have more than 2 million people without jobs—a large number of them young people. That is the first factor.

Secondly, borrowers now have to face interest rates higher than at any time in the past 45 years when we have been at the top of the cycle. Indeed, interest rates are higher than they have ever been. Thirdly, the adverse balance of trade is of a scale that we have never had at this point of the cycle. All these things constitute an appalling aspect of the development of the cycle in this decade, compared with the previous four and a half decades. [Interruption.] Was there a sedentary interruption?

Photo of Mrs Elaine Kellett Mrs Elaine Kellett , Lancaster

I was just pointing out that my right hon. Friend seems to look on the gloomy side. Never in his day, or in any other day, did we have such a massive improvement in the Budget surplus.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

I am coming to that. The Chancellor's problem is that he did not expect this surplus, and he does not know what to do with it. He and the Prime Minister regard the rate of inflation as abominably high, so he has said that he is going to use the surplus to repay the national debt. One has to ask oneself what will happen when the national debt has been repaid. What guarantee does the Chancellor have that the funds will not be used for consumption? One cannot automatically assume that they will be used by corporations for further investment.

The Chancellor may very well find that, with the pressures of high interest rates, those people who now find themselves with cash instead of investments will start spending the cash. That would defeat his purpose, and preventing it must be one of his problems. Indeed, can he prevent it at all? I do not think so. That is another aspect of his having got himself deep into the bunker.

This is the situation in which we find ourselves after a decade. Parliament and the country ought to be asking how we can get out of this situation, which has occurred four times in the last 40 years, and achieve a stabilised system in which we are not forced to expand the economy and then to wreck that economy automatically.

I am not ignoring the personal harm, anxiety and agony caused by the measures that are taken in these circumstances. I am, thinking, for instance, of high interest rates. I sometimes feel that those, both in the City and in Whitehall, who have to deal with policy of this kind are dealing with something which, to them, has no relationship at all to human beings; that the level at which interest rates have to be pitched is a pure intellectual exercise to get a certain answer as to money circulation, and that that is only a guide as to which particular monetary definition may be adopted at a given time—they can change it as they go along.

People come to our advice bureaux. Indeed, a lady from outside my constituency wrote to me the other day saying: It was such a happy time when we got our mortgage as first buyers. We did what the Government told us to do. Now it is agony. I can see no future except suicide. The only thing that stops me is my two children. It is appalling that people should get to that stage, which is brought about by those who regard as a purely intellectual exercise the level at which interest rates should be set. It behoves us all to look at that.

Several factors have kept us in this state. First, at the beginning of this decade, the market dogma adopted wiped out any question of regional aid. The market was going to put everything right. If the market preferred the south, it would move to the south and everything would be put right. We know that that was nonsense. Even if we wanted the market to move to the south, we did not make it possible for it to do so. We did not provide housing, roads, railways or anything. [Interruption.] Look at the state of the railway lines. Do I need to comment on that? I shall be accused of interfering with justice if I comment on railway lines. We did not make it possible for those in regional development to move to the south. We continued with long unemployment, and we have suffered the results politically in Scotland, the north-east and over a large part of the country. The Government should bear that in mind.

We were scorned when we said that ways could be found of choosing the infrastructure in which investment could be placed without increasing inflation. Ministers are constantly pulling out figures, saying that we are spending whatever percentage it is more than last time or more than under the Labour Government in 1979, The latter is of no interest to me or the great majority of British people. The former is not relevant to the problem. The question is: is what we are doing satisfactory to deal with the problem which faces the country today? The plain answer is no, even in the south.

My colleagues from the south know that many motorways are unfinished, even in the south. There is the M2 in my constituency, the M20, the M25 and the M27, and in the west country there are none. Our motorways are inadequate, as are all our transport facilities. Our airports are overcrowded. Look at the mess at Heathrow. The Labour Government are largely to blame for that, because they cancelled the plans to build a great new airport on the east coast.

What happens to business men who want to travel to improve their business? I travel a reasonable amount and what am I told? It all depends on whether there is a "slot". That is the latest jargon. The other day at Dusseldorf and Cologne I was told, "You can't get back. We are an hour and a half late. There is not a slot at Heathrow." Life now depends on slots. This is not the higher quality of life of which the Prime Minister spoke at Scarborough on Saturday afternoon.

Housing demands are not being met, again because it was said that the market would do all that was necessary. One sees the conditions in which many of our fellow citizens have to live. The young cannot find anywhere to live; they have families, and they still cannot find anywhere to live. Housing is another major problem that has not been dealt with.

We have not dealt with education. We have bashed it on every possible occasion. We have bashed the teachers just to bash a handful of loony Labour councils in London which do silly things. That has not produced results.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

I am using modest language.

The other night I heard my right hon. Friend the Prime Minister on television say that we must find a new means of dealing with education and that there used to be guilds. They are out of date, yet she compared the new arrangements with the guilds. I find that difficult. I know that we have been looking back the whole time. We looked back to Marshall and the 19th century to give us our economics. He was not entirely satisfactory, so we looked back to Adam Smith and the 18th century for more economics. He has not proved foolproof, so now we are looking back to the guilds for our training arrangements. [Laughter.] I am prepared to acknowledge my vested interests. I am a member of Goldsmiths Company and the Honourable Artillery Company. I do not regard those companies as having responsibility for training. Moreover, the guilds were the most protectionist organisations which Europe has ever seen. My right hon. Friend runs all the risks of abolishing the closed shop in every conceivable circumstance, yet creates guilds which will be extremely protectionist and will not produce the education that we want.

We shall never deal with the problems until we have a training system for industry which is embodied in the whole education system—and we must face that. There has always been a Department of Employment which has fought the Department of Education and Science about that. It argues that what happens after pupils leave school has nothing to do with education but is entirely to do with labour. I may even have said that myself. I certainly do not say that now, because I have seen the experiments and they have all failed. In 1970–74. we made a further attempt with training agencies. Three or four were successful, but the rest were not. I have come firmly to the conclusion that we shall never have a successful industry until training is embodied as part of our complete education system.

That applies equally to management. It is natural for some of my hon. Friends always to shout when a trade union is mentioned—to bash the unions. Unions are not entirely to blame. Today we should encourage enterprising unions which recognise the modern world. They may be expelled from the Trades Union Congress, but they are certainly getting on with the job of training and they are facing the modern world. They should be encouraged, not damned.

I regret to say that many of our management are not interested in management as such. They are interested in finance and the quickest way of getting their money. That is not the same as management. That is horrifying in the context of 1992, especially when one goes around the country asking people what preparations they have made. An employer wrote to me recently, "God help us when we get to 1992." I replied, "Would it not be more appropriate and effective if we helped ourselves?" Alas, that is not helping. Management training is just as important as employee training.

Such training will affect the Chancellor of the Exchequer. If we are to have some overall technical education system for industry and management as part of our education system, the Treasury will have additional burdens put on it. I believe that we have reached that point and that it is necessary.

If we compare ourselves with the two successful countries in the post-war world, the Federal Republic of Germany and Japan, we see enormous contrasts. We have only to ask ourselves the simple question: why are we not doing as they are doing?

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

I think that my hon. Friend would be more accurate if he said that we were not like them. That is the real point. They were both defeated in war. Japan was bombed with atom bombs and Germany was almost entirely destroyed, yet here are we unable to compete with them or to emulate what they have done.

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North

My right hon. Friend, sadly, is in one of his Cassandra-like moods. He is telling us about everything that he finds wrong. I wonder whether he could do us and perhaps himself a favour by telling us some of the things that the Government have done which have been successful and of which he approves.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

I approve of the abolition of the earnings rule. I said that earlier. I fully approve of that.

Photo of Mr Nicholas Budgen Mr Nicholas Budgen , Wolverhampton South West

My right hon. Friend appears to believe that our society should be the same as one sees in both Japan and in West Germany. He goes on to say that the main purpose of education should be materialistic and devoted to earning more money in later life. Was that the sort of view that was behind his devotion to music when he was at Oxford? Does he believe that our society would wish to be the same as that in Japan or West Germany?

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

I wish that we had as many opera houses and top-class operas as the Germans. I wish, too. that we were devoting as much to education as the Japanese. I cannot criticise them on those grounds.

I shall quote one or two figures. We have heard about the fixed capital formation, and all I would say is, whatever good we may have done, do not let us think of it as being the answer to everything or that it compares with what other countries have done. We must look at it from the point of view that we are the lowest in the Community league. The latest figures for the whole of 1987 show that we are down to 17·3 per cent. of GDP.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

The Chancellor shakes his head, but that information comes from my best statistical advisers—[Interruption.] We were down to 17·3 and everyone was higher than we were.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

That has been confirmed by the spokesman for the Opposition, who has his own source of information.

We then come to the question of the prime lending rate, which affects the whole of our industry and our citizens. Last week, we were 14 per cent., West Germany 7 per cent. and Japan 3·38 per cent. Why can we not have an economy run with similar figures? [Interruption.] There is no answer to that.

Then there is the rate of consumer price inflation.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

Will my right hon. Friend give way?

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

No, I shall not at the moment.

The latest figures, in 1988, showed that the United Kingdom had a rate of inflation of 6·8 per cent. and my right hon. Friend the Chancellor has said that that will go up to 8 per cent. West Germany is 1·6 per cent. and Japan is 0·9 per cent., with very low interest rates. On the question of trade, if we take the current balances as a percentage of GDP, we have a deficit of 3·26 per cent., West Germany has a plus of 3·09 per cent. and Japan has a plus of 2·76 per cent.—[Interruption.]

Hon. Members:

Give way.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

I have thought a great many things about my hon. Friend, but I never thought that he was Chancellor.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

My right hon. Friend accused my right hon. Friend the Chancellor of a lack of compassion in having put up the interest rates. Does my right hon. Friend believe that he showed more compassion by failing to abate inflation or that my right hon. Friend the Chancellor is showing true compassion by trying to abate inflation?

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

I did not accuse the Chancellor of a lack of compassion. I said that those who so constantly deal in interest rates as a solution to economic problems do it from a purely intellectual approach, without realising the human consequences, and I stick absolutely by that view.

We did not have to deal with interest rates of that kind, and I believe that we were—[Interruption.] The Chancellor was one of the advisers. We were dealing with the problems of infrastructure and of housing on an infinitely bigger scale than the Government have been doing in the past 10 years. However, it will all be in the memoirs.

The question is why, after 45 years, we cannot do the same as those industrial countries. We must address ourselves to that. It means that, instead of going on a purely monetary dogma, a balance must be struck between those matters which emphasise inflation, those which require a reduction of interest rates, a lower pound to get a better balance on trade——

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

The Chancellor always shakes his head about this. He knows that it is right, but he is not allowed to do it. He knows that the pound is too high for our exporters. He knows that it is far too high for our exports to Europe.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

I never mention names in public.

If we are to give our exporters a chance, the pound must be dealt with. It is always a question of keeping the balance.

Photo of Mr Neil Hamilton Mr Neil Hamilton , Tatton

My right hon. Friend made great play of exchange rates stopping us exporting, but is he aware that in the past two years the yen has appreciated against the dollar by virtually 100 per cent., yet the Japanese trade surplus is increasing? Does that not show that there is not necessarily a connection between the two?

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

I am not saying that there is a necessary connection, but our business men recognise that they lose many exports because of the rate of the pound. If we consider Germany from Erhard's time onwards, it is true that he was able step by step to improve the value of the deutschmark and at the same time encourage the exporters to increase their exports. That is right, but that has not happened here.

I am asking the Chancellor and the Government to strike a balance between the different factors involved and gradually to adjust them—with such a crisis, they have not much time—so that exports can be increased and the adverse balance of trade reduced. They could, therefore, do more for the infrastructure and for housing and, above all, they could start thinking about an overall education system for technology and management that is not improvised from Government to Government but becomes part of our internal education system in exactly the same way as it did in Germany in the 19th century and as it is in Japan at the end of the 20th century. That can be the only answer. We must face the facts and not just engage in inter-party squabbles about whose figures were right and whose went up the most. We must look at the real basis of the situation and then start dealing with it.

Photo of Mr Paddy Ashdown Mr Paddy Ashdown Leader of the Liberal Democrats 5:07 pm, 20th March 1989

It is a pleasure to follow the right hon. Member for Old Bexley and Sidcup (Mr. Heath), who said so much with which I would agree, little with which I would disagree and some of which I shall mention later. I hope, nevertheless, that he will understand if I say that the pleasure of his speeches comes not just from listening to them but from their visual impact. We have a unique advantage that is denied to those who read the right hon. Gentleman's speeches afterwards—that of watching the miserable, downcast, scowling looks on the faces of all those on the Treasury Bench as the right hon. Gentleman's speech proceeds. At no stage did I see anything other than a deep scowl from the Chancellor. I look forward to the coming of television to the House so that the rest of the British public can enjoy the spectacle.

I am sure that I speak for many other hon. Members in wishing the hon. Member for Dagenham (Mr. Gould) an early recovery. That is no reflection on the speech made by the hon. Member for Norwich, South (Mr. Garrett), but we always look forward to the speeches of the hon. Member for Dagenham and we always listen attentively. We shall miss him in this debate.

This Budget has been described as "the boring Budget" and no doubt that is an apt description, but the apparent torpor of the Budget should not be allowed to hide the basic realities of the situation in which the British economy finds itself. The realities which should be addressed by the Budget include a structural trade deficit, declining competitiveness, an unacceptable rate of unemployment and rising underlying inflation. Nor should this boring Budget be allowed to hide the injustices contained in the Government's strategy, which have been touched upon by the right hon. Member for Old Bexley and Sidcup.

This was certainly not a Budget for the low paid as more of them will now pay tax. It was not a Budget for those on benefit, nor was it a Budget for families. Those who have seen child benefit effectively cut again will recognise that only too powerfully.

The changes to the pensioners' earnings rule and to national insurance contributions are welcome—the Secretary of State for Employment touched upon them —but they do not go far enough. It was depressing to read recent newspaper reports of the Chancellor saying that he had finished reforming and cutting national insurance contributions. Much more could be done in that regard to relieve the poverty trap and make a substantial contribution towards the proper integration of the tax and benefit system.

Despite a boring Budget, we still have a gambling Chancellor who is prepared to gamble our long-term prospects to leave himself enough room for tax cuts in the run-up to the next general election. It is perfectly clear that that is the purpose of the Budget. As the right hon. Member for Old Bexley and Sidcup said, the Chancellor is prepared to gamble with the quality of our life, preferring to satisfy a narrow materalism today rather than to prepare Britain for tomorrow.

I believe that it was the Chief Secretary who said last week that living standards were the final arbiter of economic performance, and no doubt they rightly have a part to play. The rapid rises in domestic consumption are clearly a key ingredient in the Government's electoral calculations, but the Government will soon have to change their tune because the notion that there is more to life than personal material acquisition is not an attractive one to a growing number of people. Many of those who have done best out of Treasury policies now realise that they have to look for something more from Ministers and they are looking for policies which will bring our people together rather than sadly and tragically divide them. They are looking for policies which will correct the dog-eared, down-at-heel nature of public Britain and provide a base for the public goods and services which are essential to the enjoyment of our future prosperity. They are looking for policies which invest in the future because they know that today's tax cuts and consumption become tomorrow's debt burden and trade deficit.

Photo of Mr John Townend Mr John Townend , Bridlington

How can the right hon. Gentleman talk about tomorrow's debt burden when we have a Budget surplus of some £14 billion?

Photo of Mr Paddy Ashdown Mr Paddy Ashdown Leader of the Liberal Democrats

The hon. Gentleman fails to recognise what has happened since last year. The tax cuts and the increase in consumption, which was deliberately encouraged by the Government, have plunged many families into debt. The reason is perfectly clear. The hon. Gentleman will have had a stream of leaflets coming through his door from one bank after another, all saying exactly the same thing—"For goodness sake, don't worry —extend yourself; we will offer you as much credit as you like." That is the reality facing people today.

Photo of Mr Paddy Ashdown Mr Paddy Ashdown Leader of the Liberal Democrats

No, I shall not give way as I need to make some progress. The hon. Member for High Peak (Mr. Hawkins) has failed to recognise the way in which the 1988 Budget inflated the burden of debt and the burden of public consumption in Britain.

The Government are now hemmed in on the one hand by last year's folly and on the other by their own inflexible ideology. After the rhetoric is stripped away we find an economy that is peculiarly vulnerable and weak. It gives me no pleasure to remind the House of our fundamental economic condition, just as my hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) did after the 1988 Budget. The Government's refusal to face up to our trade deficit demands that we press the matter vigorously.

The right hon. Member for Old Bexley and Sidcup was right to say that we should look at the whole picture. It is clear that since 1979 the growth of manufacturing output has been the slowest for any similar period since the war. Import penetration has soared and our share of world trade has continued to decline, at times dramatically. Net investment in manufacturing has also fallen. The record under the present Government compares unfavourably with any similar period under their predecessors in the 1960s and the 1970s, never mind with the level of achievement for which we need to aim if we are to compete effectively in the world markets of the 1990s.

The astonishing fact is that the economic problems now facing the Government look remarkably familiar to anyone who remembers the 1950s and 1960s. We are faced with wage rises that are too high, a quality of goods that is too low, under-investment in people and underachievement in world markets. All those old familiar symptoms of the British disease remain unconquered. The major, age-old weaknesses of the British economy are revealed as having remained uncorrected by the so-called "Thatcher miracle". In some cases they have got far worse.

Those deficiencies are now covered in the gloss of spurious economic theory and dismissed as irrelevant or as a blip. They are rationalised away by this most intellectually agile of Chancellors and by the flexible use of forecasting, but hon. Members should study the Red Book. The fulfilment of the Chancellor's strategy and cosy predictions requires a trust in his forecasting skill which, in view of his record, amounts to little less than a mystical act of faith. This is a complacency that home-owners and businesses are paying for every day in higher interest rates and rising prices.

To fulfil the Red Book predictions, we are required to believe in a dramatic fall in the growth rate of non-oil imports from 14·5 per cent. to 4·5 per cent. At the same time, we are required to believe that the growth of non-oil exports will rise from 3 per cent. to 7·5 per cent. at a time when demand is falling. Even this ambitious target, incidentally, would still leave the United Kingdom with a declining share of world trade.

I wonder whether the Treasury is, even yet, ready to acknowledge the seriousness of the balance of payments problem. For a time, we were told that it did not matter, and the propaganda fed to us was that such things correct themselves in the modern world. Now all the evidence points to a massive, long-term structural problem which is being reflected in the record deficits.

I wish Ministers had listened more to the 1985 report from the Select Committee in the other place under Lord Aldington, which looked at these long-term problems of overseas trade. I recall that the Chancellor used some fairly unpleasant and sometimes hysterical comments to damage and dismiss that report. It is a matter of record, however, that their Lordships' forecasts have fared a good deal better than those of the Chancellor.

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North

The right hon. Gentleman is saying that he is much gloomier than my right hon. Friend the Chancellor. He implies that demand is still too high and that he wants to spend more on services. Therefore, he must want to increase Government expenditure. What does the right hon. Gentleman think of the Budget judgment? Does he feel that my right hon. Friend has been too generous in cutting national insurance or does he feel that taxes should be higher? Would he like Government expenditure to be higher? What would he have done? Will he let the House know because he is inconsistent at the moment?

Photo of Mr Paddy Ashdown Mr Paddy Ashdown Leader of the Liberal Democrats

Clearly the hon. Gentleman has not listened to the submissions which my party has made. We have made a perfectly clear statement about this. The Government are doing much to increase inflation by raising utility prices. We believe that that money could be used much more effectively in different ways. To give the hon. Member for Northampton, North (Mr. Marlow) a straight answer, there is a case for selective and careful investment, as the right hon. Member for Old Bexley and Sidcup said, which would require expenditure but whose inflationary impact would be minimal in comparison with the utility price rises which have stimulated inflation.

The question now is how long will the exchange dealers be persuaded by short-term, hot, high interest rates to ignore the long-term underlying weaknesses in the economy? As the trade deficit mounts inexorably, month after month, how long will short-term high interest rates maintain confidence on the foreign exchanges? As numerous commentators have pointed out, there must be a real danger of a sterling crisis at some point in the not too distant future with all the attendant inflationary problems and a crisis of confidence.

In the Red Book we are told that interest rates rise only because of the behaviour of narrow money. Everyone knows that that is nonsense. Interest rates rise when the markets are alerted to our real economic state by the trade figures and also when the Government and the Chancellor feel under pressure.

In the 1950s and 1960s, we had stop-go Tory Chancellors. In the 1970s, Tony Barber was the cut-and-run Chancellor. We now have the handout-and-hike Chancellor who hands out tax cuts one year and hikes up interest rates the next.

Our balance of payments deficit will more than likely grow even larger than the Government have suggested. In a recent editorial the Financial Times stated: It is easy to envisage a current account deficit not far short of £20 billion, in both this year and next. However, the Government lack the policy instruments or the political will to tackle those problems.

Photo of Mr Tim Janman Mr Tim Janman , Thurrock

Will the right hon. Gentleman give way?

Photo of Mr Paddy Ashdown Mr Paddy Ashdown Leader of the Liberal Democrats

I hope that the hon. Gentleman will forgive me. I have given way many times and I would like to get on. I will not give way.

The Chancellor wants to fiddle the figures by removing mortgage interest rates from the retail price index. He will be remembered as the Chancellor of dearer mortgages and cheaper cigarettes. The manipulation of the RPI through the Chancellor's new policy on excise duties, amounting to a 0·4 per cent. reduction in the RPI brought about by what amounts to a tax cut of more than £1 billion in those duties, will cut little ice, but it will undermine the Health Service.

Inflation is predicted to be 8 per cent. That is already higher than in any of our major competitor countries in the European monetary system, or in the United States or Japan. Despite all the apparent emphasis on defeating inflation, there are abundant signs of yet more complacency. Last November the Government announced a new policy of "bearing down on inflation". Since then, they have been responsible for its inexorable rise.

The Red Book states: It is the Government's policy not to accommodate inflationary impulses. Instead, the are busy adding to them by deliberately raising utility prices to fatten the calves for privatisation. That is policy-making gone crazy. The value of our money has halved since the Conservative party came to office. Under the Tories, prices have risen by 100 per cent. Over the same period, prices have risen by 68 per cent. in the United States, by 30 per cent. in West Germany and by 25 per cent. in Japan. We have an extra zero on inflation, but it is a zero at the wrong end of the number. It is 100 per cent.

The Chancellor has claimed that inflation is the judge and jury of economic policy. If that is so, he stands in the dock, with the verdict passed, awaiting sentence.

Photo of Mr Tim Janman Mr Tim Janman , Thurrock

Will the right hon. Gentleman give way?

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. The right hon. Gentleman has made it clear that he wants to make progress and is not giving way.

Photo of Mr Paddy Ashdown Mr Paddy Ashdown Leader of the Liberal Democrats

The Chancellor has refused to take advantage of closer European economic and monetary integration. That should be a central question facing our economic policy. The Chancellor has indicated his support of our membership of the EMS. He should have the courage of his convictions and battle it out with the Prime Minister. Membership of the EMS would be a far more effective discipline against inflation than any of the monetary routes down which he now seeks to take us.

The British economic problem can be summed up partly in terms of inflation and of the crippling use of high interest rates to keep the currency buoyant. However, we must also consider the impact of the Government's long-term and systematic starvation of the supply side of our economy. The Conservatives now preside over what is becoming a second-class industrial nation which is in danger of drifting down even further to third class status. If we are not careful and are not prepared to act quickly, the opportunities of oil and of world growth may disappear for the foreseeable future.

The forecast figures in the Budget are an admission of the defeat of the supply side miracle of the Prime Minister's years even as we approach 1992 and the single market. The Department of Trade and Industry's slogan was "Europe Open for Business". It might have been better as "Britain Open for Imports".

This year we needed a Budget for industry. If we are to have the right products and services of the highest quality marketed effectively across the world, the Government must work with industry and commerce, not against it. It takes something to provoke the Confederation of British Industry into talking about the "locust years". That something was the disastrous state of our supply-side policies. That is why my hon. Friends and I recommended a package of careful and prudent investment in Britain's future.

It is about time that the Government realised that a supply-side agenda that consists only of cutting taxes and bashing the unions has run its course. The new supply-side agenda for Britain must concentrate on training, regional policy, research and development, involvement and shared communication in British companies, improving stan-dards of quality and safety and developing the new technologies. Taken together, those require a new approach from the Government, which the Conservatives seem incapable of realising.

We are lagging way behind our competitor nations in training. To match France and Japan, we should be training an extra 50,000 skilled engineers a year. To match Germany, we should be training 80,000. Far too many companies in Britain are currently looking to move their operations elsewhere in Europe because the skills that they need are not available in sufficient numbers in this country. Human talent is our value-added asset and by this standard Britain is still going backwards in comparison with the rest of the world. A supply-side strategy is required to fill that vacuum.

There must be a change which will make the care of our environment a Government priority. We all understand that the Prime Minister's new enthusiasm for the planet should be given time to show itself in action. However, the Budget was the fairest test of that. Do the Government mean what they say about the green agenda? Do they understand what they are saying? Are they prepared to put their money where their mouths are?

The Budget contained only one gesture towards environmental issues, that with regard to unleaded petrol. True to form, it was quickly swallowed by the oil companies. Apart from that, there was nothing. There were no incentives for improvements in waste and pollution controls. No investment in environmental protection, but there were cuts in the energy efficiency office and in insulation grants. There was no investment in relevant research and there was opposition to Community initiatives which would apply energy audits to domestic property.

The Government are brilliant at telling other people what to do, but hopeless at accepting their responsibilities for the environment. An environmental Government would have produced an environmental Budget.

However much Conservative Members might delude themselves, and no matter whether some people have benefited from previous tax cuts, the Thatcher years will not be remembered with affection by the British people in years to come. Those years represent years of under-investment in public transport and years of running down the staff in the public services. They represent years of hostility towards research which led to a brain drain from Britain which the New York Times described last year as the greatest movement of intellectual capital into the United States since the Jewish intellectuals left Germany in the 1930s.

That is what is happening as a result of research cuts in Britain today. At best, it may be said that a certain shabbiness in public goods might be endured for the benefit of some. More likely, people will look back in wonder at our collective failure in the 1980s to take advantage of the unique, oil-led opportunities that we had to build a more sustainable industrial base. They will wonder why it was that obvious, massive public support for investment in health, education and the basic infrastructure was ignored at great cost to industry, to the public and to the future. They will dismiss a Budget that fiddled at the edges of the issues and failed to tackle those that really mattered.

We on these Benches believe in the virtues of competition and in the power of the market. However, we fear that, by refusing to play their part on the supply side, this hands-off Tory Government are turning what should be an economy of invention, excellence and quality into a low-wage and low-skill economy that has a tin-tray industrial base.

Sustainable growth in the future depends on investment in the future now. Excellence in the economy depends upon the excellence of our people. The Budget reveals that the Chancellor has not learnt that lesson after six years. They have been correctly described as the "locust years" —the years in which we failed to invest in the future, to heal the divisions in our country, and to take the steps necessary to protect our environment.

Photo of William Hague William Hague , Richmond (Yorks) 5:31 pm, 20th March 1989

I wish to speak briefly on the Budget, as my first and modest contribution to the proceedings of the House. Before I do so, I pay tribute to my predecessor as Member for Richmond, Sir Leon Brittan, and will say a few words about the constituency that he represented so well. I am fortunate to be able to do both with uninhibited pleasure.

Most new Members elected at by-elections speak of a predecessor who was distinguished but is sadly deceased, but I am delighted that my predecessor, who made such a major contribution to the House and who was so highly regarded by his constituents, is very much alive and well and is by all accounts doing an extremely good job as a European Commissioner. There is no doubt that he will be sorely missed in Richmond—a constituency that he served with extreme thoroughness and attention to detail. Even when he was Home Secretary, he never missed a weekend surgery and never failed to involve himself in as many aspects as possible of life in north Yorkshire. He set the highest standards of service to his constituency, and I will be doing well if I can live up to them.

All I can say is that, over the coming months, I shall try to be inspired by Sir Leon's example, rather than being intimidated by it. It would be all too easy for the new Member of Parliament for Richmond to be intimidated by the past. I number among my constituents not only Sir Leon Brittan but his predecessor Sir Timothy Kitson and my noble Friend Lord Tranmire, the former S r Robin Turton, who sat in this House for 45 years for Thirsk and Malton, part of which is now included in my constituency.

Those former Members will be very valuable sources of advice. Some might observe that they will also he rather varied sources of advice. However, the fact that they remain deeply rooted in the area says something about the strong attachment of Members of Parliament to Richmond and its surrounding area, because of both the natural appeal of its countryside and the independent character of its people.

It is almost unnecessary for me to tell the House about my constituency, because many right hon. and hon. Members are already surprisingly familiar with it. I am one of the few Members of Parliament, along with those representing constituencies in the east end of London, who has a regular television series about his constituency. Also, many right hon. and hon. Members have spent more time in my constituency in the past few months than I have spent in the House. Right hon. and hon. Members could be forgiven for believing that the right hon. Members for Plymouth, Devonport (Dr. Owen) and for Yeovil (Mr. Ashdown) had taken up permanent residence in my constituency. They certainly provided a valuable off-season boost to the local tourist trade. They will always be welcomed back, though perhaps they are the only two tourists in the whole nation who I hope will spend less money on their next visits than they did on their last.

I hope that all those who visited Richmond during the by-election had an opportunity to enjoy the diverse nature of the region. Although always associated with the magnificent hillside town of Richmond itself and with the splendid dales to the west of it, my constituency embraces a rich breadth of physical geography and human activity —from the hill farmers in the dales and on the edges of the moors, to the lowland arable farmers around Northallerton and Thirsk; from the 20 industrial estates that have brought a growing sense of enterprise and availability of employment to the area, to the commuters in the north-east who work on Teesside and to the large number of people who come to the area to retire. Richmond's variety defies simple description.

In addition, my constituency has a huge military presence. The area is proud to host one of the country's largest Army garrisons at Catterick, and now we also have a major air defence base at RAF Leeming. That variety, and the popularity of north Yorkshire as a place to live, means that behind the idyllic image are mounting stresses and strains, both economic and social. Much has been said about the plight of the inner cities in the 1980s, but I fear that much will have to be said in the 1990s about the strains of rural life.

Although my constituency, like the rest of the country, has grown more prosperous in the past 10 years, and although unemployment has fallen by 40 per cent. over the past three years, one must not overlook the depressed incomes of the farming community, the shortage of housing for local people—ironically coinciding with housing development on a scale that threatens traditional village life—the tendency for younger people to move elsewhere, and the appalling and increasing pollution of some of the nation's most beautiful rivers. Those are not the subjects of today's debate. Nevertheless, I hope to help ensure that they will not go unnoticed or unaddressed in the House.

My constituents are interested in all those matters, but they are interested also in the Budget—despite all the efforts of the media to convince us that it was boring. Like me, my constituents approve of the Budget because of its most obvious characteristic—that my right hon. Friend the Chancellor of the Exchequer used what room for manoeuvre he had to help those people whose efforts were most unfairly penalised by the existing tax structure. I strongly welcome the changes my right hon. Friend made to national insurance contributions and his abolition of the hated pensioners' earnings rule. I believe that right hon. and hon. Members in all parts of the House believe that the Chancellor did the right thing in the circumstances, and they should have the good grace to say so.

Much of the debate about the economic situation has been taken up with discussing the direction of and the explanations for inflation, interest rates and the public sector surplus. However, that debate has been concerned mainly with the short term—with this year and next year. When I look at the economic background to the Budget, what I find interesting are some of the other economic indicators whose improvement has been strong and marked over a sufficiently long period to become an established trend.

Today, companies' real rate of return is at its highest since the 1960s. Investment has risen twice as fast as consumption for the past seven years. Labour productivity has risen faster in the 1980s even than in the 1960s. That should bring home to us the fact that, whatever the arguments about last year's or this year's forecast, the fundamental indicators of the economy's future performance and output are better than they have been within the political lifetime of most right hon. and hon. Members, and within the entire lifetime of some of them.

Maintaining that progress requires lower levels of inflation and of short-term interest rates—otherwise, the increased confidence that is at the centre of all those improvements will disappear. However, no one has argued convincingly that there is a better policy for bringing inflation down than that which the Chancellor is pursuing. Most criticism has been of the "We wouldn't have started from here" variety, but it is incumbent on those who would do the Chancellor's job for him to say what they would do if they had to start from here.

Nevertheless, it must be recognised that we face over the next year inflation at a higher level than we would have wished. Some people are less able than others to cope with that inflation, and some are particularly worried about it. Foremost among them are elderly people who are wholly or largely dependent on their basic state pension. The Government have done a great deal to help many pensioners in several ways. The abolition of the earnings rule will help many who are still able to earn, and lower inflation over the lifetime of the Government has helped those with savings.

Last autumn's announcement of an additional increase this year for the oldest pensioners will help those in that category. Huge numbers, however, still depend heavily on the basic state pension. In the coming year, they face a pension increase indexed to, but lagging behind, RPI inflation—which may in any case understate the inflation that they experience, as their own expenditure is disproportionately weighted towards some large items such as household rates and basic utilities, the cost of which for most people is rising faster than the retail price index.

I hope that in the coming year the Government will have the pensioner in the forefront of their collective mind and, as far as the economy permits, will feel able by some means to help still more pensioners by doing somewhat more than simply indexing their basic pensions to the RPI. If they can do that, they will avoid much dissatisfaction and some genuine hardship.

That is the point that I wanted to make—within the context of strong and whole-hearted support for the economic and budgetary policies of Her Maesty's Government. I thank the House for its indulgence, and hope that there will be many more occasions, Madam Deputy Speaker, on which I may try to catch your eye.

Photo of Mr Robert Sheldon Mr Robert Sheldon Chair, Public Accounts Committee 5:40 pm, 20th March 1989

The hon. Member for Richmond, Yorks (Mr. Hague) spoke about his predecessor, Sir Leon Brittan, who is continuing to play a prominent role in public life. He spoke well of Sir Leon; he spoke also of other distinguished former Members of the House whom some of us had forgotten were still his constituents. I urge the hon. Gentleman to remember that when he comes to seek their advice he will be dealing with a two-edged sword, and that he accepts only advice that, after consideration, he considers worth pursuing. He spoke with clarity, and his interesting speech was well received by the House.

Of late there has been a tradition of rather more controversial maiden speeches than we used to hear—a tradition that has extended to the toleration of such speeches. The hon. Member for Richmond, Yorks returned to an earlier and, I think, more acceptable tradition, and perhaps because of that he won greater acceptance today. I am sure that he will come to enjoy the rough and tumble of the House, and I hope that his first contribution will provide an easy entry into it.

The most depressing part of the Red Book is the forecast for the balance of payments deficit. The whole year is expected to produce yet another devastating £14 billion. That is more serious than any previous balance of payments crisis. We do not now have the large number of manufacturing industries that provided us in the past with the capacity to turn from home trade to export. The main example was the motor car industry, but there have been many others. In my constituency there were many small to medium-sized companies, paying well above the national average, with unemployment below the national average. We lost one third of those skilled firms between 1979 and 1981. They had the capacity to produce for export if they found that the home market was not able to take their goods, but that has now changed considerably.

I have been asked—as, perhaps, have other hon. Members—what is the relationship between the £14 billion public sector debt repayment and the £14 billion balance of payments deficit. The unknowledgeable assumed that there was a strong connection; others, with a little more understanding, realised that the two had no relationship. Some, with even greater understanding, recognised that there was after all a close relationship between the two: it is the £14 billion deficit that makes it impossible to spend the £14 billion debt repayment sum. The Chancellor of the Exchequer, with money to spend, is unable to spend it because of the external problems that he faces.

The Chancellor can justifiably be criticised for his failure to deal with the economy's long-term prospects. He can fairly be censured for failing to deal not only with the balance of payments but with the problems of manufacturing industry, and the lost advantages of North sea oil, which we are unlikely to regain because we are once more on a level field, with our advantages lost.

The Chancellor can also be censured for his failure to control the short term. It is more than six months since fears of a credit explosion—frequently expressed—were finally confirmed. Two years ago, on 10 February 1987, the Financial Times was able to say that more was required of the Chancellor than high interest rates, that monetary policy had flitted from one rationale to another in the past few years like a bee in search of honey, and the task was not helped by continuing to trivialise a major deviation from the Chancellor's own target for the economy. It also said: The Department of Trade and Industry said that outstanding consumer credit from finance houses, retailers and credit card companies, totalled £23·7 billion in December 1986. That was over two years ago; there is nothing new in it. What is new is the failure to react to it. This was not a blip, and the action that the Chancellor took was inadequate and slow in its effects.

The right hon. Member for Yeovil (Mr. Ashdown) talked about stop-go. At least in the days of stop-go we could he sure of the results. They would be dramatic and immediate: purchase tax or VAT increases, a raising of the tobacco duties, increases in taxes on alcohol, petrol prices raised, spending on roads cut. We can see from the state of the roads today that cuts have been made in good times as well as bad, although North sea oil has been abundant.

All those announcements about tobacco, alcohol and petrol took effect at 6 pm on the day of the Chancellor's statement. The result was a highly visible and dramatic appreciation of the change in our economic fortunes. After a few weeks, patterns of spending changed and the economy promptly slowed down. On this occasion, we talked about measures in the autumn. The months went past—we had Christmas and the new year, and now we are in March—and still we have not seen any such effect.

I was once a frequent critic of sudden changes, mainly because of the damage done to our manufacturing industry, which took the brunt of such measures. The present position is different. With the decline of our manufacturing base, the burden of immediate measures would be carried rather more by importers and retailers. There was therefore a strong case for action in the autumn. The Chancellor, however, ruled it out, to the disadvantage of industry and house buyers and ensuring that our economic problems would outlast the year. Failing to administer the short sharp shock was, I believe, a tactical error of the worst kind—waiting for something to turn up —and we shall have to live with the consequences.

Of even greater importance than the tactical failure, however, has been the Chancellor's failure to plan for the long term. He had the opportunity to use the breathing space with which North sea oil provided our balance of payments to help industry and promote training, and to equip the nation to deal with the major problems lying ahead. With the startling growth of world populations, we are destined to be just one of a number of smaller countries. Many more have populations in excess of 100 million, and industrialisation is on the increase elsewhere.

In 1979, with the prospect of the cornucopia of North sea oil, our position appeared enviable and compared favourably, if not with that of Germany and Japan, certainly with that of France and Italy. We were the only country in that group with self-sufficiency in oil. We even had an exportable surplus. Our position could hardly have seemed more attractive, but oil in itself is not enough: only if it can be used sensibly is it a real and lasting benefit. Iran and Iraq have used their advantage disgracefully, Mexico has wasted it, and Britain has squandered it. Meanwhile, Japan and Germany strode on without it.

On the other hand, France and Italy almost seem to have benefited from not possessing this valuable mineral. Those two countries have manufacturing sectors that are highly successful, whereas we have turned, traditionally, to our financial sector that produced rewards that were directly contrary, in a number of cases, to the interests of our productive industries.

The high pound that the City smiles benevolently upon and that the Bank of England believes is crucial to our economic well-being is the deadly affliction of those companies that manufacture. The truth is that, in the long term, manufacturing growth is so much more important than North sea oil. This oil produces so many billion pounds a year which, for a given output, even if its price remained high, would not increase with time. If, however, manufacturing industry is nurtured and encouraged, it grows at a compound rate that leads to an accelerating level of prosperity. That cannot be found in any other kind of industry. Furthermore, that prosperity is enjoyed by all employees and in all the different regions of the country.

Manufacturing industry, however, has been hit very badly. The fact is that 13 per cent. interest rates and an over-valued exchange rate is the recipe that brought about the disasters of 1979 to 1981. The position is not quite so bad now; there was a 17 per cent. interest rate then. That ruined the domestic market, and a $2·40 pound ruined the export market. We hear nonsense about there being no problems with an over-valued exchange rate. If we are interested in the commercial future of our country but rule out price—the dominant factor in selling our goods—we are being absurd. Price is crucial.

Photo of Mr Tim Janman Mr Tim Janman , Thurrock

Throughout the lifetime of the last Labour Government output per person in manufacturing industry increased by 5·8 per cent. Between 1987 and the fourth quarter of 1988, it increased by 10·8 per cent.—nearly double what happened throughout the period when the last Labour Government were in office.

Photo of Mr Robert Sheldon Mr Robert Sheldon Chair, Public Accounts Committee

Interventions of that kind are pretty useless. The hon. Gentleman should not make such an intervention in a serious debate. He should understand that we are considering imports and exports. Manufacturing exports have declined; manufacturing imports have increased. That has led to our country's prospects being put in serious jeopardy. If our prices are higher than they ought to be, we shall sell fewer of our goods.

That has happened in my constituency. One third of the medium-sized firms in my constituency have disappeared. Companies in Germany, Japan and all over the world closed their doors to our exports. We could not live with 17 per cent. interest rates and a $2·40 pound. I fear that a number of them will not be very comfortable with a 13 per cent. interest rate and a $1·70 pound. It is a ruinous combination. The Chancellor of the Exchequer ought to be ashamed of presiding over it.

As for European monetary union, just by chance I happened to speak with three directors of the German Bundesbank. They had the same message. They want European monetary union so that bankers will be able to control the monetary aggregates. That is similar to what the Chancellor of the Exchequer wanted in 1977. He wanted a law to be enacted that would give power to the Bank of England to decide the levels of monetary stability. The Minister of State, Treasury at that time, my right hon. Friend the Member for Llanelli (Mr. Davies), replied to the debate. The Chancellor of the Exchequer wanted legislation that would enable the bankers to do even more than the Bundesbank allows.

We nationalised the Bank of England in 1945. We were determined that bankers ought to be subordinated to democratic direction, which means Government direction. Of all the privatisation measures announced by the Government, no mention has been made of denationalis-ing the Bank of England, and for a very good reason. The Treasury sometimes takes a different view of economic policy from the Bank of England. The relations between the two are sensitive, as they should be. However, when the Chancellor of the Exchequer decides on the policy, it is the Governor of the Bank of England who has to implement much of it, and it is the Treasury that decides. At one time, the Treasury had an inadequate knowledge of the markets and of the operations of the Bank of England. Its knowledge has improved greatly in recent years. The eyes and ears of the Bank of England are always important, but they do no play quite the same role as they did a decade or more ago.

Those who see dangers in European monetary union are not anti-Europe; nor are they pro or anti any other kind of grouping. However, we feel strongly about the dangers of domination by bankers. In a more integrated Europe there is a threat that, in the absence of political agreement, the power of the central bank might become dominant. Irrespective of whether there ever was a bankers' ramp in the pre-war years, the control of our economic policy cannot be left in the hands of those who are unaccountable and who, moreover, have been known to display certain prejudices that are not identical to those that might be expressed on either side of the Chamber. More than all that is the question of economic power. Bankers cannot be given that kind of authority.

Those who say that it works well in Germany should not assume that a transplant is always successful. The institutions of different countries owe so much to coventions, history and social relationships that they cannot readily be transferred from one country to another —still less from one country to a supranational authority. Those who say that we should have our own representative on the board of the central bank—a supra-European Bundesbank—must accept the reality that that person would be a banker, too, and, like those he joined, would rapidly come to the view that all the important economic decisions are best taken by bankers.

It is for that reason that, however fast one may wish to move towards greater integration in Europe, the transfer of economic power cannot precede common political agreement and common political power. There are no short cuts. Those who seek an easy way into economic and political integration within the Community are wrong on a number of matters, but on this matter I believe that they are dangerously wrong. There has been so little reference in the Budget debates to that important question that I thought it right to include something about it.

The right hon. Member for Old Bexley and Sidcup (Mr. Heath) said that the Chancellor of the Exchequer is a wise man; he does not know what to do, so the best thing is to do nothing. I am a little less charitable. Another back-handed compliment is that I believe that the Chancellor is a clever man. He has succeeded in pleasing his party for six years, but I believe that he has failed in his long-term economic policy.

Photo of Mr Julian Amery Mr Julian Amery , Brighton, Pavilion 5:57 pm, 20th March 1989

I, too, congratulate my hon. Friend the Member for Richmond, Yorks (Mr. Hague) on his good maiden speech. It is traditional for a maiden speaker to refer to his constituency. My hon. Friend brought his constituency into the Chamber. I could see the hills, the dales and the valleys. For a few minutes in this otherwise rather dry debate, I enjoyed the pleasures of Richmond. I was also touched by his advocacy of the importance of looking after senior citizens, one of whom I now am. I hope that we shall hear more from him in the years to come.

As the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) recognised, the Chancellor of the Exchequer's room for manoeuvre is limited. The fight has to be against inflation. Like all literate and numerate commentators, he recognised that fact. There may come a day when a Budget could reflect what my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) advocated. It sounded to me rather like the Yellow Books that Keynes wrote for Lloyd George when prices were falling, but the time is not yet. Had we had a Budget that reflected those views, I suspect that there would have been a run on the pound of a pretty sensational dimension.

We have to recognise, like it or not and whatever the causes, that the fight against inflation must take priority. That is intellectually understood, but we in this country do not have a gut feeling about inflation in the way that the Germans and others have. That is natural, and the markets know it. Our rhetoric on this subject is therefore suspect. The markets want to know where the beef is. Determination to keep up interest rates until inflation has been tamed is the most important proof, and the key. My right hon. Friend the Chancellor has said it loud and clear, and his commitment and that of my right hon. Friend the Prime Minister is the best gauge that it will be the answer.

There is, perhaps, a longer haul ahead of us than some observers think. I think that we might find the situation at the end of the year more uncomfortable than we expect. Monetarist high priests such as Friedman have always made it clear that the consequences of their policy would take quite a long time to come through. We may find that that is the case. The question is whether we can do more to meet the problem of inflation.

I should like to ask a question which rather follows on what the right hon. Member for Ashton-under-Lyne has just said. Since the general election, my right hon. and hon. Friends have taken credit for past privatisations, brought forward the privatisation of water and electricity, and talked about the railways and coal as possible targets. As the right hon. Gentleman said, there is an important omission. It is curious that nobody has talked about restoring to the Bank of England the independence which it had before 1948. It did not have complete independence. Like the Archbishop of Canterbury and the Lord Chief Justice, the Governor of the Bank of England was appointed by the Government of the day but, once appointed, he was very much his own man. The same is true of the Federal Reserve Bank in the United States and the Bundesbank in Germany. Would not a return to that arrangement be a strong guarantee that no British Government would return to an inflationary path?

My right hon. Friend the Chancellor of the Exchequer has broad shoulders as well as breadth in other respects, and on him rests a heavy responsibility for both fiscal and monetary policy. It is a great burden, even for him. Is there a case for separating the two? Fiscal policy—taxation and the rest—is political in character. But it could be argued that monetary policy is professional. If we commit ourselves to what my right hon. Friend the Prime Minister calls honest money, there cannot be much difference of opinion about what it is. Should we go back to it? Should we try to institutionalise our counter-inflationary policies by giving the Bank of England greater independence?

I ask those questions in the context of our fight against inflation, as they are the only things that I can think of which might add to the clear commitment of my right hon. Friends the Chancellor and the Prime Minister. Long as I hope to see them reign, they cannot be eternal—much as we might like that. I do not use the word "we" in any facetious sense. Ought we not to be thinking about the longer term?

Is it possible that greater independence allowed to the Bank of England might help us in the international sphere? It is inevitable, and right, that we will have a lot of discussion about a possible European currency, a possible European reserve bank or a possible European central bank. The Delors committee reports in June. I do not think that decisions will be taken at once. The matter is bound to be controversial, but I wonder whether it is possible that the depoliticising, if I my use that horrible word, of our monetary policy, by moving responsibility for it from the Treasury to the Bank of England, would help co-ordinate monetary policy in Europe.

There is a school of thought, which I rather favour although I am not sure that I am right, that we ought to make the European currency unit, the ECU, legal tender in parallel with our own currency. Such a move would involve considerable professional problems. If it were adopted in all Community countries, it would call for consideration at a very professional level.

Would such a change help to depoliticise the Bank of England in a wider context? We have meetings of the Group of Five or Seven—would it help in deliberations with the other banks concerned? It would certainly align us with the two giants—the Federal Reserve Bank and the Bundesbank.

In the old days, the Bank of England had a great reputation. It was enhanced, if anything, in 1931 when we went off the gold standard. The general view of pundits in the City was that the heavens would fall in. But not at all —they did not even dip. The Bank of England went on to create the sterling area; and sterling became a reserve currency which, within two or three years, was accepted by all countries in the world. I shall not go into the details of what the Bank did, but what it did was little short of a miracle by the standards of those days. No other bank in Europe has that experience. Even the Federal Reserve Bank, which inherited a currency, has never created a new one. It was quite extraordinary.

Photo of Mr Robert Sheldon Mr Robert Sheldon Chair, Public Accounts Committee

It was Winston Churchill who brought Britain back on to the gold standard as a result of the Bank's involvement. The right hon. Gentleman is saying that the Bank just corrected its previous mistake, which was a grave error that led to some of the country's many problems during the early 1930s.

Photo of Mr Julian Amery Mr Julian Amery , Brighton, Pavilion

I would be happy to discuss with the right hon. Gentleman whether Churchill was right to make the pound look the dollar in the face. I am talking about 1931 when we were forced, rightly, to go off the gold standard and the Bank of England picked up the consequences which many people thought would lead to world collapse. That did not happen. The skill of the Bank of England made a currency, which was backed not by gold but by the reserves of the other members of the sterling area, a world currency which was accepted and, until the 1960s, remained a world currency. No other bank in Europe, and not even the Federal Reserve Bank, has the same experience. Do we still have the expertise to do that? Maybe some of the expertise has been hived off to the Treasury. My right hon. Friend the Chief Secretary to the Treasury will have that in mind.

Could any Government happily delegate control of monetary policy? I can see that it would be awkward to surrender such control—it would be awkward for my right hon. Friend the Chief Secretary and for my right hon. Friends the Chancellor and the Prime Minister. I am asking questions, not making proposals. The return of inflation, which we thought we had got under control, suggests that the time has come to ask these questions. If I am right, the time has also come to ask the Government to consider them seriously.

Photo of Mr Brian Sedgemore Mr Brian Sedgemore , Hackney South and Shoreditch 6:09 pm, 20th March 1989

I was fascinated by the suggestions of the right hon. Member for Brighton, Pavilion (Mr. Amery) that monetary policy could be cured by some administrative changes and that one of those changes should be that the Bank of England should be given an independence which it has not had since it was nationalised. As he began his argument, I thought that he would suggest that we should return to the gold standard at the same time. After all, it was only 10 years ago that Sir William Rees-Mogg, the smutty man in charge of the Broadcasting Standards Council, wrote a pamphlet saying that all our economic ills could be cured by a return to God and the gold standard. I am not sure that doing things by hunch, by guess and by God is the right way to deal with economic problems and I shall not follow the right hon. Member for Pavilion down the line of historical fantasy.

There is broad agreement in the country, if not in the House, that the 1989 Budget is the price that we have to pay for the 1988 Budget. That price includes listening to the Chancellor's words about lower economic growth, wage restraints, a balance of payments crisis, high inflation and more unemployment. Although the responsibility for the current mess, muddle and moronity in economic affairs lies entirely with the Chancellor of the Exchequer, I felt sorry for him as he delivered his Budget. As the blood drained from his face and his eyebrows drooped, I thought about the excrutiating pain he must be suffering—that haughty, ebullient, cocky, arrogant Chancellor, forced at the Dispatch Box to disport himself in such a diffident fashion, and produce such a demeaning, piddling little Budget which has made him the object of political scorn and economic contempt. As he sat down, I was reminded of the words of President Lyndon Baines Johnson, when he listened to a speech by Richard Nixon. He turned to the press corps and said: Boys, I may not know much, but I know chicken shit from chicken salad. The Chancellor began his speech by talking about the enterprise culture and telling us about the Thatcher economic revolution of the past 10 years. Recently I have spent a great deal of time examining the Thatcher economic revolution of the past 10 years and comparing our economic performance with the country's economic performance during the 10 years preceding 1979. The results are quite interesting. Those who salivate at the thought of the Thatcher revolution claim that it has brought about a sea-change in our economic performance, but my analysis shows that the Thatcher revolution is an illusion, a mirage, and a will-o'-the-wisp that belongs to the media world of make believe.

The theory of the Thatcher revolution was to have been monetarist. In practice, it has been a mish mash of monetarism and crypto-Keynesianism. At first the neo-monetarism theorists of the revolution told us that they would control inflation by controlling M3. When the evidence confounded the theorists, they turned to M1, and when that did not work they turned progressively to a variety of monetary indicators—M0, M2, M4, M5, PSL1, PSL2 and DCE. In the 1989 Budget the Chancellor has gone back to M0. Needless to say, none of those monetary indicators did what was claimed of them and Mo will not do what was claimed for it. In theoretical terms, the revolution has turned out to be Grecian tragedy and only the Chancellor's pride prevents him from admitting that.

According to conventional media wisdom, high levels of economic growth in the 10 Thatcher years have brought about the enterprise culture, better management and more hard work. According to conventional media wisdom, low economic growth is a thing of the past. Alan Budd, a Thatcher apologist and professor of economics, and director of the centre for economic forecasting at the London Business school, argued in volume 2, No. 2 of the "Contemporary Record": The Conservatives could look back to 10 years prior to 1979 when GDP had grown at an average rate of 2·2 per cent … Since the second quarter of 1981; GDP growth has averaged 3·4 per cent. a year. Even the most stupid member of the stupid party can see the trick. Thatcher did not come to power during the second quarter of 1981; the Conservative Government were elected in 1979. The average rate of growth in GDP since 1979 is 1·8 per cent. rather than 3·4 per cent. and is less than in the 10 years preceding 1979. Professor Budd also ignored entirely the contribution of oil and gas production on the United Kingdom continental shelf to economic growth since 1981. The figures show that without oil and gas production virtually all the economic growth would have been wiped out.

In 1983, oil and gas production accounted for 6 per cent. of gross national product—twice the rate of economic growth for that year. On average, in the years 1982–87—the only reason I stop at 1987 is that I cannot obtain any figures for 1988—oil and gas production more than accounted for all the economic growth in Britain. We should remember that prior to 1979 there was virtually no oil and gas production in the United Kingdom.

So what kind of revolution is it? After 10 years there has been no growth other than that from a God-given source, and not even Thatcher can claim that she is God. Even sanctification will probably have to await her death. After 10 years we have just surpassed the level of manufacturing output that existed at the beginning of 1979. As North sea oil and gas revenues and production diminish, and a balance of payments crisis of super proportions hits us, the Thatcher revolution will be seen by the public and by history as little more than a chimera.

I read incessantly that one of the major characteristics of the enterprise culture and the Thatcher revolution is low taxation. It is said that Thatcher lets the people spend more of their own money, that the Tories are the party of low inflation and that Labour is the party of high taxation. I hate to say it, but it is a whopping great lie. The truth is the reverse. Thatcher takes more money from people and lets them spend less than Labour did. The statistics show that the Tories are the party of high taxation. [Interruption.] I hear the laughter of the hon. Member for Bridlington (Mr. Townend) who accompanied me to Tokyo. Apologists of the Thatcher revolution, of whom he is one, talk only about income tax and avoid all mention of VAT, national insurance, royalties and rates because the figures show that, after a difficult start, the Labour Government brought down taxation as a proportion of GDP. Whereas Labour took only 33·9 per cent. of gross domestic product in taxation in 1978–79, in the current tax year the Conservative Government are taking some 37·4 per cent. of GDP in taxes. In every year that the Conservatives have been in power, they have taken a higher proportion of GDP in taxes than Labour took in 1978–79. In 1984–85 the Conservative Government took as much as 39·1 per cent. in taxes. I remind the hon. Member for Bridlington that that is our money.

Photo of Mr John Townend Mr John Townend , Bridlington

Will the hon. Gentleman be good enough to explain why he and his colleagues systematically vote against every tax reduction that the Government propose? In view of the fact that this year there is a Budget surplus of almost £14 billion, if he were in power, would the hon. Gentleman reduce taxes—a measure that I would support—and which taxes would he reduce?

Photo of Mr Brian Sedgemore Mr Brian Sedgemore , Hackney South and Shoreditch

I will set out my taxation policy at the end of my speech if I have time. It is incorrect to say that we have opposed every tax reduction that the Government have made. It does not help an argument in the House for somebody to stand up and make a cheap debating point on the wrong premise. When I studied logic at university I learnt that if one moves from false premises to using false logic, one invariably reaches false conclusions. I invite the hon. Gentleman to study Aristotelian syllogisms and he might be able to make a reasonable intervention.

I was talking about the high proportion of taxation that the Conservative Government have taken in respect of GDP. The figures show that in every year in which the Government have been in office they have taken away a higher percentage of the gross earnings of a married couple with two children when the husband is on average earnings and where child benefit is treated as negative income tax. In 1978–79 only 35·1 per cent. of the average family's earnings was taken in tax, but in the current year, 1988–89, the Government are taking away 37–3 per cent. I am not sure how the hon. Member for Bridlington will justify that.

Moreover, it is much worse than that. John Hills of the London School of Economics has just shown in a pamphlet produced by the Child Poverty Action Group called "Changing Tax" that the Government's cuts in direct taxes have been paid for entirely by cuts in the generosity of benefits. That is another way of saying that the poor are subsidising the rich. According to Hills—I do not think that anybody has challenged his figures—the bottom half of the population has lost £6–5 billion through the failure to uprate benefits since 1978–79 and £5·6 billion of that has gone to the top 10 per cent. of income earners. In other words, the Government have used the benefits and tax systems to target relief on the rich. What sort of miracle is that of which any Government can be proud?

I shall deal now with the national debt and Government borrowing. Inherent in the idea of the enterprise culture —I read it again and again—is the notion that the Government have achieved a miracle by more than balancing the budget and by replacing the public sector borrowing requirement with the public sector debt repayment. That miracle may appeal to the daughter of a Grantham grocer, but if one examines the historical data one can see that it is a miracle that is rather commonplace. If one examines the definition of a miracle, one will see that it cannot be a miracle if it is commonplace.

In 1969–70 Labour had a budget surplus or a PSDR of £1 billion when Roy Jenkins, now Lord Jenkins, was Chancellor of the Exchequer. Budget surpluses or a PSDR also existed in 1947–48 and 1948–49 when times were hard. When the Chancellor said in a speech last year For the first time for at least half a century we have a Government in this country that are engaged in repaying the national debt he was not telling the truth.

In that respect, he reminds me of Bernard Shaw's "Major Barbara" of whom it was said: He knows nothing and he thinks he knows everything. That points clearly to a political career. I sometimes wonder who carries out the Chancellor's high level statistical research. It could be that one of the major problems of the British economy is that miss Pamella Bordes has a Treasury pass too. Somebody who does not understand the way in which this place works is producing the Chancellor's statistics.

The miracle of the PSDR palls even more when we realise that Socialist Governments in Sweden, Denmark, Finland, Norway and Australia have budget surpluses. When the country desperately needs investment in infrastructure, education, science and industry if it is to remain competitive, why do we want to repay the national debt, particularly as it is now at historically low levels in relation to GDP? As my right hon. Friend the Member for Islwyn (Mr. Kinnock) said, it is our surplus and it should be used to meet our needs.

I shall now deal with savings and investment in the Thatcher revolution. In the enterprise culture and as part of the Thatcher revolution, we are encouraged to save, or at least so we are told. Again, the facts show that the reverse is true. The enterprise culture and the Thatcher revolution have encouraged people to spend, spend, spend and borrow, borrow, borrow. The statistics show that they have well and truly created a loads of money consumerist mentality in which nobody saves at all.

If we define borrowing as negative saving, which is what the Government do, the figures show that when Labour was in power between 1975 and 1979 the personal sector savings ratio averaged 11 per cent. The latest figures show that it is down to just over 1 per cent. The decline in savings—savings are essential to investment unless it is assumed that all our investment is to be done by foreigners —seems to be terminal.

The Thatcher revolution in investment seems to have been still-born in one crucial area of the economy. Surely it is a very small miracle that has left manufacturing investment in 1988 still below the 1979 levels. In 1979 at 1985 prices, £10,136 million was invested in manufacturing. By 1982 that figure had plummeted to £6,360 million. In 1988, at £10,013 million it was still lower than in 1979.

Let us turn to the one big area that always brings a smile to the faces of Conservative Members, the ability of the Government to control inflation relative to everybody else. It is axiomatic to everybody who believes in the theory of the Thatcher revolution that Britain has low inflation. Again, as my right hon. Friend the Member for Islwyn said, the figures suggest that the Chancellor is Mr. Inflation himself. The man who promised us zero inflation now has a rate of inflation of 7·5 per cent., which is the highest of all the major industrial countries. It is higher than in America, Canada, Japan, Germany, France and Italy and 50 per cent. higher than the EEC average.

Before any hon. Member stands up and asks, "What happened under the Labour Government?" I can provide them with all the figures for the past 20 years. Every hon. Member knows that 7·5 per cent. inflation is historically high bearing in mind that it is Government-induced and owes nothing to oil price increases or a rise in commodity prices. It is fair to say—I want to be fair—that inflation blipped in 1986 at 3·4 per cent. However, as the figures show, it has never looked like reaching zero. In 1980 under this Government it was as high as 18 per cent. In fact, that was the average for 1980 but in 1980 on a year-on-year basis it touched 22 per cent. I am puzzled, as are all my hon. Friends, as to how the Chancellor is to reach zero inflation when he is pushing inflation up. He is pushing up mortgage interest relief and the cost of borrowing. He is supporting the privatisation of the water and electricity industries, the former of which is already pushing prices up by 43 per cent. and the latter of which will push up prices by 10 per cent. per annum.

On that subject, I believe that the Chancellor, like President Nixon, is such a conformer in duplicity that he now lends himself to what Lawrence Peter called the Nixon political principle: if two wrongs do not make a right, try three.

The Chancellor denies that this will be his last Budget. We do not know. I doubt it because the Chancellor, as we all know, wants to go to the City of London. The feelers have been put out by the Treasury and the advertisements have been placed. The entire Government progaganda machine has gone into action. I can inform the House privately that he has not had a single offer from the City of London. In practice, the City, like the country, cannot afford a clapped-out second-rate Chancellor whose luck has run out. To paraphrase a comment made by Adlai Stevenson about Nixon—and I apologise for the constant comparisons between the Chancellor and Nixon—the Budget shows that the Chancellor is the kind of politician who would cut down a redwood tree and then mount the stump for a speech on conservation. It is a bad Budget by a bad Chancellor, so I hope that all hon. Members will oppose it.

Photo of Mr William Clark Mr William Clark , Croydon South 6:30 pm, 20th March 1989

The hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore), with his usual panache, has made a speech, as always, that is offensive to the Minister about whom he is speaking. That is a pity because some of his points could be debated. He accused my hon. Friend the Member for Bridlington (Mr. Townend) of making a cheap debating point. That was priceless coming from the hon. Gentleman—definitely a case of the pot calling the kettle black.

Like other hon. Members, I enjoyed the speech of my hon. Friend the Member for Richmond, Yorks (Mr. Hague). I could not help reflecting how different it was from the speech of my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath). My right hon. Friend's speech was well received by the Opposition, but he should sometimes make himself say something kind and good about the Government and our economic performance. His gratuitous insult to my right hon. Friend the Chancellor was inexcusable. When he was talking about exchange rates and interest rates, he said that my right hon. Friend the Chancellor wanted to bring them down, but was stopped. That reflects on the integrity of my right hon. Friend the Chancellor. Exchange rates and interest rates are an extremely important matter of principle for my right hon. Friend. Knowing him as I do, I am convinced that if he had been stopped from bringing them down, he would not be Chancellor today. He would never put forward policies with which he did not agree, so I am sure that my right hon. Friend the Member for Old Bexley and Sidcup will, on reflection, regret having made that remark.

In 1979, the Conservative party made the following two pledges, among others—first, to reduce the standard rate of tax to 25 pence in the pound and, secondly, to abolish the earnings rule for pensioners. I am sure that my hon. Friends will join me in congratulating my right hon. Friend on being the Chancellor who has fulfilled both those pledges. Others of my hon. Friends have already said that the Budget will help the lower paid through the readjustment of national insurance contributions, but none of my hon. Friends has mentioned the help that my right hon. Friend the Chancellor has given to charity. It is a great step forward and should be commended. I am delighted that my right hon. Friend has not touched life assurance funds—the only long-term savings that we have in this country—as I believe that it would have been a mistake to make any changes in that respect.

The Opposition always sell Britain short, as did the hon. Member for Hackney, South and Shoreditch. Every speech from the Opposition denigrates the economy. The Opposition make three points—first, the overseas deficit, secondly, high interest rates and, thirdly, inflation. On the overseas deficit, I wonder how many of our imports are capital goods, how many are commodities and how many are consumer durables. I do not know how the Central Statistical Office works out such figures. One reads in various financial papers and journals that the CSO's margin of error is considerable. Consequently, when we talk of a deficit of, say, £14 billion, that figure may not be accurate and the deficit may be only £10 billion. The journals that I have read maintain that the estimated deficit has been exaggerated. The Treasury should, perhaps, spend some time dealing with that. Even if we take the figure of £14 billion, however, we should not continue to say that there is gloom and doom around the corner. One difference between this deficit and that of the Labour Government is that we have gold and dollar reserves of £29 billion to cover the deficit, so we can easily sustain it even if we do not want it to continue.

I know that Labour Members do not like us to mention the financial position of the last Labour Administration. The Labour party asks for more public expenditure, but it conveniently forgets that when Labour was in office, especially after the meeting with the International Monetary Fund, the Labour Government cut expenditure across the board, including education, roads and the National Health Service. We all want to debate the economy, but hon. Members should not run down the economy and imply that there is a catastrophe around the corner.

With hindsight—I emphasise that word—all hon. Members would agree that in 1988 the reduction in interest rates was too lax, although one must remember that it was preceded by the stock market crash and all the economic pundits were saying that there might be a recession around the corner. My right hon. Friend the Chancellor thought that he should boost consumption and he did so by reducing interest rates. Having seen that a world recession did not occur, some have criticised his taking remedial action. In my view, however, he should not be criticised but congratulated. This Chancellor is not afraid to take unpopular measures, rather than trying to buy votes. If economic policy deviates, action must be taken. It is all very well for the Opposition to criticise my right hon. Friend. The only time the last Labour Government took action was when the IMF told them to do so.

Photo of Mr Christopher Hawkins Mr Christopher Hawkins , High Peak

I would go further and say that not only did a recession not occur, but that it did not occur because of the measures taken by Britain and the rest of the Group of 7. It is easy for people to say that my right hon. Friend the Chancellor over-reacted and that there was not a world recession, but there could have been one, as there had been after every other stock market crash in history. It was the actions of Britain and the rest of the Group of 7 that stopped the recession from coming this time.

Photo of Mr William Clark Mr William Clark , Croydon South

I am grateful to my hon. Friend for making the point rather better than I could.

As my right hon. Friend the Member for Brighton, Pavilion (Mr. Amery) said in his excellent speech, it is obvious that the first priority is the control of inflation. That has meant that interest rates have risen, but that is a temporary and not a permanent measure and in the months to come the 13 per cent. base rate will come down.

My right hon. Friend the Chancellor has cut consumer demand. When one considers house prices and trade and retail sales, one sees that his policy is having an effect. In effect, my right hon. Friend has told people, "If you want to spend, borrowing will be expensive." Consequently, expenditure has been cut. However, that does not affect the person who does not want to borrow for his spending. I therefore welcome the Budget measures on personal equity plans, workers' share option schemes and pensions.

As my right hon. Friend the Chancellor will enjoy an even greater surplus in the coming year, I should like him to repay some of the national debt in his next Budget. However, I have slight reservations about repaying too much of the national debt because some day there may be a profligate Government and it would be far too easy for them just to spend, spend, spend. I therefore offer that caveat to my right hon. Friend.

The rate of savings causes me some concern as it has reduced from about 14 per cent. of disposable income to about 4 or 5 per cent. although we do not know the exact figures. Again, I do not know whether the Central Statistical Office has got its sums right, but the trend is clear. In the next Budget we should give a definite boost to savings. My right hon. Friend has done so much this month for which we thank him, but next year I should like contractual savings to be allowed as a charge against one's taxable income. That would give a great boost to savings.

In 1979 there were 2·75 million shareholders in this country. Today, through the Government's economic policy and privatisation, we have more than 9 million shareholders—9 million capitalists. We should build on that, so that more and more of our fellow countrymen have something to conserve. Between now and his next Budget, next March, I should like my right hon. Friend the Chancellor to concentrate on seeing how we can increase the savings of this country and create more and more capitalists.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli 6:42 pm, 20th March 1989

As has been said, it is now more than 10 years since the Prime Minister's first Government introduced their first Budget, and, almost 10 years later, all that the Chancellor of the Exchequer had to show last Tuesday for the Government's policies and efforts was a truly dismal and, in some senses, truly horrendous set of economic statistics and forecasts.

The Government, who have made the elimination of inflation the cornerstone of their policies, have had to admit that inflation will now rise to over 8 per cent. As has been pointed out, that is by far the highest rate among all the major western industrial countries. Indeed, over the past 10 years, inflation in Britain—under this Government —has been higher than that of most of our industrial competitors in the western world. Does the Chancellor, the Chief Secretary or the Prime Minister ever ask why all those other countries can apparently do so much better than Britain is doing under their Administration''

The deficit on the current account of the balance of payments is appalling. It is £14·5 billion this year and is forecast to be £14·5 billion next year, according to the Red Book. Again, that is by far the worst deficit of all the western industrial nations. Again, does the Chancellor or the Prime Minister ever ask why all those other countries, except possibly the United States—why all our competitors and trading partners in the EEC—can do so much better than Britain is doing under their Administration?

On the balance of payments, is it not surprising and worrying that, according to the Red Book, despite high interest rates and despite there now being an apparent reduction and a fall in growth next year to 2·5 per cent., next year the balance of payments will stay the same as it is this year—that is £14·5 billion—and that the deficit on manufactured goods will increase to £15·5 billion?

There may be many reasons for that—it may be our old friends the leads and the lags—but I suspect that one reason is that Britain's manufacturing capacity has so shrunk over the past 10 years that we are not producing the capital and consumer goods that industry and individuals have little option but to purchase, because they cannot do without them, whatever the cost. If that is the case—and I suspect that it may be—the future for this country, for our balance of payments deficit and for our industrial base is truly bleak and appalling.

Our interest rates are the highest in the western world and I believe that the Government—this will be shown in the next few years—have failed to arrest or reverse Britain's relative industrial decline when compared with the other trading nations of the EEC.

All that is despite the fact that, over at least eight of the past 10 years—the first two years were more difficult—the Government have had the benefit of the most favourable economic climate of any British Government since the war. During the 1980s, most Governments in the western industrial world recognised the dangers of inflation and, because they all did so, the measures to combat it were politically easier to carry out than they had been in the 1960s and 1970s. As the Red Book clearly shows, over the past 10 years, from 1980 to now, commodity prices, especially of oil, food and industrial materials, have fallen substantially and steadily in real terms. However, they are now beginning to rise again.

As has been said, on top of those international advantages, the Government have had the enormous domestic benefit of a boost to their revenues and to the balance of payments through the oil surplus and the oil revenues from the North sea. Yet after 10 years of the most favourable industrial and economic climate, we were presented with dismal and appalling figures in last Tuesday's Budget.

When the Government came to power in 1979, they knew what they wanted to do and they knew what had caused Britain's economic ills. The radical Right, like the Ayatollah, had no doubts. Their targets were clear and simple. Some of us remember the rhetoric. The targets were the trade unions, the over-sized public sector, high public expenditure, the dreadful public sector borrowing requirement, high income tax and the appalling lack of monetary discipline and control.

The trade unions were the first to fall. Their power was broken; especially, their power over collective bargaining in manufacturing industry has diminished. However, despite that, in the past 10 years rises in wages and earnings have consistently exceeded the rate of inflation. I accept that some of the difference and excess obviously comes from increased productivity, but not all of it. Despite the fact that the power of collective bargaining has been broken, much of that excess does not come from productivity.

Next came the over-sized public sector, which was diminished by privatisation. High public expenditure was cut, perhaps not by as much as some Conservative Members would have liked, but it was cut. The dreaded PSBR was eliminated, destroyed, slain and turned into a surplus, albeit a surplus that cannot be used. Despite all that, inflation is apparently going up to 8 per cent., the balance of payments is horrendous, and interest rates are crippling. All the bogeys have been shot down.

There were also high rates of income tax. Reduce them, so the rhetoric went, and British management would be galvanised and the supply side of the economy would supply. Income tax is now down to 25 per cent. and 40 per cent., but it has done nothing for Britain's supply side. It has worked wonders for the supply side of our competitors. The supply of BMWs and European imports has gone up considerably, but tax cuts have done nothing to the supply side of British manufacturing industry.

Since 1985, manufacturing imports have risen by 200 per cent. in value, and exports have risen by only 30 per cent. Next year, the deficit on manufactured goods will be £15·5 billion. Our share of world trade in manufactures has fallen consistently over the past 10 years. That deficit in manufactured goods is not a deficit with the sweatshops of Asia. Most of it is a deficit with other EEC countries —countries that pay higher wages and have a better provision of public expenditure. Many of them have a higher rate of income tax than we have. So much for the supply side.

Let us examine monetarism—the ark of the covenant, the reincarnation of everything that the Prime Minister learned in that little corner shop in Grantham. Rhetoric was high early in 1980, but, since then, there has been little monetary control—certainly not under this Chancellor. This Chancellor set up one monetary target, missed it, changed it, and then set up another. So it went on and on. Hon. Members heard tonight how it is called money GDP. It is about the worst target that could be chosen. One target after another has been missed. The Chancellor has zig-zagged between monetary flags like a giant slalomist. The only difference is that the game is to hit them and not to miss them, but he has missed them almost every time.

There is now no strategy left. The medium-term financial strategy is a joke and nobody believes it. There was an attempt to use an exchange rate strategy but, for whatever reason, it did not last long. All we have left are high exchange rates and the hope that, somehow, high interest rates will be able to free the Chancellor from the restraints on domestic inflation and foreign exchange markets. When the miracle has been achieved, a year before the election, the unearned surplus—it has not been earned, it has not been produced, and that is why it cannot be spent—will somehow or another be redistributed to a grateful electorate. I do not think that that will work.

The tragedy of the past 10 years is that much could have been achieved, but much damage has been done. It is a tragedy for which the British public will pay for a long time.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing 6:53 pm, 20th March 1989

Since the Chancellor made his Budget statement, hon. Members have heard several remarkable speeches. I am sorry that I was unable to be in the Chamber for the opening speeches this afternoon, as I was attending the funeral of a greatly respected constituent who was tragically killed in the Purley rail crash.

The Chancellor's Budget has been described as prudent and cautious. That is what it is, and it is appropriate in the present circumstances. Within the restraints of the present economy, he has got his priorities right. It is a Budget for pensioners. I was delighted that the Chancellor took the step of abolishing the earnings rule. Its abolition is long overdue. Against the background of changes in the demography of our country, in which the work force will clearly diminish in size as a proportion of the total population, that step is entirely appropriate. Taxes or other restrictions which are abolished rarely stage a comeback. However, if we merely change limits or increase allowances, all too often in a subsequent year we find that the improved position deteriorates. Therefore, the abolition of the earnings rule is welcome. On top of that, the Chancellor has made other changes to help pensioners. For example, he has reduced the limit at which extra help becomes available, from 80 to 75.

I shall refer to two other points in relation to specific taxation measures. The first is unleaded petrol. I certainly welcome that change, which is already having a perceivable effect. In his Budget speech, the Chancellor made an important point. He said that people have the impression that, if they switch to unleaded petrol, they cannot switch back to leaded petrol. We in this country are not in the same situation as that which obtains in the United States, where cars which are converted or designed to take unleaded petrol cannot be used with leaded petrol. There is no reason why people should worry about using unleaded petrol when their cars are converted simply because they fear that they may not be able to get unleaded petrol at a given time. It is important that some newpapers, particularly the Daily Mail, which has been campaigning on the issue, should get that point across. The change which the Chancellor has made will greatly increase the incentive to improve the environment.

The other point is the exclusion of any increase in the price of drink and tobacco. Hon. Members understand what the impact on the RPI would have been if the Chancellor had increased those duties. However, there is a case for taking tobacco out of the retail prices index. It is a cost of living index, not a cost of dying index. It is quite absurd for the Chancellor to be inhibited from taking that action simply because of the effect that it would have on the RPI and the likely consequences of wage settlements.

It has been suggested that the Budget is cautious and prudent because last year's Budget was a misjudgment. I simply do not believe that to have been the case. In the light of the stock exchange crash, along with many other Finance Ministers, the Chancellor took measures to stimulate the economy by monetary means. Of course, that had the desired effect. As was pointed out, a world recession was avoided. The timing of these matters is difficult, but. on the fiscal side, it is quite extraordinary for Opposition Members to say that the overall tax reductions last year were too big, when the outcome of the year was a massive surplus of unprecedented proportions. I am not clear whether they thought that we should have had fewer tax reductions last year and an even greater surplus this year.

My constituents are somewhat puzzled by the surplus, if only because they have never seen anything of its size before and are a little worried about why it has not been distributed. Some points need to be made about that. If greater taxation reductions or further increases in expenditure had been made, it would have inevitably put more purchasing power in consumers' pockets, when, quite clearly, the Chancellor's intention is to exert downward pressure on inflation rather than stimulate the economy. It is important to stress that the surplus has arisen not because of increases in tax rates or cuts in public expenditure but despite reductions in tax rates and increases in public expenditure. Therefore, it is not a case of the surplus being accumulated in some adverse way. It has occurred despite improvements in tax and spending.

As I understand it, Madam Deputy Speaker, I am subject to the 10-minute limit, so I shall make a passing reference——

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. The right hon. Gentleman may speak until 10 minutes past seven.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I shall try not to take that long, Madam Deputy Speaker. Having thrown away my notes for the part of the speech that I thought I should be unable to deliver, I shall make no effort to recover them.

The surplus is, in part, the product of the proceeds of asset sales. The Treasury and Civil Service Select Committee has been inclined to argue that those proceeds should be treated as a means of funding the public sector borrowing requirement, rather than as a means of reducing public expenditure, or as revenue. Now that we do not have a public sector borrowing requirement, we need to rethink the position, because the proceeds of asset sales increase the overall surplus. To some extent, the cash raised by the issue of shares in privatised companies is being used to pay off Government borrowing in another form.

Even if I am allowed to speak rather longer than I expected, I think these matters are rather technical to be dealt with on the Floor of the House. However, I hope very much that the Treasury and Civil Service Select Committee will be able, having taken evidence, to elucidate these matters in a subsequent report.

The Chancellor's fiscal stance is a tighter one than we have had previously, reinforcing his overall stance on interest rate policy. It is very difficult to think of ways of using the surplus, in terms of extra Government expenditure or tax cuts, that would not increase the inflationary pressure. If there are any such means, we shall no doubt hear suggestions about them, but they are difficult to find. That is the reason for the policy of repaying the national debt. In many ways, the consequences are favourable—for example, the shape of the yield curve, longer-term interest rates having been driven down, with benefit to manufacturing industry and commerce.

The Chancellor says that he proposes to return eventually to a balanced budget. It looks as though we shall by that time have paid about £30 billion of the national debt, resulting in a saving of about £3 billion in interest payments. The question is whether this can be used in a non-inflationary way. It is important to stress that, had that commitment remained, there would have been a transfer from one group of people to another—mostly domestic, but perhaps some overseas. Those resources may now be put to use, allowing for some variation, depending on whether the people receiving the new resources have a propensity for saving greater than that of those who were getting the interest payments. The result will be increased, genuine choice—and that is welcome.

The unexpected, extremely large surplus raises matters that can be dealt with in economic theory, but we in this country have not had any practical experience of a surplus on this scale. One aspect of the matter that creates very serious problems is the Government's statistics. I hope that the Chancellor will soon announce the improvements that he proposes to make in that regard.

In addition, the evidence that the Treasury Committee received from the head of the Government's statistical service was extraordinary, in that it seemed seriously to underestimate the impact of inadequate statistics on markets. However, I shall leave that on one side.

I hope that we shall see some improvement in forecasting models. My right hon. Friend the Chancellor has always been very sceptical about forecasting models. Normally, a balance of payments surplus would be forecast if there were a fiscal surplus. However, with a fiscal surplus on a massive scale, we had the reality of a massive balance of payments deficit. That raises some very serious questions about the model and about the way in which such forecasting should be revised and reformed. Perhaps we shall have to take into account the impact of the overall borrowing—Government, private and cor-porate—rather than simply Government borrowing.

Finally, when he made his Autumn Statement the Chancellor was on something of a tightrope. He was using interest rates to try to get the economy back on course, following a period, as he rightly pointed out, of a very rapid inflation rate, overall, of some 4·5 per cent. per year —a rate which, clearly, could not be sustained indefinitely. The danger for a Chancellor on a tightrope is that, on one side, he can fall off into a recession, whereas, on the other side, he can fall off into a situation in which confidence is shaken internationally, the exchange rate collapses, and we get inflation. I believe that the Chancellor is still on that tightrope and that he will remain there until the situation eases. Having said that, however, I must say that the combination of interest rates and fiscal measures reinforces the overall anti-inflationary stance, and for that reason, as well as for the reason that I gave earlier—the benefit of the specific tax change for pensioners—I welcome the Budget very much indeed.

Several Hon. Members:

rose——

Photo of Mr Paul Dean Mr Paul Dean , Woodspring

I remind the House that the 10-minute limit on speeches is in operation.

Photo of Alex Salmond Alex Salmond Deputy Leader, Scottish National Party 7:06 pm, 20th March 1989

The hon. Member for Staffordshire, Moorlands (Mr. Knox) began this debate by thanking the Leader of the Opposition—I am sure that he was speaking for all Conservative Members—for saving the timing of the Chancellor's Budget speech. It was indeed a generous and highly unusual gesture by the Leader of the Opposition. Most Leaders of the Opposition on acquiring that role have as their ambition to serve as Prime Minister; the present Leader of the Opposition seems to content himself with serving the Prime Minister. Most Leaders of the Opposition see it as their role to create procedural difficulties for the Government; this Leader of the Opposition sees it as his role to solve the procedural problems of the Government. At any rate, he has committed a political blunder that will haunt him for many years to come in Scotland.

My hon. Friend the Member for Glasgow, Govan (Mr. Sillars) had the best of last Tuesday. He was lucky enough to miss the Budget speech, which was well worth missing. If last year's Budget speech contained the sins of commission, this year's was about the sins of omission. Never has a Chancellor with so much available given so little to so few, and kept the unhealthy concentration on those who have been so favoured by his past largesse.

I wonder if the right hon. Gentleman appreciates the nausea that is felt by many Opposition Members when they see that, with so much to do, no fewer than nine paragraphs of the Budget speech are devoted to the attempted resuscitation of his pet scheme for personal equity plans. The real task is to rebalance the economy, to unfasten the straitjacket in which the Chancellor's past mistakes have put him.

First, there is the task of rebalancing the economy between rich and poor. Like many other Scottish Members, I faced my constituents this weekend—people who have received their poll tax demands. The reality is of people on tiny incomes qualifying for tiny rebates of poll tax, and, in some cases, no rebate. Young people earning £60 a week will face the full blast of the poll tax on 1 April. On Saturday I spoke to a constituent in Turriff, who faced a doubling of the rates bill. He did not qualify for any rebate whatsoever, although he had been sent a very helpful note to the effect that he could always apply for family credit. To a family in receipt of only £6,000 or £7,000 a year, what comfort is it to tell them that the limit for personal equity plans has been increased to £2,400? Such people get nothing but the crumbs from the table of this Chancellor's largesse.

I say to Labour Members that it is a very dangerous tendency—the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) illustrated it tonight—to try to outflank the Conservatives as a tax-cutting party. Let me mention something from today's Evening Standard. I am not claiming that the Evening Standard has the best interests of the Labour party at heart, but it was very interesting that even that newspaper was attempting today to remind the Labour party that it should be the party which represents the poor and the under-privileged. Our position on this side of the House should be that fair taxes are a just return for fair public expenditure.

The second rebalancing of the economy should be between north and south, between Scotland and England. The Chancellor of the Exchequer has been engaged in Treasury sabotage of regional policy. If we are to believe his public statements, not content with sabotaging regional policy within the United Kingdom, his ambition is to sabotage regional policy throughout the European Community. The Treasury has been conducting a fight with the European Commission over the past few years —one which it has unfortunately won—to spend less in the regions of the United Kingdom by not obeying the rules of additionality.

The Chancellor and the Treasury ignore the massive "regional policies" which are implicit within the United Kingdom economy, for example, in mortgage interest tax relief. Thirty per cent. of the United Kingdom population are in the south of England but obtain 50 per cent. of the mortgage interest tax relief—tax relief which is spiralling, with the Chancellor's high interest rates policy, to a level this year of some £6 billion. That is additional regional spending in the south of England of £1,000 million a year —approximately equal to the entire regional development grant budget for the rest of the United Kingdom.

Then we have regional policy in the defence procurement budget. A parliamentary answer to me on 22 February revealed that, of the defence procurement budget of £10,000 million, no less than 62 per cent. was spent in the south-east and south-west of England. That is a "regional policy" which dwarfs the official regional policy of the United Kingdom.

We have a regional policy in transport spending. British Rail's announcement that it will contemplate an additional £500 million, perhaps even £1,000 million, of spending in taking the Chunnel underground towards the coast is a massive regional preference for that area. It matters not whether that is funded by the public or the private sector. If it is funded by the public sector, it will come from the burden of taxation on all of us. If it is funded by the private sector, it will come from the charges levied on that transport and paid by the whole country for its communications with Europe.

The Budget should have entailed a massive expenditure and investment programme on the infrastructure of the north of England, Wales and Scotland. That spending would not have been inflationary. It would have had a low import component and would have prepared those areas for the challenges of the European market and 1992.

Today in Scotland we debated Scottish enterprise in the Scottish Grand Committee. It was an arid and sterile debate because, even in Scottish Committees which are not packed by English Tory Members, there is no decision-making power at the end of a debate. The debate was also misdirected because we were debating the supply side of the Scottish economy. Obviously, that is important and improvements could be made, but the debate was out of focus. The basic economic problems of Scotland lie in a deficiency of demand.

The real level of unemployment in Scotland is some 400,000, or 15 per cent. of the total work force. There is little capacity constraint within the Scottish economy and no real inflationary pressure. We know that total revenue over total expenditure is running at some £2,000 million, yet, in the face of deficient demand, we have interest rates, as a by-product of policies which are being pursued in the interest of overheating elsewhere in the economy, at 13 per cent. Moreover, there is no increase in public spending which is necessary to meet the problems of the Scottish economy.

Not only do we have an inappropriate monetary policy as a by-product of inflationary pressure in the south-east, but that policy hits the Scottish economy harder than many other areas. The Scottish economy relies heavily on investment expenditure, capital goods, exports and construction expenditure, so high interest rates are particularly damaging to Scottish industry.

The Government often claim consistency in their economic policies. It is true that interest rates have been consistently high, although the underlying reason for that has been changing substantially over the past 10 years. At the outset of their term of office, we had high interest rates because the then Chancellor of the Exchequer was in hot pursuit of sterling M3. Eventually that was given up as being immeasurable. Some years ago, the present Chancellor hyped interest rates to stabilise the currency and latterly we have had high interest rates to stop the so-called "overheating" in the economy. That phrase has a bitter irony for the regions of England and Scotland and Wales, whose economies are still just coming out of the deep freeze.

The Chancellor's Budget, and his management of the economy, are biased towards the south of England where he has concentrated power, income and wealth, and which just happens to hold the friends, supporters and voters of the Conservative party.

Photo of David Davis David Davis , Booth Ferry 7:15 pm, 20th March 1989

I do not intend to follow the hon. Member for Banff and Buchan (Mr. Salmond) down his antiquated route, as expenditure per head in Scotland is second only to public expenditure in Northern Ireland, with all the troubles that the Province has. His analysis falls on that alone.

Photo of David Davis David Davis , Booth Ferry

No, with all due respect, I cannot give way as I have only 10 minutes.

This is a Budget for the future, not the past. In cutting the national debt the Chancellor of the Exchequer is cutting tomorrow's taxes and enhancing tomorrow's prospects. It is a Budget for the poor. In reforming national insurance, amending the age allowance and abolishing the earnings rule, the Chancellor is allowing some of the least well-off the chance of significantly improving their lot.

In the past 10 years we have built and developed a successful enterprise strategy. From listening to my right hon. Friend the Secretary of State for Employment, I have some hope that the Budget is the first stage of a new strategy for enhancing the enterprise culture's impact on the poorest. Our first duty to the poorest is to maintain the impetus for prosperity that we have developed in the past 10 years. Prosperity increases job opportunities-—500,000 in the past 18 months—enhances earnings, which are up 25 per cent. in the past 10 years, and allows the nation to pay for the welfare benefits of the least well-off among us. Therefore, there is an overwhelming need to maintain policies that promote prosperity. The first of those policies is to reduce the tax burden on the nation. I am a little disappointed that we did not see a further reduction in income tax, but things cannot he perfect all the time.

Having assured that prosperity, we can turn our minds to ensuring that the combination of taxes and welfare benefits creates the sort of nation that we seek. We want to see a nation of self-reliant people, free from the heavy hand of government. We have achieved that for the vast majority of the population but, I fear, not yet for the very poor. Some of them face high rates of tax combined with benefit withdrawal. The worst case that I can find involves a 97 per cent. marginal rate of taxation and benefit withdrawal. That is higher than the highest rate of taxation on any earnings under any Government of any persuasion.

While 97 per cent. is a rare occurrence, half a million of our people face a tax and withdrawal rate of 70 per cent. or more, which is worse than the old, top-rate taxes. Such a situation creates not just a dependency culture, but a despondency culture. Why on earth, then, do a Conservative Government, of all Governments, tolerate what is both economic idiocy and economic injustice?

The reason unfortunately is a Gordian knot of logic that at first sight allows no answer. The paradox is that in reducing the marginal rate of withdrawal, we drag more and more people into the welfare net. In doing so, costs are dramatically increased, which in turn pushes up taxes, which depresses incentives, and thereby destroys the very enterprise culture that we are trying to create. Targeting, tax cuts and prosperity go hand in hand. Targeting and welfare incentives are logical opposites.

The effect of reduced withdrawal rates is best demonstrated by example. My right hon. Friend the Chief Secretary will not need this particular example, but I shall give it anyway. To understand we must imagine a family —say two parents and two young children—on about £100 a week, who receive £40 a week in benefit. With a withdrawal rate of 80 per cent.—which is about the present rate—80p is lost for every pound of extra earnings. Their benefits drop to nothing when their earnings climb to £150. That is close to reality for many families. With a withdrawal rate of 40 per cent., their benefits drop to nothing at £200 and of 25 per cent. at £260. My right hon. Friend the Chief Secretary will realise immediately that I am leaving out the taxation component. If I added that to my last calculation, the level would be £400.

If we consider the effects of the withdrawal rate on the number of people who receive benefits, the current withdrawal rate leads to all families with incomes of £150 or less being on benefit. If the rate was 40 per cent., all families on incomes under £200 would be on benefit, which is between 3 million and 5 million more households. That is a significant cost increase of more than £5 billion. A 25 per cent. withdrawal rate would take us up to having the majority of the households on benefit, and, if we took tax into account, the vast majority.

That is the paradox. Targeting creates a poverty trap, but not targeting incurs massive costs and sucks a massive number of people into dependence on the state. The question is whether the problem can be unpicked. The key that will unlock the problem is time and earnings growth. Already the Government operate welfare benefits and their qualifying income level in line with inflation. Since average earnings have grown by about 2 per cent. per annum above inflation during the past 10 years because of the Government's policies, qualifying levels for support should become a smaller and smaller fraction of average earnings. Thus the gap between the welfare benefit level and average earnings increases.

To illustrate this, I shall return to our example. Dropping the withdrawal rate to 40 per cent. would mean that benefit would be paid up to earnings of £200 a week —that is £50 more than today. However, in 10 years time the average wage will be significantly more than £50 higher. As a result, a 40 per cent. withdrawal rate then would bring slightly more people into the net than 80 per cent. does now. Therefore, over 10 years it should be possible gradually to reduce the withdrawal rates from 80 per cent. to 40 per cent. as real incomes grow.

The income improvement arising from our incentive policies creates the leeway to improve the withdrawal rate, to combine incentives and targeting. The strategy must be seen as a whole to be understood. I would say to my right hon. Friend the Chief Secretary that most of it is already Government policy. It requires four parts—first, to continue the downward pressure on basic rates to maintain the initiative and drive that underpins growth in earnings, which is the key to the economy; secondly, to maintain basic levels of benefit at constant levels in real terms, which is Government policy; thirdly, gradually to increase tax thresholds with the aim of ensuring that people and families who receive welfare benefits do not incur tax at all, which is why I used the non-taxed numbers; and, fourthly, to increase the earnings level at which zero benefit is paid by the same percentage as wages each year; which is to say that the taper should be lifted by the same percentage as wages each year—say about 2 per cent. above inflation.

Over a period of 10 years or so that would force down the marginal rates significantly without increasing the proportion of GDP that goes into welfare payments—in fact, it would probably reduce it. What would happen is that the balance of targeting and incentives would reach a rational basis that has not been seen in this country for 25 years.

Churchill once described the ideal modern state as one having a net beneath which no man may fall and a ladder up which any man might climb. We have spent the past 10 years repairing the net and rebuilding the ladder. In the next 10 years, it would be an honourable objective to lower the rung at which that ladder starts.

Photo of Mrs Alice Mahon Mrs Alice Mahon , Halifax 7:24 pm, 20th March 1989

I am grateful for a chance to speak briefly and to follow, though not immediately, the excellent speech of my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore). I believe that he paid a great service to the House and to the people of this country when he exposed the gigantic con trick of the so-called Thatcher miracle. It is a sham, and my hon. Friend eloquently exposed the Chancellor as wearing no clothes, which was not a pretty sight.

The truth is that by every major economic indicator the Government's policies have failed. Unemployment is still at more than twice the 1979 level. As my constituency reels under the hundreds of redundancies since Christmas, I can understand why the Secretary of State would not allow me to intervene. When I give the figures, the House will also understand. The trade deficit is still more than £14 billion and rising, and we have the highest interest rates and inflation of any of the major industrialised nations.

British industry did not invest enough in the early oil-rich 1980s and we are paying the price. My constituency is a good example of an area where imports have been sucked in to the detriment of the local economy. There was not one proposal in last week's Budget which would help manufacturing. In a constituency such as mine, one can see the situation becoming worse. Because no attempt has been made to bring down interest rates, there is a high pound, high water and energy charges and the Government have deliberately forced up rates by starving councils of rate support grant. This has led to a lower demand for goods, which has been graphically demonstrated in my constituency.

Photo of Mrs Alice Mahon Mrs Alice Mahon , Halifax

No, the hon. Gentleman can make his own speech.

Since Christmas, in Halifax and in the Calder Valley which covers the Calderdale council area, 850 jobs have been lost in manufacturing—in textiles, engineering, the food industry and bed manufacturing. This morning I heard of a further 34 redundancies in textiles at an excellent hosiery and knitwear firm with a good record —the Wolsey socks division of Courtauld. The textile industry is not noted for its militancy and certainly not for its high pay. The reward to the textile industry and to engineering has been a kick in the teeth from the Government.

The hon. Member for Boothferry (Mr. Davis) spoke about increased prosperity and then shed crocodile tears for those caught in the poverty trap. That really made me sick. How can he pretend to care when he walks through the Lobby with a Government who have persistently cut benefits, held down wages and bashed the unions to the extent that they have over the years?

West Yorkshire is the lower-paid capital of this country. On too many occasions in the House I have highlighted what is happening to the local economy in my constituency. Our once highly skilled manufacturing jobs have been replaced by the sweat-shop type of economy towards which the Government have been urging us. I have been heavily involved with the problems of home working, which is on the increase. The average pay for a home worker is 50p to 60p per hour, and average pay in many of the factories in my constituency—this is borne out by the Government's own figures—is less than £2 an hour.

I still have many thousands of constituents employed in the textile industry, which is an area of grave concern to me. Had I not been limited to 10 minutes I should have liked to quote what captains of the textile industry are saying about the Government's policy. I could have quoted letters from mill owners in my constituency who are deeply concerned about water privatisation because the textile maufacturing process uses a great deal of water. They have already seen unfair increases in energy costs, compared with their competitors, and they have seen the results in terms of imports. The Government have let them down badly.

The right hon. Member for Old Bexley and Sidcup (Mr. Heath) highlighted the need for the Government to invest in real training. Whatever the Secretary of State for Employment may say about employment training, it has been an utter failure. A fortnight ago a young graduate, Michael Pickles, came to my surgery. He has been unemployed since last June. He has an extremely good degree and in desperation he went on employment training for three months, but in that time he has had just two weeks placement with a firm. For the rest of the time he has been kicking his heels. He told me that if I got the chance I should tell the Government that they are just wasting the taxpayers' money on a rubbish scheme that was no good for him and no good to anyone else.

In 1988 a survey of the local economy of Halifax showed that we are moving towards a two-tier labour market with a widening gap between the professional and skilled occupations and those workers concentrated in low-status, low-skill and unskilled jobs. The latter groups are often part of the flexible work force. Such people need training. In Halifax we fought back and tried desperately to help. We were involved with the business in the community initiative, which used the combined resources of the local council and the local trade unions, with the help of excellent officers who guided us through it. The chamber of commerce sulked, however, and would not join the regeneration committee. We used the small amount of European money available to us to try to train people for the future, but what have the Government done for us in return? They have done absolutely nothing—we are the hole in the middle of the doughnut. The Government have kicked us in the teeth. In the early 1980s the Government took assisted-area status away from Halifax, followed by urban programme area status. Recently Calderdale has been told that no derelict land grant will be given for the only piece of flat land available for industrial development.

We have been betrayed by the Government. They are not putting our area forward for objective 2 status for the EC structural fund. The Government have ignored our pleas and representations, although we have pointed out that thousands more jobs are about to be lost. Last week, with two officers of the council, I made representations to the Department of Trade and Industry to get objective 2 money from Europe. We were given the impression that the Department was doing all that it could to press our case, and the Minister told us that our case was being flagged up in Brussels. Unfortunately for the Minister, however, the new Commissioner—Bruce Millan—told us the truth. The Government have not represented Calderdale and they have not highlighted the new unemployment levels in the area. The Commissioner told us that the Government were doing absolutely nothing for us. I have written to the Chancellor of the Duchy of Lancaster to say that if his Department wants to help Calderdale, Halifax and the Calder valley to get that money, we should have assisted area status.

I see nothing in the Budget to help manufacturing. When the oil runs out—the income from that oil is already sliding—I wonder how we shall pay our way. What is happening in my town is a sign of things to come. I know why the Secretary of State for Employment would not allow me to intervene—since Christmas nearly 1,000 jobs have been lost in my constituency and it would be difficult to explain that away in the so-called boom economy.

Photo of Mr John Townend Mr John Townend , Bridlington 7:32 pm, 20th March 1989

The hon. Member for Halifax (Mrs. Mahon) comes from the west riding, but the story is different in east Yorkshire. I represent a constituency in the hinterland of Hull; anyone visiting Humberside today will see nothing but expansion and the development of the manufacturing industry, which is taking on more labour.

The Budget tax changes, modest though they were, have been universally approved. I particularly support the radical reform of employers' national insurance contributions, which will remove some of the stupid anomalies that created the poverty trap in the previous system.

I represent a constituency with an above average number of old people, so I particularly welcome the removal of the earnings rule. That is a particularly useful supply-side measure when one considers that in the next few years there will be a fall in the number of school leavers coming on to the market. In common with my right hon. Friend the Member for Worthing (Mr. Higgins) I also approve of the reduction in the age limit for the higher rate of age allowances.

I am chairman of the Back-Bench small businesses committee and I naturally welcome the 50 per cent. increase in the band for small company corporation tax to £150,000. Mainly that will help medium-sized firms, not small firms. I am disappointed that my right hon. Friend the Chancellor was unable to accept the recommendations of our committee, which would have been of enormous help to small businesses that have just started. We suggested that the first £5,000 of taxable profit retained in a business should be tax-free. That would be particularly helpful to small businesses desperate for capital in the early years.

Another suggestion that we made and which I commend to the Chancellor for next year's Budget is roll-over relief for inheritance tax on private businesses or shares in private businesses until the disposal of the business or the shares. There would be no loss of revenue in the long term and in the short term it would stop smaller businesses being bled of much-needed capital to pay the Revenue's inheritance tax.

In formulating this year's Budget, the Chancellor faced a completely different situation from any faced by a Chancellor this century. He not only balanced the Budget, but had a surplus of almost £14 billion. That is a clear sign of the success of the Government's handling of public finances. In the coming year, based on no changes other than indexation, my right hon. Friend has a surplus of £15·5 billion. At one bound, he could have achived his stated ambition of reducing the standard rate to 20p—at a cost of some £7 billion—still leaving him a further £8·5 billion for further tax cuts.

In this century we have not had a Chancellor as successful as my right hon. Friend the Member for Blaby (Mr. Lawson) at introducing tax reductions and tax reforms to help the supply side of the economy. Therefore, it must have been terribly frustrating for him to be unable to use the enormous surplus to continue that policy. My right hon. Friend was unable to use that surplus because of the current economic situation.

In the event, my right hon. Friend is repaying another £14 billion of the national debt. That means that in about three years he will have repaid one sixth of the debt which has accumulated in the past 200 years. I do not believe that we should overlook what is, without doubt, an enormous achievement. For many years, the Government and their predecessors have increased the burden that will be bestowed on our children and grandchildren. The one exception to that practice which was brought to the attention of the House was not a budgeted surplus but one achieved by accident at the end of the year. It is truly wonderful that, at last, we are reducing the burden on future generations.

Let us consider our economic difficulties. As my hon. Friends have said, it is always easy to be wise after the event. It could be argued that pumping more money into the economy and reducing interest rates prevented a world economic collapse. It could also be argued that the growth in the world economy was so strong that those measures were unnecessary. There is no doubt, however, that our current problems stem from pumping too much money into the system and reducing interest rates. This monetarist Government were not monetarist enough, and they paid the price. Our monetarist stance was too lax even before the October crisis. Therefore, for two years the economy had been growing at an unsustainable rate. It is nonsense to blame the Budget of 1988. That Budget produced a £14 billion surplus, which was fiscally tight.

The main culprit is monetary policy. To be fair to my right hon. Friend, he has only done what his critics on the Opposition Front Bench have demanded for years— reflated the economy and reduced unemployment. To combat inflation, the Chancellor had to suppress his natural desire to cut taxes in this Budget, and he had to introduce a prudent and cautious Budget. He had to convince everyone, not least the markets, that when he said that the Government's No. 1 priority was to reduce inflation he really meant it. That is the only justification for sacrificing more than £1 billion in revenue by not valorising excise duties.

We required a Budget for the markets this year and I believe that my right hon. Friend the Chancellor has succeeded so far. The Budget was far more cautious than many people expected. I am sure that the Chancellor hopes, if he gets the right response from the markets, that he will not have to increase interest rates any further. We will have to see whether that happens. However, I am heartened by the fact that my right hon. Friend has made it clear that, if necessary, he will raise interest rates further.

My right hon. Friend the Chancellor is faced with two significant problems—inflation and the balance of payments deficit. The Budget will undoubtedly help, but it will not solve those problems. The only way to reduce inflation is through further monetary policies. It is a tragedy that, when the Government managed to reduce inflation to 3·5 per cent., they did not continue their policy to get it down to zero. They traded off reflation to bring down unemployment. I hope that the Government have learnt a lesson and will not be diverted from their main aim in future.

I am worried whether targeting MO is sufficient. I am not certain whether we need to return to targeting broad money, despite all the problems that that would cause.

A vital factor in reducing inflation relates to wage increases. All private employers should heed the Chancellor's warning that he will not let the exchange rate fall to accommodate real wage increases which are not covered by increases in productivity. The Government also have an important part to play because they are a major employer. Regardless of the political clout of this year's special interest groups, whether they be doctors, nurses or teachers, the Government should not allow themselves to be pressured into allowing wage increases much in excess of 6 per cent.

I believe that the balance of payments deficit will right itself in due course because this deficit, unlike previous deficits, is mirrored by a private sector deficit and not a public sector one. As hon. Members have said, a considerable proportion of the deficit is made up of imports of capital goods. When they enter production, they should reduce imports and increase exports.

In the short term, the Government should take a much tougher line with countries which have free access to our markets, but which make it difficult for us to export to them. For example, for 25 years Japan has discriminated against Scotch whisky and that discrimination will be removed only after 1 April. We have a significant deficit with South Korea, but it is virtually illegal to sell Scotch whisky there, other than in tourist hotels. That is not good enough, and retaliatory action must be taken. We believe in free trade in both directions. If we open access to our markets, we demand equal access for our exporters.

Also, while we have this worrying balance of payments deficit, we should not increase overseas aid, however much the bleeding hearts brigade might plead. Indeed, we might do well to restrict it.

We must all hope that "Lawson's luck" holds and that the British economy has a soft landing. The Budget has hopefully created the right environment. Backed by firm monetary control, inflation should fall and there should be a reduction in the balance of payments deficit. When that happens, I hope that the patience of the British people will be rewarded and that the Government will once more embark on their avowed policy of reducing taxation. We should have enough of a surplus then to bring the standard rate down to 20p in the pound and to make significant reductions in other areas. On that basis, I strongly support the Budget.

Photo of Mr Tony Worthington Mr Tony Worthington , Clydebank and Milngavie 7:43 pm, 20th March 1989

We have heard much from Conservative Members about the importance of incentives and I support much of what has been said. It is particularly important that the less well-off should have incentives. They should have a sense of achievement and a sense of being able to surmount their own economic problems. However, the incentives issue becomes less important when we consider the more wealthy. There appears to be an area of diminishing returns. For many reasons many people who become wealthy cannot benefit or gain any more enjoyment from increased wealth. The wealthy often have the opportunity to set their own wages and incentives and use their own power. In many cases they cannot work much harder. It is ironic that the Prime Minister who claims that it is crucial that the well-off should have large tax cuts does not take her own wages. It is clear that the Prime Minister, although she works extremely hard, realises that she cannot work any harder.

The well-off often gain tremendous benefits from firms. They receive income which is more than a simple salary. In this Budget debate, we should be debating the Government's attitude towards different forms of taxation although I have not heard such a debate so far. Is it true, as we often hear, that the Government favour indirect taxation instead of direct taxation? If so, why? Is it true, as we often hear, that the Government favour regressive taxation rather progressive taxation? If so, why? It seems that there is a move towards more indirect and regressive taxation. That should be justified in this House.

In 1978, income tax raised one third of all revenue. In 1988–89 it will raise only 24 per cent. In 1985, the poorest one fifth of the community paid 5·9 per cent. of their disposable income in VAT. The best-off one fifth paid only marginally more—7·3 per cent.—of their income. The bottom one fifth paid 29 per cent. of their disposable income in indirect taxation, but the top one fifth paid 21 per cent. There is a built-in unfairness there.

We have heard today, as we have heard ad nauseam in the past, that we have a tax-cutting Government. If we consider the almost mythical married couple with two children on average income, we discover that in 1978–79 that family paid 35 per cent. of its income in taxation while in 1988–89 it paid 37 per cent. as a result of the shift towards indirect taxation.

The position for the less well-off is worse than that because the role of benefits is neglected. In 1988–89 a wage earner with four children earning £75 a week, with cash benefits actually received about £123 a week. To increase his income from £123 to £140—an increase of £17—he would have to earn an extra £90 because of the loss of cash benefits. That represents a taxation loss of 80 per cent.

We all welcome the minor changes in national insurance contributions, but that affects only a tiny part of the poverty trap. At the top end of the scale people are treated even more favourably than would appear from the way in which the Chancellor cut the tax rates to 40 per cent.

People at the top end are looked after by their employers. It was pleasing to see the reduction in allowances relating to company cars, but that is a small part of what is happening at the moment. Recent surveys show that 84 per cent. of senior managers receive free medical insurance. Many receive life assurance policies, have their telephone bills paid for them or receive money to pay for their newspapers. According to the data, 30 per cent. have their golf club fees paid. Such benefits are not taken into account in the Budget.

Photo of Mr Tony Worthington Mr Tony Worthington , Clydebank and Milngavie

I cannot give way in a 10-minute speech.

All of that is a form of middle class, welfare state subsidy that is not taken into account. Others receive share option schemes, and they do not pay the market price. They receive free meals from their companies, whereas a working person will receive only luncheon vouchers to the value of 75p per week before that benefit is taxed.

What is to be done about that extremely unfair system? We all need incentives, and the greatest benefits should go to those who are least well off. I believe in the importance of incentives to working people. I am much attracted to the scheme proposed, admittedly in embryo form, by my hon. Friend the Member for Birkenhead (Mr. Field), which seeks to re-examine the present system of tax allowances. In tonight's debate, we have heard from hon. Members who are hostile to any benefit being given to working-class people but who have urged the value of incentives for savings schemes, for example. If there is no such thing as a free lunch, there is no such thing as a free tax allowance. A free tax allowance is being paid for by someone else, who is often receiving a lower income than the person enjoying the tax allowance.

At present, about 100 tax allowances are in existence. Major allowances include mortgage relief, while others include car allowances, tax-free pension schemes, business expansion schemes, and subsidies to invest in privatisation. They are all largely biased towards the better off. The value of that tax welfare rises with one's income. There has been a great growth in tax welfare, and one of the things that that has done is to drag poorer people into the tax net.

The only way to end the drastic poverty trap, with people effectively paying 80 per cent. income tax, is to get rid of that panoply of tax allowances. If that is done, it will be possible to have a standard rate of income tax of around 12p to 15p in the pound. One could then have a progressive tax system based on fairness and linked with that rate of 12p to 15p in the pound. It would also be necessary to increase considerably child benefits, and to do more for pensioners.

The unfair divide that currently exists between those at the top who are assumed to need incentives and those at the bottom who are clobbered massively for every increase in income that they receive is totally unsatisfactory. One of the ways of ending that, as was suggested by my hon. Friend the Member for Birkenhead, is by re-examining the current system of tax allowances, which probably costs the rest of us about £50 billion. We must then return to what is surely the only fair system of taxation—a system of progressive, not regressive, taxation, under which one pays according to one's ability to pay.

Photo of Mr Neil Hamilton Mr Neil Hamilton , Tatton 7:53 pm, 20th March 1989

This has been an interesting debate because we have heard from both the old and the new. It included a contribution from the newest Member of this House, my hon. Friend the Member for Richmond, Yorks (Mr. Hague), whom I congratulate on the excellence of his maiden speech. He was preceded by the oldest Conservative Member of the House—with the exception of the Father of the House —my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath).

My hon. Friend the Member for Croydon, South (Sir W. Clark) commented that he wished that my right hon. Friend the Member for Old Bexley and Sidcup sometimes said something good about the Government and that he approved of what they are doing. However, that would amount to an act of apostasy on the part of my right hon. Friend the Member for Old Bexley and Sidcup, so it is not likely that he would do such a thing. To be more even-handed might also give his opinions a spurious credibility. I am delighted that when he speaks to the House he does so only to attack, because that can only diminish the strength of his message.

If we learned anything in the past year, the two lessons that have come home to us are that monetarism is still alive and well and that the inflation experienced in recent months is a reflection of a laxity in monetary policy, and how potentially dangerous it is to rig exchange rates by intervention in the foreign exchange markets—and how even more dangerous it would be to tie us up in a permanent, formalised system such as the European monetary system.

I am delighted that in his opening remarks on the Budget my right hon. Friend the Chancellor of the Exchequer agreed, at least partially, with my view, when he said: Inflation is a disease of money; and monetary policy is the cure."—[Official Report, 14 March 1989; Vol. 149, c. 293.] I am glad that my right hon. Friend gave that ringing endorsement of what I believe to be the underlying cause of the difficulties we have recently experienced. I endorse his comments that interest rates should stay as high as necessary for as long as necessary. I do not believe that we shall cure inflation unless we adhere to that policy.

That is not a policy that commends itself to my right hon. Friend the Member for Old Bexley and Sidcup. He comes to the House only when he perceives that the Government are in some difficulty, and feasts upon perceived Government misfortune like a vampire given free run of a blood bank. However, where inflation is concerned, I dare say that we should to some extent listen to him, because he is one of the greatest experts on the causes of inflation—having himself presided over some of the worst bouts of it in living memory.

On occasions, my right hon. Friend attacked the Chancellor for his excessive reliance, as my right hon. Friend the Member for Old Bexley and Sidcup sees it, on interest rates. He says that the Chancellor has only one golf club. In the period 1972–74, my right hon. Friend used every golf club apart from the right one, played most of the time in the rough, and ended up well and truly bunkered. It ill becomes him to pose now as the club professional. It is my right hon. Friend the Chancellor of the Exchequer who deserves that description.

My right hon. Friend the Member for Old Bexley and Sidcup has the support of various bodies such as the CBI, which seems to spend all its time whining about matters that are beyond its control and ignoring those within its control, such as wage increases—which have a far greater influence upon the costs of manufacturing industry than interest rates. My right hon. Friend the Member for Old Bexley and Sidcup is supported also by Opposition Members, though the same applies to them as to him. When the Labour party comes to the House to accuse the Government over their record on inflation, that is the nearest thing that one can imagine to Satan rebuking sin.

Several times during the debate Opposition Members have called for non-inflationary increases in Government spending. I should like to know what is a non-inflationary increase in Government spending, because unless one can achieve a 100 per cent. rate of return, any investment is likely to lead to an increase in total demand—and as excessive demand is the cause of inflation, such investment is likely to stoke the fires of inflation rather than dampen them.

Another mistake that has been made in Opposition Members' speeches this evening is to say that last year's Budget produced the upturn in inflation that we now have, and that the tax cuts it introduced must be held responsible. I do not understand the logic of that argument. Last year's tax cuts totalled £4 billion and there has been an increase in personal sector credit of £40 billion. It sems unlikely, to say the least, that £40 billion extra spending should result from a £4 billion increase in disposable income as a consequence of tax cuts. In an economy now approaching £450 billion, it is impossible to believe that last year's modest tax cuts were in any way responsible for the current inflation upturn.

The problem is that credit has been allowed to expand too rapidly for too long. I agree with my hon. Friend the Member for Bridlington (Mr. Townend): we were satisfied, when we should not have been, with inflation continuing at 3, 4 or 5 per cent. We lost the momentum of our campaign to squeeze inflation out of the system. Bank credit has trebled in the five years between 1984 and 1989, and broad money has expanded at a rate of about 20 per cent. a year.

I appreciate the problems relating to M3. World changes in the past eight years—freedom of capital movements and so forth—have made it a less reliable indicator than it was. I certainly do not think, however, that it is right to concentrate our attention on a narrow measure of money—M0—which has nothing to do with credit, when credit is the basis of our current problems. We need a new monetary measure which balances the different kinds of money that are held.

Although inflation is unacceptably high, we should not overstate the recent increases. I am a zero-inflation man myself, and I should not like it to be thought that I am being soft on inflation, but we should recognise that earnings have risen by 9 per cent. in the past year and productivity by 4 or 5 per cent. The real level of inflation in the economy is still only about 4 to 5 per cent., although it is rising, which is worrying.

We need a tight monetary policy, but I am sorry that we have such a tight fiscal policy. I believe that the supply side implications of our tax reductions have been the basis of the huge increase in prosperity at all income levels in the past 10 years, and we need to go further in that direction. I want Britain to become a tax haven, and taxation to cease to be a consideration in people's decisions about how hard to work or what jobs they do.

For all the talk by Opposition Members about cuts in spending in the past 10 years, figures in the Red Book show that expenditure has not been cut as a proportion of GDP. It has started to decline only recently, and I look forward to further falls in the coming years. Table 2·5 shows that the proportion of our national income taken by taxation also has not declined much. When we came into office in 1979 it stood at 35 per cent. of GDP, while the figure for 1988–89 is 37·5 per cent. Of course Government spending is more honestly financed today as a result of the abolition of the public sector borrowing requirement, but I believe that 37·5 per cent. is far too much for the Government to take in taxation, and that significant reductions are needed.

I recognise that market sentiment was probably against the Chancellor this year but I think that, although the markets had discounted it, there was room for a 1p cut in the basic rate of income tax, and I wish that the Chancellor had felt able to take such action. The problems that we have faced in the past year have been familiar to economic theorists and others for a long time. It is many years since Professor Milton Friedman pointed out the dangers of a discretionary monetary policy. Along with my right hon. Friend the Member for Brighton, Pavilion (Mr. Amery), I hope that we may think again of establishing an entirely independent control of the money supply by privatising the Bank of England.

In this as in many walks of life, it is politicians who cause the difficulties with which we must grapple. If their hands are kept off the levers, more often than not the market will ensure that the right solution emerges. That will remove the uncertainties and unpredictabilities inherent in the fickle nature of politicians' decisions.

Limited though its effects may be, I welcome this year's Budget. I regret the necessity to tread water, and I look forward to further progress on tax reductions, particularly income tax reductions, in future years. In the long run, however, the country's prosperity will be assured only if the Government keep firm control of the money supply, inflation and their own expenditure, and reduce significantly the proportion of the national income that they take out of people's pockets.

Photo of Mr Pat Wall Mr Pat Wall , Bradford North 8:04 pm, 20th March 1989

This year, as last year, the Chancellor may have left excise duty on alcoholic beverages alone, but in economic terms the bacchanalian binge for the rich from last year's tax cuts have been succeeded by a Budget of relative sobriety. Even last year's celebrations were enjoyed by a very small section of the population—in the board rooms of banks and finance houses, in the large monopoly companies, by the stock exchange and property speculators and by other assorted rich spivs, by the 1 per cent. of the population who received more in tax cuts than the bottom 70 per cent. of taxpayers—some £1,880 million compared with £1,730 million. Those on more or less average incomes—in terms of prosperity, the medium band—found that their modest glass of wine soon turned sour during the year as inflation, interest rates, rents and mortgages rose for most families.

As for the 6·6 million earning what by any civilised standards must be regarded as low wages, the most that they have received have been crumbs from the rich man's table, despite the cuts in national insurance payments in this year's Budget which, incidentally, has brought 150,000 people into the payment band for the first time. Any gains can be offset against the plight of those who have to survive on the workfare schemes, which the Government suggest are some kind of training programme, and those who lose the protection of wages councils. Millions of others—the unemployed, the sick, the disabled and many pensioners—have been excluded from any benefits conferred by last year's or this year's Budget.

It is, indeed, surprising that at the height of what the Chancellor calls the first ever post-war boom this "reforming" Chancellor should find it necessary to eschew reforms. It is even more remarkable that a Chancellor who claims to be tax-cutting should increase the overall tax burden to 37·5 per cent., compared with 34 per cent. in 1978–79.

The spectre that haunts the Conservative Benches above all else, however, is the balance of trade deficit, which the OECD estimates will rise from its present level of £14·4 billion to £15 billion in 1989 and £16·5 billion in 1990. On the basis of last month's figures projected for a year it could reach around £20 billion.

The Government claim particular credit for their period in office. Between 1980 and 1988 exports increased by one third, roughly in line with the performance with the rest of the manufacturing world. At the same time, however, imports increased by two thirds—twice the rate in the leading economies in the Group of 7 and the OECD countries.

In the so-called first ever boom years since 1985, exports have increased by 12 per cent. and imports by 39 per cent. As my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) pointed out in a recent speech, in the past 12 months exports increased by only 0·5 per cent. while imports increased by 14 per cent.

That presents a picture of grave deterioration. Between 1985 and 1988—excluding oil and energy products, which are declining in any event—manufacturing exports rose by 23 per cent., while imports rose by 48 per cent., but that is not the only deficit problem that the Government face. In the first nine months of 1988, the net outflow of direct investment amounted to £6·3 billion. To that has to be added £5·6 billion of portfolio investments abroad. If that is rounded up on a yearly basis, the deficit amounts to about £15 billion.

Taken together, that deficit on trade and capital outflow abroad—about £30 billion—is 6 per cent. of gross domestic product. Sir Donald MacDougall said recently that a £10 billion surplus on the trade account is required to finance the current level of capital outflow. The Chancellor of the Exchequer dismisses that argument. He says that our fiscal reserves stand at £30 billion. That is a dangerous confidence trick to play on Britain's economic wellbeing. It rests on the fact that we attract foreign investment because of our current high interest rates. That has led to an over-valued pound. The result is that exports continue to lag behind imports.

The Chancellor's confidence trick rests entirely on our ability to attract foreign investment. A lack of confidence in the pound could wipe out our entire capital reserves within a year. There would be a run on the pound, which would have a disastrous effect on Britain's economy, but not just a return to stop-go and stagnation. The IMF would have to intervene. There would be a reversal of the downturn in unemployment and working people's wages would have to be cut. The signs are already there, in the fall in the value of the pound both against the dollar and against the basket of world currencies.

The Government boast about unit labour costs. In 1986, they rose by 4·8 per cent., compared with 3·1 per cent. in OECD countries. In 1987, the Government achieved a reduction in unit labour costs of 3·1 per cent. against an increase of 3·1 per cent. in OECD countries. In 1988, however, the increase in unit labour costs was 5·7 per cent. and it is still rising, compared with a rate of 3·3 per cent. in OECD countries. During that period, labour costs remained static in America but fell by 4 per cent. in Japan and by 2 per cent. in France. The British economy is not, therefore, competitive. It is not succeeding in world markets or against its major competitors, so any loss of confidence when the pound stands at an artificially high level will lead to a serious deterioration in Britain's economic outlook.

The British economy is part of the world economy, which is dominated by the problems faced by the United States. The US budget deficit stands at $155 billion, its trade deficit has been reduced but is still about $130 billion, and there are enormous corporate debt problems.

Merger mania in America is not properly financed and these are problems facing US savings and loans banks, which are similar to those which face building societies in this country.

Third-world debt creates great problems and it has been suggested that overseas aid should be cut. During 1988, the net outflow from the poorest countries in the world to the wealthiest industrial countries amounted to £46 billion. That has had political repercussions, with a swing to the Left in the Mexican general election and riots in Venezuela. The Government boast that capitalist policies are being followed in China, Russia and eastern Europe and are the way out of the problem, but the reality of the market economy is that millions of people are starving, the world is divided between north and south and in countries such as Britain there are millions of poor people, with a handful of very rich people growing ever richer at the expense of the poor.

I am pleased that there have been demonstrations this week in support of a candidate in the Russian parliamentary elections. I refer to Boris Yeltsin in Moscow. Tens of thousands of people demonstrated in the streets, though not in favour of capitalism. Boris Yeltsin says that Russia needs a society where there are no perks for the bureaucrats and no privileges at the expense of ordinary people. He says that land is needed for the peasants and that factories should be controlled and owned by the workers. I believe that the British people, too, will see through their Government's flawed policy and will see the need for change in society. That change will be brought about only by a change of Government. Only in that way will a democratic society be created in which wealth is shared equally and fairly among all.

Photo of Mr Tim Janman Mr Tim Janman , Thurrock 8:14 pm, 20th March 1989

There have been some interesting speeches in the debate. My hon. Friend the Member for Richmond, Yorks (Mr. Hague) made an excellent maiden speech. He has much more common sense than my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) who has been a Member of this House for far longer than my hon. Friend the Member for Richmond, Yorks.

The Budget is contained within a rather dull crown, albeit of necessity, but there are some shining jewels hidden within it. The changes to national insurance contributions, corporation tax, charitable donations direct from the payroll and petrol tax—which will act as a stimulant to motorists to change to lead-free petrol—are examples of those jewels. The most important, in the long term, and the most pleasing aspect of the Budget, is the fact that my right hon. Friend the Chancellor of the Exchequer is coming back on course to monetary policy.

I was pleased to hear that there are to be targets for MO, and that they will be kept to, and that the annualised rate of growth of MO over the last six months was only 3 per cent. I echo what was said by my hon. Friend the Member for Tatton (Mr. Hamilton), that MO and its close monitoring and targeting are not enough. I hope that when he replies to the debate my right hon. Friend the Chancellor of the Exchequer will provide more detail about how much weight is to be placed on broader supplies of money. That is important. I accept, however, that in a free economy—we now have the freest economy in Europe, with the exception of Switzerland—that is more of a challenge than it used to be.

The changes to national insurance contributions are particularly to be welcomed. They will be good for people on low, below-average and average incomes. I am disappointed, however, that the tax-cutting momentum has not been continued in the Budget. If the Chancellor had taken another penny off the standard rate of income tax, I do not believe that a warning note would have been sounded by the money markets. Tax cuts are not inflationary. It cannot be inflationary to let people keep the money that they earn. Inflation has been caused by the irresponsibly low interest rates of a year or so ago and by too much meddling and interference with the exchange rate, particularly with reference to the deutschmark.

I echo the comments of my hon. Friends the Members for Tatton and Bridlington (Mr. Townend). Not to reduce tax by 1p in the Budget only gives credence to the economic illiteracy of the Opposition. The 1988 Budget was excellent. It was certainly not inflationary. The figures that were given earlier by my hon. Friend the Member for Tatton prove that point excellently. The standard rate of tax should have been reduced by 1p to show our detractors that we do not intend to be blown off course and that we intend to move away from the "they will" society to which the Opposition wish to return.

There are many small and medium-size companies in Thurrock and the corporation tax changes will enhance their profitability. That will enhance employment and job security in the area. It is a pity, perhaps, that local government taxes cannot also be related to profitability. Many small businesses, especially those in the retail sector, continue to face huge rate bills. The Government's reform of commercial rates will, I am afraid, fail in many cases to resolve this outstanding issue.

The Budget is, to some extent, borne out of a climate of inflationary fear. That is good. We must never take our eye off the ball of inflation. The Opposition are hypocritical and confused on the subject and about the right level of taxation. In at least two speeches today, Opposition Members have called for tax cuts that would benefit people on lower incomes, but last year they trooped into the Lobby to vote against 2p off the standard rate of income tax. Any party which, when in government for five years, presided over an inflation rate of 15·5 per cent. is in no position to lecture the present Government about their record on inflation. Nevertheless, like many of my colleagues, I believe that 7·5 per cent. or 8 per cent. inflation is far too high. Our target should be not 5 per cent. or 4 per cent. but nil per cent.

The economy is fundamentally sound. The statistics prove that. We need only take the example of output per person in manufacturing, or productivity. Anybody can make something. What is important is whether it is made cost effectively. Productivity is the key measure. The increase in productivity in manufacturing during the entire term of the previous Labour Government was 5·8 per cent. Just from 1987 to the fourth quarter of 1988, there has been an increase of 10·3 per cent.—nearly double what was witnessed under Labour.

We have also built up huge overseas assets, second only to Japan, and a huge fiscal surplus, and public expenditure is going down in real terms. The state is taking a smaller proportion of gross national product. That is something which we have always been elected to achieve.

Nevertheless, public expenditure is increasing in real terms. There have been no cuts. Public expenditure continues to rise in crucial areas such as health and the fight against crime.

My right hon. Friend the Chancellor is to be congratulated on a well balanced Budget. It is important that we do not lose the momentum to return to individuals more of the money that they earn so that they can be less dependent on the state. The Leader of the Opposition spoke of our record and said that the Government had created a "me, now" society. His alternative is a "they will" society in which individuals lose their sense of responsibility for themselves and turn to the great they, whether it he local government, central Government, social services or the Department of Social Security to take on their individual responsibilities in life.

The Government have a duty to ensure that there is a safety net and that citizens do not fall below it, but they also have a duty to maximise the amount of money that people can keep and spend as they wish. Although the Budget is excellent in many other ways, we have lost an opportunity to keep our tax-cutting momentum going.

Photo of Mr Win Griffiths Mr Win Griffiths , Bridgend 8:23 pm, 20th March 1989

We are debating a Budget that has been created in the shadow of storm clouds caused by all the miscalculations on which the Chancellor's last Budget was based.

The Chancellor's forecasting record is such that, if he was an economic analyst or financial executive of a privatised Great Britain Ltd, he would have been sacked a good while ago. His inflation figures proved to be 100 per cent. out, his forecast for the balance of payments deficit was a quarter of what it has turned out to be, and the same is true of the Budget surplus. It is therefore extremely difficult to enter a debate with the Chancellor on the basis of his forecast this year for what is likely to happen in the coming financial year. We have to take his forecasts with a pinch of salt and hope that he has learnt something from all the mistakes of the last year.

Will the Budget strengthen the economy and create jobs? We have to answer that question with a resounding no. The continuing underlying trend of weakening in the manufacturing sector will continue. During the past decade, Britain's share of world trade has decreased by more than 10 per cent. We have managed to convert a £3·7 billion surplus when Labour was last in power to a £16·4 billion deficit today—some economic miracle. Even allowing for invisibles, which we are often told we have to bear in mind when considering the whole economy, the deficit has doubled.

Those figures show an appalling performance. The economy has been saved only by the Chancellor being absolutely resolute about pushing up interest rates time and again to bring hot money into the country. We must remember that it can just as easily leave. In the meantime, home owners and businesses, especially small and medium-size businesses, face the difficulty—and sometimes the misery—of coping with the extra costs that high interest rates involve. Those interest rates are the creation of the Chancellor alone as he tries to make up for some of the mistakes of last year's Budget. The Chancellor told us in his Budget statement that he will maintain high interest rates for as long as is necessary. No doubt he will increase them if he considers that necessary.

At the beginning of today's debate, the Secretary of State for Employment made great play of the Government's job creation record. His view was blinkered and short-sighted in terms of recent history. I intervened in his speech, but he was unwilling to accept the figures that I produced, which are based on answers given by his Department to questions about how the economy has developed.

I shall remind the House of those rather stark figures. During the past decade, jobs have been created, but they have been created in the south-east, East Anglia, the south-west and the east midlands. In those areas, 580,000 jobs have been created for men and 433,000 jobs have been created for women. They are all full-time jobs. Just over 1 million jobs have been created in the area below a line drawn from the Severn to the Wash. However, in the west midlands, the north, the north-west, Yorkshire and Humberside, Wales and Scotland there are 650,000 fewer jobs for men and 149,000 fewer full-time jobs for women.

Therefore, as a result of the economic miracle of the past decade, there are almost 800,000 fewer jobs north of the line from the Severn to the Wash. The only bright spot is the west midlands, where there are 8,000 extra full-time jobs for women. Therefore, the Government should not be proud of their record on jobs. By the Chancellor's own admission, the situation is unlikely to improve in the coming year. The squeeze which is meant to affect the southern part of the country is more than likely to affect the north and will mean that while the south gets a cold the north and the west will get influenza.

We have to take the Chancellor's predictions with a pinch of salt because he was so wrong last year. He predicts that the growth in GDP will slow done from 4·5 per cent. in 1988 to 2·5 per cent. in 1989, and that domestic demand will slow down from 6·5 per cent. in 1988 to 2·5 per cent. in 1989. Yet at the same time he predicts no fall in the current account deficit or import penetration when the economy is supposedly slowing down. He predicts that the more sophisticated GDP deflator will be 5·5 per cent. in 1989–90. That must mean a decline in the rate of growth of earnings and profits which are moving well ahead of inflation at present. It would be interesting to know from the Minister exactly how the Government plan to achieve that target. It is very difficult to perceive that the economy, which is running away on the credit boom, will slow down without an extremely hard landing.

Much has been said about the extension of PEP; and ESOPs. While ESOPs are to be welcomed, PEPs appear to be an attempt to bribe people to buy shares in water and electricity—a way in which the Government hope to get out of the hole which they have dug for themselves in attempting to privatise water and electricity, neither of which has been accepted by the public as a suitable industry for privatisation.

After last year's Budget, the Chancellor was hailed as Wonderman, but within six months he has been described as Blunderman—a blunderman who, in his Budget speech last week, appeared to have no confidence in the ability of British business to increase its share of the domestic market or overseas market. If he had, he would be predicting a drop in import penetration into Britain. The Chancellor is so scared stiff of the credit-based consumer boom that he unleashed in his last Budget that for yet another year he has refused to index duties on alcohol and cigarettes, showing the scandalous disregard for the health of individuals that he showed for the health of the nation in his Budgets in the past couple of years. If the Chancellor cared for the nation's health, he would never have ended up with a £14 billion Budget surplus this year or be planning a similar or bigger surplus next year.

There are ways of spending the Budget surplus without stoking up inflation. For example, having got rid of the earnings rule for pensioners, the Chancellor might have struck an even bigger blow for the standing and the prosperity of pensioners by giving them back the £4 billion that was taken from them in the past decade. Such an investment in the state pension would not have unleashed the inflationary credit boom that we have experienced in the past year. A great deal could have been spent on infrastructure, the Health Service and education, and that would not have been inflationary. By its nature, such spending is used for products made in the home market, and that would have benefited British industry.

Photo of Ann Widdecombe Ann Widdecombe , Maidstone 8:37 pm, 20th March 1989

I have listened with increasing disbelief to the catalogue of whining, whingeing, moaning and groaning which has eminated from the Opposition, as I did last year. They really are very bad losers. They recognise the Government's achievements but try to find fault with them. One has to admire their ingenuity in managing to find fault where practically none exists.

The hon. Member for Banff and Buchan (Mr. Salmond) said that people would regard with nausea the way in which the Government have continued to help the same friends they have helped in the past. That is true. We have consistently helped pensioners and we have done so again this year. The abolition of the earnings rule and the raising of the age allowance presumably are greeted with nausea by the electorate of Banff and Buchan, if we are to believe the hon. Gentleman. We have consistently aided charities and this year we have doubled the limit for charitable giving, yet we have been led to believe that that will be regarded with nausea. We have made the most significant contribution of any Government in the past decade to the financial independence of women, and this year we have helped them through assistance with savings schemes as women are often the savers in the family. Yet that is supposedly greeted with nausea.

Once again we have helped the lower paid by raising the tax thresholds, and particularly by the reforms of national insurance contributions. We have also helped small businesses through corporation tax changes, so we have helped our friends as we have in the past. I cannot believe that pensioners, charities, women, the lower paid and small businesses regard the Budget in quite the same light as the hon. Member for Banff and Buchan does.

The hon. Member went on to say that Government policies militate against those living in the north, particularly in Scotland, and favour those in the south. But his examples were rather peculiar. First, he quoted mortgage tax relief. I nearly did a double take because the level of relief is the same whether one lives in the north or south, but property prices are very much lower in the north. I should have thought that the system of mortgage tax relief would encourage the purchase of property in the north and migration to the north. That is not a regional policy to be deplored if the hon. Member for Banff and Buchan wants to encourage investment in the north.

To my utter amazement, having been involved in it recently, the hon. Gentleman then mentioned the Channel tunnel and its attendant rail link. He said that somehow that was of vast benefit to the south. He should try telling that to my constituents who fought hard not to have it. We are witnessing the devastation of the southern environment to bring prosperity to the north.

We need a regional policy, but it must be a policy connected with regional pay which would finally enable those in the south to recruit as they deserve. It is a poor show for the hon. Member for Banff and Buchan to talk about regional discrimination when we discriminate heavily in favour of Scotland in terms of public expenditure. I am sorry that the hon. Member for Banff and Buchan is no longer in the Chamber to hear what I am saying.

Another hon. Member who is no longer in the Chamber talked about inflation and what he called the balance of payments crisis and the iniquitous level of interest rates. He appeared to think that such things were indicative of general failure. It is a tribute to the achievements of the Government and of my right hon. Friend the Chancellor that we now get hysterical at the thought of an inflation rate of 8 per cent. Over the past five years the average rate of inflation has been 5 per cent. When the Opposition were in power it was 15 per cent. and they tolerated 20 per cent. or more. They did not appear to regard it with anything like the hysteria they are trying to work up over a mere 8 per cent.

We are facing the problem of success. The Opposition do not understand that because they never have success and do not understand the problems associated with it. Yes, we have a balance of payments problem but it has not been brought about because exports have fallen. In fact, exports rose by 5 per cent. and are predicted to rise by another 7·5 per cent. We are facing the problems of a prosperous country whose inhabitants can afford to buy overseas. We are facing the problems of prosperity, not poverty. The Opposition know well how to address the problems of poverty and failure because they have had to cope with them for so long. They do not understand the problems of success and they cannot masquerade our outstanding achievements as Government failures.

The Opposition fail to acknowledge that interest rates have been low for several years. Therefore, when they have to rise, it looks painful. Over the past 15 years, interest rates have been higher than they are now and they have seldom been as low as they have been in the past couple of years. Once again, we are suffering from the reputation we have built ourselves of being able to have low inflation, low interest rates and an extremely successful economy. The slightest blip is greeted by the Opposition as proof that somehow our policies are not working. Our economy has never been more buoyant and we have never had a greater boom.

The only slight degree of sympathy I felt with anything said by Opposition Members was when the hon. Member for Bridgend (Mr. Griffiths) said that he wished the excise duty had been increased on drink and cigarettes. I sympathise and want to control the consumption of both those commodities. I am particularly alarmed at the increased incidence of uncontrolled drinking among the young and the increase in smoking among young girls.

However, we have to be practical. A few extra pence on the price of a packet of cigarettes or a bottle of whisky will not make any real difference to consumption. Somehow, if such commodities are a regular part of someone's life, people seem able to afford them regardless of what happens to taxation. We need a campaign of public information and health education, particularly among the young. We already have some such campaigns but I should like to see more. However, that is a matter for another debate.

In summary, the Opposition cannot recognise the difference between success and failure. They do not recognise that we have looked after, yet again, those least able to look after themselves. They fail completely to recognise what we have done for the financial and social status of women and for our pensioners. That failure of recognition reflects only their total lack of morale. They know that they could not achieve what we will have achieved and that the electorate will never give them an opportunity to try.

Photo of Mr Paul Dean Mr Paul Dean , Woodspring

Order. The wind-up speeches are expected at 9 o'clock so the hon. Member for Billericay (Mrs. Gorman) can have a little more than 10 minutes if she wishes.

Photo of Mrs Teresa Gorman Mrs Teresa Gorman , Billericay 8:45 pm, 20th March 1989

I, too, wish to congratulate my right hon. Friend the Chancellor and his predecessor on the amazing changes that they have brought about in our economy in the past 10 years. Those changes have restored people's incentive to go to work and to invest their money in creating new jobs. That is why I am doubly disappointed that the Budget did not do more to help women, who now form a most important part of the labour force. Almost half the people who go to work are women, and many of them have to carry out domestic duties as well. They need help with those duties if they are to fulfil both roles satisfactorily.

The Budget did not give any tax advantages to women who employ domestic help. In fact, it threatens to make life more difficult for those who employ people at relatively low rates of pay in domestic and other jobs. In a nasty little piece on page 46 of the financial statement, we are told that the Government intend to give the Inland Revenue increased powers to chase up people paying fairly modest sums of money directly to others. It is well known that if one employs domestic help, or a part-time gardener or someone who occasionally cleans out the gutters or the drains and generally helps to support the structure of the family unit, one usually pays in cash and it is usually relatively small amounts of money. It seems, however, that the Inland Revenue intends to beef up its attack on such arrangements. One can imagine the spectacle of a tax inspector with his ear to the letter box listening for the noise of children and perhaps of a babyminder scolding them. He will knock on the door and burst in, waving his little plastic card and asking the babyminder how much she is earning. If it is more than £50 per week, he will demand to know whether the harassed mother is operating PAYE and national insurance deductions. If I were the mother, I would empty the baby's chamberpot over the inspector's head.

I wonder whether the new strictures will apply to gentlemen who keep mistresses, which is a favourite topic just now. Will gentlemen who support a woman full-time, wholly and singularly, be visited by the same tax inspectors and be asked whether they are paying national insurance and operating PAYE on the money that they spend in support of their mistresses? That is the kind of legislation that we can well do without. It is a nasty aspect of the growing authoritarianism that we are seeing in taxation legislation.

The Inland Revenue seems to have the idea that those jobs will exist whether or not it spends its time chasing up employers, but I do not believe that they will. If we make it more difficult to employ a live-in cook, housekeeper, or whatever, fewer people will be employed in those roles. The hassle of operating the bureaucracy involved with those relatively modestly paid jobs puts people off If hon. Members do not believe me, they should go to their local supermarket. One has to pack one's own shopping because the supermarket does not think the hassle of tax and national insurance worth while for relatively modestly paid packers. If one goes to the cinema, one stumbles down the aisle because the cinema owner does not consider it worth paying relatively modest sums and then taking income tax and national insurance to have somebody with a torch to show people to their seats.

Such jobs will not exist, and nor will people want to do them. When the Inland Revenue goes on the rampage after such groups of people, the people and the jobs usually disappear. A good example of that was when the Inland Revenue had a purge on people doing casual work in horticulture in Norfolk and Suffolk. The casual workers came now and again to carry out carrot topping, leek washing or strawberry picking. The Inland Revenue came with all its battalions to chase those people to find out whether they were paying tax and national insurance on their relatively modest incomes—which, over the year, did not amount to taxable pay, but which in the odd weeks when they were working went over the limit at which tax and national insurance began—and the result was that the crops rotted in the fields that year. The new imposition set out in the financial statement is likely to create a similar situation.

Photo of Mrs Teresa Gorman Mrs Teresa Gorman , Billericay

No; I have only a short time.

Such jobs will not exist and that will be a great pity for young people, many of whom come to cities and obtain jobs with accommodation attached by doing domestic work such as helping with children and the household. Such jobs will not exist for many older people who have part-time jobs helping with gardening, cutting grass, washing cars and cleaning out gutters and drains. Such odd jobs will no longer be a useful help to the family, but will disappear as a result of an authoritarian tradition making life more difficult.

The penalty for being found to be paying somebody more than £50 a week without operating one of the schemes is to be increased from £250 to £3,000. That is enough to scare some people into thinking that they would rather do without the extra pair of hands.

One of the proposals that I sent to the Chancellor, and which he ignored, along with most other people's, was that it was time we treated the family as a taxable unit—Mr. and Mrs. Average Taxpayer plc—and that jobs necessary to help the family function, including domestic work, should be tax deductible. At present, if one has people to do jobs for one, one has to pay them out of taxed income. I pay £80 for domestic help, spread over two people in the course of a week. I have to pay that out of my taxed income. If I have to start keeping PAYE records and national insurance records, I shall not only have that extra work, but I shall have to earn the money to pay those wages. If I do not have help, my life will be made much more difficult. My right hon. Friend the Chancellor should either say that all those domestic jobs are tax deductible, which they are not at the moment, or he should concentrate on raising the base level at which tax starts to be paid.

Before the last war, the starting point for income tax was the equivalent of around £30,000 in today's money. We have gradually drawn lower-paid people into the tax net, which has not helped them or those who need assistance. Women are needed in the labour market. We say increasingly that we want their skills and time, yet we are not willing to do much to help them by allowing them to offset the costs of the domestic help that they need. I do not advocate creches, and I do not believe that the taxpayer should be expected to pay, but if a mother goes out to work and puts her baby into a creche or pays for a babyminder or home help, she should be able to deduct that from the money that she earns in the same way as her husband does if he pays for a secretary. If a mother pays for a secretary, she is allowed to deduct that from her earnings as well.

I hope that my right hon Friend the Chancellor will pay a great deal more attention in the next Budget to the special needs of women. They are wanted back in the labour force as well as being expected to continue their domestic role of supporting their husbands and families and creating comfortable and reasonably organised homes.

Photo of Mr Anthony Coombs Mr Anthony Coombs , Wyre Forest 8:55 pm, 20th March 1989

I welcome this cautious, sensible and responsible Budget, the effect of which will be to reduce inflation, improve currency stability and reassure the financial markets. My right hon. Friend is correct to emphasise further improvements in the supply side of the economy by ensuring that the lower rate bands for corporation tax for small businesses move from £100,000 to £150,000. He is also correct to reform the national insurance system and to improve the operation of the earnings rule, so that pensioners are not penalised for working to supplement their pensions.

However, the Budget will be judged primarily by its success in reducing inflation to the targeted 4·5 per cent. in the second half of next year, thereby reducing retail expenditure, which takes 75 per cent. of our imports. The balance to be achieved is to reduce aggregate demand without damaging investment, which will fuel the 2·5 per cent. growth rate expected in the economy next year.

The measures taken by my right hon. Friend will work more quickly and effectively than anticipated, for three reasons. First, we hear much about the savings ratio being only 1–3 per cent. of disposable income in the consumer sector, but historical trends show that, when there is higher price inflation, the savings ratio in the consumer sector has been offset by a higher savings ratio in the public sector, which is now 3·3 per cent. of GDP against 1·5 per cent. in 1980, and in the industrial sector, where savings as a proportion of output are 12·1 per cent. against only 8·9 per cent. in 1980. The overall effect is that national savings, as a percentage of nominal GDP, are 23·1 per cent. Despite what we hear about the savings ratio in the consumer sector, it is the highest it has been since 1981.

Consumer spending will come down for the simple reason that, as the FSBR shows, it has been boosted by high asset values as people have had confidence that house values are rising and so have maintained their consumer spending. Now that the property market is flat, and is declining in some areas, such as London, it will have a significant effect on consumption. It is important to ensure that that fall in aggregate demand does not have an adverse effect on industrial profits. That is why the Confederation of British Industry urged a reduction of corporation tax to 25 per cent.

It should be remembered that, although there have been huge increases in productivity—ours has grown faster than that of any other industrialised country since 1980— although there was a large increase in output and exports last year and although manufacturing productivity is rising fast, a higher proportion of GDP—3·9 per cent.—goes in corporation tax, which is 2 per cent. in France, Germany and the United States. To that extent, I can see some justification for the CBI arguing for cuts in corporation tax, but I believe that until we can see how fast aggregate demand falls as a result of the increase in the savings ratios, such a policy would be premature and I believe that my right hon. Friend the Chancellor was right to resist it.

I should like to make one plea in terms of improving the savings ratio over the longer term and to urge my right hon. Friend the Chancellor to consider better treatment for friendly societies which increase self-reliance, enterprise and charitable works among lower income groups. Although I am pleased that share ownership, personal pensions and employee share schemes have been boosted by tax exemptions rising to £4,800 per year for personal equity plans and £2,000 per year for employee share schemes, I should like to know why the tax exemptions for saving plans with friendly societies still remain at a £100-per-year annual premium level.

I should like to know why the Revenue did not like the innovation of baby bonds that the friendly societies wanted to introduce recently, and I should also like to know why friendly societies, which represent 7 million people, were not allowed to widen their commercial activities as they wanted in the past few years. I understand that they made representations to the Chancellor and to the Economic Secretary in July and November last year, and I believe that they are worthy of consideration.

Photo of Gordon Brown Gordon Brown Shadow Spokesperson (Trade and Industry) 9:01 pm, 20th March 1989

Today's Budget debate has been distinguished by many excellent speeches, from a former Prime Minister and from three former Treasury Ministers, two from the Opposition and one who is the Chairman of the Select Committee on the Treasury and Civil Service.

Perhaps most of all, the debate has been graced by a distinguished, memorable and much applauded maiden speech from the hon. Member for Richmond, Yorks (Mr. Hague), the youngest Conservative Member. In making one theme of his speech the interests of the elderly and in putting the case of pensioners so eloquently when he closed his speech he, least of all, could be accused of self-interest, and he found an echo for his sentiments among hon. Members of all parties. I must tell him that when I arrived here as a young Member of Parliament I was described in The Times as being 58 years old and a Labour party veteran. The hon. Gentleman has come here with a great reputation, having given advice to the Prime Minister at the age of 16, and no doubt he has a great future ahead of him. I noticed from his curriculum vitae that he has been a former speech writer for the Foreign Secretary. I can only say that his speech shows that his humour and content have improved immeasurably over the years. We look forward to many distinguished speeches from him as he speaks up, as he did today, so eloquently on behalf of the needs of his constituents.

This is a Budget at the end of which, by common consent, hon. Members of all parties have said that the biggest beneficiaries are not home owners struggling with high mortgage payments, not mothers facing price rises having witnessed the freezing of child benefit, not pensioners on basic pensions—despite the welcome changes in the earnings rules and the age additions—and not working mothers who have lost out because the Chancellor has refused to remove the tax on workplace nurseries. Despite the welcome changes in national insurance, most of all the beneficiaries are not the low paid because as a result of the combination of the tax and national insurance changes, sombody on £70 per week will receive only about 21p per week extra. As the Chancellor well knows, the biggest beneficiaries are those couples in BUPA, who have private medical insurance and who are over 60, who can receive tax benefits of up to £800 or £900 per year if they use the system properly when one small part of the Finance Bill is passed after we debate it later. The benefit will be £18 or £19 per week for a couple in BUPA, £3 per week for those paying national insurance through those reductions and, as the Chancellor well knows, only £1·50 per week for those earning less than £100 per week, and there will be nothing for many part-time workers. When the choice is between helping the low paid of this country and the rest, it is perfectly clear, as this Budget shows, that the Tories will not help the low paid; they will help those most well off most of the time.

However, our complaint about the Budget goes deeper than that. The Budget is wrong because it reflects and exposes an economic strategy that is wrong. It is a Budget that does nothing to meet the problems of the present, such as the high interest rates and high mortgage rates that many families and many industries face. It is a Budget that has done nothing to meet the challenges that we must face in the future, such as the skills shortages, the technology bottlenecks, the regional imbalances and the problems that we face as we move towards 1992. Most of all, it is a Budget that will do nothing for the problems of the present and nothing to meet the challenges of the future because it is the Budget of a Chancellor who is imprisoned and haunted by the mistakes of his past.

Before the Budget we had the highest inflation, the highest interest rates and the highest trade deficit of all our major competitors in Europe. After the Budget, with the Chancellor's new forecasts, we still have the highest inflation, the highest interest rates and the worst trade deficit of our major competitors in Europe. I shall tell Conservative Members what the position in Europe really is. Inflation is at 3·3 per cent. in France; 2·6 per cent. in West Germany; and, outside Europe, it is 1–4 per cent. in Japan and 4·7 in America, but inflation will move to 8 per cent. in the next few weeks in Britain. Interest rates are 10·75 per cent. in America, less than 7 per cent. in West Germany and less than 5 per cent. in Japan, but they are 13 per cent. here—twice the level of the interest rates in both Japan and West Germany.

We also have a trade deficit that is unparalleled in our history, yet this is the Chancellor who came to the House last March and told us at the end of the Budget debate that he was presiding over an economic miracle. He told us that our prospects had never been better and that we were experiencing an economic transformation, an industrial resurgence, a British renaissance and a miracle that he compared to that of Japan. Even in the past 10 years, the economic performance of Britain has been so unlike that of Japan that Japan has grown at twice the rate of Britain. Japan's rate of investment growth has been twice as high as ours; its growth in industrial production has been four times as high and its growth in manufacturing output has been five times as high. The great achievement of the past 10 years is not that we have managed to rival Japan or West Germany, but that having fallen below France, we have now fallen below Italy on almost every indicator.

The Britain that the Chancellor tells us will enter the 1990s—[Interruption.] If the Chancellor does not think that that is true, I shall give way to him now— [Interruption.] Yes, the Chancellor will speak later and I hope that he will answer the point because the Common Market's own forecasts not only show that Italy has surpassed us in national income, in growth rate and in the growth of exports, but that over the next year and into 1991 the growth rate of our economy will be slower than that of almost every other economy in the European Community.

Photo of Ian Taylor Ian Taylor , Esher

Does the hon. Gentleman recognise that, in terms of investment, Britain's rate of growth is faster than that of any other member of the European Community and that this country in the 1980s compares extremely well with the position when the Labour party was in power in the 1970s?

Photo of Gordon Brown Gordon Brown Shadow Spokesperson (Trade and Industry)

I shall have to give the hon. Gentleman my statistics because he fails to appreciate what hon. Members of other parties seem to know—that the real value of manufacturing investment is still below that of 1979 when this Government came to power. That is what the latest figures confirm. As for the share of investment in our national income, it is well known that it is lower in Britain than in almost any other European country, with the exception of countries such as Belgium, and I advise the hon. Gentleman that Japan has been investing 30 per cent. of its national income while we have reached the figure of 18 or 19 per cent.

Not only have we the highest interest rates, the highest inflation and the worst trade deficit of our competitors now, but on the Common Market's predictions our growth rate over the next two years will be lower than that of France and Italy, lower than that of Belgium, the Netherlands and Eire and even lower than in Greece, Spain and Portugal. Those are the facts produced by the European Commission.

The hon. Member for Esher (Mr. Taylor) might also be interested in the facts on investment. For 1990 and in the run-up to 1992, it is expected that investment in Spain, Portugal and Greece will grow at roughly three times the rate of investment in the United Kingdom, at 10 per cent. in Portugal, 9 per cent. in Spain, but at about a third of that in Britain, according to the figures that the Chancellor has produced for Britain in his Budget statement.

Our case against the Chancellor is not only that he engineered a consumer boom based on credit and tax cuts which, without a proper, sustained and adequate increase in investment, was bound to lead to the problems that have been created and was bound to be unsustainable, but that he has failed to learn from his mistakes. Having failed to learn from his mistakes, he now intends to repeat them, and nowhere is that more obvious than in his attitude to what is to happen to the Budget surplus.

It is a surplus that he did not forecast. It is a surplus that he acquired by selling our national assets and by breaking the link between pensions and earnings. It is a surplus that he admits he cannot use now but which he is to use this year only to pay off the national debt. The worst thing about the surplus—the Chancellor made it absolutely clear in his Budget speech, and perhaps the Prime Minister made it even clearer when she spoke to the Conservative council on Saturday—is that, even when we know that we have 1 million schoolchildren in classrooms that were built before 1914—[Interruption] Many classrooms have been declared by the Audit Commission to be unsafe and should be closed down.

Photo of Mrs Elaine Kellett Mrs Elaine Kellett , Lancaster

Two schools in my constituency are over 300 years old. One could not find more delightful schools than those.

Photo of Gordon Brown Gordon Brown Shadow Spokesperson (Trade and Industry)

If the hon. Lady is satisfied with the condition of the schools in her constituency, that is one thing, but the implications in the report by the Audit Commission about the safety risk of old schools being kept open without investment in them are very clear. They worry many Opposition Members.

It is not only schools that are affected. Two thirds of hospital wards were built in the days of voluntary and charity hospitals. Many of our roads have a life of less than 10 years without proper new investment. We know what must be spent to deal with the problems of pollution and the environment. Most of all, we know that if we do not invest in training and in the supply side of the economy in this decade, the money that we refuse to invest will have to be spent on unemployment and redundancies in the next decade.

The worrying thing about the Chancellor's surplus is not only that most of the surplus will not be used for public investment now, but that he has absolutely no intention of later using it for proper investment in the economy. As we now know and as was made clear on page 7 of the Red Book, public spending fell in real terms last year. It was £300 million less on the railways alone, when people are concerned about safety. But the answer that the Chancellor gave in his Budget statement is clear. His first priority is not the reduction of the national debt, the reduction of pollution, congestion or the risk to safety on the roads or on the railways, or the reduction of the waiting lists for health services or housing; it is the reduction of taxes for those people who are already wealthy. To discharge the Tory party's historic mission to the very rich of our country, the Chancellor is less interested in paying off the national debt. In future years he will be more interested in paying off his political debts to those who support the Conservative party.

The 1989 Budget is an interlude between act I of the Chancellor's top rate tax cuts and act II. He is not a Chancellor who has learnt from his mistakes—he is merely giving himself a pause between them. Any other Government would make investment in this country the priority both now and in the future.

Photo of John Redwood John Redwood , Wokingham

How does the Labour party propose to contain the inflationary consequences of a major increase in capital investment demand for an over-pressed building industry on top of the large increases already proposed by the Government?

Photo of Gordon Brown Gordon Brown Shadow Spokesperson (Trade and Industry)

I am grateful to the hon. Gentleman for that intervention. The House will remember his famous statement about this time last year, suggesting that £5 billion to £6 billion in additional public money might be spent. I will not take the hon. Gentleman's lectures on whether public spending is inflationary. The CBI has made it clear that the neglect of investment in this country, skill shortages, congestion and the overheating in the south-east are responsible for much of the inflation. That inflation was not created directly by the Chancellor. I refer to electricity and water price rises and everything else. The neglect of investment in our country is not the only issue in this debate. The issue is the Government's unfair and unjust policies.

Even after the national insurance changes, 2·4 million of the lowest paid workers will get no benefit at all. Four million will receive anything between nothing and £1·51. For many of them, their national insurance gain will be taken away by losses in family credit and housing benefit. The "tax-cutting" Chancellor ends a Budget by actually putting another 160,000 of our low paid into income tax when, for the low-income people in this country, the share of the bottom 10 per cent. from the Budget gains is only 3 per cent., while for the top 20 per cent. it is about 30 per cent. this year alone. Last year, the Chancellor could give £3 billion to the rich, and give it in March. This year, he can give less than £1 billion to the poor, and give it only in October. With his colleague, he is to remove wage protection for millions of our workers under wages councils in the next few months. This Budget does not correct the errors of last year—it compounds them.

Is it not typical of the Conservative party that, even when a Budget is advertised as a Budget for the low paid, the higher paid in the country do best out of it at the end of the day? It completes a decade when the gap between rich and poor has been growing at a faster rate than at any time since the war—the rich getting richer while many of our citizens are seeing their living standards fall in real terms. Slowly but surely, the two nations that the Government have created are drifting apart as a result of the Chancellor's policies.

Just as the Budget does little for low-income Britain, it will do little for any part of Britain. The Chancellor still promises us zero inflation. In the next few weeks, we shall see rates rise by 8 per cent. and electricity charges rise by 6 per cent., making 15 per cent. over a year and a bit. We shall see water costs rise by anything from 10 per cent. to 30 per cent. We shall see gas prices rise, television licence fees rise, prescription costs rise, and new health charges introduced.

By one measure in this Budget alone, we shall see bus fares increase again. What does the Chancellor say to that? I remind him of what he said in his Budget statement last March. When he spoke to the House on that Tuesday, with his usual modesty, he said: it is a testimony to the soundness of our policies that the present strong and sustained upswing, unlike almost all of its predecessors, has not led to any resurgence of inflation."— [Official Report, 15 March 1988, Vol. 129, c. 994.] Yet our inflation is above the European average for the fourth year running, twice what it was at this time last year, and higher than when the right hon. Gentleman first proclaimed to the House that he would eliminate it. As he tells us in his Budget forecast, while France's inflation will be 3 per cent., Germany's less than 3 per cent., and Japan's 2 per cent., his great success will be to have brought inflation to 5·5 per cent.

Every forecast that the Chancellor has made has gone wrong. His forecast about prices, the deficit, the money supply, savings—all were wrong. Even his prediction that this would be the first Budget to be televised was wrong, and how fortunate he is in that respect. Perhaps his worst forecast of all is that by staying on for a year as Chancellor after the Budget last March, when he finally goes to the City his market value will somehow be enhanced. One test of a successful Tory Budget was laid down by no less an authority than the Prime Minister herself a few years ago. She said: The markets have already given their verdict. Already there has been a welcome fall in interest rates and mortgage rates. On top of price rises, home owners in this country are facing mortgage payments that have risen on average by £40 per month, by £50 for young home owners, and for home owners in the south-east they have risen by £70 since the Chancellor's last Budget. The Governor of the Bank of England, who wrote that celebrated letter to the Chancellor a few weeks ago, in a public speech only a few days ago said that the mortgage and credit card debts that we face in the 1980s remind him of the problems with Third-world debt in the 1970s.

When the Governor talks about the further squeeze on household finances, no wonder the Prime Minister is no longer talking about a Chancellor who is brilliant and marvellous and wonderful; no wonder she now appears hardly able to bear to mention his name. A quarter of a million people are estimated to be in arrears, and 500,000 are having to turn to the citizens advice bureaux for advice about their mortgages. There have been 20,000 repossessions—a figure that the Governor of the Bank of England, in his speech, said would undoubtedly rise. Perhaps the one repossession with anything to offer the nation—the eviction of the Chancellor from 11 Downing street—cannot be expected immediately, not because he has been doing well but because his potential successors, the Secretary of State for the Environment and the Secretary of State for Energy, have been doing so badly.

Let me tell the Chancellor something about the current thinking of his friend Sir Alan Walters. I understand that at a meeting at the Mansion house—about 300 people were charged £100 a time—Sir Alan gave his verdict on the Budget. I understand that he praised what he called the architect of Britain's economic revival—the Prime Minister. The Chancellor will be pleased to know that Sir Alan welcomed the Budget too. But let me tell the Chancellor that Sir Alan praised the Budget not because interest rates would come down but because they would stay up, because he believed that recessions should not be avoided; they can be good for the economy. No doubt the Chancellor cannot wait to have the benefit of Sir Alan's full-time advice.

What of the trade deficit? Predicted to be £4 billion last year, it was £11 billion by the time of the .Autumn Statement, and is now £15 billion. I suppose the good news is that it has stabilised; the bad news is that it has stabilised at £15 billion. The Chancellor still calls this a problem of success—freak figures caused by an investment boom. It is a second-grade problem, self-correcting, he tells us, but it is a problem big enough now for him to seek to doctor the statistics. All that is needed to convince us that a real problem exists is a multi-million-pound advertising campaign, led by Lord Young, telling us that it has been solved, or an announcement from 10 Downing Street that the Prime Minister is about to take personal charge.

If the Chancellor does not think that the trade deficit is a problem, what of other Ministers? I have here a press release from the tourism Minister. Entitled "Your Country Needs You", it says: Hopefully the British public will increasingly appreciate that holiday taking in the United Kingdom is not only a stimulating and enjoyable experience but will help our balance of payments as well.With the cumulative tourism deficit of nearly 1·8 billion, compared with £1 billion for the same period last year, perhaps the time has come to say to the British holidaymakerYour country needs you. A problem not serious enough to delay the Chancellor is sufficiently worrying to the tourism Minister to prompt him to tell millions of holidaymakers that their country needs them—not in Majorca but in Margate, not in Benidorm but in Blackpool—with all the impact that that would have on his £15 billion deficit.

Perhaps the Chancellor remembers what the Foreign Secretary, who was then Chancellor, said in the first Budget of this Government 10 years ago. No one supported the then Chancellor more strongly than the current Chancellor. No one was as great an advocate of his policies as the right hon. Member for Blaby (Mr. Lawson).What did the now Foreign Secretary tell us in that Budget speech? He said: Progress internationally … will not cure the deep-seated weaknesses of own domestic economy. Nor will North Sea oil. He went on to say that North Sea oil must not be allowed to conceal the grim truth about what has been happening to the balance of our own trade, particularly in manufactured goods." [Official Report, 12 June 1979; Vol. 968, c. 238.] A problem that the current Chancellor says is unimportant was one of the themes of the Budget of 1979. Should we now conceal what the present Foreign Secretary called the grim truth when we have a trade deficit of £15 billion—a £15 billion deficit in manufactured goods? The truth is that the Chancellor has no policy to sort out the problems of the trade deficit. The truth is that the trade deficit will be with us for many years to come if his policies continue. No industry is better off as a result of the high interest rates and the high exchange rate that the Chancellor is pursuing. No community is better protected. No family feels at the moment that it is doing better.

But is it not the saddest of all commentary on this Government that Ministers could complete a National Health Service review—could look at the needs of the service; could look at the 130,000 people on the waiting lists for hip joint and other orthopaedic operations; could look at the 70,000, mainly pensioners, on the waiting lists for cataract and other eye operations; could look at the shortage of nurses and doctors and at the huge repair bills we face—and decide that the first priority for this Budget, the consideration above all others, should be the needs of those who are already wealthy enough to afford private medical insurance in the first place?

The death grant for pensioners has been abolished to save 18 million, housing benefit has been cut, eyesight test charges introduced, dental charges for pensioners introduced, the link with earnings not restored, but somehow £40 million is available to give private medical insurance tax relief to those who are already rich enough to afford such insurance. No wonder BUPA ran an advertising campaign last week. I understand that the Chancellor is well within his rights to complain to the Advertising Standards Authority, not because the photograph gives a false impression of him, but because the advertisement gives a false impression of who was the author of the Budget proposal. It is a proposal which the Chancellor did not originate, which he does not support, which he could barely mention when he made his Budget speech last Tuesday, and which he knows will cost a lot in 1990, and a lot more in the years to come. It is the policy not of the Second Lord of the Treasury but of the First Lord of the Treasury.

Last year the Chancellor was overruled by the Prime Minister on the question of the exchange rate. Later he was overruled on interest rates. This year he has been overruled on the most controversial item—the £40 million for private medical insurance. Perhaps next year, on the morning of Budget day—in the interests of accountability, if for no other reason—the press should be invited to a photo opportunity in which the Prime Minister will take her Chancellor for a short walk in St. James's park. This proposal is the ultimate in redistribution. It is not the rich supporting the poor, but now the poor compelled to support the rich. The more one buys the more subsidy one receives: "The richer you are, the more you can get. If you are rich, you will be treated, while others have to wait." In fact, this tax relief is a unique and indefensible device whereby the queue is compelled to subsidise the queue jumper.

We now know what the Prime Minister meant when she talked at the general election about private medical care. She wanted the doctor of her choice, the hospital of her choice, the time of her choice and the tax relief of her choice—not for our health care to be safe in her hands, but for her private health care to be save in ours. In a civilised society, the £40 milion going to those who do not need it should go to those who do. That is what the Labour party stands for and that is what the whole country supports.

The only role that the Government are now enthusiastic about for public spending is that it should be used not to extend the rights of the many but to shower privileges on the few—business expansion subsidies from public funds to create top-rate tax shelters for owners of private rented property, PEP subsidies from public funds to create tax shelters for those who already have considerable shares and BUPA-style subsidies from public funds to create tax shelters for owners of private medical policies.

Does the Prime Minister not realise that no matter how many private schools, private hospitals and private roads she creates, there will still be a need in the public sector for decent schools, proper hospitals and adequately-funded community services for the vast majority of the people?

After 10 years during which our growth rate has been half that of Japan, we have been manufacturing and producing less than Italy, our economy has invested less of our national income in ourselves than even Spain and Portugal, we are investing less of our national income in innovation than Taiwan and we are investing a smaller share of our national income in education and training than Korea. After 10 years, there is more and worse poverty throughout the country. Even in the past 12 months, housing benefit has been cut, child benefit frozen, new charges introduced, the poll tax imposed in Scotland and thousands of teenagers have been denied any help.

In 10 years, to make a few individuals richer, the Prime Minister and her Ministers have been prepared to make all our communities poor. It is not just our Health Service, our roads and our railways that are unsafe in their hands; it is not just our environment, our water and even our food that is unsafe in their hands; it is not just our children's education that is unsafe in their hands; the whole government of this country is unsafe in their hands. A Budget that should have been preparing us for the challenges of the 1990s leaves us paying the price for the problems that the Chancellor created in the 1980s. We need a Budget for Britain—a Budget for fairness, efficiency and investment. For that, the people of this country will have to look to Labour.

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer 9:31 pm, 20th March 1989

I should like to begin by congratulating my hon. Friend the Member for Richmond, Yorks (Mr. Hague) on an outstanding maiden speech. It was no surprise to those of us who were present when, at the age of 16, he made that remarkable and precocious speech in the economic debate at the Conservative party conference of 1977. As he generously pointed out, he follows a distinguished predecessor at Richmond. I am sure that his future career will be equally distinguished and we greatly look forward to hearing him again.

We do not greatly look forward to hearing again the sort of exhibition that we heard from the hon. Member for Dunfermline, East (Mr. Brown), who displayed a degree of economic illiteracy which even he has not plumbed before. He went on about the need for increased public expenditure from a surplus which, if his policies had been in operation, would never have existed in the first place. When asked, in the only intervention on his speech, by my hon. Friend the Member for Wokingham (Mr. Redwood) the clear and simple question of how much extra public expenditure he was advocating, he was wholly unable to answer. He confirmed by his speech that the Opposition have a complete policy vacuum. It was clear from the latter part of his remarks, as his side recognises, that he is living in a fantasy world entirely of his own.

We also had a speech from the leader of the Social and Liberal Democrats. I am glad that he is in his place. He told us—I took this down—that "People want to be brought together." It was, alas, a wasted plea, because the right hon. Member for Plymouth, Devonport (Dr. Owen) was not in the Chamber to hear it.

We also had a thoughtful contribution from my right hon. Friend the Member for Brighton, Pavilion (Mr. Amery). My hon. Friend the Member for Croydon, South (Sir W. Clark), in a powerful speech, mentioned the further help that this Budget provides for charities and charitable giving. It is a striking fact that, over the past 10 years, giving to charity has more than doubled in real terms. That is not the hallmark of a selfish society.

My hon. Friend the Member for Croydon, South also asked about the relative growth of imports of capital and consumer goods. I can tell him that, in each of the past two years, imports of capital goods have risen considerably faster than imports of consumer goods. This is, of course, closely related to the huge investment boom that we have been enjoying, to which I will turn later.

My right hon. Friend the Member for Worthing (Mr. Higgins) also welcomed the Budget, as did many other of my hon. Friends, and he followed this up with a number of more or less technical questions about life the other side of the looking glass as it were, with a substantial public sector debt repayment in place of a substantial public sector borrowing requirement. I look forward to discussing these matters with the Select Committee which he chairs with such distinction.

It is a remarkable fact that, after four days of debate on a Budget containing so many measures that the Finance Bill is likely to be the longest ever, all that the Opposition have found to criticise is the provision of tax relief for medical insurance premiums for the elderly. That was all that they were able to go on and on and on about—and that was, of course, something that had already been announced by my right hon. Friend the Secretary of State for Health, a couple of months ago, in the context of the Government's plans for the National Health Service. It accounts in 1990–91 for some £40 million out of total remissions of £3,500 million in that year.

I shall not tonight detain the House with a list of all the many other measures in the 1989 Budget, but I do propose to draw attention to some of them.

Foremost among them is the major reform and reduction of employees' national insurance contributions. This was supported by such unlikely bedfellows as the Institute of Directors and the TUC, and it will achieve two important objectives. First, it will either remove altogether or greatly reduce the present serious work disincentive of ultra-high marginal rates at particular points at the very lowest end of the earnings scale. Secondly, it will mean that, from October, some 15 million employees earning over £115 a week—which is well below half average earnings—will be £3 a week better off. This is a substantial measure by any standards, as its cost shows—some £2¾ billion in a full year.

Then there is the abolition of the earnings rule for pensioners. This has been widely welcomed on all sides. It, too, is a reform which will remove not merely an injustice, but also a major work disincentive, at a time when, for demographic reasons, the demand for older workers to stay on beyond retirement age is likely to become steadily greater.

Then there is the major reshaping of the tax relief for pensions, designed in particular to place for the first time a limit, albeit a generous one, on the amount of tax relief any pension can attract, and at the same time to encourage still further the provision of personal pensions, which my right hon. Friend the Secretary of State for Employment spoke about in his speech at the opening of the debate today. The new pensions package will not only be more equitable, but it will also encourage both greater flexibility and greater personal responsibility in private provision for retirement.

All this has to be seen in the context of the important further package of measures to encourage wider share ownership. It is clear from the response already that the new and improved rules for personal equity plans, in particular, will ensure their future success and the steadily growing importance of PEPs as a home for the savings of the people.

Wider share ownership will, in time, reverse the steady drift to ever greater institutional ownership of British industry; it enables the people of the country to secure a direct stake in the success of British business; it provides the best form of worker participation; and it sounds the death knell of Socialism.

But I would add just this. It is important that the growing public desire to own shares, and the further assistance provided in this Budget, are supported by the stock exchange as it moves to a paperless trading system. I call upon the stock exchange tonight to ensure that the needs of the small investor are fully met in the new system.

Meanwhile, these Budget changes—and there are many others too: reforming the taxation of life assurance, simplifying the taxation of close companies, and reducing the burden of corporation taxes for smaller firms—add up to our eighth successive tax-cutting Budget.

What a contrast with Labour, when Budget day was approached with dread and apprehension. The question that everyone was asking then was what tax was going to go up, would it be income tax or something else, and what new taxes would be introduced. Would it be capital transfer tax, the national insurance surcharge or what else? That was the question then.

Moreover, we have achieved our eighth successive tax-cutting Budget while securing a massive improvement in the public finances, with a surplus, or debt repayment, this year of no less than £14 billion and a further £14 billion repayment in prospect for the year ahead. As a share of GDP, debt interest in the coming year is set to be at its lowest since 1915.

So, unable to attack this year's Budget, the party opposite—we heard more about it tonight—has spent much of its time attacking last year's Budget. Well, I know the Opposition did not like it—they made that abundantly clear at the time—but they will have to grit their teeth and live with it because that Budget has happened and every one of the reforms and reductions it introduced remain on the statute book and will continue on the statute book. Nothing in it has been rescinded or reversed, nor will it be. As a result, the benefits of that Budget will continue to flow in the years that lie ahead.

Photo of Tommy Graham Tommy Graham , Renfrew West and Inverclyde

The Chancellor will know that, this week, one of the Scottish newspapers spoke about how many people were getting into serious debt because of the Chancellor's policies and were going to bankruptcy court to be declared bankrupt. They are probably taking the advice of the Prime Minister: when the letter comes through the door they "bag it and bin it" as that is the only way they will win it. The Chancellor has introduced mad policies that have not helped the Scottish people.

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer

I clearly should not have given way.

I know there are some who seek to attribute to last year's Budget responsibility for the increase in inflation that subsequently emerged. That wholly misunderstands both the role of fiscal policy and the time lag between cause and effect in economic affairs. Let us just look at what the OECD, an international organisation frequently quoted by the Opposition, and which does assign a rather greater short-term importance to fiscal changes than I would do, has to say. After studying fiscal policy in all the major industrial nations comprising the G7, and making what it considers the proper cyclical adjustments, the OECD has concluded that the United Kingdom, in 1988, tightened its fiscal policy more than any other country, and has the tightest fiscal stance in the entire G7.

The Opposition really cannot have it both ways. They cannot say at one and the same time that last year's Budget, which produced a surplus of £14 billion, was reckless, and that this year's Budget, which is set to achieve an identical surplus, is too cautious. No. The plain fact is that the temporary re-emergence of rising inflation has nothing whatever to do with last year's Budget. It has a great deal more to do with the worldwide loosening of monetary policy in the wake of the stock market crash of October 1987. That perhaps is why the rise in inflation is a worldwide phenomenon, and it is worth noting in this context that commodity prices too have been rising, with metal prices twice what they were two years ago.

Meanwhile, the remedy, a sharp rise in interest rates to tighten monetary policy, has duly been applied. Yet despite the fact that the Opposition Front Bench dimly recognise the monetary nature of the inflationary threat —at least, that, I take it, accounts for the constant references of the right hon. and learned Member for Monklands, East (Mr. Smith) to the credit boom—despite that dim recognition, all they have to offer on this front is a call for lower interest rates and indeed a lower exchange rate. How they imagine lower interest rates would deter borrowing beggars belief. The truth is that what they put forward is an inflationists' charter, for the simple reason that the Labour party is the party of inflation, just as it is the party of high taxation—it always has been and always will be. [Interruption.] They do not like this. Let them just look once again at their record when they were last in power. Theirs was an inflation rate which averaged more than 15 per cent. for the whole of their term of office, so I am certainly not going to take any lessons from them about inflation.

Ten years ago next week, this House debated a motion of no confidence in the then Labour Government, whose passage brought about the then Government's downfall. In that debate, in a desperate attempt to save himself, the then Prime Minister, the noble Lord Callaghan, pledged himself to do better in future in these terms: There is a bold and ambitious target, to which we have set our hands, of working to get inflation below 5 per cent. in the next three years. That is the objective."—[Official Report, 28 March 1979; Vol. 965, c. 477] During the whole of the time that I have been Chancellor, a period slightly longer than the full term of the last Labour Government, inflation has indeed averaged below 5 per cent.—Labour's "bold and ambitious target" which they never got within a million miles of achieving, nor would they have done, as the people of Britain well understood. Even now, when inflation has temporarily risen above that mark, its underlying level is well below the underlying level of inflation in the best month that Labour ever achieved.

Nor has our success been secured at the price of slower economic growth. Nothing could be further from the truth. During the whole of my period as Chancellor so far, economic growth in Britain has been well over half as much again as what it was under Labour, which, as I have already pointed out, was a roughly comparable period of years.

Indeed, it is worth looking, for an overall picture, at the amount by which the rate of inflation exceeded the rate of growth over the two periods. Under Labour, the rate of inflation exceeded the rate of growth by 13½ per cent. During my time as Chancellor, the difference has come down to 1½ per cent. That is a measure of the difference. Admittedly, economic growth is now set to slow down for a year or two, but the lower growth now projected over the next couple of years—1989 and 1990—is still higher than the average rate of growth under Labour. Labour certainly had many crises to grapple with. In fact, there was hardly a moment when they did not have a crisis. But I have to admit that one problem it never had to worry about was rapid economic growth. Indeed, during the 1970s Britain was the slowest growing economy of all the main European nations. During the 1980s we have had the fastest growing economy of all the main European nations.

This transformation has seen unemployment fall by a million in less than two years since the last general election, and the number of people in work the highest in our history. There was a time when the Opposition professed to care about unemployment. It is quite clear from their lack of enthusiasm when unemployment comes down that they could not care a fig.

Of course the dramatic improvement in the performance of the British economy has been based on an equally dramatic improvement in productivity. In 1980, the Brookings Institute in Washington produced a gloomy report on the British economy, which concluded with these words: The studies in this volume indicate that Britain's malaise stems largely from its productivity problem, whose origins lie deep in the social system. It was not the social system which was at fault, but the Socialist system. With the jettisoning of the culture of Socialism in favour of the enterprise culture, we have seen Britain leap from the bottom of the manufacturing productivity growth league in the 1970s to the top in the 1980s.

There has been a similar transformation in investment, about which Opposition Members prate so much. Nothing provides clearer evidence of the way in which the Labour party is completely out of touch with what is really happening in Britain today than its failure to comprehend the truth about investment. That was shown, once again, by the response made by the Leader of the Opposition to the Budget itself last Tuesday, when he said: After 10 years … the proportion of total investment in GDP is lower than during any year under the last Labour Government."—[Official Report, 14 March 1989; Vol. 149, c. 313.] That is what he said. [HON. MEMBERS: "Hear, hear."] Opposition Members cheer. In fact, at almost 21¾ per cent., the truth is that the proportion of total investment in GDP is higher than during any year under the last Labour Government. Those are the facts.

Nor is that all. Business investment—public and private sector combined—is now at its highest proportion of GDP ever—the highest ever. Whereas under Labour total investment grew scarcely at all, and well below the growth of consumption, over the past seven years investment in this country has grown more than twice as fast as consumption—something that only Japan among the major nations even so much as approaches. And not only is investment in Britain at an all-time record high and growing fast. Its quality has improved immeasurably, as evidenced by the dramatic improvement in the return on capital.

What about public sector investment, about which the hon. Member for Dunfermline, East waxed so lyrical, and with such hypocrisy? Take investment in the railways. Under Labour, a rise of only 8 per cent. in real terms. Under this Government, four times as much—up 32 per cent. Or major roads: under Labour, a cut of 41 per cent. —that is the truth; under this Government, up by 30 per cent. Or water: under Labour, a cut of 25 per cent.; under this Government, up by 50 per cent. Or hospitals: under Labour, a cut of 30 per cent.—a cut; under this Government, up 31 per cent. in real terms. And of course private sector investment is at its highest level ever—not merely in absolute terms, but as a share of GDP. So much for Labour's humbug, hypocrisy and sheer ignorance about investment.

Photo of Mr John Smith Mr John Smith , Monklands East

I am grateful to the Chancellor for giving way at the point where he talks about humbug and hypocrisy. Why is it that poor old-age pensioners have to be put through invidious means tests as to income and capital for income support and housing benefit, while well-off people will be subjected to no test whatsoever and will be subsidised by the poor for private medical insurance? Why does the right hon. Gentleman defend that?

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer

Here we are again—this complete obsession with tax relief for private medical insurance, and no answer at all about investment, which is at the heart of our economic success.

I urge Opposition Members, if they really wish to understand what is happening in Britain today, to listen to the informed voice of the CBI. I refer to their chief economic adviser Professor McWilliams, who recently gave a lecture under the auspices of the CBI entitled "The Renaissance of British Management". Needless to say, it was barely reported, but I warmly commend it to the House—not least to the party opposite, whose need for economic education is palpable. Let me quote a few extracts. United Kingdom growth in the 1980s can now be seen to have been faster"—[Interruption.] Oh no, they do not like anything about the success of the British economy. The cannot stand the success of the British economy. I will start again: United Kingdom growth in the 1980s can now be seen to have been faster than in any other recent decade and the comparison with other countries now shows a fairly substantial outperformance by the United Kingdom in the latest decade, with the United Kingdom growing over a fifth faster than the average of the other economies. He went on: In the first half of the 1980s, the proportion of United Kingdom investment in plant and machinery devoted to computers rose from 10 per cent. to 20 per cent.—a rise on a much faster scale than anywhere else in the world. He continued, after this thorough study: The United Kingdom has been an economic success.… and I believe that the success will continue.

Photo of Mr John Smith Mr John Smith , Monklands East

The Chancellor, as he well knows, is responsible for everything in his Budget, whether he likes it or not. Will he please tell us the public policy justification for the absence of a means test for private medical insurance for the rich, and tell us why the rest of us should pay the Prime Minister's bills?

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer

Is the—[HON. MEMBERS: "Answer."] Is the right hon. and learned Gentleman suggesting that tax relief should be subjected to a means test? Is he going to suggest that mortgage interest relief should be subjected to a means test? Is he? Is he? Answer that. Perhaps he can answer that.

Photo of Mr John Smith Mr John Smith , Monklands East

I asked a perfectly simple question. We have been lectured about the targeting of benefit. Why is this benefit not targeted? All the poor are targeted. Why are the Conservative party's clients not targeted?

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer

Not only was the right hon. and learned Gentleman totally unable to answer my question, but he was also totally unable to distinguish between the remission of taxation and an increase in public expenditure. He was quite unable to understand the difference between them.

Let me return to the Budget. It has above all been a prudent and cautious Budget. [Interruption.] Perhaps, Mr. Speaker[Interruption.]

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer

They cannot take it, Mr. Speaker. That is the trouble—they cannot take it.

It has above all been a prudent and cautious Budget —perhaps even more prudent and cautious than was strictly necessary, but economics is an inexact science at the best of times and that was clearly the right direction in which to err.

It certainly appears to have struck terror into the Opposition. This could not have been made clearer than in the intervention by the Leader of the Opposition right at the end of the speech by my right hon. Friend the Chief Secretary last Wednesday. The Leader of the Opposition, with desperation manifest in his voice, said this: The right hon. Gentleman has referred several times to the great virtue of using the Budget surplus to repay the national debt. Can he confirm that that will continue to be an objective of the Government, should they have surpluses, and that it will continue until the next general election and not be impeded by any desire that the Government may have to make a tax cut before the next general election?"—[Official Report, 15 March 1989; Vol. 149, c. 435.] Well, I have given the right hon. Gentleman's question the most careful consideration. It would not, of course, have occurred to me to think in terms of the next general election, but since the right hon. Gentleman has raised the matter, I have to inform him that I regret I cannot rule out the future use of the current surplus to reduce the burden of taxation. Indeed, it is the Government's policy to do just that.

In short, this Budget is a Budget which, in the firm support it gives to the defeat of inflation by monetary policy, provides a solid base for further economic success, including progress to a basic rate of income tax of 20p in the pound, in the years that lie ahead. Once again, I commend it to the House.

Question put:That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—

  1. (a) for zero-rating or exempting any supply;
  2. (b) for refunding any amount of tax, otherwise than in a case where the amount has been paid by reason of a mistake;
  3. (c) for varying the rate of that tax otherwise than in relation to all supplies and importations; or
  4. (d) for relief other than relief applying to goods of whatever description or services of whatever description.

The House divided: Ayes 341, Noes 222.

Division No. 122][10 pm
AYES
Adley, RobertCarlisle, Kenneth (Lincoln)
Aitken, JonathanCarrington, Matthew
Alexander, RichardCarttiss, Michael
Alison, Rt Hon MichaelCash, William
Allason, RupertChannon, Rt Hon Paul
Amery, Rt Hon JulianChapman, Sydney
Amess, DavidChope, Christopher
Amos, AlanChurchill, Mr
Arbuthnot, JamesClark, Dr Michael (Rochford)
Arnold, Jacques (Gravesham)Clark, Sir W. (Croydon S)
Arnold, Tom (Hazel Grove)Clarke, Rt Hon K. (Rushcliffe)
Ashby, DavidColvin, Michael
Aspinwall, JackConway, Derek
Atkins, RobertCoombs, Anthony (Wyre F'rest)
Atkinson, DavidCoombs, Simon (Swindon)
Baker, Rt Hon K. (Mole Valley)Cope, Rt Hon John
Baker, Nicholas (Dorset N)Cormack, Patrick
Baldry, TonyCouchman, James
Banks, Robert (Harrogate)Cran, James
Batiste, SpencerCritchley, Julian
Beaumont-Dark, AnthonyCurrie, Mrs Edwina
Bellingham, HenryCurry, David
Bendall, VivianDavies, Q. (Stamf'd & Spald'g)
Bennett, Nicholas (Pembroke)Davis, David (Boothferry)
Benyon, W.Day, Stephen
Bevan, David GilroyDevlin, Tim
Biffen, Rt Hon JohnDicks, Terry
Blackburn, Dr John G.Dorrell, Stephen
Blaker, Rt Hon Sir PeterDouglas-Hamilton, Lord James
Body, Sir RichardDover, Den
Bonsor, Sir NicholasDunn, Bob
Boscawen, Hon RobertDykes, Hugh
Boswell, TimEggar, Tim
Bottomley, PeterEvans, David (Welwyn Hatf'd)
Bottomley, Mrs VirginiaFallon, Michael
Bowden, A (Brighton K'pto'n)Favell, Tony
Bowden, Gerald (Dulwich)Fenner, Dame Peggy
Bowis, JohnField, Barry (Isle of Wight)
Boyson, Rt Hon Dr Sir RhodesFishburn, John Dudley
Brandon-Bravo, MartinFookes, Dame Janet
Brazier, JulianForman, Nigel
Bright, GrahamForsyth, Michael (Stirling)
Brooke, Rt Hon PeterFowler, Rt Hon Norman
Brown, Michael (Brigg & Cl't's)Fox, Sir Marcus
Browne, John (Winchester)Franks, Cecil
Bruce, Ian (Dorset South)Freeman, Roger
Buchanan-Smith, Rt Hon AlickFrench, Douglas
Budgen, NicholasFry, Peter
Burns, SimonGale, Roger
Burt, AlistairGardiner, George
Butcher, JohnGill, Christopher
Butler, ChrisGilmour, Rt Hon Sir Ian
Butterfill, JohnGlyn, Dr Alan
Carlisle, John, (Luton N)Goodhart, Sir Philip
Goodson-Wickes, Dr CharlesLuce, Rt Hon Richard
Gorman, Mrs TeresaLyell, Sir Nicholas
Gorst, JohnMcCrindle, Robert
Gow, IanMacKay, Andrew (E Berkshire)
Grant, Sir Anthony (CambsSW)Maclean, David
Greenway, Harry (Ealing N)McLoughlin, Patrick
Greenway, John (Ryedale)McNair-Wilson, Sir Michael
Gregory, ConalMcNair-Wilson, P. (New Forest)
Griffiths, Peter (Portsmouth N)Madel, David
Ground, PatrickMajor, Rt Hon John
Grylls, MichaelMalins, Humfrey
Gummer, Rt Hon John SelwynMans, Keith
Hague, WilliamMaples, John
Hamilton, Hon Archie (Epsom)Marland, Paul
Hamilton, Neil (Tatton)Marlow, Tony
Hampson, Dr KeithMarshall, John (Hendon S)
Hanley, JeremyMarshall, Michael (Arundel)
Hannam, JohnMartin, David (Portsmouth S)
Hargreaves, A. (B'ham H'll Gr')Mates, Michael
Hargreaves, Ken (Hyndburn)Maude, Hon Francis
Harris, DavidMawhinney, Dr Brian
Haselhurst, AlanMaxwell-Hyslop, Robin
Hawkins, ChristopherMellor, David
Hayes, JerryMeyer, Sir Anthony
Hayhoe, Rt Hon Sir BarneyMiller, Sir Hal
Hayward, RobertMills, Iain
Heath, Rt Hon EdwardMiscampbell, Norman
Heathcoat-Amory, DavidMitchell, Andrew (Gedling)
Heddle, JohnMitchell, Sir David
Heseltine, Rt Hon MichaelMoate, Roger
Hicks, Mrs Maureen (Wolv' NE)Molyneaux, Rt Hon James
Higgins, Rt Hon Terence L.Monro, Sir Hector
Hind, KennethMontgomery, Sir Fergus
Hogg, Hon Douglas (Gr'th'm)Moore, Rt Hon John
Holt, RichardMorris, M (N'hampton S)
Hordern, Sir PeterMorrison, Sir Charles
Howard, MichaelMorrison, Rt Hon P (Chester)
Howarth, Alan (Strat'd-on-A)Moss, Malcolm
Howarth, G. (Cannock & B'wd)Moynihan, Hon Colin
Howe, Rt Hon Sir GeoffreyMudd, David
Howell, Rt Hon David (G'dford)Neale, Gerrard
Howell, Ralph (North Norfolk)Needham, Richard
Hughes, Robert G. (Harrow W)Nelson, Anthony
Hunt, David (Wirral W)Neubert, Michael
Hunt, John (Ravensbourne)Nicholls, Patrick
Hunter, AndrewNicholson, David (Taunton)
Hurd, Rt Hon DouglasNicholson, Emma (Devon West)
Irvine, MichaelNorris, Steve
Irving, CharlesOnslow, Rt Hon Cranley
Jack, MichaelOppenheim, Phillip
Jackson, RobertPage, Richard
Janman, TimPaice, James
Jessel, TobyParkinson, Rt Hon Cecil
Jones, Gwilym (Cardiff N)Patnick, Irvine
Jones, Robert B (Herts W)Patten, Chris (Bath)
Jopling, Rt Hon MichaelPatten, John (Oxford W)
Kellett-Bowman, Dame ElainePattie, Rt Hon Sir Geoffrey
Key, RobertPawsey, James
Kilfedder, JamesPorter, Barry (Wirral S)
King, Roger (B'ham N'thfield)Porter, David (Waveney)
Kirkhope, TimothyPortillo, Michael
Knapman, RogerPowell, William (Corby)
Knight, Greg (Derby North)Price, Sir David
Knight, Dame Jill (Edgbaston)Raffan, Keith
Knowles, MichaelRaison, Rt Hon Timothy
Knox, DavidRathbone, Tim
Lamont, Rt Hon NormanRedwood, John
Lang, IanRenton, Tim
Latham, MichaelRhodes James, Robert
Lawrence, IvanRiddick, Graham
Lawson, Rt Hon NigelRidley, Rt Hon Nicholas
Lee, John (Pendle)Ridsdale, Sir Julian
Leigh, Edward (Gainsbor'gh)Rifkind, Rt Hon Malcolm
Lennox-Boyd, Hon MarkRoberts, Wyn (Conwy)
Lester, Jim (Broxtowe)Roe, Mrs Marion
Lightbown, DavidRossi, Sir Hugh
Lilley, PeterRost, Peter
Lloyd, Sir Ian (Havant)Rowe, Andrew
Lloyd, Peter (Fareham)Rumbold, Mrs Angela
Lord, MichaelSackville, Hon Tom
Sainsbury, Hon TimThurnham, Peter
Sayeed, JonathanTownend, John (Bridlington)
Scott, NicholasTownsend, Cyril D. (B'heath)
Shaw, David (Dover)Tracey, Richard
Shaw, Sir Giles (Pudsey)Tredinnick, David
Shaw, Sir Michael (Scarb')Trippier, David
Shephard, Mrs G. (Norfolk SW)Trotter, Neville
Shepherd, Colin (Hereford)Twinn, Dr Ian
Shepherd, Richard (Aldridge)Vaughan, Sir Gerard
Shersby, MichaelViggers, Peter
Sims, RogerWaddington, Rt Hon David
Skeet, Sir TrevorWakeham, Rt Hon John
Smith, Tim (Beaconsfield)Waldegrave, Hon William
Soames, Hon NicholasWalden, George
Speller, TonyWalker, Rt Hon P. (W'cester)
Spicer, Sir Jim (Dorset W)Waller, Gary
Spicer, Michael (S Worcs)Walters, Sir Dennis
Squire, RobinWard, John
Stanbrook, IvorWardle, Charles (Bexhill)
Stanley, Rt Hon Sir JohnWarren, Kenneth
Steen, AnthonyWatts, John
Stern, MichaelWells, Bowen
Stevens, LewisWheeler, John
Stewart, Allan (Eastwood)Whitney, Ray
Stewart, Andy (Sherwood)Widdecombe, Ann
Stokes, Sir JohnWiggin, Jerry
Stradling Thomas, Sir JohnWilshire, David
Sumberg, DavidWinterton, Mrs Ann
Tapsell, Sir PeterWinterton, Nicholas
Taylor, Ian (Esher)Wolfson, Mark
Taylor, John M (Solihull)Wood, Timothy
Taylor, Teddy (S'end E)Woodcock, Mike
Tebbit, Rt Hon NormanYeo, Tim
Temple-Morris, PeterYoung, Sir George (Acton)
Thatcher, Rt Hon Margaret
Thompson, D. (Calder Valley)Tellers for the Ayes:
Thompson, Patrick (Norwich N)Mr. Tristan Garel-Jones and
Thorne, NeilMr. Tony Durant.
Thornton, Malcolm
NOES
Abbott, Ms DianeClwyd, Mrs Ann
Adams, Allen (Paisley N)Coleman, Donald
Alton, DavidCook, Robin (Livingston)
Anderson, DonaldCorbett, Robin
Archer, Rt Hon PeterCorbyn, Jeremy
Armstrong, HilaryCousins, Jim
Ashdown, Rt Hon PaddyCrowther, Stan
Banks, Tony (Newham NW)Cryer, Bob
Barnes, Harry (Derbyshire NE)Cummings, John
Barnes, Mrs Rosie (Greenwich)Cunlitfe, Lawrence
Battle, JohnDalyell, Tam
Beckett, MargaretDarling, Alistair
Beith, A. J.Davies, Rt Hon Denzil (Llanelli)
Benn, Rt Hon TonyDavies, Ron (Caerphilly)
Bennett, A. F. (D'nfn & R'dish)Davis, Terry (B'ham Hodge H'l)
Bermingham, GeraldDewar, Donald
Bidwell, SydneyDixon, Don
Blair, TonyDobson, Frank
Blunkett, DavidDoran, Frank
Boyes, RolandDouglas, Dick
Bradley, KeithDunnachie, Jimmy
Bray, Dr JeremyDunwoody, Hon Mrs Gwyneth
Brown, Gordon (D'mline E)Evans, John (St Helens N)
Brown, Nicholas (Newcastle E)Ewing, Mrs Margaret (Moray)
Brown, Ron (Edinburgh Leith)Fatchett, Derek
Bruce, Malcolm (Gordon)Faulds, Andrew
Buchan, NormanFearn, Ronald
Buckley, George J.Field, Frank (Birkenhead)
Caborn, RichardFields, Terry (L'pool B G'n)
Callaghan, JimFisher, Mark
Campbell, Menzies (Fife NE)Flannery, Martin
Campbell, Ron (Blyth Valley)Flynn, Paul
Campbell-Savours, D. N.Foot, Rt Hon Michael
Carlile, Alex (Mont'g)Foster, Derek
Cartwright, JohnFoulkes, George
Clark, Dr David (S Shields)Fraser, John
Clarke, Tom (Monklands W)Fyfe, Maria
Clay, BobGalbraith, Sam
Clelland, DavidGalloway, George
Garrett, John (Norwich South)Mitchell, Austin (G't Grimsby)
George, BruceMoonie, Dr Lewis
Gilbert, Rt Hon Dr JohnMorgan, Rhodri
Godman, Dr Norman A.Morley, Elliott
Golding, Mrs LlinMorris, Rt Hon A. (W'shawe)
Gordon, MildredMorris, Rt Hon J. (Aberavon)
Graham, ThomasMowlam, Marjorie
Grant, Bernie (Tottenham)Mullin, Chris
Griffiths, Nigel (Edinburgh S)Murphy, Paul
Griffiths, Win (Bridgend)Nellist, Dave
Grocott, BruceOakes, Rt Hon Gordon
Hardy, PeterO'Brien, William
Harman, Ms HarrietO'Neill, Martin
Hattersley, Rt Hon RoyOrme, Rt Hon Stanley
Haynes, FrankOwen, Rt Hon Dr David
Healey, Rt Hon DenisPatchett, Terry
Heffer, Eric S.Pendry, Tom
Henderson, DougPike, Peter L.
Hinchliffe, DavidPowell, Ray (Ogmore)
Hogg, N. (C'nauld & Kilsyth)Prescott, John
Holland, StuartPrimarolo, Dawn
Home Robertson, JohnQuin, Ms Joyce
Hood, JimmyRadice, Giles
Howarth, George (Knowsley N)Randall, Stuart
Howell, Rt Hon D. (S'heath)Redmond, Martin
Howells, GeraintRees, Rt Hon Merlyn
Howells, Dr. Kim (Pontypridd)Reid, Dr John
Hoyle, DougRichardson, Jo
Hughes, John (Coventry NE)Roberts, Allan (Bootle)
Hughes, Robert (Aberdeen N)Robertson, George
Hughes, Roy (Newport E)Robinson, Geoffrey
Hughes, Sean (Knowsley S)Rogers, Allan
Hughes, Simon (Southwark)Ross, Ernie (Dundee W)
Illsley, EricRowlands, Ted
Ingram, AdamRuddock, Joan
Johnston, Sir RussellSalmond, Alex
Jones, Barry (Alyn & Deeside)Sedgemore, Brian
Jones, Ieuan (Ynys Môn)Sheerman, Barry
Jones, Martyn (Clwyd S W)Sheldon, Rt Hon Robert
Kennedy, CharlesShore, Rt Hon Peter
Kirkwood, ArchyShort, Clare
Lamond, JamesSkinner, Dennis
Leadbitter, TedSmith, Andrew (Oxford E)
Leighton, RonSmith, C. (Isl'ton & F'bury)
Lestor, Joan (Eccles)Smith, Rt Hon J. (Monk'ds E)
Lewis, TerrySnape, Peter
Litherland, RobertSoley, Clive
Lloyd, Tony (Stretford)Spearing, Nigel
Lofthouse, GeoffreySteel, Rt Hon David
Loyden, EddieSteinberg, Gerry
McAllion, JohnStott, Roger
McAvoy, ThomasStrang, Gavin
McCartney, IanStraw, Jack
McFall, JohnTaylor, Mrs Ann (Dewsbury)
McKay, Allen (Barnsley West)Thomas, Dr Dafydd Elis
McKelvey, WilliamTurner, Dennis
McLeish, HenryWall, Pat
Maclennan, RobertWallace, James
McNamara, KevinWarden, Gareth (Gower)
McTaggart, BobWareing, Robert N.
McWilliam, JohnWelsh, Andrew (Angus E)
Madden, MaxWelsh, Michael (Doncaster N)
Mahon, Mrs AliceWigley, Dafydd
Marek, Dr JohnWilliams, Rt Hon Alan
Marshall, David (Shettleston)Williams, Alan W. (Carm'then)
Marshall, Jim (Leicester S)Wilson, Brian
Martin, Michael J. (Springburn)Winnick, David
Martlew, EricWorthington, Tony
Maxton, JohnWray, Jimmy
Meacher, MichaelYoung, David (Bolton SE)
Meale, Alan
Michael, AlunTellers for the Noes:
Michie, Bill (Sheffield Heeley)Mr. Ken Eastham and
Michie, Mrs Ray (Arg'l & Bute)Mr. Fred Cook.

Question accordingly agreed to.

Mr.Speaker:

I am now required, under Standing Order No.50(3), to put successively without further debate the Question on each of the ways and means motions. With the leave of the House, I will put together motions Nos. 2 to 50.