I welcome the Budget as a prudent and responsible package of measures—notably the encouragement to savings in the form of the TESSA scheme and the abolition of the composite rate tax. I am particularly pleased that the Chancellor has introduced measures to encourage still further the process of wealth creation and dispersion. As an honorary director of Job Ownership Ltd., I am delighted with the small but important change in the treatment of capital gains tax—the roll-over relief for ESOPs, the employee share ownership plans. Wider share ownership is an excellent move in the right direction.
The Budget will be seen as having adopted the appropriate fiscal stance for the current stage of the economic cycle. The Chancellor was absolutely right to place himself slightly on the tough side of neutral at a time when the relevant statistics still point in contradictory directions. In macro-economics and in politics it is always a good rule that, if one is not absolutely sure about the side on which one should lean, it is best to remain upright and to maintain broadly the existing policy stance.
My right hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) was absolutely right when, in his excellent speech, he said that Labour's policy alternative, so far as one can divine it from the party's policy review and elsewhere, is either vacuous or, in some cases, outright dishonest. As The Independent put it in a recent editorial, Labour policy is really a combination of
dating from the 1960s and the 1970s—
and vindictively higher taxation.
The British public have already begun to see through that particular aspect of Labour's policy. According to a poll conducted recently for the BBC, the results of which were published in The Independent, nearly twice as many people still think that the economy would be weaker, and prices would rise faster, under Labour than under the Conservatives. More than twice as many people believe that, for the average family, taxes would be higher. These are potent public anxieties that reflect the common sense of the British electorate.
Looking to the future, and regarding this excellent Budget as the first in a series of what I hope will be winning Budgets from my right hon. Friend the Chancellor, I hope that the Government will work towards two further institutional changes, which together would give them an even better chance not just of reducing but actually of eliminating altogether the scourge of inflation.
Let me digress for a moment. I heard the compelling speech of my right hon. Friend the Member for Hertfordshire, North (Mr. Stewart). I should like to place on record my strong agreement with his view on the RPI and the distortions that it can reflect. I hope that, when we come to a quieter period of lower inflation, it will be possible for the Government and the RPI Advisory Committee to look again at this matter. My right hon. Friend's arguments were very persuasive.
In relation to institutional changes, my first and foremost point relates to the statutory position of the Bank of England. I agree entirely with my right hon. Friend the Member for Blaby (Mr. Lawson), for whom I was proud to work for two and a half years at the Treasury, that a new basis of statutory accountability to Parliament for the Bank of England would be in the national interest and in the interests of the British people. There are several reasons why I say that, but there are three principal reasons why the change would be beneficial which are worth putting on record.
The first reason is that it would give undoubted added market credibility to the use of monetary policy as the principal anti-inflationary instrument of the Government and any other responsible Administration. Furthermore, it would assist the Bank of England, as the relevant body, in the administration of monetary policy. It would be the equivalent of good corporate management in a company where a division, or a part of the company, is given clear responsibility for an overriding task—in this instance, the elimination of inflation—and is allowed to get on with the job, with the requirement only that it should report back and be accountable. In this instance, I suggest that the Bank of England should be accountable to Parliament rather than to Ministers.
The second reason why the idea is so attractive is that it would help to entrench a thoroughly non-inflationary approach to monetary policy within our political system. It would thereby help greatly to safeguard what Mr. Enoch Powell used to describe, rightly, as honest money against the temptations of the political cycle.
The third reason—it is probably the least important of the three—is that it would equip us with an institutional framework which would be usefully compatible with the framework that operates already in the countries of our European Community partners, with which, no doubt, we shall be co-operating even more closely in the years ahead within an embryonic system of European central banks.
I do not believe that at this stage in the economic development of the Community we should hasten too precipitately in the direction of a single central hank. Nor do I believe that it is necessary for the co-ordination of fiscal policy to be a vital accompaniment of the co-ordination of monetary policy. If we start from the angle of monetary policy, I think that we shall find that some virtuous consequences in fiscal policy flow automatically in market terms from that.
I say to my hon. Friend the Under-Secretary of State for Industry and Consumer Affairs, who I know is listening carefully to the debate, that the statutory accountability of our central bank would be an important buttress to the success of our counter-inflationary policy over the next few years. I hope that it will receive careful attention.
The other institutional change that I would urge upon my right hon. Friend the Chancellor of the Exchequer when he comes to consider these matters again at the appropriate time is something which I regret has become something of a King Charles's head, although it is none the less important for that. I refer to entry at the appropriate time into the exchange rate mechanism of the European monetary system. I know that my right hon. Friend the Member for Hertfordshire, North has already spoken about the matter and arrived at a different conclusion from the one at which I shall arrive.
It seems from the evidence that I have seen, from the French and Italian experience in particular—in many ways, they started with a more difficult inflationary situation than our own—that, after an initial period of undoubted interest rate volatility, we would see the interest rate premium that we have to pay of 6 or 7 per cent. vis-a-vis West Germany diminish over time to the point where we would not have to pay it at all. We would find that in consequence the financial markets would have greater confidence in the rigour and discipline of our monetary policy. Ultimately, that would greatly reduce the exchange rate fluctuations. That would be a valuable development.
Any senior industrialist or person in financial services will say that, of all the various non-tariff barriers which British industry and commerce are facing, none is more significant than exchange rate fluctuations and volatility. There is no doubt that the nations that have been within the ERM over the past few years and have managed to pursue the necessary monetary discipline to buttress the exchange rate mechanism have found considerable benefit for themselves and their export sector from being within the mechanism. I have no doubt that it would be one of the best ways in which we could take full advantage of the single European market.
Now that most of the external conditions that were set by the Government at Madrid for our full participation in the ERM have been met, I trust that it is only a matter of economic and political judgment before my right hon. Friend the Chancellor of the Exchequer decides that the time is ripe to take Britain into the mechanism.
With the firm foundation of this sensible Budget and the prospect of the institutional changes which I have recommended, we shall defeat inflation, promote the revival of our economy from the present temporarily difficult phase and bring about still further improvements in the prosperity and living standards of the British people.