Orders of the Day — Budget Resolutions and Economic Situation

– in the House of Commons at 4:16 pm on 26th March 1990.

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[Relevant documents: European Community Document No. 9487/89 on the Annual Economic Report 1989–90 and the un-numbered Explanatory Memorandum submitted by HM Treasury on 31st January 1990 on the final version of the Report as adopted by the Council.]

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

Before the House resumes the Budget debate, I must point out that resolution 26 on page 3421 of the Order Paper contains an error which occurred in production. The word "unquoted" in paragraphs (a) and (b) should be omitted. The resolution will be duly moved in the correct form.

As I said earlier, in view of the pressure on time, I propose to put a limit on speeches between 7 o'clock and 9 o'clock this evening, and I hope that that limit will be borne in mind by the hon. Members on the Front Benches as well as by Privy Councillors.

Photo of Michael Howard Michael Howard Secretary of State for Employment 4:25 pm, 26th March 1990

The last seven years have seen unprecedented growth in employment and the longest and largest continuous fall in unemployment since the war. That is the reality of the economic performance of this Government. It is a record which the economic strategy set out in the Budget is designed to sustain and reinforce.

The scale of what has been achieved is far too often taken for granted. In fact, our record on jobs is unequalled in Europe, and the envy of much of the world. There are now 27 million jobs in the United Kingdom—more than ever before—3·4 million more than in 1983. Jobs have grown three times faster than the European average—faster than in France, faster than in Germany, faster even than in Japan.

We have seen unemployment falling steadily for 43 months running. At 1·6 million, it is now half what it was in 1986. Our unemployment rate of 5·6 per cent. is a full three percentage points below the European Community average. Long-term unemployment has been falling even faster than the total number of unemployed which is down 780,000 since 1986.

Some hon. Members may recall that, in the general election of 1987, the Opposition promised a reduction in unemployment of 1 million within two years. We did it in less than two—with the very economic policies which the Opposition opposed and vowed to overturn. Where would those 3·4 million extra jobs be now if the Opposition had had its way and pursued its policies of high spending and high taxation?

The Budget statement continues to give the first priority to the control of inflation, because nothing is more calculated to undermine competitiveness and sap industrial and business confidence. My right hon. Friend the Chancellor of the Exchequer made it clear last Tuesday that we cannot afford to take risks with inflation. Of course, no one—neither the small business nor the home owner—likes high interest rates.

Photo of Mr Martin Flannery Mr Martin Flannery , Sheffield, Hillsborough

Is the right hon. and learned Gentleman not missing out a fundamental point? When the Government came to power, unemployment was just over a million. It went up rapidly—at an unprecedented rate—to just short of three million. A decrease from that figure is bringing down unemployment which this Government caused.

Photo of Michael Howard Michael Howard Secretary of State for Employment

The hon. Gentleman is leaving out the fundamental issue—the fact that there are one and a half million more jobs now than there were in 1979. That is a fundamental fact that the hon. Gentleman would do well to recall.

Neither new businesses nor home owners like high interest rates, but it would be wrong to relax the tight monetary and fiscal framework at this point or to reduce interest rates prematurely. If we can get inflation under control, the prospect is for renewed economic growth, increased business confidence and more jobs. But that means maintaining interest rates at high levels for as long as necessary.

What happens to jobs in the short term depends on those who are negotiating pay settlements. If unions seek, and managements concede, pay increases which are not warranted by the competitive position of their firms, or the local labour markets in which they operate, the result will be higher production costs, declining competitiveness, and ultimately job losses.

One of the most important factors in the unprecedented growth in employment over the last seven years has been the enthusiasm of investors in other countries to put their money into British businesses. That is one of the most significant differences between the economic record of this Government and the record of the last Labour Government, and one of the most influential factors in bringing about that change has been the transformation in British industrial relations since 1979.

No one can dispute the extent of that transformation, because it is a matter of record. In the 1970s, this country lost, on average, some 13 million working days a year through strikes. The average through the last four years has been just over a quarter of that figure. In each of the last two years, the number of strikes—at 675 in 1989 and 781 in 1988—has been the lowest since 1935, and the number of strikes in January this year was the lowest January figure for over 60 years and the lowest figure for any month since September 1934.

There is one comparison which, better than any other, sums up the contrast between Labour's strike record and the position today. In only two months of Labour's winter of discontent—January and February 1979—this country lost 5·4 million working days because of strikes. In those two months alone, more working days were lost than in the whole of 1988 or in the whole of 1989.

Mr. Eric S. Hefter:

If the number of strikes is lower than ever before, and if unemployment is going down, with the result that the economic situation is so much better, why are the Government in such an economic mess?

Photo of Michael Howard Michael Howard Secretary of State for Employment

I am sure that the whole House will welcome the voice of the ghost of the winter of discontent. What that voice uttered was wholly misconceived and wholly mistaken.

The lesson of the 1970s was clear: strikes destroy jobs. Britain's reputation for strikes, overmanning and restrictive practices exported job after British job to other countries. Since 1979, that trend has been decisively reversed.

I do not claim that the transformation of industrial relations is the result of our trade union legislation alone. What I do claim is that this transformation would never have been possible without our trade union legislation. It would never have been possible if trade union law had remained as it was in 1979, with virtually unlimited immunity for organising strikes, protection for the flying picket and power for union leaders to order their members to strike without a ballot and under threat of fines and expulsion from their union if they disobeyed.

It is all the more remarkable, therefore, that the Opposition are now committed to repealing the legislation of the last 10 years and returning, in all essential respects, to the legislation which gave this country the reputation for the worst industrial relations in the western world. They are committed to a massive extension of the scope for lawful strikes. They are committed to legislation which would once again put trade unions above the law.

I have several times challenged the hon. Member for Sedgefield (Mr. Blair) to spell out the details of his proposals for trade union legislation. I do so again now. If it is made impossible for an employer to get a court order to stop an unlawful strike, what sanction would there be against a union which failed to hold a strike ballot? If trade unions have absolute protection against the possibility of sequestration, what action could a court take if a union refused to pay a fine or damages?

Photo of Mr Frank Haynes Mr Frank Haynes , Ashfield

The right hon. and learned Gentleman has just referred to an important point. He infrequently attends the proceedings in Standing Committee on the Employment Bill. He is therefore unaware that some of his hon. Friends have said in Committee that it is right and proper to stage a dispute if life and limb are at stake. How can one hold a ballot when life and limb are at stake? Action has to be taken immediately. Does the right hon. and learned Gentleman agree with what his hon. Friends have said?

Photo of Michael Howard Michael Howard Secretary of State for Employment

Even the hon. Member for Ashfield (Mr. Haynes) cannot think that the measures to which I refer, and the questions that I put to the hon. Member for Sedgefield—his party's principal employment spokesman —apply to disputes involving danger to life and limb. The disputes about which the hon. Member for Sedgefield has consistently failed to answer germane questions are those that lay at the heart of our dismal performance throughout the 1970s. The hon. Member for Sedgefield knows that a court that cannot enforce its own orders is just like a talking shop. He knows that laws that cannot be enforced are not worth the paper on which they are written. Nothing more clearly illustrates the Labour party's failure to learn the lessons of the past, or its determination to return to the policies that crippled our economy in the 1970s.

Within the overall economic framework of the Budget are a number of specific measures to promote enterprise and remove barriers to the effective matching of people with jobs. With my particular responsibilities for small firms, I know that there will be a widespread welcome for the exemption from value added tax of bad debts, for the raising of the VAT threshold to the maximum permitted by the European Community and for the simplification of the rules for VAT registration. Those are the unglamorous bits of the Budget to the general public, but they are worth around £200 million to business in a full year, and will save small firms countless hours in dealing with red tape and bureaucracy.

The Budget changes to corporation tax will also give a fillip to small and medium-sized businesses that are growing. Some 20,000 companies will benefit, and as a result many smaller companies will be able to retain more profits for investment. As my right hon. Friend the Chancellor said, those changes mean that we will have the most favourable structure of corporation tax rates for small companies in the European Community.

It is no accident that the first thing that visitors from eastern Europe want to know is how we have been so successful in promoting enterprise and stimulating the growth of small firms. In 1989, the number of new small firms registering for VAT was 80,000—virtually the same number as for the whole of the five years from 1974 to 1979.

The measure to exempt from tax the value of workplace nurseries and playgroups has been widely welcomed. Since I assumed my present office, I have probably been questioned and lobbied more on that issue than on any other. The change will encourage employers to set up nurseries and help to remove what is sometimes a daunting obstacle for those mothers who wish to go out to work. However, it is important that employers should continue to examine other ways of helping women who want to come back to work—through more part-time work, more job sharing, special arrangements for school holidays and similar measures. Current projections suggest that 90 per cent. of the growth in the labour force during the 1990s will be among women. That means that employers must find ways of encouraging those women who wish to do so to return to work. I am confident that the Budget measures will give an important boost to that process.

There are also important measures in the Budget to encourage share ownership. I take particular pleasure in the part played by the privatisation of the water industry in bringing the number of individual shareholders to 11 million—that is, one in four of the adult population. Since 1979, 29 major businesses and about 800,000 jobs have been returned to the private sector. That is good for the productivity and efficiency of those companies, and it is good for the competitiveness of the economy as a whole. It is also to the benefit of the employees of those companies, many of whom have bought shares in the companies concerned. That has increased their involvement in those companies, and given them a direct stake in their productivity and profitability. The measures in the Budget to give roll-over relief from capital gains tax for sales of shares in employee share ownership plans will give a further boost to that process.

Finally, let me deal with training. No one in the House would seriously dispute that our continuing economic success also depends on developing a work force that is second to none in its skills and competence. If we are to compete with the best in the world, industry must strive for the best: in quality, in innovation, in customer care and in its willingness to adapt to changing demands and new technology. That means more and better training: above all, it means more people being ready to train to higher levels of skill, and to continue upgrading their skills throughout their working lives.

The Labour party delights in constantly diminishing what the people of this country have already achieved in raising their skill levels. It likes nothing better than to exaggerate the gaps between our performance and those of our European neighbours. We shall no doubt hear more of it today from the hon. Member for Sedgefield. However, we lag behind our international competitors in some areas of education and training largely because of the policies promoted by the Labour party during the 1960s and 1970s. It was its policies which reduced standards in education and sought to bring everyone down to the same level of mediocrity; it reinforced trade union restrictive practices in training and it raised levies on the best companies to subsidise the worst. Several generations of people leaving school and entering the work force were damaged by those policies. We are all still living with the consequences.

In the past 10 years, we have begun to put right the mistakes of the previous 20. We have carried through a fundamental reform in education designed to raise basic standards and to prepare school leavers better for the demands of working life. We have swept away the training levies and the training bureaucracies. We have reduced the power of the trade unions to maintain restrictive practices. We have put the emphasis in education and training back where it should be—on standards, achievement and excellence.

The results speak for themselves. We now have record numbers of young people staying on in full-time further education beyond 16; more students than ever before in higher education—more than 1 million in 1989—and a higher proportion of young people with degrees than in France, West Germany or Japan. In addition, more than 400,000 16 and 17-year-old school leavers are receiving training each year under the youth training scheme with the opportunity to acquire recognised qualifications, and a further 420,000 unemployed adults are training each year under employment training gaining new skills to help them get back to work.

Perhaps the best news is that employers themselves are responding to the demands for skilled labour in the economy. Our latest figures show that, in 1987, employers' investment in training was at a record £18 billion; and employers trained 70 per cent. more employees in 1989 than in 1984. The benefits to the economy are to be seen in the fact that, despite an unprecedented period of economic growth, reported skill shortages in 1989 were running at about half the level of the last comparable period in 1973.

For the future, we are setting up training and enterprise councils in every part of the country—possibly the most important change in the way in which training is planned and delivered for nearly 30 years. The councils will be led by senior business leaders with responsibility for developing training and small business support in their local areas. They will have substantial resources from Government at their disposal, but their prime task will be to mobilise employers in tackling their own skill needs.

My right hon. Friend the Chancellor announced in the Budget that, for the next five years, company donations to the councils would qualify for tax relief. That is a major vote of confidence in training and enterprise councils and a measure of their central importance in the Government's strategy for raising skill levels.

Photo of Mr Kenneth Hind Mr Kenneth Hind , West Lancashire

Will my right hon. and learned Friend confirm that, despite the complaints from Opposition Members, industry and commerce spend £15 billion a year on training their work forces, which is approximately five times as much as the Government do, and that what was announced in the Budget, which he has reinforced today, will encourage futher training and answer many of the complaints that we hear from the Opposition? Will he confirm that Britain is taking positive steps towards improving the quality and strength of our work force?

Photo of Michael Howard Michael Howard Secretary of State for Employment

I entirely agree with the substance of my hon. Friend's remarks, but if he will forgive me for saying so, he has underestimated the amount spent by employers on training, which was £18 billion in 1987 and has grown since then.

Photo of Michael Howard Michael Howard Secretary of State for Employment

It is not altogether easy to make direct comparisons with other countries, but the hon. Gentleman ought to take some pride in the amount that has been spent in Britain. We can clearly identify the substantial sums that were invested in 1987 and have increased since then.

The new tax concession that my right hon. Friend announced for training and enterprise councils is urgently needed, because the initiative is running two years ahead of schedule. More than 600 business men and women on 66 TECs around the country are already drawing up business plans for their local areas. I hope very shortly to announce that the first councils have had their plans approved and are fully operational.

With the help of the training and enterprise councils, we shall be pursuing three major priorities in the coming year. First, we shall continue to encourage stronger links between business and education so that schools and colleges are more responsive to the needs of industry and turn out young people who are better prepared for work. My Department will be investing over £400 million in this process in the next three years through the technical and vocational education initiative and our support for local partnerships between business and education. That is in addition to the work of my right hon. Friend the Secretary of State for Education and Science in reforming the curriculum.

Photo of Tony Blair Tony Blair , Sedgefield

That is a very different story from that which we used to hear from the Secretary of State's predecessor, who described Britain's training performance as "mind-boggling", and said that we had a mountain to climb. Is the new Secretary of State disowning that analysis?

Photo of Michael Howard Michael Howard Secretary of State for Employment

I am concentrating on addressing myself to the tasks which Britain faces. We would all do better to concentrate on those tasks rather than what the hon. Gentleman and his hon. Friends are so keen to do—at every moment to denigrate Britain's performance.

We shall also be looking to the training and enterprise councils to set targets for the training of 16 and 17-year-old school leavers which reflect the needs of the local labour market and raise the overall level of skills in the work force. We shall also expect them to look at how we can motivate more young people to want to train and to expect training as a normal part of their employment. A total of £2·5 billion will be available from Government over the next three years to support that process. In addition, we are looking to the TECs to draw out substantial and increasing employer contributions.

Photo of George Howarth George Howarth Shadow Spokesperson (Environment, Food and Rural Affairs)

Perhaps I can help the Secretary of State to follow the interventions by my hon. Friends. I understand that there are about 800,000 engineering apprentices in West Germany. What would be the right hon. and learned Gentleman's target in Britain?

Photo of Michael Howard Michael Howard Secretary of State for Employment

The hon. Gentleman is quite right to recognise that his hon. Friends needed help, but I do not consider that facile comparisons are the best way of addressing the problem. We have to make sure that we are providing the training which meets the needs of employers in our country and in the local areas in which they operate. That, above all, is what the training and enterprise councils will achieve.

Photo of Mr Donald Thompson Mr Donald Thompson , Calder Valley

Does my right hon. and learned Friend realise that Conservative Members are sick of comparisons with 10 years ago, which are unnecessary as 10 years ago we had nothing in anything? All the Opposition can do now is selectively choose foreign countries where they can find something that comes near to Britain. Opposition Members have referred to Germany. Representatives from our textile industry went to Germany to look at training there and found it producing nothing but industrial peasants incapable of change and flexibility. The only thing to commend it to anybody, and especially to the Opposition, was that it was extremely expensive.

Photo of Michael Howard Michael Howard Secretary of State for Employment

I would not presume to comment on the blunt point made by my hon. Friend. It needs no elaboration from me.

We shall be looking to TECs to widen the opportunities for adults to develop and upgrade their skills, particularly skills that are in short supply. Again, the Government will support this process with over £1 billion in each of the next three years. We shall expect the councils to focus this public support on retraining unemployed people, on improving training in small firms, and on other gaps in the labour market. Above all, we shall continue to look to employers to make the major contribution in developing the skills that industry needs.

Photo of Mr Nigel Forman Mr Nigel Forman , Carshalton and Wallington

My right hon. and learned Friend has been talking about the very important contribution made by the training and enterprise councils. Can he confirm that the Government are minded to look favourably on the whole idea of individual training allowances, which have been suggested by many people who have studied this matter as a good way of giving extra support to individuals who want to help themselves?

Photo of Michael Howard Michael Howard Secretary of State for Employment

My hon. Friend may be aware that that matter is being looked at. I am afraid that, at this stage, I cannot give him the outcome of our deliberations.

What I have described is a coherent strategy, which offers the prospect of creating a skilled work force for the 1990s. Perhaps we shall hear today from the hon. Member for Sedgefield how much of this strategy the Labour party is prepared to support. Will he acknowledge, for example, that the Government are spending about three times as much, in real terms, on training as did the last Labour Government? Will he now publicly support our programmes for training young people and unemployed adults, and encourage Labour local authorities to participate? Will he today make a commitment to retain the training and enterprise councils in their present form, with the leadership of senior business people?

Above all, will the hon. Gentleman acknowledge, and apologise for, the totally negative attitude taken by his party to every one of the training initiatives introduced by this Government in the past 10 years? No doubt the hon. Gentleman—who is turning his head away—would prefer to forget the fact that five out of the last eight Labour party conferences passed resolutions attacking the youth training scheme; that its 1988 conference declared its total opposition to employment training and called on all Labour Councillors and Labour controlled local authorities to boycott the scheme in every possible way"; and that several Labour councils have obeyed that injunction to the letter. How dare the Labour party lecture us on training when that is its record of shame.

Photo of Mr Paul Dean Mr Paul Dean , Woodspring

Order. If the Minister does not give way, the right hon. Gentleman must not persist.

Photo of Michael Howard Michael Howard Secretary of State for Employment

No, I am not giving way. The right hon. and learned Member for Monklands, East (Mr. Smith) had the effrontery to say last week that training had been grossly neglected in the past decade".—[Official Report, 21 March 1990; Vol. 169, c. 1131.] The right hon. and learned Gentleman has a certain reputation for mastery of the language. He certainly has an odd definition of the word "neglect". Given that the Government of which he was a Cabinet member spent three times less, in real terms, on training, I wonder what word he would have used to describe his own Government's performance. I shall give way if he would like to intervene.

Photo of Michael Howard Michael Howard Secretary of State for Employment

I will not give way to the right hon. Gentleman.

The Leader of the Opposition told the House earlier in this debate: there is a consensus that there has to be increased investment … in training".—[Official Report, 20 March 1990; Vol. 169, c. 1033.] He does not seem to have told his hon. Friend the Member for Derby, South (Mrs. Beckett), who told the House on 13 February that the only Labour promises were for increases in pensions and child benefits. Everything else, she said, is something that we hope to do as resources allow."—[Official Report, 13 February 1990; Vol. 167, c. 179.] Well, perhaps the hon. Member for Sedgefield will enlighten us. Is training, as the right hon. and learned Member for Monklands, East said, the area that stands out above all others"?—[Official Report, 21 March 1990; Vol. 169, c. 1132.] Or is it just one of many areas where Labour "hopes" to do more?

Photo of Tony Blair Tony Blair , Sedgefield

If the Minister cares so much about training, perhaps he will now explain why £300 million is being cut from the youth training budget over the next three years.

Photo of Michael Howard Michael Howard Secretary of State for Employment

The hon. Gentleman may have overlooked the fact that, over the period to which he refers, there will be a substantial reduction in the number of young people coming on to the labour market. He may have overlooked the fact that employers have increased their contribution to youth training sixfold in the last two or three years and are expected to continue to increase that contribution. In overlooking those facts, he simply comes back with the knee-jerk reaction of the Opposition—that if any extra money is to be spent, it must come out of the taxpayer's pocket. That is the knee-jerk reaction that the Opposition always manifest when they make points of this kind.

Photo of Michael Howard Michael Howard Secretary of State for Employment

No, I am answering the right hon. Gentleman's hon. Friend, whose question would have considerably more force if he were prepared to tell us whether training is indeed a priority, as suggested by the right hon. and learned Member for Monklands, East, or simply one of the matters about which his party hopes to do more.

There was a fascinating revelation in the House last week. The hon. Member for Dunfermline, East (Mr. Brown), under pressure from my right hon. Friend the Secretary of State for Trade and Industry, was forced to concede that the explicit pledge in the Labour party policy review to burden every enterprise in Britain with a training levy of 0·5 per cent. of payroll—in other words, a jobs tax—still stands as Labour policy. His remarks are reported in column 1259 of Volumne 169 of the Official Report for 22 March.

I hope that the hon. Member for Sedgefield—who might have the courtesy to listen—will therefore explain to the House in a moment why that pledge is not mentioned anywhere in his latest policy document on training, "Investing in Britain's Future". Did he forget to put it in? Does he think that an extra burden of at least £1 billion a year on British industry is not important? Or does he disagree with his shadow Cabinet colleague that it still represents Labour policy?

Just to help the hon. Gentleman, let me remind him of what the hon. Member for Dunfermline, East said: of course the policy review proposals … are still this party's policies. The policy review was passed by the party's annual conference."—[Official Report, 22 March 1990; Vol. 169, c. 1259.]

Photo of Michael Howard Michael Howard Secretary of State for Employment

The hon. Member says that everything has been changed since then. Perhaps his hon. Friend the Member for Sedgefield will tell us whether it has been changed since then.

Will the hon. Member for Sedgefield go on the record today to make it clear that the Labour party is still committed, as the policy review states at page 19, to setting up an enterprise training council with guaranteed trade union representation at every workplace? Does he believe that, as the review says at page 19, creating over 1 million quangos stuffed with trade union snoopers to "guide" and "monitor" every company's training policies will really help the competitiveness of British industry?

Will he explain why his new training policy document not only omitted both these policy review commitments but also, unaccountably, left out the pound sign" Perhaps it was merely a printer's error. Perhaps he will tell the House today how much Labour would spend on training. If his party has any claim to being taken seriously, it will give clear answers to these questions.

The Budget strategy set out by my right hon. Friend offers the clear prospect of controlling inflation, of renewed growth, and of a productive economy capable of competing with the best in the world. It provides the long-term framework for business growth and for falling unemployment. It is therefore a Budget that has the best interests of all the people of this country at heart. I commend it to the House.

Photo of Tony Blair Tony Blair , Sedgefield 4:59 pm, 26th March 1990

After that speech, the only promotion lying in wait for the Secretary of State is the chairmanship of the Conservative party. It was a quite remarkable speech of complacency. The right hon. and learned Gentleman failed to realise that the most significant political event last week was not the Budget but the crushing defeat of the Government and their policies by the Labour party in the Mid-Staffordshire by-election. That is a reflection on not merely the heavyweight nature of our victory but the lightweight character of the Budget.

The Budget took refuge in small problems, because it shrank from the challenge of the large problems. Where it succeeded, it did so on issues that, although important, are not essential, and where it failed it did so fundamentally. That is why the cheers for it from Conservative Members were not echoed in the country. The gap between the popularity of the Budget in the Conservative party and its credibility in the country merely reminds us how great is the distance between the Government and the people whom they govern.

We all support measures to help the blind, the Football Trust, the few children in workplace nurseries and the value added tax relief for small businesses, but the questions that the people asked the Chancellor were more profound. They asked why, if privatisation was supposed to mean lower prices, they are facing unnecessary and large price increases for water and electricity. They asked why, when many believed the talk of economic miracles two years ago and budgeted, planned and borrowed on that basis, they now face the agony of rocketing mortgages and cuts in their living standards. They were promised that the Government's rating reform would be fairer and simpler, but they now see this Tory tax—the poll tax—as so unfair that it disgusts even those who gain from it and so chaotic to administer that even long-serving Conservative councillors have resigned rather than implement it. They asked why, but they received no answers to those questions, except a concession on the poll tax which was so incompetently handled that the Chancellor must be the first in history to give away £100 million but be politically worse off as a result.

Business and industry demand an explanation of how, after 11 years of this Government, we have the worst balance of payments deficit in our history—a deficit in new and old industries—the highest interest rates in the western world, the highest inflation of any of the Organisation for Economic Co-operation and Development countries and why they are being told by Ministers of the hard road ahead and the tough medicine that we should take, as if they were newly elected and not in the second decade of continuous government.

The Chancellor's forecasts show that unemployment may rise and that it is bottoming out at 1·6 million, or closer to 2 million on the old statistical basis. People recall that the Conservative party took office 11 years ago promising a reduction in unemployment, which was about 500,000 fewer than it is today. It should never be forgotten that this Government, alone among our competitors, have had the unsought bonanza of North sea oil. The money that could have been used in planning the seeds of our future prosperity was wasted.

Our central charge is not just that the Government have squandered the opportunities of North sea oil and that they have committed serious errors of economic management but that, at best, they have neglected and, at worst, undermined Britain's industrial base and the long-term investment necessary for it.

That is evident above all in training. It is generally agreed that the key to Britain's success as a wealth-producing nation will lie in the quality of the knowledge base of the economy—the training and skills of its work force. The balance of payments gap is a reflection and product of the skills gap. Compared with our competitors abroad, that huge gap is widening. In Germany, 90 per cent. of 16 to 19-year-olds are in full-time training, in Belgium the figure is over 80 per cent. and in the United States over 80 per cent. and in Japan almost 80 per cent., but in Britain it is between 65 and 69 per cent.

There is an enormous gap between Britain and its competitor countries in the number of 16-year-olds who remain in full-time education. A report from the Confederation of British Industry found that British children are two years behind Japanese children in basic mathematical competence, that they have fewer foreign language skills than French or German children and that one third of our school leavers have no quaifications to show for their 11 years of education. In France and Germany, 90 per cent. of school leavers obtain some qualification of a standard higher than our 0-level. Thirty five per cent. of French students achieve university entrance level. The figure in Germany is 30 per cent., yet in Britain it is 15 per cent.—less than half that of France or Germany.

In Britain, about 100,000 young people leave school each year and take up work without any proper training. In many competitor countries, that would be unlawful and practically unthinkable. We demanded answers to those questions from the Budget.

Not long ago, the Conservative party said that manufacturing industry mattered little and that we could get by without it. We no longer hear that said. France and Japan train two or three times as many people in mechanical, electrical and construction occupations as Britain. We need 50,000 craftspeople a year simply to catch up, but the gap is increasing. What is the Government's response? They want to curtail the activities of the engineering industry training board. In Germany, 2,000 more people obtain degrees in engineering, there are 15,000 more technicians and three or four times as many craftsmen—120,000, compared with our 35,000. My hon. Friend the Member for Knowsley, North (Mr. Howarth) mentioned apprenticeships. In Germany, the number of apprenticeships over the past 10 years has risen to over 800,000, whereas in Britain they are down by one third. This weekend, an analysis was published by the National Computing Centre which shows that by 1995 Britain will have a 50,000 shortfall in the skilled people necessary for information technology.

The hon. Member for Calder Valley (Mr. Thompson) said that, in the textile industry, the Germans were industrial peasants. I shall read a report on textiles from the National Institute for Economic and Social Research. It compared the performances of Germany and Britain and concluded: Over 80 per cent. of the German machinists in the plants we visited had completed a two or three-year day release course leading to an examination qualification similar to our City and Guilds course for skilled clothing employees. About 10 times as many pass such examinations each year in Germany as in Britain.

Photo of Mr Donald Thompson Mr Donald Thompson , Calder Valley

We found that the Germans' courses were inflexible, incapable of training and inadequate for Britain's needs.

Photo of Tony Blair Tony Blair , Sedgefield

The institute found that the courses produced higher qualifications than in Britain.

In case Conservative Members think that that applied only to manufacturing or textiles, I carefully considered the position on retailing, about which a comparison has been made between France and Britain. In retailing in France and Britain—the service sector which the Conservative party says will provide this country's future—the institute found that standards were lower in Britain. Nine times more people obtained qualifications in retailing in France than in this country, and the qualifications obtained in Britain were lower. The same position can also be found in the hotel industry, another service industry.

A recent study compared Britain with Germany, where similar numbers are employed in the hotel industry. It found that in the last decade, 35 per cent. of the staff in the hotel industry in Germany had craft-level qualifications, but in Britain only 14 per cent. of staff had them. Again, the qualifications in Germany were higher, broader-based and externally set and marked. Those qualifications gave rise to not merely a greater sense of qualification among those in Germany, but greater job satisfaction. It helps in every way to have the right type of training.

Training is important not just in manufacturing or services, but in management. According to the most recent studies, management training is of a lower standard in Britain than in West Germany. It is proper to make such comparisons because that is the very sort of country against which Britain is competing. If we are unable to compete on the basis of greater skills, it is axiomatic, and accepted on both sides, that we shall lose the race in the 1990s as surely as we lost it in the 1980s. Therefore, it is no wonder that the head of the Training Agency, Mr. Roger Dawe, has admitted: At every level we are towards the bottom of the training league table, whether in education, youth training, higher level skills training or management.

The Labour party does not decry the activities of British employers who train. Within our constituencies we all know employers who train excellently, but only a few months ago the Confederation of British Industry said: Britain's skill levels are lower than those in most of its competitor countries and the gap is widening. It talked of a "quantum leap in skills" or what is called "a revolution" in skills. That is not the language of complacency, but the language of challenge, which was absent from the Secretary of State's speech.

Even the former Secretary of State, the right hon. Member for Sutton Coldfield (Sir N. Fowler), described Britain's training position as "mindboggling" and said, as was headlined in Employment News a few months ago: We have a mountain to climb". No wonder he did so; that B1 report on training in Britain showed that almost half the work force expected to receive no further training in their working lives, two thirds of all employees said that they had received no training in the past three years and 20 per cent. of employers gave no training. Therefore, according to the Government's own study, one in five employers are not training. When asked to describe the drawback of training, 38 per cent. of employers said that it was employees leaving for other jobs. The training study found that only one in four employers had a training plan and there was little evidence of planning in training.

The position that confronts us today is, first, that we have a massive skills deficit; secondly, that deficit is in manufacturing, retailing, services and management training; thirdly, it is a deficit not merely in the quantity of training, but the quality; fourthly, the deficit is growing, not decreasing; fifthly, there are major deficiencies in attitude in certain sections of employees and employers. It is in those circumstances, and against that background, that we examine the Budget to discover what it provides to achieve a training revolution.

The Budget offers a tax concession for employers who make charitable donations to training and enterprise councils. That is so modest a proposal that, where its cost should be listed in the Red Book, there is an asterisk because the cost is negligible. Less than £5 million is lost to the Exchequer through increasing the limits of the business expansion scheme, which is much less than the £120 million given away through the abolition of stamp duty on share transactions, and less than the £5 million cost of unchanged duty on pipe tobacco, the most expensive political joke in history.

What is the Government's response to the call for a training revolution? On 6 December, the previous Secretary of State made a speech setting out what he called the "targets" that the Government should adopt for the training problems faced in Britain. That speech was entirely in keeping with his description of the training position in Britain as mindboggling. He said: By the end of 1992 no young person should be employed without training, two thirds should get to national NCVQ level 2 and one quarter of them to level 3, by 1995 all of them should be at least at level 2, half at level 3. At page 10 of his speech he said: Unless we set ourselves those kinds of stretching targets, we shall not meet the need for upgrading and multi-skilling in a decade of continuing rapid change. We therefore asked the Minister to say how we were progressing towards those targets under the new Secretary of State. I received the following reply on 8 March: My predecessor offered a framework of objectives for the development of training in the 1990s. Progress on meeting the objectives depends primarily on action by organisations outside Government; they cannot be specific Government targets."—[Official Report, 8 March 1990; Vol. 168, c. 804.] That was the first response of the new regime, and we heard it again today, which is why I intervened earlier.

It is perfectly clear that we are now experiencing the classic Tory trick. When the Government come up against a problem that they cannot solve, they deny its existence. There has been a subtle but important change of rhetoric, and the Government are now talking about how well they are doing, whereas the previous Secretary of State accepted, as did many others, that the problem was serious, indeed mindboggling.

The Government's second response is to cut the training budget. It is scarcely credible that against that background, and with the need for a training revolution, the Government should cut the training budget for young people by more than £300 million in the next few years —£150 million next year, £120 million the year after and £60 million in 1992–93. We are told that the reason for that is the falling number of young people and the fact that employers are carrying more of the cost. Surely we should see the falling number of young people as an opportunity not to cut spending, but to improve the quality of the training we provide. We should view the demographic changes as an opportunity to upgrade the level of Britain's skills, not cut them. Many training and enterprise councils will start by having cuts in their funding, cuts in spending per trainee and even cuts in spending per trainee week. It is not merely a cut in the overall budget, but a cut in expenditure on each trainee.

Photo of Michael Howard Michael Howard Secretary of State for Employment

What has the hon. Gentleman been doing since 13 February, when his hon. Friend the Member for Derby, South (Mrs. Beckett) said that the Labour party had only two firm spending pledges, pensions and child benefit, and for all other sectors it would merely have to hope and do as resources allow? Why does not he have a word with his hon. Friend?

Photo of Tony Blair Tony Blair , Sedgefield

The right hon. and learned Gentleman should have read the speech more carefully. My hon. Friend called on the Government to restore the cuts in training. The last thing that any responsible Government should do is to cut training. How do we address the revolution in training by cutting training? In addition to youth training, we must also consider adult training. Adult training is critical because it is estimated that 80 per cent. of what will be the work force in the year 2000 are working now.

At the business and cities conference on 6 December, the former Secretary of State for Employment said that by the end of 1995 all employers of whatever size should have the seal of approval of the CBI for such things as training plans and upgrading the skills of their work forces. He added: By not later than 31 December 1992, there should be in place a comprehensive and effective framework of sector training organisations capable of establishing and monitoring standards and capable also of providing information and advice to employers in their sectors about labour market and occupational trends and training techniques and technologies in use or development both at home and abroad. That would seem to be an enormous task.

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

I am grateful to my hon. Friend for giving me an opportunity to raise the question that I wanted to put to the Secretary of State earlier. It was a pity that the Secretary of State would not respond to me. When a new programme is announced, the Public Accounts Committee likes to know the clear objectives and, at the end of the programme, to compare the objectives with the achievements. I want to know how the Secretary of State plans to do that. As my hon. Friend the Member for Sedgefield (Mr. Blair) was saying, an attempt will be made to compare objectives with achievement within a set time scale.

Photo of Tony Blair Tony Blair , Sedgefield

My right hon. Friend is absolutely right. It was extraordinary that in a Budget debate the Secretary of State would not give way to my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) who is a Privy Councillor and the Chairman of the Public Accounts Committee. The Secretary of State was prescient in not giving way because the answer to the point raised by my right hon. Friend is that the Government are dumping the targets that the former Secretary of State set out in his important speech.

We have been looking at the sector training organisations and we have used some of the parliamentary answers secured by my hon. Friend the Member for Newham, North-East (Mr. Leighton) who is the Chairman of the Select Committee on Employment. We have examined the comprehensive bodies that are supposed to provide a wide range of advice across the spectrum. The notion that we can provide such a sector training strategy with the kind of organisations listed in a written answer to my hon. Friend the Member for Newham, North-East on 5 March is frankly laughable.

We have been checking up on some of the sector training organisations to discover what resources are available to them. Earlier I said that by the middle of the 1990s, we would have a shortfall of 50,000 in information technology. At present, the computer services industry training council covers 44,000 people and that number will soon increase to almost 300,000. At present, that council has five full-time staff. The national retailing training council, which covers 2·5 million people, has only five full-time staff, but that is more than many other councils. The United Kingdom Agricultural Supply Trade Association has only 1·25 people covering the whole association. Only 0·6 of a person covers the National Association of Master Bakers, Confectioners and Caterers. The idea that that amounts to a comprehensive sectoral strategy is, as I said, laughable.

That is the background against which the Government are abandoning targets, making cuts and trying now to deny the extent of the problem because they lack the will to solve it. That is the context in which the Budget's negligible contribution should be set.

Photo of Michael Howard Michael Howard Secretary of State for Employment

The hon. Gentleman has been addressing the House for nearly 25 minutes. Conservative Members have been waiting patiently for him to answer the questions that I put to him during my speech. When will he tell us whether the jobs tax still forms part of Labour party policy? When will he tell us what the Labour party would do?

Photo of Tony Blair Tony Blair , Sedgefield

We would not be cutting the training budget when we should be investing more. We would be providing every young person with an entitlement to train. We would be integrating post-16 education and training, upgrading our qualifications and skills and ensuring that we have a proper legislative framework to ensure that training occurs in this country. We would ensure that there are sanctions against employers who do not train, because that is important. It is important that we set the kind of targets that are now being undermined by this Government's strategy.

Photo of Michael Howard Michael Howard Secretary of State for Employment

The hon. Gentleman has just made an extremely important statement. He has told us that the Labour party would impose sanctions on employers. What will those sanctions be?

Photo of Tony Blair Tony Blair , Sedgefield

They are in the policy review. We will require a training investment contribution from employers that are not training.

Photo of Tony Blair Tony Blair , Sedgefield

If the Secretary of State believes that the mood of the country is one of complacency towards employers that are not training, he is wrong. It is vital that we have a policy to deal with the one in five employers who do not train. That is why the TECs were appalled at the decision to cut training funding.

Of course employers must do more. To answer the Secretary of State's specific point, it is excellent that employers are showing more signs of commitment. However, as the employers admit, their contribution is in addition to, and not in substitution of, the Government's contribution. If TECs are seen simply as the means of the Government disengaging from their responsibilities, the whole project will fail.

That is why the Budget does nothing for training. It does nothing for the plight of the millions of low-paid people. It does nothing for the problems of families living on reduced child benefit and it does nothing to alleviate the hardship of millions of our citizens who face the poll tax.

As constrained as the Chancellor of the Exchequer was by the errors of the past—

Photo of Tony Blair Tony Blair , Sedgefield

No.

We were entitled to look in the Budget for some recognition of the long-term structural problems facing British industry. We now have a better chance than at any time in recent history to create the training revolution that we need. There is support for that everywhere; in industry, among the unions and, most crucially, among young people and those already in work.

We, therefore, have a great challenge and a great opportunity. It is not the poverty of aspiration among the British people that we need fear, but the poverty of aspiration of the Government. As the Conservative party's position crumbles and Conservatives begin to fight the Tory party's internal battles because they have lost the battle for the electorate, the Labour party will look forward with enthusiasm to meeting the challenges ahead, not as critics in a Labour Opposition, but as Ministers in a Labour Government.

Photo of Mr Nigel Lawson Mr Nigel Lawson , Blaby 5:29 pm, 26th March 1990

I shall be brief. Partly for that reason, I shall not follow the debate that we have just heard about training, but will talk about matters more closely related to the Budget which we are debating today. I have to say on the subject of training that there is agreement on both sides of the House of its importance— there is no doubt about that.

I have to confess that I was astonished by one omission throughout the speech by the hon. Member for Sedgefield (Mr. Blair). Not once did he mention the vital correlation between the amount of training done by business and industry and the profitability of business and industry. Those things are intimately connected. It was the abysmal levels of profitability of British industry in the 1970s that led to the very low level of training at that time. It is the recovery in profitability which has occurred during the 1980s and which will continue, I trust, during the 1990s which is so important for all our aspirations in the future.

I should like to commend my right hon. Friend the Chancellor of the Exchequer on his Budget. I commend it not least because of his rejection of the clamour that there was in some quarters for a massive increase in taxation. That would have been wholly misguided. He was right to resist it. I would like to quote his words from the Budget statement: fiscal policy is not … a flexible instrument which should be altered to meet short-term contingencies. Fine-tuning fiscal policy is not only disruptive to the public sector, but business, and to taxpayers, but its effects on the economy are uncertain and often destabilising."—[Official Report, 20 March 1990; Vol. 169, c.1015.] I entirely endorse that judgment.

After all, in this country—let nobody forget it—we have a very strong fiscal position indeed—one which is the envy of most of the rest of the world. Given the inheritance, it took us quite a long time to get to that position. Having got to that position, we must and will stick to it. Within that context, tax changes should be driven by long-term supply side considerations and not by the short-term requirements of so-called demand management. Tax reform, which is of such importance, has a beneficial effect on economic behaviour and economic performance only to the extent that it is believed that the changes that are made will endure. That is why my right hon. Friend is right. But, in that context, of course, it follows that the task of bearing down on inflation must continue to rest, as it has rested before, with monetary policy. Again that is something which my right hon. Friend fully acknowledged, but I have to say that that is where my doubts creep in.

Let me hasten to say that I am not referring to the incentive for the expansion of broad money which my right hon. Friend introduced, bearing in mind the fact that broad money is principally composed of deposits in banks and building societies. I have no quarral with that, even though I know that one or two of my hon. Friends might find that somewhat paradoxical. No, the danger—the concern—lies with the exchange rate, for it is the exchange rate which threatens to undermine the strength of the Government's monetary policy, the strength of the discipline imposed by uncomfortable but necessary levels of interest rates.

Again, that is something which I know my right hon. Friend himself fully acknowledges. He himself said in his Budget statement that he favoured a strong exchange rate policy—quite right. It was a very important statement, but it may be that words alone will not be enough.

We have already seen that, since interest rates were raised to 15 per cent. as far back as last October, the exchange rate—the index—has lost about 5 per cent. of its value, and any further drift would clearly imperil the strength of the Government's commitment against inflation and their anti-inflationary policy. That is the one area of concern which I have.

What is the solution? Where do we go? Again, my right hon. Friend, in his Budget statement and again in his broadcast yesterday, very firmly restated the Government's commitment to sterling joining the exchange rate mechanism of the EMS. But my concern is that the timetable which is envisaged by the Government might be somewhat too leisurely for the circumstances in which we find ourselves. In my judgment, it is a pity that we did not join some time ago, but we did not, and that is that. But now we really cannot afford to take the risks involved in a leisurely timetable.

It may be that we should initially join within the framework of the wider bands before subsequently moving to the narrower bands, but the whole of the Government's commitment against inflation is potentially at risk. There is an exposed flank, and that is why I could favour the early entry of sterling, as I said, possibly initially with the wider bands, into the exchange rate mechanism of the EMS.

There is a further reason, too, Incidentally, it is far less important even than the increased influence that we would gain within the Community—influence which is particularly important in the context of the debate on European monetary union, in which I wholly and unreservedly support the Government's stand. It is important, too, as we come up to the intergovernmental conference, to discuss this in December of this year.

But there is another reason, too. As I listened, as many hon. Members did, to the speech by the right hon. and learned Member for Monklands, East (Mr. Smith) on an earlier day of this debate, it was abundantly clear that the Labour party has no alternative coherent policy whatever—none whatever. Yet the right hon. and learned Gentleman is seeking to conceal it and, to some extent, he has been successful with the media. He is seeking to conceal it by regular repetitions and incantations about the EMS and joining the exchange rate mechanism of the EMS. It is by removing the fig leaf from the Opposition that the true nakedness of their policy and the ugliness of what is revealed will be seen by all. That is devoutly to be wished.

We, of course, have a clear and coherent policy which, despite current difficulties, has brought the people of this country unparalleled improvements over the past 11 years. It must continue to do so, and it can continue to do so, but it will continue to do so only if that exposed flank of the exchange rate is protected. That means early entry into the exchange rate mechanism of the EMS. Of that I have no doubt whatever.

Photo of Mr Paddy Ashdown Mr Paddy Ashdown Leader of the Liberal Democrats, Leader of the Liberal Democrats 5:38 pm, 26th March 1990

I am sure that the whole House and many people outside will have listened to the very interesting speech by the right hon. Member for Blaby (Mr. Lawson), the central portion of which I enthusiastically agree with. My hon. Friends and I have been arguing for some time that our early membership of the exchange rate mechanism is necessary for Britain's proper economic management. It is even more necessary now. As the right hon. Gentleman said, there is a great hole in the centre of the Budget, and that constitutes the exposed flank of the whole budgetary strategy.

As the hon. Member for Sedgefield (Mr. Blair) has said, it seems odd to reflect that the Budget was less than a week ago—so much has happened in between. Returning to the Budget debate after last week's events seems a little out of kilter with the mood. However, that is not the whole case, because at the heart of the Budget debate is a lack of any commitment to the strong economic policies that the Government have talked about in the past. That is the same lack of confidence, lack of direction and confusion that has characterised the Government's policy in the past few weeks, and for which they paid a heavy penalty on Thursday and continue to pay a heavy penalty in the opinion polls.

That is not to say that we do not recognise the difficult circumstances in which the Chancellor had to frame his Budget. It was a difficult calculation. Britain stood and remains on a knife edge between high and possibly double-digit inflation on the one hand and a recession on the other. The speech of the right hon. Member for Blaby might have been better received if he had shown a little humility about leaving his successor a legacy of serious problems to address.

Those legacies can be put in the form of three questions. First, who runs the economy? Is it No. 10 or No. 11 Downing street? We all know that that is the subject upon which the right hon. Member for Blaby offered his resignation. Secondly, what is the Government's policy? That matter has been left confused and unclear in the past few months and is, in large measure, the reason why there has been a good deal of uncertainty in the money markets about the Government and the exchange rate. The third question is, what will the Chancellor do to address the problems that are the legacy of the past 10 years and, at least in part, of his right hon. Friend the Member for Blaby? What will the Government do, for instance, about the fact that, far from a Thatcher economic miracle, we are close to a Thatcher economic nightmare?

We have the highest inflation of any of the major OECD countries. We have a record that goes back for the past 11 years in which, far from tackling inflation, our rate of inflation has been higher than the average of the EC countries, inside and outside the EMS, for seven of those 11 years; it has been higher than the average of the OECD countries for eight of those 11 years, and higher than those of our major competitors for 11 out of those 11 years. If the Government are making the case that inflation is the judge and jury, they are guilty of having totally failed to tackle it.

One might also judge the country's economic position by the fact that wage rises here are now racing ahead of inflation and are rising much faster than those of any of our major competitors. One might also judge the economy by the fact that, as a percentage of GDP, investment briefly blipped, to use a favourite word of the right hon. Member for Blaby, above its level in 1979—a full 11 years ago—for just a few months last year but, according to all accounts, is now plunging hard under the high level of interest rates. By the by, our interest rates are higher than those of any of our competitor nations and are very close to a record for this nation.

Presiding over all that is the fact that, throughout the past decade, Britain's share of world markets has continued to decline at a rate not dissimilar to that experienced throughout the two previous decades. We now have a balance of trade deficit of record proportions. Those were the problems that the Budget had to address.

If the Budget sought to answer those three questions—who runs the economy, what is the Government's policy and what firm action will they take to address the serious problems now facing the British economy—it provided an answer that was at best confused and at worst unconvincing.

The Government's policy is still unclear. I cannot see any thread running through it, except for the Chancellor's rhetoric that he wants to keep inflation down. But that was immediately followed by an admission that inflation would increase in the next few months. We heard only a few vague promises and prophecies beyond that. We have learnt to mistrust the Government's prophecies about inflation or anything else, because they are all remarkable for the fact that they are all breached by substantial margins.

Who runs the economy? Is it really the case, as the right hon. Member for Blaby said, that in his heart of hearts the present Chancellor believes that we should join the exchange rate mechanism now? The resignation speech of the right hon. Member for Blaby was splendid. It was one of the best speeches that I have heard in the House. In it we learned that the right hon. Gentleman had consistently argued around the Cabinet table for joining the exchange rate mechanism and that the Prime Minister was the one who had said no. We had a hint a moment or two ago that the same conditions obtain around the Cabinet table today, and that the Prime Minister is preventing that important lacuna in the Government's policy from being filled. If that is the case, the question of who runs our economic policy remains as unanswered now as it was in the days of the previous Chancellor.

If the Government's major thrust is to tackle inflation, I fear that, as has been said, the Chancellor is playing with very high risks. Whatever happens externally, his present strategy leaves him no room for manoeuvre, except to raise interest rates. In short, where we needed a Budget that was tough, with a broad thrust that the public and the markets could understand, we got a Budget that was full of minor measures, which, unless the Government are very lucky, will fail to face up to the major problems that now confront us.

The reality of the Budget was very different from the hype and the descriptions that preceded it. We were told that we would get a lion of a Budget; but the Chancellor produced a mouse. The inadequacies of that mouse of a Budget were cruelly exposed by the reaction of the City and the foreign markets.

Of course the minor measures were welcome—who would not welcome some of the things that the Chancellor did? We had been calling for some of them for some time, as had his own Back Benchers and the Opposition. I refer especially to measures to encourage women back to work. I found it odd that in pouring some scorn on that the hon. Member for Sedgefield—

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

If the hon. Lady would like to intervene, I shall be happy to give way to her.

Photo of Margaret Beckett Margaret Beckett Shadow Chief Secretary to the Treasury

I am grateful to the right hon. Gentleman for giving way. I find it difficult to square his wise words about the value of women in work with his most ungenerous remarks about my hon. Friend the Member for Mid-Staffordshire (Mrs. Heal).

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

I am not quite sure what that has to do with the debate, but as the hon. Lady has questioned me about this—as I suspected she would—I ask her to look again at my comments. I was not making a comment about that hon. Lady; I was commenting on the disgraceful way in which the Labour party would not allow a Labour candidate to speak for herself. She was treated as a Barbie doll by Walworth road. The sexist comments and approach of that manifesto are a disgrace; they completely undermine the Labour party's rhetoric about being in favour of women in society and in politics.

However, if I was to go further down that line, no doubt you, Mr. Deputy Speaker, would call me back to order. Therefore, I turn to the central question of the welcome steps taken by the Chancellor.

As I was saying, it is odd that the hon. Member for Sedgefield said, somewhat contemptuously—I tried to note his exact phrase—that the Chancellor's measures would bring back to work only "a relatively small number" of women, because not many workplaces have nurseries. Unless I am mistaken, the Chancellor has precisely followed Labour's policy on this matter. Presumably, therefore, if the Chancellor's measures will bring only a few women back to work, the Labour party's measures would bring only a small number back as well.

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

I shall give way to the hon. Gentleman, but I ask him to consider what my party has proposed, which is to issue vouchers that could be used whether or not there are workplace nurseries. Will he do that? I happily give way to him.

Photo of Tony Blair Tony Blair , Sedgefield

The right hon. Gentleman keeps saying that I treated the provisions on workplace nurseries contemptuously. That is entirely untrue. I was merely saying that they do not affect many people.

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

Then the criticism that the hon. Gentleman levels against the Government must be levelled against his party's policy, in which case it is odd for him to make it.

The Chancellor's proposals on savings are also welcome, although TESSA has a 1960s or 1970s flavour. According to the last figures that I saw, the level of debt has gone up from about 1·5 per cent. of average household income to 8 per cent. of average household income, whereas savings have dropped from around 12 per cent. to about 5 per cent. Therefore, I wonder how much money there is around to be put into new saving instruments and to what extent TESSA will be used simply to transfer savings from one account to another. The move and the instrument are welcome, but will they achieve what the Chancellor wants? If it did, that would be advantageous, but I doubt whether it would. Let us wait and see.

The Budget failed significantly in its central thrust. As the right hon. Member for Blaby said, the hole in it is its lack of entry into the ERM. That could, and should, be the rock upon which the Government base their anti-inflation policy. It is the mechanism by which the Government could give themselves room for manoeuvre. It is true that, were we to join the ERM, that might take the pressure off the pound and enable us to bring down high interest rates, which would be beneficial. However, it would also release money into the economy, which might be inflationary. That is why my right hon. and hon. Friends and I have recommended that the Government should be prepared to alter national insurance contribution rates and mortgage interest tax relief rates, so as to take about £2 billion out of the economy.

The Government have argued that we cannot afford to join the ERM because our inflation rate is too high. It is a matter of fact that our underlying inflation rate is around 6·2 per cent. of the RPI, whereas the average rate of countries within the ERM is around 5 per cent. Spain went in, on the broad band rate suggested by the right hon. Member for Blaby, with an inflation rate of around 7·1 per cent. There is not a serious problem—it is an excuse for the Prime Minister to prevent us from joining the ERM because of her personal prejudice and passion against anything European, and in particular the ERM. As somebody else has said, it is simply an elegant way of saying no. I have a strong suspicion that the timing of entry into the ERM will be tied to the timing of the removal of the right hon. Lady. It will not happen unlit she goes.

Again, the Labour party shows a depressing lack of understanding and clear commitment about what it wishes to do about the ERM. The right hon. and learned Member for Monklands, East (Mr. Smith) has said that the Labour party would like Britain to enter the ERM, but the Labour party's conditions for that remain unchanged. It has given us no idea what those conditions now amount to. It has said that we need to go in at a competitive rate. Perhaps the hon. Member for Derby, South (Mrs. Beckett) will tell us what that competitive rate will be. Is it a devaluation?

The second condition made by the Labour party is that there should be reflationary policy. It knows perfectly well that such a thing is simply unacceptable under the present conditions of the ERM, and the Bundesbank would never buy it for a moment.

Photo of Mr Giles Radice Mr Giles Radice Chair, Treasury & Civil Service Sub-Committee

My party has made it clear that we are talking about negotiating objectives. If we were in government now, we would immediately want to negotiate our way into the ERM. That is a different position from that of the Government, who are not prepared to go in at all—certainly not while they have the present Prime Minister.

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

The hon. Gentleman is making it clear that his party—I suspect that he has different views—wants to turn the ERM into a reflationary club. None of the other members of it would tolerate that.

The position of the Government and of the Opposition are almost exactly the same. The Government argue that they will not go into the ERM until inflation is down to the level of that in Germany, while the Labour party argues that it would not go into the ERM until the Germans risk putting their inflation rate up to the same as ours. There are equally clear ways to say, "We ain't gonna do it." It is inadequate and untruthful for the Labour party to claim that it has a stronger desire than the Government to go into the ERM.

Photo of Mr Martin Flannery Mr Martin Flannery , Sheffield, Hillsborough

The right hon. Gentleman will never have to face this problem, because he will never lead a Government.

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

The hon. Gentleman ought to realise that the biggest failing of his party is that, although it has become successful in opposing, it says nothing about the policies that it would introduce were it in government. The hon. Gentleman and his party are failing Britain today, although they have a real opportunity to remove the Government. They lose that opportunity by the day, because they fail to put forward proper policies. Anybody who heard the Leader of the Opposition last Friday on the "Today" programme explaining what his economic policy would be and could divine from that extraordinary collection of platitude and waffle anything that constituted something like an economic policy was capable of a divination of a high degree. The Labour party has a real opportunity to defeat the Government, but it will not do so by putting forward vacuous policies that amount to nothing.

The Budget fails in other areas. It does not realistically address the necessary steps open to the Government to protect the environment. From this Budget, I have come to the conclusion that the environment was an electoral toy with which the Prime Minister has played around and in which she has now become disinterested. The Chancellor claimed that this is a fiscally tough Budget, but we have to ask whether the £500 million that the Chancellor is taking out of the economy by bringing more people into the higher band of taxation is not more than compensated for by the £1,000 million that will be released into the economy by independent taxation. That is the moot point.

This is a weak Budget and, unless the Government are very lucky, it will be inadequate to solve the problems that confront us. The Budget does not deal seriously with those problems. It shows complacency. It is built on hope, not on solid policies. If the Government were true to their rhetoric, they would be taking risks with the Conservative party's support in the short term so as to ensure the country's stability in the long term. Instead, the Chancellor has taken risks with the economy in the long term in a vain attempt to restore the Conservative party support in the short term. We now need a party committed to free enterprise, to a just competition policy and to taking the necessary hard actions to tackle inflation. We need a party that understands the importance of Europe in that strategy, and in particular the importance of the ERM.

There was a day when some—not all—of those attributes could be claimed by the Conservative party, but not after this Budget. In it, the Chancellor takes high risks with the future. He has hoped that everything will come right. This Budget makes the point at which the Conservative party lost its nerve. If it now loses its luck as well, the price of the Budget will be high for the Conservative party, but higher still for Britain.

6 pm

Photo of Mr William Clark Mr William Clark , Croydon South

The right hon. Member for Yeovil (Mr. Ashdown) made an extraordinary speech. All that he has to offer is immediate entry into the European exchange rate mechanism. He ended his remarks by falling out with the Opposition, not with the Government. It was an extraordinary performance and I might come back to it later.

I congratulate my right hon. Friend the Chancellor of the Exchequer on the presentation of his maiden Budget. I think that hon. Members in all parts of the House will agree that his presentation was perfect. I believe that he gave us the right Budget. It has been overlooked that my right hon. Friend the Member for Blaby (Mr. Lawson) left a legacy of separate taxation of husbands and wives. That will benefit about 3 million people. I am sure that none of us will forget the achievements of my right hon. Friend the Member for Blaby.

My right hon. Friend the Chancellor of the Exchequer had a difficult decision to take. He could have gone for overkill or underkill. In the event, he presented a roughly neutral Budget. He did not opt for overkill because, obviously, he did not want to risk recession. The Budget achieved about the right balance. I agree that the City's reaction was not all that favourable, but I am sure that hon. Members who have connections with the City will agree that there seems to be too much computerisation. Far too much time is spent looking at "boxes". When the programme says sell, they sell. When it says buy, they buy. Sensitivity, on other occasions a lack of sensitivity, and instant statements have an effect on our currency.

The hon. Member for Sedgefield (Mr. Blair) did his best to denigrate the economy, but it cannot be all that sick when we consider the amount of foreign investment that comes into the country weekly. The Japanese, the Germans and the Americans, for example, are confident in investing in Britain. We must not over-react to the fears that some express. We must not panic ourselves into entering the exchange rate mechanism. There are those who suggest that the ERM is the panacea for all our ills, and the right hon. Member for Yeovil is at the fore of that group. My right hon. Friend the Chancellor of the Exchequer was right when he said in his Budget statement that we shall join it. It is only a question of when. There are more complications now, because we do not know what will happen with monetary union in East Germany and West Germany. The ostmark will be made convertible with the deutschmark or will be swapped with it. Helmut Kohl apparently took the decision to promise to swap and the Bundesbank did not want to have anything to do with it. So much for the so-called independence of the Bundesbank.

There is no doubt that the policy of my right hon. Friend the Chancellor of the Exchequer of a 15 per cent. base rate has slowed down spending and had an effect on the price of housing. Hon. Members on both sides of the House must accept that. No one has mentioned the fact that our exports are increasing. They increased by 11 per cent. year on year and imports reduced by 1 per cent. three months on three months. We shall not see a miracle overnight, but the trend is favourable.

The Opposition are keen on credit controls as a means of controlling expenditure. How we could have credit controls without a reintroduction of exchange control is beyond me and, I should think, beyond most people. If the Opposition say that they want credit controls, that means that they are committed to the reintroduction of exchange control, and that goes against the EEC. One of the Madrid conditions of the United Kingdom's joining the exchange rate mechanism is the abolition of exchange controls throughout the Community. If the United Kingdom is to introduce credit controls and then have to reintroduce exchange control, how is it credible for the Opposition to say that they would join the EMS? Their position is illogical.

I welcome the repayment of the national debt. About £25 billion has been repaid over the past two or three years, which has saved us about £2·5 billion a year in interest payments. I suggest to my right hon. Friend the Chancellor of the Exchequer that we should not over-rush the repayment. That would make credit far too easy for any Government. My right hon. Friend has discouraged borrowing to spend and I welcome, as did the right hon. Member for Yeovil, the concept of the tax-exempt special savings account. I believe that it will prove to be a success. Personal equity plans are extremely valuable, but there has been a tremendous switch from various forms of investment into PEP.

There was some new money, but not as much as was wanted. The catchment area for savings that we should target is the person with an income between £20,000 and £30,000 a year. That sort of person will find TESSA extremely good. My right hon. Friend the Chancellor of the Exchequer has said, in effect, "If you want to spend money and you do not have that money, the cost of borrowing it will be high." That has stopped a good deal of spending, but there are those who do not have to borrow to spend, and those people will find TESSA especially attractive. There is tremendous potential, especially when we consider that there are about 11 million shareholders. Two out of every three families own their own house. There are many more people now, compared with 1979, who have something to conserve.

I regret that action was not taken on disincorporation. A family business pays capital gains tax on whatever assets it may sell. When the family tries to get the money out of the family company, it has to pay capital gains tax again. It is double taxation. I remind my right hon. Friend the Chancellor of the Exchequer that about two years ago a discussion paper was produced. It has been discussed, and I understand that many representations have been submitted to the Treasury. I hope that my right hon. Friend will let me know what is happening.

I am struck by the absence of suggestions or options from the Opposition. It is worthy of an entry in the "Guinness Book of Records". During the by-election campaign in Mid-Staffordshire the Labour party did not hold a public meeting. No answer was given to any question asked. Surely the Opposition do not think that they will be able to adopt the same stance at a general election. Do they think that it will be sufficient merely to make vague statements attacking the Conservative party's policies? That would be a con trick on the electorate.

Before 1979, many U-turns were made to the detriment of the economy and, incidentally, to the detriment of the Conservative party politically. We must go for the long-term future of the country. Of course, we are extremely unpopular at the moment, but there is no point in trying to relax polices just to gain votes. There are some rough seas ahead, but my right hon. Friend is on the right track. If he stays on course, we will succeed.

Photo of Mr Robert Sheldon Mr Robert Sheldon Chair, Public Accounts Committee, Chair, Public Accounts Committee 6:10 pm, 26th March 1990

The hon. Member for Croydon, South (Sir W. Clark) thinks that the Budget judgment is just about right. It is hard to get a Budget judgment just right, and the Chancellor bears an awesome responsibility for that.

I share one sentiment with the right hon. Gentleman, which is his admiration for Jain Macleod. My view on the Budget judgment follows that of lain Macleod. His beliefs are not mine, but his approach to political life and the standards that he held earned him the respect and regard of many people outside his party. It is more than 20 years since he said that the Budget that was cheered on the day that it was delivered tended to look rather different later. I and many others made similar points, even before that occasion. I am sure that we could go back to the last century and find similar views. However, rarely have we seen the waving, cheering and shouting that occurred at the end of the Budget statement last week, which was then repudiated by so many the following day. The poll tax remained a problem and there was a failure to deal effectively with the pound, which resulted in Bank of England intervention.

The Chancellor was generous to his right hon. Friend the Member for Blaby (Mr. Lawson). He did not blame him for his inheritance—and in these rather less scrupulous times, he earned the respect of some of us for that. The right hon. Member for Blaby thought that the exchange rate mechanism was enormously important. The reduction of inflation is the Government's principal objective, which the Chancellor confirmed in his Budget statement. The right hon. Member for Blaby thought the main way to achieve that objective was through the exchange rate mechanism. Having been denied the use of that method, it was honourable of him to resign. The present Chancellor may face a similar problem in due course.

I wish to pose two questions about the Budget. First, was it tough, and secondly, was it directed towards a general election in 1991 or 1992 or towards our economic problems? The answer to the first question came the following day with the problems of a declining pound. All Chancellors face that problem because to show toughness towards those on whom they depend to retain the value of the pound means that they frequently have to do things that they do not like. Pressures were constantly placed upon the last Labour Government to increase prescription charges. That was unimportant economically, but it showed that we were anxious to satisfy the market and do those things that we disliked most. The parallel for this Government is an increase in income tax. It may not have meant a great deal in terms of withdrawing sums of money from demand, but doing what they disliked would have shown the seriousness of the Government in their attack on inflation.

In view of the Government's difficulties in trying to engineer a recession, it did not make political and economic sense to have the pre-election boomlet in 1988. It could not be avoided because the decision was taken in the light of other matters about which the then Chancellor could not convince the Government. The Government's difficulty was simple—they wanted to engineer a recession but could not do it. They have been trying to do that for more than 18 months. In the past, the simplest way to achieve that would have been to increase taxation and Excise duties and so reduce demand, but they did not do that. I understand the difficulty with VAT, because it is a simple tax of 15 per cent. It is not as easy to change it as it was to change purchase tax. However, income tax was readily available, but the Government did not know how to deal with the ghosts of the past.

The Government were left with just one club because all the others had been thrown away. Credit restraint might have sent the right signals. Although it might not have meant a great deal in theory, we should not underestimate the importance of such actions in practice on markets and individuals. Having been trailed for more than 18 months—and I believe that we are now heading for a real recession—such action may not now be worth resurrecting. It would have been available, but the opportunity was missed.

Only the day after the Budget, I received another massive credit offer, almost geared to the Budget, asking me to borrow some more money. The problem is that we are relying on interest rates, which also increase the income of savers. Although those who borrow lose during the time of high interest rates, those who save gain. We are not sure of how much those who gain then spend.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

Does my right hon. Friend agree that it is a terrible condemnation of the Government that, even with such high interest rates, which mean high interest for savers, the Government still had to give tax subsidies to savers?

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

The Government were in a dilemma. Everyone knows that they should have increased income tax. They could also have done more with Excise duties last year, but that time has now passed. It is usual to increase taxes if we want to reduce levels of inflation and demand. The Government were boxed in; they had only the one club and they did not use it wisely.

Borrowers spend less, but lenders may spend more because of the increased interest on their savings. The problem with soaring house prices is that more and more people spend up to the level of their income, fully satisfied that they can afford it. Many people feel that they need less money for a rainy day because the value of their house represents the savings that people used to make in the Post Office, with saving certificates, and so on. They now believe that they have a valuable cushion, so if they find themselves temporarily short of money, they borrow against their house to maintain their standard of living. The more the Chancellor tells them that there are good times around the corner, the more readily can they justify that borrowing, which they will believe will be short term.

The medium-term financial strategy states that the central objective is the defeat of inflation. I have the 1980–81 financial report—which I treasure—by the right hon. Member for Blaby. The very first sentence states: The Government's objectives for the medium term are to bring down the rate of inflation. The Government have been in office for 11 years. What is a medium-term financial strategy? According to the current Red Book, it will be another four years before inflation significantly reduces. It is the longest term medium-term financial strategy that I have ever known.

The proposed solutions are similar to what they were 10 years ago. The Government produced the figures for the money supply decreasing year by year until the magic year four years on. It is now four years on and the figures are the same. Who believes them now? The price rises in 1974, about which the Prime Minister makes something every Question Time, were due to the quintupling of oil prices.

Page 11 of the Red Book states: Reductions in marginal tax rates have increased incentives to work and save, and improved the quality of investment. I wish that were true. Not long ago I went to the opening of a bank that had carpets up the wall. Another bank had leather lining the whole of its office space. Banks get the same investment and capital allowances as anybody who buys plant and machinery. They get a 25 per cent. reduction in the first year. Plant and machinery is worth more than that. That is the problem.

Page 11 talks about A firm fiscal policy … Frequent … changes … are harmful. I am not sure that that is so. The right hon. Member for Blaby pointed out that tax changes should be rare, and, presumably, always downwards. Why should he have that view about tax changes? What is so holy about them? Why should they not be used for short-term alterations in people's perceptions? Why should that be left to interest rates? We never heard such an argument previously. Perhaps the Chancellor of the Exchequer will deal with that.

The Chancellor has said that he does not want to reduce interest rates because he may have to increase them again. Why should they not be used in accordance with varying circumstances? We know that he believes in short-term changes, so why should he deny himself this particular opportunity? When in the Red Book he says that monetary growth is excessive with too much money chasing too few goods, it sounds suspiciously like demand management as I used to know it. Indeed, I cannot see any difference between that formulation and demand management. With all those qualifications for money supply, is there a monetary policy at all? It is like reading tea leaves. If we see a forest or a baby in the tea leaves, we can justify it. The justification for the money supply is the same.

My second question was whether it was a Budget for the economy or for the next election. It was a balancing act and I am not sure that the Chancellor will reach the end of the tightrope safely. In 1988 the goodies were handed out too early to the Government's friends. It is a pity that they were not handed out more fairly. It is normal to hand out goodies nearer to a general election. If the Government did that for political reason, they got it wrong, and if it was for economic reasons, they also got it wrong. The inheritance— the Chancellor is kind not to refer to it—meant that the boom came at the wrong moment.

With a deficit of £21 billion a year, we have to appear a safe haven for overseas borrowing. That meant a hard Budget, but with an election only two years away it also meant that politically the Buget could not be as harsh as those who lend us money would like. Therefore, the answer to whether this is a harsh Budget is that it is not hard enough for overseas investors, and the markets expressed their anxieties.

In his Budget statement, the Chancellor said: I favour a strong exchange rate. That is not a ringing declaration, if one is trying to calm the nerves of those who deposit money here. Overseas investors look at these matters day by day because they know that once that commitment is not expressed, it is time to withdraw their money.

Photo of Mr John Major Mr John Major , Huntingdon

I appreciate the graciousness with which the right hon. Gentleman makes his remarks. Is he aware that, although it is true that sterling fell the day after the Budget, it has since risen and is now higher than when I rose to deliver the Budget speech?

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

We must see first the amount of intervention by the Bank of England, and secondly, the long-term reaction of the markets as the Budget affects them.

In his Budget statement, the Chancellor said: I am confident that the period of low growth will be short-lived—not least because of the permanent improvements in the underlying economy in the 1980s."—[Official Report, 20 March 1990; Vol. 169, c. 1011-14.] Comparing 1979 with 1990, what are the permanent achievements? In the last full year of the Labour Government the balance of payments stood at plus £5 billion, whereas last year it was minus £21 billion. The non-visible balance is disappearing. In May 1979 inflation was 10·3 per cent., whereas in 1980 it was 21·9 per cent. That was not because of the quintupling of oil prices, but partly because of the doubling of VAT. Is there a permanent improvement? Inflation will increase to 9·5 per cent. as against the Labour Government's 10·3 per cent. Since the 1950s output has fallen only under this Government. In Tameside and Stockport we had 20,000 skilled engineers; now we have only 5,000. Questions about skills remain supremely relevant. Where is the permanent improvement?

Photo of Mr Barry Field Mr Barry Field , Isle of Wight

Will the right hon. Gentleman tell us the productivity of those 5,000 engineers compared with the 20,000? In most cases they now have multiple-headed machines and computerised lathes which have increased output.

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

The difficulty is that total output has fallen in those engineering companies. Their output is not what it used to be. More important, companies are crying out for skilled engineers. There is a shortage.

If there is a permanent improvement in the standard of living, how is it achieved? North sea oil revenues are £85 billion which has an effect on the balance of payments. We have to borrow to maintain our standard of living and sell our assets—£5 billion a year—to maintain our standard of living. Is that a permanent improvement? What happens when there are no assets to sell? The average family paid 35 per cent. in income tax in 1979, whereas now it is 37 per cent. Is that a permanent improvement? In 1979 unemployment was just over 1 million whereas today it is 2 million.

According to the Prime Minister recently, France is an economy to aspire to. In 1979 we would have been insulted if it was suggested that we should aspire to the French economy. We now find that, according to the European Commission and the Organisation for Economic Co-operation and Development, Italy has a greater level of production than Britain. Will we have to aspire to Italy? Are we going to continue to go down and to aspire to the performance of countries that we thought we had long since overtaken, in the 17th and 18th centuries? The permanent improvements, in the underlying economy which the Government boast about do not exist. Industry has suffered. There is no doubt that it has suffered in my constituency, and I feel it greatly.

If we had made those sacrifices for the benefit of permanent improvements, we could have borne them and accepted them willingly, but we find that the sacrifices have been in vain. We have wasted years and this Government will shortly come to an end.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing 6:30 pm, 26th March 1990

I join those hon. Members who have congratulated my right hon. Friend the Chancellor on his presentation of the Budget. He is a new Chancellor, the Budget was being televised for the first time, and he had remarkably little scope for manoeuvre in the Budget, but he performed his task with considerable distinction and he put forward his proposals with great cogency. I join those hon. Members who have wished him well.

In his opening remarks the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) referred to a statement by the late lain MacLeod—with whom I had the privilege of sitting on the Opposition Front Bench and on the Government Front Bench before his untimely death—to the effect that if a Budget looked good on Budget day it was often viewed differently by Second Reading. He also said that it worked both ways, and that if a Budget did not look good on Budget day it might look better by Second Reading. Since my right hon. Friend's Budget was received with reasonable appreciation, it will continue to be so received in future.

I welcome a number of my right hon. Friend's proposals, in particular the abolition of the composite tax rate for building society accounts, which will mean that many of my poorer constituents who have previously been paying income tax in that form but in no other will no longer be subjected to it. Those people who ought to pay the full rate of tax will do so.

I welcome what my right hon. Friend the Chancellor said about savings and the proposals that he made on that subject. I also welcome the fact that he raised the lower threshold for income tax but not the higher rate threshold. That shows a regard for people on low pay, despite the fact that many people, in anticipating the Budget, did not believe that he would do such a thing.

I welcome the increases that my right hon. Friend has made in indirect taxation, particularly on tobacco and alcohol. On social grounds there is a case for that increase. Those taxes were not increased last year. My right hon. Friend has more than adequately coped with inflation since then. Also his action is a clear sign to the European Community that we do not propose to go along with its proposals for the harmonisation of indirect taxation. My right hon. Friend's decision was a clear move in the opposite direction, and I welcome that because, as the Treasury and Civil Service Select Committee has pointed out, there is no argument for going along that road, particularly in regard to value added tax, to achieve the benefits of the single market in 1992. Therefore, the increase in indirect taxation should be welcomed as much for the implication of the change as for the change itself.

The major change taking place in the United Kingdom with the introduction of the community charge is in the system of local government finance—both in taxation and in expenditure. Clearly a number of anomalies exist that need to be straightened out in the light of experience. Some of them arise because local authorities have been given too much authority, for example, over the level of tax that should be applied to second homes. Some of the definitions of second homes have been nothing short of bizarre. Other anomalies need to be straightened out.

One matter which gives particular cause for concern is the substantial increase in local government exenditure. It is shown in the Red Book as a clear increase in the percentage of public expenditure in relation to gross domestic product, despite the fact that the estimate for GDP has been raised. That gives considerable cause for concern. It is uncertain to what extent the increase has been balanced by an increase in local government taxation in the form of the community charge, but its effects, in terms of controlling public expenditure, give cause for concern. Whereas previously the extra money would have come out of reserves, both expenditure and taxation are now increasing as a result of local authorities' actions. We have to consider that carefully. I hope that the Treasury and Civil Service Select Committee, when it studies the Budget and takes evidence from my right hon. Friend the Chancellor, will be able to consider that unfortunate development and its implications for the Treasury's control of the economy.

The community charge sets the context in which the Government's overall budget is made. The changes I have mentioned in regard to the community charge may have a significantly greater impact than the Budget. Protests about the community charge have had considerable publicity, and it has been extremely difficult for anyone to put over the positive case for the tax. I strongly believe that it is a much fairer tax than the old rating system. Previously only 18 million of the electorate of 36 million paid any local taxation, and that was unfair. The community charge is a significant improvement.

A slogan appeared outside my town hall a little while ago saying, "The duke and the dustman pay the same". That is not the case. People at the bottom of the income scale will have substantial relief from the community charge. People with higher incomes may pay just the community charge, but they will still pay far less than the cost of the services provided to the community by the local authority. That is not an unfair arrangement. More than the cost of local services will be paid by people who are better off, for the simple reason that, taking the country as a whole, only a quarter of the cost of the services comes from the community charge, a quarter comes from business and something like a half from general taxation, which is levied on a progressive basis.

I hope that my right hon. Friend the Chancellor and his colleagues will be able to get across the fundamental arguments in favour of the change. Frankly, those arguments have not been adequately explained.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

No, because there is little time and I wish to make a number of other points.

On the Budget judgment, the way in which the grant system works also gives me grave concern. That is part of the problem. I greatly welcome the transition from rates to the community charge, but I have serious doubts about the way in which the grants system works. The change in local government finance is subject to Higgins first law of politics, which states that when there is any economic change the people who suffer will scream much louder than the people who benefit will cheer. That is a fact of political life and there is nothing we can do about it. However, we need to emphasise the fundamental case for the charge, and suggest that if people use local authority services they should pay something towards the cost. If people pay the community charge but not general taxation, they will still pay way under half of the cost of those services, but even that will improve accountability.

The Treasury and Civil Service Select Committee has had difficulty in finding suitable catch phrases for the Budget judgment. When the Chancellor of the Exchequer last appeared before the Committee, he suggested that he was a surfboarder in perilous waters. We have long used the analogy of balancing on a tightrope between inflation and recession. I believe that this time my right hon. Friend's Budget judgment was right. But not only is he on a tightrope; he is also on a tightrope in a very thick economic fog. This means that caution is an appropriate response.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

No. I am sorry, I do not have much time left.

The statistics upon which my right hon. Friend had to rely in formulating his Budget were in many ways seriously defective, in particular the retail sales figures. No one doubts that the high streets are considerably depressed by the action that my right hon. Friend has taken. That is, rightly, having an impact on the economy. However, it is not coming through yet in the statistics. That is creating real problems for him.

Apart from the impact of the change from rates to the community charge and the corresponding increase in public expenditure, the change is also likely to have an uncertain impact on consumption. Those who gain from the transition may save the proceeds, whereas those who now have to pay something towards the cost of local services will not have money to spend on something else. The precise impact on the economy is at this stage uncertain.

Finally, it is likely that there will be increased pressure on interest rates worldwide. Recent Japanese experience has suggested that that will be so. The transition in Germany, with the integration of the two currencies, may also raise the general level of interest rates. In those circumstances, I doubt whether my right hon. Friend, who until now has, rightly, resisted further interest rate increases in the United Kingdom, will be able to continue to do so, if interest rate increases overseas are significantly large. If that happens, it will have a significant depressing effect on the United Kingdom economy.

Against the uncertain background that I have described, and in the face of this potential threat, if my right hon. Friend had introduced a tough Budget of the kind that some City commentators wished him to introduce, there would have been a serious risk that in two or three months we should have been driven into a severe recession, with considerable implications for output and unemployment. That would have been particularly dangerous, at a time when wage settlements continue to be significantly inflationary. The two opposing forces would project a conjuncture not dissimilar from that in 1980–81, when the consequences for unemployment were very serious.

My conclusion is that, in the circumstances, my right hon. Friend's judgment was right. On reflection, I believe that it will be recognised as having been a sensible judgment. It might have been much easier to introduce the Budget in three months' time, by which time many of the present uncertainties may have been resolved, but no Chancellor of the Exchequer has such an option. I hope, therefore, that the Treasury and Civil Service Select Committee will be able to investigate the matter in detail.

My right hon. Friend referred to the passages on funding policy in the Red Book. As the right hon. Member for Ashton-under-Lyne said, it is difficult to appraise just how tight or tough the Budget is and precisely what is the fiscal stance. At all events, however, we are still running, and are projected to run, a massive Budget surplus compared with previous times. It is important to take into account the fact that up to now the Government's policy of so-called "full unfunding" has meant that much of the money that was taken out of the economy has been put back by back-door means. With a surplus, therefore, my right hon. Friend has considerable scope for tightening the reins, if that seems appropriate in the weeks and months to come.

In all the circumstances, what my right hon. Friend has done is right. He has introduced many excellent specific measures, as well as taken an overall view of the economy, which is the right one to take in present circumstances.

Photo of Mr Giles Radice Mr Giles Radice Chair, Treasury & Civil Service Sub-Committee 6:44 pm, 26th March 1990

I am delighted to follow the right hon. Member for Worthing (Mr. Higgins), who is such an excellent Chairman of the Treasury and Civil Service Select Committee. I want to follow up what he said about the poll tax and the Budget judgment, but I shall not do so at the moment. I noted his remark about the Chancellor of the Exchequer being on a tightrope in an economic fog. If one is on a tightrope in an economic fog, there is a great danger that one will fall off. Perhaps the right hon. Member for Worthing was warning the Chancellor that he is about to fall off the tightrope.

I felt some sympathy for the Chancellor of the Exchequer when he spoke on Tuesday. By any standards, he has been dealt an exceptionally weak hand. He inherited from his predecessor an economy which is severely out of balance, with a high inflation rate, relative to our competitors, a large balance of payments deficit and crippling interest rates. However, he was also faced with a difficult political situation. The Chancellor's dilemma was compounded by the Government's political plight. It is difficult to make the right economic decisions if one is already 20 points behind in the opinion polls, with only two years to go before the next general election.

Until last Tuesday I thought that the Chancellor, at least in terms of style, was not making too bad a job of it. Sensibly, he has adopted a demeanour that is far more appropriate to the current problems than was the brash approach adopted by his predecessor. The right hon. Member for Blaby (Mr. Lawson) was never a credible Chancellor of the Exchequer of the bad times. At least the right hon. Member for Huntingdon (Mr Major) has had the nous to admit that mistakes have been made, something which his predecessor could never bring himself to do. In contrast to the previous Chancellor, the right hon. Member for Huntingdon consulted relatively widely when preparing his Budget. However, we all waited to find out whether the Chancellor's economics were as good as his style. Sadly, his Budget proved to be a disappointment— so much so that on Tuesday it was rejected by the Scots, on Wednesday by the markets and on Thursday by the voters of Mid-Staffordshire.

The Chancellor would be able to shrug off the hostile reception as a short-term setback if he could convincingly demonstrate that his strategies are likely to be successful in the longer term. I very much doubt, though, whether he can. To be effective, the Chancellor's policies have to achieve the following objectives. They must slow down the economy, reduce inflation and shift resources from imports to exports without, at the same time, clobbering output and investment and undermining productive potential, thus leading to new unemployment. In the meantime, the Chancellor must keep the markets happy, despite our relatively poor inflation record, our very large balance of payments deficit and a very uncertain European and international situation. Finally, because the Chancellor is a politician, his policies must succeed enough for him to be able to present the voters with at least a passable prospectus in time for an election in late 1991 or in 1992.

My judgment is that the Chancellor's Budget strategy will not achieve those objectives. It will not do enough to get the economy back into balance, it will fail to satisfy the markets in the longer term, and, because it will continue the pain without producing satisfactory evidence that it is working, it will also be a resounding political failure. In short, we shall get the worst of all worlds.

The Chancellor's policy is flawed in three crucial respects. It relies far too heavily on interest rates; it is not supported—as was pointed out by the right hon. Member for Blaby (Mr. Lawson)—by a credible exchange rate strategy; and, as my. hon. Friend the Member for Sedgefield (Mr. Blair) said in a notable speech, it ignores the long-term requirements of the economy.

Like the previous Chancellor, the right hon. Gentleman has confirmed his faith in interest rates as "the key lever". However, the Chancellor's lever is a very blunt instrument. In his column in The Independent on Sunday yesterday, Christopher Huhne quoted Professor Paish's description, which is worth repeating: It is like pulling a brick across a table top with a piece of elastic: nothing happens for ages, and then the brick hits you in the eye.

That is the problem with high interest rates. As we all know, there are also some unpleasant side effects on the way. Quite apart from the impact on mortgage holders, there are already signs that the welcome investment boom of the past two years is being choked off. Inevitably, mortgage rate increases will be reflected in wage bargaining, thus adding to the inflationary spiral. In other words, the result of slowing down the economy through high interest rates is likely to be unpredictable and disruptive.

There is a case to be made for alternative monetary measures. The Chancellor is belatedly urging the financial institutions to restrain their marketing of credit facilities. It is about time. Page 18 of the Red Book contains a note on the practice in France and Germany of imposing minimum reserve asset ratios.

However, the case that I wish to make concerns not the alternative monetary arrangements, but the fact that the Chancellor should have been prepared to use fiscal policy in his Budget. Like his predecessor, the Chancellor says that he is against fine tuning. I suspect, however, that his apparent opposition in principle amounts to little more than a debating point. Despite the previous Chancellor's unprovable assertions about the improvements to the supply side, he was not averse to some fiscal fine tuning in the form of tax cuts in the run-up to the 1987 election—or, indeed, in 1988.

A more serious counter-argument is that the economy is already heading towards recession, which was the point made by the right hon. Member for Worthing. A tighter fiscal stance, it is argued, would merely pile on the agony, and it is better to wait and see what happens. That appears to be the Chancellor's strategy. In my view, such fiscal Micawberism is mistaken. Like the right hon. Member for Worthing, I predict that the Chancellor will be forced to raise interest rates again quite soon, partly in reaction to what is happening in Germany and Japan. That would be disastrous. A further rise in interest rates will clobber the real economy and bring in its wake precisely the recession that the Chancellor says that he is trying to avoid.

If the Chancellor had been prepared to act on the fiscal front in the Budget, he would have been in a better position to resist recession in the coming months. Even a modest increase in the tax take—between £1 billion and £2 billion—would have been a psychological signal both to the market and to consumers. And, because it would assist in dampening demand directly, raising taxes would help pave the way for a reduction in interest rates at the right time, and thus relieve pressure on companies and enable them to concentrate on winning orders in export markets. In that way it would be possible to maintain output, investment and employment, while at the same time bringing the economy back into balance more speedily by reducing inflation and cutting the trade deficit.

I suspect that the real reason why the Chancellor did not feel able to raise the overall yield from taxes by more than £500 million was that the Government have almost totally lost their political authority. An administration who were foolish enough to introduce the uniquely unpopular poll tax this year could not afford at the same time to increase national taxes.

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

I have listened to the hon. Gentleman's speech with some interest. He is making more sense from the Opposition Back Benches about what the Government might have done than any Opposition Front-Bencher whom I have heard. Can he tell the House whether raising taxation is Labour party policy?

Photo of Mr Giles Radice Mr Giles Radice Chair, Treasury & Civil Service Sub-Committee

I was speaking for myself; I do not commit my Front Bench. It is easy enough for the right hon. Member for Yeovil (Mr. Ashdown) to speak for himself, because there are not many people behind him; indeed, at the moment there is no one alongside him. There are proposals in Labour's alternative Budget to raise taxes—for instance, on company cars—such as the Chancellor introduced. There are also some green Budget proposals—

Photo of Mr John Major Mr John Major , Huntingdon

In not committing his Front Bench to anything the hon. Member for Durham, North (Mr. Radice) is wise, and he is following precisely the practice of his own Front Bench. I have here a quote from a distinguished economic correspondent, who said that my decision to go for a broadly neutral budget was finely judged, but a good one.

The extra £1 billion or so of fiscal tightening the City had been calling for would have made little difference … Major was probably right to resist such tightening, which would have been fine-tuning of the worst sort." That was written in yesterday's Sunday Times by Professor David Currie, who has from time to time advised the Labour party Front Bench.

Photo of Mr Giles Radice Mr Giles Radice Chair, Treasury & Civil Service Sub-Committee

Different advisers give different views. In the Treasury Select Committee we have a wide range of advice from advisers giving different views on different matters, but the majority of commentators argue that the Chancellor should have taken tough fiscal measures in his Budget.

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

The question is whether the Government are prepared to use any of the weapons available to them. If the view is taken that for political reasons the Government are not prepared to use the interest rate weapon, it may be necessary to use a less attractive weapon, namely taxation.

Photo of Mr Giles Radice Mr Giles Radice Chair, Treasury & Civil Service Sub-Committee

I entirely agree. We must get away from the mumbo-jumbo that says that the fiscal weapon cannot be used in the short term. That is the doctrine enuciated by the previous Chancellor, and it is wrong. It is time to get away from it. We must examine the position seriously, which is what I have been trying to do.

The Chancellor ducked the issue because he lacked the political authority. This was primarily a political and not an economic judgment.

Photo of Mr Giles Radice Mr Giles Radice Chair, Treasury & Civil Service Sub-Committee

I will not give way. I have already given way four times, which is unusual for a Back Bencher.

The Government's lack of authority is also a problem in financial markets. Most City commentators—rightly, I think—expect the value of the pound to continue to drift down during 1990. As the right hon. Member for Blaby said, that will make it more difficult to reduce inflation.

If the Chancellor had been able to announce that Britain would be joining the exchange rate mechanism in the near future, he might have been able to keep the pound steady over the next few months. However, as everyone knows, the Prime Minister has veteod British membership. I do not know whether she will gradually succumb to pressure from the Chancellor and his right hon. Friends over the coming months. She may, or perhaps—as the right hon. Member for Yeovil suggested—it will be necessary to get rid of the Prime Minister before changing the policy. Only the Conservative party can answer that conundrum.

British membership of the exchange rate mechanism is not a panacea, but it would greatly assist a British Chancellor to maintain a stable exchange rate in difficult circumstances. It would also provide a useful counterinflationary discipline for both industry and Government. In time, as our inflation rate came down to nearer to the German level—as the French rate has done—it would probably lead to a reduction in interest rates as well. So it would have positive advantages and the sooner we join the better.

The Chancellor's strategy also ignores the long term. Apart from a token gesture towards training, neither the Autumn Statement nor the Budget offers anything constructive to improve education and training, to strengthen our research and development or to reduce our regional imbalance. Yet the skill, research and all-round effort of people in the north as well as in the south represent the real supply side of the economy. As my hon. Friend the Member for Sedgefield said, we neglect those areas at our peril. I suspect that this year's Budget will be remembered—if it is remembered at all—as a short-term Budget with short-term objectives by a short-term Chancellor.

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

Order. We are now into the 10-minute limit for speeches and wise hon. Members should keep an eye on the clock for themselves so as not to allow the Chair to ruin the last minutes of their speeches by the inevitable guillotine that will be imposed by me.

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham 7:01 pm, 26th March 1990

Every Opposition Member who has spoken has suggested increasing the rates of income tax. I know that that is the result of their experience in government as that was their custom, but there is one considerable difference between the position today and that under successive Labour Governments: we do not have a financial deficit; in fact, we have had a substantial financial surplus for the past two years, and that is unique in the experience of the past 20 years or longer.

The case for increasing income tax has not been made because our position is fundamentally different. Moreover, my right hon. Friend the Chancellor was not averse to putting up taxation, because, as hon. Members have recognised, he raised the excise duties by more than the rate of inflation. That does not show any lack of authority, still less any lack of courage, on the part of my right hon. Friend.

I know that many in the City felt that the Budget should have done more to take demand out of the economy, and many of them sought increases in direct taxation. I recollect that 365 economists wrote a letter to The Times in 1981, after the Budget of my right hon. Friend the Leader of the House, saying that it would result in rapid inflation, but they were all proved wrong. The proposition put forward by those in the City and by economists that we should have taken more out of the economy by increasing direct taxation was also wrong. I do not believe that we have a choice between increasing direct taxation and reducing interest rates. Our interest rates are extremely competitive, and it is by no means certain that had we increased taxation we should thereby have been able to reduce interest rates later. I very much doubt whether that would have been the case. One has only to look at what is happening now in Japan, and to a similar extent in West Germany, to realise the truth of that observation.

I do not know what the House thinks will happen as we all have different views, but I suggest that the demand for money in eastern Europe will be extremely large in the foreseeable future. The effect of that demand will be similar to the large transfer of resources that occurred during the last hike in oil prices when so much money went to the middle east. It is no longer the case that we can envisage a gradually growing world economy in which interest rates accommodate a flow of money from surplus countries to debtor countries. There is bound to be a huge demand for money and for funds which will be attractive to investors all over the world. That brings me to the exchange rate mechanism.

The conditions we have set for joining the exchange rate mechanism are that the French and Italians should discard capital controls and that we should more nearly approximate to the rate of inflation and the interest rate in West Germany. Naturally, many people consider that that will happen over a period in which our inflation rate falls and our interest rate falls with it, but I suggest that, because of the extra demand for funds in eastern Europe, interest rates in West Germany are likely to be rather higher than one would normally expect as perhaps will be the rate of inflation, for however temporary a period. West German interest rates at 9·5 per cent. for long-term funds are extremely high, historically speaking, and it is by no means certain that the limit has yet been reached. So, by a curious twist which was in no sense expected, the convergence between our inflation rate and interest rate and those in West Germany will now occur because the West German rates are likely to increase and we expect ours to fall somewhat.

We must also consider the effectiveness of our monetary controls. I must tell my right hon. Friend the Chancellor that I have enthusiasm for almost every part of the Budget save only that part dealing with monetary policy. It may well be that I am shamefully out of date in these matters, but MO does not register with me as an indication of anything except for banks and notes in circulation and as a snapshot of the economy at any particular moment.

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham

No. I have very limited time.

We should have proper monetary targets for broad money and for narrow money, as almost every other European country has, and we should stick to them. It is not difficult or impossible to do so if the will and determination are there, although I accept that many sacrifices will have to be made. It is no use thinking that the exchange rate mechanism is an alternative to strict monetary policy. It is no such thing.

I recognise that Britain has to face peculiar difficulties as it is the centre of so many money movements across the exchange rates and has such a wide comprehensive financial market. However, it would be of great benefit to Britain if we were to have a separate and strengthened Bank of England responsible for monetary policy. I have thought that for some time, and I hope that my right hon. Friend will be able to pursue a study which I understand my right hon. Friend the Member for Blaby (Mr. Lawson) set in train.

I wholly congratulate my right hon. Friend the Chancellor on scrapping the composite rate of tax for depositors in buidling societies and for creating the new tax-exempt special savings account. I understand that £1,000 billion out of a total personal wealth of £1,860 billion is tied up in housing. Although I defer to nobody in my enthusiasm for the property-owning democracy, so much of our personal wealth being stored in bricks and mortar is not producing the supply-side revolution of which Britain is capable. I should like relief similar to the £30,000 mortgage taxation relief for those who want to start a personal savings scheme or to encourage entrepreneurs to set up in business. Taking the long-term economic view, I think that it does not make sense to freeze such a large proportion of our national assets in this way. I do not think that it is done in other countries to anything like the same degree. If one looks at the matter independently and in a reasoned way, one can only come to the conclusion that the proposition that we ought to set out to achieve such a situation is very strange.

There is competition for money because of the demand for investment in eastern Europe. That demand will certainly be met. We can expect to see in eastern Europe an increase in productivity and in production such as has not been seen since the start of the industrial revolution in the United States, when hundreds of thousands of people moved from western Europe to set in motion the biggest industrial revolution of all time. We have in prospect an economic revolution limitless in scope such as we have not seen since the beginning of the European Community. With wider European boundaries, we in western Europe can expect to see a substantial improvement.

I congratulate my right hon. Friend on his Budget, and wish him success.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli 7:11 pm, 26th March 1990

The hon. Member for Horsham (Sir P. Hordern) has made a very interesting and a very sensible speech. Unfortunately, because of the time limit, I am unable to respond to many of his arguments.

The Government have been desperately anxious to describe this as a tough Budget. Treasury Ministers repeated the phrase with Pavlovian predictability. The current Leader of the House, who was the first Chancellor of the Thatcher era, and has now acquired something of a reputation as a bull terrier of monetarism, was wheeled out a few days before the Budget to say in a speech that it was likely to be a tough Budget. I wondered at the time how he knew. I know now that he did not know. In fact, it seems that he was fed some dud information.

This is a timid Budget. I am sorry to say that it is the Budget of a frightened Chancellor. I do not blame him for being frightened. He is frightened by his economic inheritance—if "inheritance" is the right word—he is frightened by his Back Benchers, and, quite properly, he is frightened by the British electorate. The Tory party was elected in 1979 mainly to defeat inflation. This it has failed abysmally to do. At the moment, inflation, as measured by the RPI, stands at 7·5 per cent., and it will probably go up to 9·5 or 10 per cent. in the next few months. That is three times as high as the rate of our principal competitors in Europe—France and Germany. The French have managed to get their inflation down almost to the German level. But the rate in Britain is three times as high as the average for the seven major economies of the world.

The Prime Minister owes the British public an explanation, but they will not get it. The right hon. Lady really ought to explain to the British public why her Government, having invested so much in the defeat of inflation, cannot do as well as the French, the Germans and our other competitors. Perhaps when she next goes to the EC Council of Ministers the Treasury could arrange for her a little seminar with Chancellor Kohl of the Christian Democrats and President Mitterrand of the French Socialists. They know the trick; perhaps they could explain how what they have done might be done in Britain.

The Budget has all but abandoned monetary targets and has loosened an already-loose fiscal stance. All monetary targets, except little MO—notes and coins in circulation—have been jettisoned. Indeed, the range of increase in MO this year is to be the same as for last year. Although, according to the last Budget, the range of increase was to be reduced from I to 5 per cent. to 0 to 4 per cent., it is above the 1 to 5 per cent. range already. Even last year it was above 5 per cent. Does anyone seriously believe that if, over the next few months, the Chancellor sees MO again exceeding the target of 1 to 5 per cent. he will increase interest rates? Of course he will not. The pound may go down. At the end of the day, interest rates would be increased to stop a run on the pound. But if the pound goes down slowly and gradually, the Treasury will sit back. There will be benign neglect. If it looks as if the slide is getting out of control, the reserves will be thrown at it. Ultimately, if the reserves do not do the job—because they are running out—interest rates will go up. But only then will this Chancellor put interest rates up. Only then will he use monetary methods.

As a result, I do not see that the Government have any alternative, on the monetary side, to eventually joining the exchange rate mechanism of the EMS. To put it brutally, that means allowing Herr Otto Poehl of the Bundesbank to run our monetary policy. The Prime Minister may not like it. She may kick and scream, but she will have to accept it. In the end, she will have nobody but herself to blame for the failure, over 10 years, to establish a proper and sensible monetary policy.

Then there is fiscal policy. The Chancellor tells us that fiscal policy is meant to bolster—I think "bolster" is the word he used—monetary policy.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I was about to say that it was a pretty soft bolster; perhaps I should say, instead, that it was a pretty thin and wobbly buttress.

So far as I understand it, the Government define fiscal policy as comprising three elements: the budget surplus, tight control of public expenditure, and taxation policy. Let us look at the budget surplus. It, too, is beginning to look pretty wobbly. In the last financial year it was supposed to be £14 billion, but it turned out to be £7 billion. In the next financial year it is to be £6·9 billion. But if the privatisation proceeds are taken out of that—and there is a very good case for doing so—the figure is down to £1·9 billion. Apparently it will disappear altogether in the following year. So that element of the triad of fiscal policy does not look too sound.

Let me come now to control of public expenditure. As many commentators, including Mr. Gavin Davies, of Goldman Sachs, and others have pointed out, things are not looking too good on that front either, in respect of the medium-term strategy. On the basis of forecasts of last year, public expenditure over the next three years will be up by £7 billion, £9 billion and £15 billion respectively. That is a total of £31 billion. But it is not real resources, not real money. Those are inflationary increases. So things do not look too good even on the public expenditure side of this fiscal policy.

On the taxation front, the Budget raises an extra £430 million. When the £1 billion that is already going back into the economy, as a result of independent taxation, is taken into account, we have a minus figure. So the fiscal stance is not very tough. It does not seem to buttress very well the monetary policy, which itself is a shambles.

The Chancellor and the Government are now in a very tight corner—and the Chancellor knows it. If he introduces tough measures to get inflation down, the next election will be lost; if he does not introduce tough measures to get inflation down, the next election will be lost anyway. He is in a corner, and he cannot get out of it.

Photo of Mr John Major Mr John Major , Huntingdon

What would the right hon. Gentleman do?

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

Opposition Back Benchers do not have to make recommendations. Indeed, I commend the Opposition Back Benches to the Chancellor—it is a very comfortable place.

The present Government have had one of the easiest and most favourable 10—year periods since before 1914. They could have used those 10 years to build a foundation for the much more difficult 10 years that Britain will face in the 1990s. They neglected to do so, and for that reason, if for no other, they deserve to lose the next election, and they will do so.

Photo of Mr Barry Field Mr Barry Field , Isle of Wight 7:20 pm, 26th March 1990

The point made by the hon. Member for Sedgefield (Mr. Blair), who, unfortunately, is no longer present, about short-termism was entirely answered last week by my right hon. Friend the Chief Secretary to the Treasury. He pointed out that since the war we have had 17 years of Labour government and 27 years of Conservative government. Under Labour Governments, our living standards increased by 14 per cent. and under Conservative Governments by 78 per cent. There could not be a better indication of how the fiscal and financial policies of Conservative management have brought achievements of lasting benefit to our nation.

The abolition of the composite rate of taxation is welcome. It will benefit the lowest paid in society, who hitherto have been prevented from recovering the tax that they pay on building society accounts. They find such accounts useful and convenient places to deposit their money. It will also be of much benefit to children and grandchildren. More than a few grandparents have opened accounts for their grandchildren, and hitherto they have been prevented from recovering the tax paid on those accounts.

My right hon. Friend the Chancellor said that he is mindful of the administrative and enforcement problems that abolition of the composite rate will create. Having been a director of a building society, I should point out to him that, annually, building societies send a voucher of the interest paid to each account holder. I cannot see why that should not become a tax credit voucher, which would minimise the administrative disruption that abolition will cause the Treasury.

I was pleased to hear my right hon. Friend the Chancellor express concern about how the credit and finance institutions have encouraged people to take on further debt. At a recent meeting, the archdeacon of the Isle of Wight, Tony Turner, told me that he had monitored the amount of unsolicited mail that he had received in the past year. He received 41 letters, all encouraging him to get deeper into debt. That is a matter of considerable concern, and I have suggested to my right hon. Friend that the finance industry should make some contribution to debt counselling agencies. That would be particularly welcome, and I do not think that there is a downside to that suggestion. Brewers make considerable funds available for alcoholism counselling. No one suggests that the brewing industry causes alcoholism, so I do not see why the finance industry should not make some contribution to debt counselling.

The point made by the hon. Member for Sedgefield about training in British industry is entirely answered by an article in The Echo on 13 March. Its headline read "Open Doors for Women". It announced that an additional 400 jobs will be created for women in my constituency by—and this is a name to be conjured with within the Conservative party at the moment—Westland Aerospace. It has £16 million worth of new orders from McDonnel Douglas of the USA, Dornier of West Germany, and Hispano Suiza, part of the French based aero engine group.

The tax allowance on training and enterprise councils and the concession for women on workplace nurseries will be welcomed. Curiously, the abolition of VAT on inshore rescue particularly affects my constituency. The Royal National Lifeboat Institution builds all its inshore rescue craft in my constituency and employs many women in its factory at east Cowes.

I should not like to congratulate my right hon. Friend the Chancellor on making a tax concession for TECs without placing on record my grateful thanks to my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler) for granting my constituency a TEC. My constituency fell outside the original parameters for TECs, but his intervention and representations from industrialists led to that decision being made.

Will my right hon. Friend the Chancellor solve a long-running conundrum about national savings? I have no ideological problem with national savings, but, having been a director of a building society and a member of the Conservative party all my life, I cannot understand how we believe in the free enterprise economy but continue to have a state mechanism for savings. Perhaps my right hon. Friend will sit me down on his knee and give me a cup of Treasury cocoa—

Photo of Mr John Major Mr John Major , Huntingdon

I shall certainly give my hon. Friend the cocoa.

Photo of Mr Barry Field Mr Barry Field , Isle of Wight

My right hon. Friend might not like what I am about to say. I noticed buried in the Budget a requirement to fall in line with EEC legislation and to allow EEC tax inspectors access to information on my tax affairs. I cannot accept that a Sicilian tax inspector, with all his Mafioso connections, is an ideal candidate to receive information from the Inland Revenue. This morning, I was told by chief valuation officers of the Treasury that they are unable to obtain information from the Inland Revenue when considering valuations based on profit. It is a cornerstone of our constitution that Inland Revenue information is not passed to others. I view with the greatest alarm the prospect of an Inland Revenue inspector, or his equivalent in Sicily, being aware of the returns of hon. Members.

I am pleased that my right hon. Friend the Chancellor has addressed the problem of companies' dual residence. He will not allow companies to escape capital gains tax by claiming to be resident here but operating from another country. In future, will that prevent the highly geared bid that we saw for DRG and other companies? If so, that will be a welcome aspect of the Budget that has not been highlighted by the financial press.

On 13 March, in response to a written question, the Treasury told me that the yield from stamp duty on a regional basis was £145 million in 1985–86 in the south-east, with an average house price of £46,392, and that by 1988–89 it had increased to £360 million on an average house price of £80,249. The housing market is the means to unlock skills and to allow greater mobility in society. Given those variations in yield, there must be a case for regional stamp duty. That would be an unexpected windfall.

In the current political climate, it may be unpopular to say in the House that the hike in mortgage rates is understandably translated into votes and electoral prospects. One of the Government's great achievements has been to make 65 per cent. of the nation home owners. However, the point that has been missed is that mortgage rates are a good regulatory mechanism against inflation. Literally thousands of pounds have been taken out of the economy and taken away from people's purchasing power, which has a far more deflationary effect than anyone has yet realised.

Photo of Mr Brian Sedgemore Mr Brian Sedgemore , Hackney South and Shoreditch 7:30 pm, 26th March 1990

Shortly after what has just been described as the Chancellor's Sicilian Budget speech, one of my colleagues said that he had admired the simplicity of its language. With characteristic generosity, I replied, "Yes, it would be churlish not to recognise that the Chancellor found that point at which ignorance and simplicity converge. Don't you think it was a pity that the steps which he outlined to deal with the immense problems facing the British economy were inversely proportionate to the tedium and length of his 75-minute speech?"

The Chancellor's lack of understanding in his slight, irrelevant Budget was adroitly summed up in an editorial in that rabid Tory newspaper the Evening Standard on 21 March. The editorial writer said: the Budget is unlikely to make any significant impact on the increasingly severe economic problems which Britain now faces. The Chancellor's silences in this regard are worse than embarrassing: they are dangerous. Part of Mr. Major's Budget Judgment sounded like extracts from a student's essay in 0 Level economics. In like manner, on television yesterday, the Chancellor referred to constant waves of demand causing inflation". I find it disturbing to have to listen to such juvenile Keynesianism from a Chancellor of the Exchequer.

The markets did not like the Budget and within hours of it they signalled their horror by pushing the pound down to its lowest ever level against the mark. Despite the Chancellor's intervention, it can be only a matter of months before the markets wreak their retribution on the Budget and he will learn, like other Chancellors before him, that those who live by the markets die by the markets. The pundits were equally contemptuous of the Budget. Christopher Johnson, the chief economic adviser to Lloyd's bank, said that the Budget may not be enough to prevent the pound falling and interest rates rising as inflation rises to nearly 9 per cent. next month. In the UBS Phillips and Drew Budget special, Bill Martin was merely accentuating the obvious when he observed: 1990 goes down as Major's annus miserabilis. He added that the Chancellor had a major credibility problem. Kevin Darlington and Joe Roseman finished their article in the UBS Phillips and Drew Budget special by stating: The implications for John Major are obvious. If the economy does not stagnate this year, he may well not be in a position to restore the government's reputation for competence in economic management in time for the next election. The electorate may then conclude that Mr. Smith offers a more palatable alternative.

Photo of Mr John Major Mr John Major , Huntingdon

I shall not take up too much of the hon. Gentleman's time, but since he quoted Phillips and Drew, I shall also quote that firm, which said in the middle of February: The latest indicators suggests that policy is delivering the sharp demand slowdown necessary to take the inflationary sting out of the economy. If that was true then, it is even more true today.

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

I shall come to just how much sting has been taken out of the economy, but it is clear that, post-February, Kevin Darlington and Joe Roseman are hedging their bets. If I were a gambling man, I would do exactly the same. They realise that the economy is suffering from the irresponsibility of the previous Chancellor and the present Chancellor.

There has been a vertiginous collapse in the growth of overall domestic demand in the economy, from a peak of 10 per cent. in early 1988 to minus 0·5 per cent. by the end of 1989. That is bound to take us back to increasing unemployment and cuts in real wages. That is the horror story of the Budget.

Budget 1990 also gives the lie to the Tory claim that it is the party of sound money and stable prices, which believes that the currency should represent a store of value, because it shows that it is the party of unsound money. The pound in everyone's pocket will be diminished by the Budget. Above all else, the Budget is inflationary: it is a Budget of inflation, by inflation, for inflation. The Chancellor has got us to the top of the inflation league and intends to keep us there.

It is extraordinary that a Government whose first priority was to bring down inflation saw the annual increase of 13 per cent. in 1979 soar to 18 per cent. in 1980 and touch 22 per cent. on a year-on-year basis. After a temporary blip in 1986, inflation is about to rise to 9 or 10 per cent. on a year-on-year basis. That is the cause of the Chancellor's credibility gap. It is also a sad epitaph for the Mickey Mouse monetarism of the past 10 years.

I understand that there is now a conflict between the Treasury and the Bank of England over the future of monetarism and the monetary aggregates. The bank is still keen on them but, for the Treasury, the Chancellor says that MO is up the spout, MI is down the shute, M2 is in a corner, M3 is in a jam, M4 is on the run and M5 is out of sight. Although the Chancellor set a target for MO, he has said that it will be ignored, and should MO come within the target range, that will be pure accident and nobody will be more surprised than him.

The Chancellor now says that he will replace monetary targets with an even more ludicrous concept, a highly abstract artifice which he deigns to call "his judgment". To paraphrase Christopher Fry, the Chancellor's critical judgment is exquisite, it leaves us with nothing to admire except his opinion, and that, as we all know, is worthless. Those of us who are members of the Select Committee on the Treasury and Civil Service know that the Chancellor's judgment on the size of the balance of payments deficit was mindbogglingly in error. We also know that his judgment on inflation was wrong, like that of other Treasury Ministers over the past five years.

The Chancellor managed to keep a straight face when he introduced the Budget by telling us that it was fiscally neutral. What nonsense! What tripe! We are told that the medium-term objective is a balanced budget, yet that objective is set to be reached by 1992–93, at least a year earlier than envisaged in the 1989 Budget, and the public sector debt repayment objective for this year and next has been halved. That is a major relaxation of fiscal policy in every conceivable sense.

The Budget shows that the Tory party is not only the party of high inflation, but the party of high taxation. Paragraph 2.50 of the Red Book states: The Government's objectives for taxation are to reduce tax rates and bring down tax as a percentage of GDP. However, table 2.5 describes North sea taxes, national insurance contributions and the community charge as a per cent. of non-North sea money GDP. It states that in 1978–79, taxes under Labour, as a percentage of GDP, were 34 per cent. By 1981–82, they had rocketed up to 38·5 per cent. They are projected for 1990–91 to be way above their level under Labour, at 37·75 per cent. Looking as far as the human eye can see, to 1993–94, they are projected to be way above what they were under Labour, at 36 per cent.

We see that Labour is the party that lets people spend their own money and the Conservative party is the one that taxes us to death. If, as some Conservative politicians argue, taxes are theft, the three biggest crooks in this country in the past 20 years have been the last three Conservative Chancellors of the Exchequer. The present Chancellor is almost certain to win the Ronald Biggs award for daylight robbery.

When the Chancellor introduced the Budget he was extremely sad that he had three cheap paragraphs on international monetary relations. He talked as though Britain was a self-sufficient island and told us nothing about the problems of the American, Japanese and German economies and the impact that they would have on the British economy. He did not consider the problems of the big world surpluses.

The Japanese surplus is disappearing and West Germany's surplus will almost certainly have to be used to finance investment in East Germany. How will the international monetary system be able to pay for the big British deficit and the huge American deficit? It is an astonishing shame that the Chancellor did not have the vision or depth of understanding of the world's monetary problems to address those issues.

Photo of Mr Michael Morris Mr Michael Morris , Northampton South 7:39 pm, 26th March 1990

It would have been more honest for the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) to give the percentages of direct taxation rather than the total taxation figure. If he had done so, he would have found that the Conservative party believes in reducing direct taxation and the percentage figures would have demonstrated that amply in comparison to the Budgets presented by Labour Chancellors.

It is interesting to note that Opposition Members suggested that there should be an increase in direct taxation, but they said that they were worried about the prospects of a recession. There is no more direct way of producing a recession than to increase direct taxation. It was surprising that the hon. Member for Durham, North (Mr. Radice) and the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), both of whom I respect, and both of whom represent industrial constituencies as I do, should suggest such a policy.

I congratulate my right hon. Friend the Chancellor of the Exchequer on bringing a few smiles to the Government Benches. For once there was a clear strategy which hon. Members and also the public could understand. I found it particularly refreshing last weekend to visit my constituency, talk to my constituents and find that they understood what my right hon. Friend the Chancellor was about. I am a mere politician who once read economics. The City scribblers quoted ad lib by the hon. Member for Hackney, South and Shoreditch may deal in the City, but perhaps they have not read economics.

My right hon. Friend the Chancellor faced three different scenarios when he wrote his Budget. Under one scenario, interest rates are kept high enough to bring inflation down steadily. Fiscal policy could be tightened only gradually and personal savings were not going to increase. Under that scenario, we would surely have had a sag in domestic investment. The current account balance would have improved a little, but as the domestic recession took hold, we would have become uncompetitive and there would have been a reduction in our exports. My right hon. Friend rightly rejected that scenario.

Under another scenario, fiscal policy might have been tightened only gradually and personal savings might not have increased very much. Under that scenario, the market might have concluded that more investment was needed and that the Chancellor would give way and reduce interest rates and that that would gradually depreciate the currency. Again my right hon. Friend rejected that scenario.

My right hon. Friend chose a scenario with which some economists find favour. He decided that there should be a marginal tightening of fiscal policy which should be accompanied by an increase in the savings ratio. The one message to come from the Budget is that the Chancellor is going to have a real crack at increasing the personal savings ratio and my colleagues have congratulated him on what he has done in that respect. The introduction of TESSA will come about when the Chancellor hopes that interest rates will begin to fall. Under that strategy personal savings should increase when perhaps interest rates will come down and people will have marginally more money to spend. I believe that that strategy is absolutely right.

One of the fundamental planks of my right hon. Friend's policy was to see exports continue to increase. That is right. The hon. Member for Sedgefield (Mr. Blair) suggested that our share of world trade is declining. However, he did not paint a true picture. We are holding our share of world trade and over the past 18 months that has increased marginally. While it is true that the pound has depreciated, particularly in relation to the deutschmark, and that helps exports in the short term, we must ask whether we are doing enough.

My right hon. Friend the Chancellor should call for a report from the Department of Trade and Industry. While he may be considering the macro side of exports, there is something going on at the DTI which may affect exports adversely. The DTI has chosen June as the time to bring about an overhaul of the Export Credits Guarantee Department. For medium-term credit insurance, particularly against the riskier markets, but against all markets in general, there will be an increase in premiums. This is not an opportune time at which totally to revamp the ECGD. There is also a proposal within the reforms that there should be a restriction on geographical markets where we already have heavy exposure on the accounts of the ECGD. This is not the right time for that kind of exercise.

My right hon. Friend the Chancellor is determined that the balance of payments deficit will be no more than £15 billion. To achieve that, good sound export insurance is vital. It is not good enough to suggest that we will negotiate with the Commission to ensure that the Italians, French and Germans come into line. We want to ensure that they are in line before we alter any of our dimensions.

Five conditions were laid down at Madrid for our entry into the European monetary system. It is clear that four of those conditions will broadly be met by the autumn of this year. I hope that my right hon. Friend the Chancellor will be brave and recognise that we must move forward and enter for positive reasons. It is good for a Budget to anticipate change and help it along. I believe that we have had a major Budget, but in a minor key. The Budget is very much a turning point.

It is too easy to forget that sentiment and attitude are key factors that affect the financial and political markets. I feel that my right hon. Friend has pitched his Budget absolutely right. It is reassuring to find that at the grass roots, in our constituencies, people understand the strategy and know what is going to happen. In response to the sceptics on the Opposition Benches, anyone who has been to the City over the past day or so will see that the views have changed from the immediate reactions to the Budget. The general view of economists in the City now is that my right hon. Friend the Chancellor has got it about right, and I congratulate him on that.

Photo of Alex Salmond Alex Salmond Deputy Leader, Scottish National Party 7:48 pm, 26th March 1990

The House will expect me to say something about the Budget storm that descended on the Government on the question of poll tax savings limits, and I would not wish to disappoint the House.

The political position of the Secretary of State for Scotland has been fatally weakened by the events of the past week for four reasons. First, the events demonstrate the marginal position that he occupies in Cabinet. He was not even consulted about the change before the morning of the Budget. Secondly, the Secretary of State for Scotland was completely unprepared for the change that the Chancellor was about to announce. He was so dozy that he did not have the wit to speak up in Cabinet last Tuesday to insist that a caveat was inserted in the Budget speech to take care of the Scottish position. Thirdly, the Secretary of State's position is damaged because of the insensitivity with which he greeted the outcry from Scottish Members of Parliament, describing our indignation for a full 24 hours as a matter of "bogus" political point scoring. Fourthly, there was a craven surrender within the next 24 hours as the Secretary of State for Scotland scrambled desperately to save his political skin.

Given this demonstration of political weakness by the Secretary of State for Scotland, it was all the more remarkable to see him reinterpret the past week in the Scottish Sunday press as an example of a macho Secretary of State for Scotland boldly defending Scotland's corner in the Government. In the immortal words of Zsa Zsa Gabor, men who claim they are macho usually aren't mucho. So it is with the Secretary of State for Scotland.

The Sunday papers made interesting reading. We had a bold statement, described as a "declaration of political independence," from the Secretary of State when, according to The Observer, he said: I came into politics before Mrs. Thatcher became leader of the Conservative Party and no doubt I will still be in politics when she is no longer leader of the party. However, an article in the Glasgow Herald this morning states: Mr. Rifkind said all he meant was that he was 43, and the Prime Minister was 63". That is a rather ungallant climbdown from the tough comments over the weekend. In the same article in The Observer the Secretary of State for Scotland declared that, on poll tax capital limits, the Prime Minister has fallen into line with my better judgment. Yet again this morning the Secretary of State backed down from that rather rash remark by saying that it was "a frivolous reply to a frivolous question". Having suffered mental paralysis last Tuesday when the issue arose, the Secretary of State for Scotland is now in a state of schizophrenia. He cannot decide whether he is macho man defending Scotland's interests to the Government or macho mouse defending the Government's interests to Scotland. For some understanding of the Secretary of State's mental condition, I advise hon. Members from English constituencies to read a column in today's edition of the Glasgow Herald in which Mr. Brian Meek, who is a leading Scottish Conservative and probably the Secretary of State's foremost confidant, gives some advice to his friend. The article states: Malcolm, however, would do well to remind the electors from time to time that he is not Mrs Thatcher's monkey. In fact she needs him a lot more than the other way round.Mrs Thatcher is beginning to look increasingly mortal, and there is no need for any Cabinet Minister to be rubbished by her or by Mr Bernard Ingham. He will not be around the day after she departs.

One difficulty for the Secretary of State for Scotland is that there is a great deal of material from the past week for Mr. Bernard Ingham or anyone else in Downing street to rubbish. One such example appeared in yesterday's edition of the Sunday Mail. An article describing the poll tax climbdown states: an aide to Mrs. Thatcher said: 'If Malcolm Rifkind can find money from within his own budget to solve a political problem, he can do that.'You (the Scots) have got no new money at all.'

Although I seldom agree with aides to Mrs. Thatcher, that is a reasonable estimate of what happened over the previous week. We have had the spectacle of a Secretary of State for Scotland implicitly or explicitly threatening resignation to win the right to reshuffle money within his own budget which he has always claimed that he was in sole charge of anyway. Such a pathetic sight calls to mind the comment by one of my predecessors in east Aberdeenshire, Bob Boothby, when he dismissed the office of the Secretary of State for Scotland as "the scullery maid of the Cabinet". There can be no doubt that the present incumbent is well fitted to that description.

The lesson that the people of Scotland will draw from the events of last week is not about the falling political stock of the Secretary of State for Scotland. The real lesson will be simple, and it is that this Government will bend, break and crack under political pressure. Political pressure will be intensified over the next year, and an early opportunity will be presented in the regional elections, when the objective will be to remove every single Conservative councillor from Scottish politics. Moreover, the target of the non-payment campaign, which is growing in Scotland, will be to remove the poll tax altogether.

In opening today's debate, the Secretary of State for Employment gave a hostage to fortune when he said that an unenforceable law does not justify its position on the statute book. The poll tax in Scotland is well on the way to being a voluntary tax. It will he totally unenforceable as the non-payment army grows in 1990 from the present 500,000 members. The target of the campaign is not the amelioration or modification of the poll tax but the total removal of this evil tax from the statute book.

My hon. Friend the Member for Caernarfon (Mr. Wigley) has specifically referred to one tax change in the Budget—the doubling of the blind persons' tax allowance, which is a welcome change, but, as my hon. Friend would point out, it will benefit only a small proportion of visually handicapped people. The tax allowance is payable only to blind people who are registered blind with the Department of Social Security and also have an income that is sufficiently high to be taxed. The Royal National Institute for the Blind estimates that only about one third of blind people will be on incomes that are high enough to make use of that special allowance and that many more blind people will be reliant on social security benefits than make use of the allowance. I hope that the Treasury Bench will take note of that point when disability benefits are next considered.

The Budget and the Chancellor's speech are at best irrelevant to Scottish economic conditions. It will be of no great surprise to the Treasury Bench that the Budget will not enjoy the confidence of Scottish Members of Parliament. What is perhaps more revealing is the vote of no confidence that was passed on the Government's economic policies by the National Federation of Self Employed and Small Business Ltd. at its annual general meeting at Inverness last week.

The growing dissatisfaction among small business with the Government's policies has been based on the realisation that Scotland is suffering from economic policies that may or may not be appropriate to the overheated economy of the south-east of England and that are most certainly not appropriate to the Scottish economy with substantial underused resources. It is bad enough to have to suffer from penal rates of interest when the economy is overheating, but it adds considerable insult to substantial injury to have that medicine applied when we do not even suffer from such an economic disease.

The fundamental weakness of the Budget is that it has done nothing to tackle social and geographical imbalances within the United Kingdom economy. The Chancellor did nothing to redeem the disgraceful move by his predecessor in cutting higher rate taxes. He has done nothing whatever to ameliorate the socially regressive impact of the poll tax. From a Scottish point of view, the key factor is that the Budget does nothing for Scottish economic requirements. It is only through constitutional change in Scotland and, in particular, the achievement of Scottish independence within the European Community that we can have an economic policy that is designed and suitable for the Scottish economy and, just as important, a social policy which is amenable to the Scottish desire for social equity and economic justice. The lesson that Scotland has learnt from the Budget is that the Prime Minister, the Chancellor and the Government are now on the run, and we intend to keep it that way.

Photo of Mr Paul Dean Mr Paul Dean , Woodspring

Order. In view of hon. Members' excellent co-operation and the fact that some hon. Members who applied to speak have withdrawn, I am now prepared to relax the 10-minute limit on speeches—not to take it off, but to relax it.

Photo of David Davis David Davis , Booth Ferry 7:59 pm, 26th March 1990

Thank you, Mr. Deputy Speaker. I am not quite sure to what extent I shall take advantage of that relaxation, but we shall see.

I am sure that the House will forgive me if I do not follow the new claim for Scottish independence that was put forward by the hon. Member for Banff and Buchan (Mr. Salmond). I am sorry that the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) is not in his place. Like him, I am a fan of the late, great lain Macleod and I should like to correct the right hon. Gentleman's quotation. If my memory serves me right, Iain Macleod said of Budgets, A Budget that is praised in the spring will be dammed in the autumn"— not, "A Budget that is praised today will be damned tomorrow."

I suspect that this Budget will exactly reverse that first maxim, which will be an interesting demonstration of another aspect of short termism for the Opposition Front Bench.

In the past few days the City, its pundits and the financial media commentators have criticised the Budget as not being tough enough. That is an extraordinary criticism when one looks back over the last couple of months to see what they themselves have said. Only two or three months ago they were advancing cases that would have produced exactly this Budget. Indeed, that is the case that was put by their unexpected proxy in the House this evening, the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore). I am sorry that he is no longer in his place to hear my points.

If we are generous, we can say that the commentators' comments must have had something behind them. If we are generous, we could look to see what changed the mood of the City over what constituted a sufficiently tough Budget. One presumes that those in the City took their change of mood from the national public statistics of the past few months. I refer especially to the balance of payments and the balance of trade figures, which showed a deficit of £2 billion in January, and to the retail sales figures, which showed a nominal growth of 2 per cent. last month on the year-on-year basis. If that is what changed their mood and led to their judgment of the Budget, which has been replicated by Opposition Members in the past few days, one is bound to say that, at the very least, that judgment is childish.

One hopes that even the teenage scribblers among them are old enough to look back at the history books and to consider the reliability of the statistics such as those from which they have taken their cue. If they were to look back to a few historic crises that Opposition Members will remember well, they would see that in the 1960s and 1970s, when we had trade and other crises such as that involving the International Monetary Fund, there were even errors in the GDP judgment, which is the most stable and the biggest number and, therefore, one would think, the easiest to get right. Nevertheless, there were errors in that of between 4 and 6 per cent.,—or of between two and four years' growth in those days. Those were the errors on an annual figure, let alone on a quarterly or a monthly figure.

Commentators could also look back to see errors in the trade balance. Invisibles have been a key issue in the developments of the past few months, but there was a £1 billion error in the invisible figure in 1976, which changed the amount from £2 billion to £3 billion positive, when it was adjusted. That was important, given the IMF crisis at the time. Sir Leo Pliatzky, an adviser to the Labour Government in those days, has pointed out that those errors in the national accounts led the major policy misjudgments at the time. He picked out another number —the £2·5 billion overestimate of public expenditure in the late 1970s.

Therefore, the set of figures that seemed to change the mood of the City in the first few days after the Budget seem extraordinarily thin pieces of data on which to base a judgment, especially when the City itself is surrounded by anecdotal data. I refer to the summary in The Sunday Times at the weekend, which said Retail squeeze tightens its grip", which is exactly the opposite message to that adduced from the national accounted figures. Every story that was summarised under that headline was at least a week old. The article referred to the various retail consortia that were having trouble because sales, margins and volumes were under pressure. In reaching a conclusion on the Budget on that basis, the City therefore made a poor judgment.

We know that such national accounting figures lead to poor judgments and, to some extent, they lead to the sort of problem that we have seen time and time again in post-war economic management. I refer to putting a brake on the economy long after it has started to decelerate—indeed, long after it has already achieved some deceleration. In effect, the City is calling for a reinstatement of "stop-go". That is extraordinary and the City would deny it, but in effect that is what it has said about the Budget. It has said, "We want a tougher Budget because we have been frightened by a few numbers in the past few days."

That is not the only error that the City pundits and their proxies on the Opposition Benches have made—[Interruption.] I am glad that the cap fits. I hope that Opposition Members are getting their fees. The City has also made the error of making a judgment of risk and saying that when facing an inflationary problem, the tougher Budget is the less risky one. In effect, the City has said, "If we are looking at a grey area in which to cast the Budget, the toughest, the most fiscally sharp and the tightest money Budget is the safest one." However, that is not the case.

Again, we have evidence that that strategy has failed in the past. The easiest way to understand it is to consider the workings of a virtuous spiral in a healthy economy. Let us consider economies that we should like to emulate, such as those of Japan, Korea and West Germany and this economy before the crash of 1987 knocked it somewhat off line. All those economies have high growth. That high growth makes it easy to get high productivity.

That is statistically well established, everybody knows it and it is also easy to see anecdotally how that comes about. If one is running a factory and one has a 10 per cent. increase in output, it is easy to get a 10 per cent. increase in productivity. All that one has to do is to hold the manpower steady and to solve a few technical problems. If, on the other hand, one has a constant output and one is trying to get a 10 per cent. improvement in productivity, one has to sack people. That is miserable, unpleasant and difficult and as well as technical problems, there are negotiating problems. Therefore, when there is low growth, there is a poor productivity record. Irrespective of the micro-economic changes that the Government have brought about in the past 10 years, that growth is needed to generate high productivity improvements.

In a healthy virtuous spiral, that productivity improvement allows high wage increases to be paid. In a couple of the past five years, we have seen 8 per cent. increases in wages; 7 per cent. improvements in productivity and a net 1 per cent. increase in unit costs. Therefore, our competitiveness was also well defended which, in turn, created a new growth boost for the virtuous spiral. We were on that spiral from 1986 until the beginning of 1988. That is the spiral that any good Chancellor should seek to be on again.

Let us consider what would happen if we were to do what the City and its proxies have demanded. Too hard a check would be put on growth and the productivity improvements would evaporate. Therefore, when we are inevitably faced with the 8 per cent. or more wage claims, which we saw even on the morning of the Budget, and they are granted by a British management which, I am sorry to say, is still not very strong and does not get the "mucho macho" award, to which the hon. Member for Banff and Buchan has referred, the increase in costs works its way straight through to the retail prices index.

Monetarists among my hon. Friends will say, "You can choose whether to take that as an increase in costs or an increase in unemployment", and they are right about that. However, the reality is that after such a check on growth one is facing a tougher decision. That hard check leads to a combination of an inability to compete—because of higher costs and retail price inflation—and unemployment. Therefore, we have both unemployment and inflation. It is a recognisable scenario, which we used to call stagflation. That would be the outcome of a tougher Budget policy than the one that we are pursuing today.

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

The Government have predicted economic growth at 1 per cent., although how on earth they can tell it will be I per cent., which is well within the margin of error and well beyond the Government's errors of prediction, I do not know. With economic growth stagnant, and inflation the highest in Europe, the present conditions could only be described as stagflation.

Photo of David Davis David Davis , Booth Ferry

The right hon. Gentleman is old enough to remember real stagflation in the late 1970s, when his party, in conjunction with another party, was a supporter of policies that led to inflation at 28 per cent. and rapid increases in unemployment. That is not what we are seeing today. He is right, but he should study his error margins more carefully because we always underestimate GDP and I suspect that 1 per cent. will turn out to be rather more.

The right hon. Gentleman should appreciate the point that I am making, which is that my right hon. Friend the Chancellor has to find his way through a narrow channel. On the one side, he has the tide race of accelerating inflation, and on the other the rocks of recession and stagflation. The Budget would best be described as a "steady as she goes" Budget. That does not make a very good headline or a battle cry for a by-election, but it makes a first-class recommendation for a Government facing difficult decisions in difficult days but taking the best judged way through to get us on to that virtuous spiral.

Photo of Mr Ron Leighton Mr Ron Leighton , Newham North East 8:11 pm, 26th March 1990

Despite the sacrifices of 11 years of Thatcherism, the North sea oil revenues and the receipts from privatisation, none of the problems of the British economy has been solved. We are going straight back into the old stop-go cycle. A number of hon. Members think that they have found a panacea for this problem—joining the exchange rate mechanism of the European monetary system. Because I think that there is no intellectually credible evidence for this, I shall devote my speech to this one point.

In a market economy, nothing is fixed in perpetuity. Prices change every day, as do the terms of trade between countries. The exchange rate is simply the price of a currency in terms of other currencies. Like other prices, it will change over time. It is a misunderstanding to imagine that it can be fixed by fiat, or by passing a resolution. Futile attempts to deal with balance of payments deficits or internal price levels by fixing the exchange rate are like trying to control the weather by fixing the barometer. There has been a movement of 4 per cent. in sterling's trade weighted index since the beginning of the month. Its price against a basket of currencies is 85·5 per cent. of what it was in 1980. It has moved 14·9 per cent. against the deutschmark since March of last year. In March 1985, there were 258 yen to the dollar, and at the moment there are 154.

All that demonstrates that if countries have divergencies of economic efficiency and productivity, and different rates of inflation, then the value of their currencies will vary. That simple fact of economic life should be evident to all. If country A has higher productivity and a lower rate of inflation, and country B has lower productivity and a higher rate of inflation, and if their nominal exchange rates are fixed vis à vis each other, what happens, de facto, is that country A's currency is gradually devalued in real terms and country B's is revalued upwards. Country B's goods then become even less competitive and it develops balance of payments deficits, while country A's goods become even more competitive and it piles up large surpluses. A good example of a country A is West Germany, while Britain looks like country B. While we may try to fix the nominal rate, we cannot fix the real rate, and unless the nominal rate is allowed to reflect the real rate, we suffer massive economic dislocation.

The rate of exchange is a measure of the terms of trade with the rest of the world. Those terms change every day with every change in the world economy, and it makes sense to accommodate those changes through the rate of exchange rather than through piling up large deficits or surpluses or changes in the levels of output and _employment. Currently, Britain has a horrendous balance of payments deficit, running at some £20 billion per annum, mainly with the Common Market and particularly with Germany. This deficit accounts for 20 per cent. of our import bill and 25 per cent. of our exports. It is very silly to suggest, as did the previous Chancellor, the right hon. Member for Blaby (Mr. Lawson), that this does not matter. This deficit has to be reversed if we are to prosper. To imagine it can be done by linking the pound to the deutschmark, which is what joining the ERM means, strains credulity too far.

To fix the sterling rate in these circumstances would push us into recession, cause unemployment to grow, destroy growth, make the payments deficit endemic, and lead to a sterling crisis. To appreciate the damage that a wrong and uncompetitive exhange rate can do we need only recall 1980–82, when a quarter of British manufacturing industry was destroyed. If it is said that joining the ERM does not mean a fixed exchange rate, then there is no point in joining. The last Labour Government, in 1978–79, deliberately refused to join the ERM and set out the arguments in a 1978 White Paper. In 1986 the Labour party said that it would join the ERM only if four important preconditions could be obtained. They were: first, entry at a competitive rate; secondly, greater central bank swap arrangements; thirdly, a collaborative growth strategy to combat unemployment; and, fourthly, a greatly expanded regional and structural policy to offset the German surplus. In the policy review document "Meet the Challenge: Make the Change" we said: We believe that the European monetary system, as at present constituted, suffers from too great an emphasis on deflationary measures as a means of achieving monetary targets and that it imposes obligations which are not symmetrical. We oppose moves towards a European Monetary Union which would further impede progress in this area.Substantial changes would therefore be required before the next Labour Government could take sterling into the European Exchange Rate. There must be less reliance on interest rate adjustment and more on co-operation between central banks. There would have to be an EC-wide trade policy which contributes to balance of payments stability for individual members. There must be a co-ordinated EC-wide growth policy. The pound would have to enter at a rate and on conditions which ensured that British goods became and remained competitive.

Those are Labour's preconditions. They are substantial and far-reaching. The question is: are they possible or available?

First, what would a competitive rate be? It is too high at the moment, and it should be lower. We could negotiate, but the experience of Spain is not too encouraging. It had to enter at the existing market rate for the peseta. The problem here is that, even having found the right rate, it would be a fallacy to think it could be safely fixed. What is the right rate at one moment will probably be wrong 18 months or two years later. Labour wants conditions to see that it remains competitive. What are they? Further changes could be accomplished only amid political controversy with our partners and by unanimous agreement, not by our independent decision. Full economic and monetary union, which is the aim, would rule that out altogether.

Then there is the condition of adequate central bank swap arrangements. Some hon. Members mistakenly think that we should thereby obtain the support of the central bankers to defend sterling and also protect us from speculative flows or runs on the pound. There are already facilities through the G7 and the IMF. What else would there be in the ERM? It is utterly naive to believe that, in future, we could all relax because the Conservative central bankers would rush in with unlimited resources to bail out sterling and wish our problems away. First, any help would be through loans, which we should have to repay. Secondly, no more than the IMF would these banks ladle out billions without laying down conditions—that is, dictate to a British Government what their policies should be.

That was demonstrated in 1983, when France borrowed 4 billion ecu, but on terms that insisted on a deflation, which destroyed the programme on which the Mitterrand Government had gone to the electorate. Mitterrand was given a choice between socialist policies and the EMS. He chose the latter. So the central bank swap facilities are not an easy option for a Labour Government. It would be unwise to imagine the bankers would give us unlimited funds to finance socialist policies.

Then what about symmetrical obligations—the equal obligation of surplus countries as well as deficit countries to take action to eliminate imbalances? This sounds nice, but there is no way in which it could happen in the real world. In practice, the burden of adjustment falls more heavily on the central banks whose currencies are weak. There are greater pressures for a tightening of monetary policy—that is, higher interest rates for a weak currency —than a relaxation for a strong currency. Can anyone see the Bundesbank loosening monetary policy to help an ailing sterling? Further, the weak currency has no bargaining power. It is the supplicant asking to borrow someone else's reserves.

So, in practice, there are no symmetrical obligations in the ERM system but an inbuilt deflationary bias instead. Nor would it, as some people fondly imagine, mean lower interest rates in Britain. Without the option of letting the exchange rate take the strain, high interest rates would have to be used to keep the pound within the ERM band.

What about the other Labour party condition of co-ordinated economic expansion and the elimination of inter-Community deficits and surpluses? Anyone with eyes to see can observe there is nothing remotely like this in sight.

Then there is the condition of effective regional and industrial policies. This would effectively mean recycling the surpluses earned by the successful countries back to the deficit countries. In other words, the Germans would be expected to make a present of billions of pounds, or rather marks, to Britain every year. Is it even worth wasting breath on so unlikely an idea? At the moment, we are donating £2 billion net to the Community budget. There is no suggestion that the Community should have a regional policy to recycle its surplus funds. Of course it is unpleasant to have movements in the rate of the pound, but there is one aspect of that which should be of interest to politicians. When there have been such movements in recent years—the most dramatic of temporary depreciations was in 1985—there has been no political crisis and no political drama. How unlike the regular traumas and sterling crises during the period 1945 to 1972 under the Bretton Woods rules and as it would be in the ERM. Do we really want to go back to that? I should have thought that that was the last thing that particularly a Labour Government would want.

It is sometimes said that accommodating a depreciating currency is inflationary. Of course, it increases the price of imported goods. This simply reflects the change in the terms of trade and has the effect of restraining imports, which is now a prime need. It also has the effect of lowering the price of British exports and thus helping to right the balance of payments. Price rises are, however, not automatic. Experience shows that previous depreciations in 1931, 1949 and 1967 led not to price explosions but to corrections of the current account deficits. Perhaps the reason is that allowing the currency to depreciate to its right level, first, reduces the value of the money stocks in terms of foreign currency, secondly, encourages the outflow of hot money by the lower interest rates that it makes possible, and, thirdly, reduces the cost of both public and private debt. The effect of depreciation of prices has to be measured against alternative policies for correcting imbalances, particularly the current high interest rates, which are pushing up costs and prices. The essential difference is that what I advocate would allow an increase in output and employment, whereas higher interest rates reduce output and employment. It is clear from what I have said that, looked at objectively and dispassionately, joining the ERM, instead of solving our problems, would damage and impede our efforts and rob us of control of our domestic affairs.

Several Hon. Members:

rose

Photo of Mr Paul Dean Mr Paul Dean , Woodspring

Order. I understand that the Front Bench replies will begin at 9 pm. There are still four hon. Members—two on each side of the House—who hope to be called to speak. I hope that they will agree to divide the remaining time between them.

Photo of Mr John Butcher Mr John Butcher , Coventry South West 8:26 pm, 26th March 1990

I congratulate the hon. Member for Newham, North-East (Mr. Leighton). If I had closed my eyes and forgotten about his accent, I would have assumed that about 60 per cent. of his speech came from the erstwhile right hon. Member for South Down, Mr. Enoch Powell. It was truly Powellite in part of its construction. I genuinely congratulate the hon. Gentleman on the part of his speech which dealt with the exchange rate mechanism. Such a speech was long overdue from the Opposition Benches. The hon. Gentleman has stated his position clearly. It would add to our debate in this place if those on the Opposition Front Bench were as clear, given their apparent recent wedding to the idea of the ERM.

The fourth condition which the hon. Member for Newham, North-East laid down took me back to the days when the Labour party had a policy on such matters. He said that there should be appropriate adjustment through regional policy, and we all know what will happen to regional policy within the EEC over the next few years. We are in for a turbulent period.

Regional policy for the next few years will mean soft loans to a major extent for the East German economy. The paymasters of the EEC have, correctly, set their policies. They wish to help their brothers, sisters, cousins—their fellow countrymen—in an economy which has been stuck in a time warp for a long time. For East Germany it is now 1947, such is the state of its infrastructure and housing stock, its lack of an enterprise culture and the general nature of its clapped-out economy. Regional policy in Europe means billions of deutschmarks and billions of ecu being nobly and laudably deployed to help 17 million people in beleaguered East Germany. The fourth condition, on which the hon. Member for Newham, North-East did not place too great emphasis, will be even more difficult to deliver than it was back in 1985–86.

Those who have argued for a European central bank have forgotten that the recent justification for redesigning such a mechanism is to take it out of the hands of those objective people who run the Bundesbank and to place the decision making in the hands of the individual Finance Ministers, who in committee, in their cabals and in their smoke-filled rooms, and for much more politicised reasons, would gear and run monetary policy across the European Community. We might find in those circumstances that pan-European monetary policy would be in for an especially turbulent period.

Like the hon. Member for Newham, North-East, I feel that we have been treated today to a number of panaceas that have not been examined properly in the House. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) has argued yet again, in a coded fashion—that is a device that has been used hitherto by Conservative Members, but now it appears that the Labour party has to speak in code —that there should be increased taxation, as that would be an easier option than high interest rates.

I recall a well reasoned argument in an article in The Sunday Times during 1985–86 entitled "Who is selling the Snake Oil?" It examined the proposition that supply side economics really did work. In answer to questions from Opposition Members, we found that, as the top rate of tax came down, not only did the total tax intake increase, but the proportion contributed by the better-off section of our community also increased. Supply-side economics really does work, and reducing taxation is an effective way of adding to the Chancellor's income and allowing us to spend on programmes that the House generally welcomes, such as social services and the reduction of our national debt. I do not think that increased taxation is any better an argument today than it was when we successfully tested supply side theories in the early and mid-1980s.

Again, in coded observations, the right hon. Gentleman said that he was in favour of investment allowances. Those of us who, in previous incarnations, witnessed capital spending programmes in the private sector know that in February or March, towards the end of the financial year, the capital investment programmes of most companies suddenly had a huge surge because company secretaries and chief accountants were trying to increase their spend on capital goods at the last minute and so reduce their tax bills.

That might have been a laudable objective for accountancy purposes, but the quality of investment on that basis often left a great deal to be desired in the return on capital compared with our European counterparts, especially Germany, the Netherlands and the low countries. I do not believe that investment allowances would be a better way to proceed. It was not then, and it is not now.

I am a staunch adherent to the "manufacturing matters" tendency. I believe that the west midlands will again become the locomotive engine of this country. It is export-based, it is manufacturing-based and it has leavened its employment with imports of service sector activities from the south-east and other parts. It has a strong economy, it is strong in manufacturing and exports, and the return on capital in that region will exceed that of most other regions. I am delighted to say that the competence of our manufacturers remains high.

The third panacea put forward by the right hon. Member for Ashton-under-Lyne was our old friend credit controls. We have yet to hear from the Opposition just how they would introduce credit controls without the commensurate necessity to introduce exchange controls to insulate us from cross-border movements of capital. The markets are now very sophisticated. Those who lend money either to the corporate sector or to individuals would find it easy to bring in money from outside and reintroduce it into our economy at precisely the time that the Opposition would want to prevent such a tactic from being deployed.

The Chancellor was astute in that matter, because, if his objective is to take money out of circulation, the introduction of TESSA—which asks savers to leave their capital sum in one place for five years—is an effective way to achieve that. The reform has been comprehensively under-estimated by the City, by the chattering classes and by the much-vaunted scribblers who have already been referred to during the debate.

The fourth panacea is our old friend the exchange rate mechanism. Our debate on the ERM became obsolete the moment that the people of East Germany, on 18 March, voted for a Christian Democratic Union-based profile to their political representation. From that moment on, we knew that there would be an especially turbulent period in German and pan-European monetary policies.

No one has yet answered the question, what if the United Kingdom were to join the ERM prematurely—for example, now—at a time when its interest rates are 8 per cent. higher than those in Frankfurt? Once in the ERM, corporate borrowers could go to Frankfurt and borrow money without the need to hedge, thereby sucking in a large amount of cash income that would ricochet around the economy and increase the money supply at precisely the time that we would not want that to happen. My right hon. Friends the Prime Minister and the Chancellor of the Exchequer said that we would join the ERM when the time was right, and that phrase has a clear and real meaning. If we join the ERM prematurely, we will undermine the fight against inflation for the reasons that I have given.

Germany is hoping to build its new wirtschaftswunder, and to do so on the basis of real money. If it is 1947 in East Germany, the East Germans have a choice—they can either take the Attlee solution, the SPD solution—keep their controls and public utilities in public hands—or the Euchen-Erhard solution of real money. They have gone for the real money. That is why they will have their wirtschaftswunder, but in the meantime all movement in Europe towards integration of our financial systems must remain on hold. That is the best service that we can do for our friends in Germany.

The four panaceas suggested by the Opposition will not work. I congratulate the hon. Member for Newham, North-East on the candour with which he delivered his speech. I sincerely hope that we shall hear equal candour from his hon. Friend the Member for Derby, South (Mrs. Beckett) when she replies to the debate.

Photo of Keith Vaz Keith Vaz , Leicester East 8:36 pm, 26th March 1990

This is the first time that I have spoken in the House since 20 February, as I have been away on an official visit to India. What I said on that day—as reported in column 836 of Hansard—was the subject of comment in my absence. The statement that I made on that day was made in good faith, but I sincerely regret any confusion that it may have caused. I am happy to put the record straight on this first opportunity to do so.

Few Chancellors have had the luxury of having their Budget statements tested before the electorate while the Budget is being discussed in the House. I know that other hon. Members have said that the verdict on the Chancellor's Budget was evident in the result of the Mid-Staffordshire by-election when it was announced on Friday morning. If the voters of Mid-Staffordshire had had the opportunity to read the Red Book, they would have noted that paragraph 1.01 makes the cardinal statement of this Government's economic strategy: The objectives of the Government's economic policy are to defeat inflation and to promote output growth and the creation of jobs. The utter rejection of the Government's policy was evident in the by-election result.

I listened carefully to the speeches of hon. Members on both sides of the House. I do not think that the people of Mid-Staffordshire, of Leicester or of any other place are concerned with the jargon of TESSA, the exchange rate mechanism or the money supply. They are concerned with their ability to pay their mortgages, to provide a decent life for their children and to have sufficient funds to make ends meet. For millions of people, their expectation of the Budget was an end to what they had suffered during the past 11 years. The Budget provides no strategy to help them out of their misery.

I wish to focus on a number of points during the limited time available. I welcome the changes in tax on workplace nurseries. The Opposition have fought that campaign for many years. Last year I tabled an early-day motion in which I commented on the excellent work being done by Leicester city council and its workplace nursery, the Val Jones nursery. When I visited the nursery, mothers told me that they wanted the tax abolished, and I am delighted that that has happened. I hope that the Chancellor and the Secretary of State for Education and Science will go a small step further during the next few months and will ensure that the universal principle of free nursery education for the under-fives is put on the statute book. If they do that, the limited changes announced in the Budget will be worthwhile.

I also welcome the additional money to be given to the Football Trust. I sat for many hours on the Standing Committee that considered the Football Spectators Bill. It became an Act, but was shelved by the Government following the Taylor inquiry. I only wish that some of the money for which we asked had been made available during the passage of that Bill.

I am sure that, like me, other hon. Members have constituents attending their surgery who say that they cannot pay their mortgage. I have constituents, specifically from the outer estates of Leicester, who last year purchased a house and cannot keep up with their mortgage payments this year. Mortgage holders in the east midlands are having to pay £127 a month more than they paid a year ago. That is an additional £1,500 a year.

As a monument to the Government's high interest rates policy one has only to look at the Hamilton estate which was supposed to be built in the eastern part of Leicester. Support for the estate comes from both the city and county councils and it was supposed to be the showplace for new houses. A total of 4,000 houses were to be built by the end of the 1980s, but only 150 have been built, half of which are empty because people cannot afford to move into them. Yet 11,000 people are on Leicester's housing waiting list.

There were expectations in Leicester and the east midlands that child benefit would be increased and the Treasury would make additional resources available for that. Over the past three years, families in the east midlands have lost more than £60 million because the Government have refused to increase child benefit.

We hear a great deal about tax cuts. As the House knows, only families that earn more than £275 a week have gained to any extent under the Government's legislation of the past decade. Yet 70 per cent. of families in the east midlands are on incomes below that figure. We have some of the lowest paid in the country and the Budget has done nothing to help them.

We have heard a great deal about the poll tax and even Tory Members justifying their support of it. In the debate that follows and in further debates this week we shall see how many Tory Members rebel against their Government. On Saturday more than 1,000 people gathered in Leicester town hall square to oppose the poll tax. I was presented with a petition which was signed by more than 2,000 people. [Interruption.] The hon. Member for Derby, North (Mr. Knight) has comments to make. I hope that he will take part in the debate and represent his constituents' opposition to the poll tax.

The average family in my constituency will have to pay a poll tax at 52 per cent. above what it previously paid in rates. Leicester city council is not extremist. It is a moderate council with an excellent record on spending, yet because of the Government's policy it has had to impose a poll tax of more than £400. The city councillors tried extremely hard to lower the figure, but they were forced to impose it because of Government cuts in local authority assistance. If the Government are serious about helping those who have to pay the poll tax, specifically pensioners and others on low income, I hope that they will come forward with additional proposals, which they euphemistically call transitional payments, to help those people.

Two vital industries are embellished on the social history of my city—the textile and footwear industries. The Secretary of State for Employment referred to the textile industry. Earlier this year I conducted a survey based on the job losses in those industries. We worked out that two jobs were lost in the footwear and textile industries every hour. By the time the debate has finished, a further 10 jobs will have been lost. Since Christmas 1,500 jobs have been lost in Leicestershire and since June 1989, 16,000 jobs have been lost nationally. T. W. Kempton made 750 people redundant. Today in Leicester it has been confirmed that Paisley Hyre is to make 750 people redundant and G and K, 50 people. Twin Textile have made 70 people redundant and Whytes have made 20 redundant. They are household names involved in the history and development of Leicester and the east midlands. Now they are names on the tombstones of the textile industry.

The same applies to the footwear industry. In the past two years, 2,000 jobs have been lost in the footwear industry in Leicester. That is more than one third of the work force. Since Christmas one of the greatest names in the footwear industry, Glovese, which used to be a leading manufacturer of ladies boots and shoes, has made 300 people redundant and closed its premises. Portland Shoes, Co-op Footwear and Lawson-Ward are further examples.

Tory Members representing Leicester make statements in the press, especially to the Leicester Mercury, about how hard they are fighting for the footwear and textile industries. Yet in the House they vote for Government policy and support the Government on the multi-fibre arrangement which will devastate these two industries. Who is to blame for the devastation? The Government are to blame. The high level of interest rates, the level of exchange rates and the current volume of imports, especially from the far east and Portugal, are crippling these essential industries. In addition, the unified business rate, which is the poll tax that will be imposed on small businesses, will cause further closures. By the time the Chancellor presents his next Budget the industries will have been cut in half because of Government policies.

Budgets are supposed to create the climate and conditions for economic growth. This Budget does nothing of the sort. It is complacent and will preside over the final destruction of this uncaring Government.

Photo of Mrs Teresa Gorman Mrs Teresa Gorman , Billericay 8:46 pm, 26th March 1990

I, too, congratulate the hon. Member for Newham, North-East (Mr. Leighton) on his splendid exposition of an alternative Budget and financial strategy. His position was endorsed largely by my hon. Friend the Member for Coventry, South-West (Mr. Butcher). If we had a low pound, we could have low interest rates. Production costs would be lower, so our exports would cost less. We could then have a lower balance of payments, if we decided that that was important. As a result the burden on mortgage payers would be reduced. That cycle has been well explained by other hon. Members.

I greatly welcome the proposals that will assist mothers to care for their children in workplace nurseries while they go out to work. They apply to a relatively small number of women, about 3,000. At the weekend I heard my right: hon. and learned Friend the Secretary of State for Employment say that he thought that that provision would be extended to nurseries other than those at the workplace and that employers could pay for that help somewhere other than on the immediate work premises. I hope that when my right hon. Friend the Chancellor of the Exchequer replies, he will make that clear, because that will be equally welcome by many women.

A couple of weeks ago, I previewed that type of proposal in my ten-minute Bill. I have had the most amazing support for it across the country and across parties. The National Union of Teachers, the National and Local Government Officers Association and the Stockbridge and Deepcar Child-minders Association have written to me. There would be tremendous support if my right hon. Friend the Chancellor of the Exchequer expanded the provision to include a wider range of tax relief for people who need help with domestic responsibilities. I have had a lot of letters from people who have to go out to work and leave elderly relatives at home. They could do with that kind of tax relief on the cost of providing someone to care for those elderly relatives.

An extenstion of that tax relief would tie in with three strands of Government policy: the campaign to get more women back to work; the proposal to extend nursery care, which is popular throughout the country but which could be achieved by making care tax deductible rather than putting more Government money into it; and the recent proposal to help older people remain with the family instead of moving them into a home. If we allow tax relief to children caring for elderly parents, they may be prepared to keep their parents with them. People would like to do that if they could get tax relief on the cost of providing care in the home rather than having to give up their job to stay at home themselves.

The extension of that tax relief would enormously benefit the Treasury because of the savings that it would make on social service provision. It might help to meet the increasing demand for nursery care, and the increasing need for women in the workplace, which we have discussed at some length. It might create a new industry on the caring side of society, which would look after people in their own homes. That would be more cost effective than social services departments giving out large sums of money directly out of the taxes. It would cause an enormous surge in the child care business, whether at nursery level or for care before and after children are at school. Children often need care at those times of day and it would be important and useful.

One teacher wrote to me to say that, although she had gone back to full-time teaching, after she had paid for full-time childcare for her children at home she netted only £200 a month out of her salary. That is hardly an incentive to get people back to work.

The National Union of Teachers tells me that there are 400,000 trained teachers—mostly women—at home who do not go out to work because there is not a great enough incentive to do so and to provide for care in the home. We need that enormous pool of teachers back in the labour force. By extending that provision to include a wider range of beneficiaries, the Government would be doing themselves and all of us a favour. In addition to the House considering this issue, the other two great fora of public debate, "Any Questions?" and "Question Time", have also placed it high on their agenda in the past few weeks. I heard the Financial Secretary to the Treasury say at the weekend on "Any Questions?" that the Government's role should be neutral in this issue. By allowing such a concession on workplace nurseries, the Government have breached that neutrality. They have accepted the principle that Government should make allowances in certain cases. Therefore, I ask the Government to extend that concession to a wider spectrum of people.

The hon. Member for Derby, South (Mrs. Beckett) was on the same programme. She pointed out that some women do not earn enough money to benefit from the tax allowance. I am sure that she would agree that we could have both provisions. We could not preclude one to provide the other. I am sure that she will support me when I say that women who earn enough to have the allowance should be able to benefit. Everyone who has to provide care at home should be able to benefit from the extension of that principle. I hope that in Committee on the Finance Bill or on Report we may be able to consider an amendment to extend the tax relief to a wider group of people.

In addition to the support of all those groups that I have mentioned, I have the support of my right hon. Friend the Prime Minister. She was a junior Minister in the House in 1968 when she gave an interview to Good Housekeeping in which she said that she considered that her children had benefited from their mother going to work. She said: My children like me working; they can see and do things they never would otherwise. She also said that it would make a tremendous difference if part of the expense of employing others to run her home was allowed against tax. The Good Housekeeping article said: she has fought fervently for this very thing".

With the support of the Prime Minister, parties across the political spectrum, mothers and fathers who work and people who have to care for the elderly, for the principle of extending tax relief, I hope that my right hon. Friend the Chancellor will give serious consideration in Committee to extending that provision.

Photo of Harry Cohen Harry Cohen , Leyton 8:55 pm, 26th March 1990

I supported the hon. Member for Billericay (Mrs. Gorman) in her Bill to improve child care and domestic tax relief. However, I think that we should go further. There should be proper public provision. The Government are guilty of cutting that provision. They have put a squeeze on local authorities. By freezing child benefit, they have in effect cut it by 24 per cent. I go along with what the hon. Lady said, but we need a lot more.

When the Chancellor got up to speak last Tuesday, there was a glimmer of hope. He started his speech by saying that he was going to abolish two taxes. Instead of abolishing two virtually irrelevant taxes to help share dealers, the abolition of one tax would have done—the poll tax. That is a grossly unjust tax and a huge burden on families, which will push many people into bankruptcy and may make them lose their homes.

The poll tax is 33 per cent. higher than the rates this year and it is highly inflationary. It is no wonder that it is hated across the nation, in Tory areas as well as in Labour areas, and that the Government are reaping the whirlwind because of it. The Chancellor should abolish that tax.

The Chancellor said that inflation is common to all nations, but it is a bit more common to the United Kingdom under a Conservative Government than it is to our major industrial competitors. Inflation here is more than twice the rate in West Germany, for example. Now we have the poll tax and record interest rates. Rents are set to rise by 20 per cent. If councils do not put up rents by 20 per cent. the Government will take away housing subsidies. The CBI said that the new business rate will put 1 per cent. on the retail prices index this year. Prescription charges, fares, electricity, gas, water and the exchange rate devaluation have also contributed to inflation.

I had to laugh when the former Chancellor, the right hon. Member for Blaby (Mr. Lawson), said at the Conservative party conference that it was not the party of devaluation. The exchange rate has been devalued, and has been sinking into free fall, and will continue to do so. The Tory party is the party of devaluation. That has had an effect on inflation. We have had all that from a Government who promised to bring down inflation.

The Budget was a non-event in terms of the country's economic problems. I received a written answer last week which shows that debt has increased by 515 per cent. since 1979. Those who are trying to buy their own homes are particularly badly hit. The number of people who are in arrears with their mortgage payments has risen by about 30 per cent. in the past year. I should prefer an increase in mortgage interest relief, particularly if it were targeted to those who are facing repossession, those on low incomes and first-time buyers, particularly in areas where house prices are high. The Government are making ordinary people pay for their mistakes. That problem was not addressed in the Budget. Personal debt is set to rocket.

The trade deficit is £20 billion per annum; manufacturing output has sunk below the 1979 level; unemployment stands at around 2 million. The Chancellor of the Exchequer said that growth would be only about 1 per cent. next year. That will mean higher unemployment. Public services are underfunded. The National Health Service, community care, public transport and the environment are hugely underfunded, despite the fact that this Government have enjoyed North sea oil revenues amounting to £70 billion. No other Government have enjoyed such huge revenues.

Privatisation proceeds stand at over £30 billion. Harold Macmillan described it as selling off the family silver. As a result of the consumer boom, the Treasury's tax revenues have soared. However, they have all been wasted. Only the rich have benefited. The money has been invested abroad instead of in the United Kingdom. Defence spending has also increased. I also had to laugh when the Chancellor referred to a public sector overshoot of £2·5 billion and then blamed local government. The Ministry of Defence, however, is reported to have overspent by £2 billion on nine projects.

The Chancellor dressed up his tough old mutton Budget as lamb by describing it as a Budget for savers. He did not have to do anything for the big savers; high interest rates are doing that. However, small savers and those without savings are being punished by increased bills. To say that this is a Budget for savers is just a Government cover-up. The Government have not invested properly, so the Chancellor could introduce only a boxed-in Budget. He cannot give anything away to people; if he did, they would spend it, which would result in more imports.

The country is vulnerable. Germany and Japan are able to force the Government's hand by means of higher and higher interest rates and by one run after another on the pound. The crisis has been caused due to a shortage of United Kingdom-produced goods. Only a Labour Government can rectify that problem. High interest rates will not solve it. There have to be other measures, which must be targeted on the rich. They have benefited from previous Tory Budgets. They ought to pay. The poor, who do not create excess demand, should be protected.

The Government are engaged in a short-term fiddle for their own political interest. They want to create the image of a rosy economy just before the next general election. Interest rates will come down then, albeit temporarily. The Government have paid off borrowing in previous years, as in this year, so that they will be able to borrow again and bribe people next year. They are not interested in the nation's economic prosperity; they are interested only in conning the people before the next election. However, it will not work.

The Government have gone too far by plunging into debt. They have not run the economy sensibly for the future. Their bluff is being called, as we saw in the Mid-Staffordshire by-election. People will not forget. They want and deserve better economic policies. Only Labour can produce them.

Photo of Margaret Beckett Margaret Beckett Shadow Chief Secretary to the Treasury 9:03 pm, 26th March 1990

Many excellent speeches have been made in this debate, as in the three preceding debates on the Budget, on both sides of the House—not that I agreed with everything that was said.

The Budget was presented in a different and quieter style—more in the style of the present Lord President of the Council than that of the right hon. Member for Blaby (Mr. Lawson)—although we had a refresher course today when the right hon. Member for Blaby made it plain that, whatever he has lost, he has retained his arrogance intact.

Moreover, the present Chancellor managed to give the impression of being relaxed, almost of enjoying himself. That goes to show that he is a much better actor than he is given credit for. No Chancellor of the Exchequer in his right mind, or out of it, could enjoy presenting a Budget and forecast in which he tried to explain away the worst trade deficit in our history, rising inflation and peak interest rates, especially when the Government have been in power for 11 years.

I had come reluctantly to the conclusion that I would never hear Ministers stop answering embarrassing questions about their own record by talking about what the Labour Government did 12 or 13 years ago. However, I was wrong. I freely admit my error, and apologise to the Conservative Members whose ingenuity I underestimated so profoundly. They have found a new way of not talking about their own record: they have moved triumphantly and seamlessly from talking about the record of the last Labour Government to inventing a record for the next.

Let me turn to the overall balance and judgment that the Budget represents. Is it, as some commentators have suggested, short-term panic, because we are nearer to recession than the Government admit? Or is it long-term boldness—a gamble on everything turning out all right after all?

There is of course a third option, which is appearing more and more in the views of commentators: that the Budget does not address the long-term prospects of the economy, but—as we feared and warned—addresses the shot-term prospects of the Conservative party. It is the Budget that Conservative Members needed to restore their morale, instead of the Budget that the country needed to restore the economy.

The gamble—if that is what it is—depends for its success on the electorate's failing to recognise its nature. That is why the Chancellor is so annoyed with my right hon. and learned Friend the Member for Monklands, East (Mr. Smith), who has suggested that he may be aiming for a boomlet in 1991–92. Not that that is not true; predictions of the speed and scale of the resumption of growth shown in the Red Book imply a pre-election boom. What really upsets the Chancellor is the fact that, if the electorate realise what he is up to, he may have risked our future for little short-term gain.

To be charitable, there may be another, slightly different, reason for the Chancellor's annoyance. Perhaps since those predictions were made he has realised—as the economy deteriorates before our very eyes—that perhaps he cannot engineer a pre-election boom; so, making a virtue out of necessity, he claims credit for what he may not be able to escape.

This is, of course, an intensely political Chancellor. We are told by some—perhaps even, implicitly, by the right hon. Member for Blaby today—that the Chancellor is not as brilliant as his predecessor, but has a lot more sense. He is not going to come to the Dispatch Box and tell us that we are just too stupid to understand his brilliance; he picks his words as carefully as he picks his excuses. That was already apparent when he addressed the Treasury Select Committee. He carefully won its sympathy, first by being polite—which it was not used to—and secondly by selecting the range of lesser economic crimes to which he would plead guilty, making a frank and open statement of error but confessing only to minor crimes, and only when he could shuffle off the blame.

Some commentators have expressed surprise at the nature and scale of the Chancellor's gamble. I am not sure why. He may have been, if not the silent partner, at least the quieter one, but he was the partner in the great gamble of 1988, for which we are paying such a heavy price today. That 2p off income tax, and the letting rip of the economy that went with it, is now matched by today's heavy increase in interest rates. The present Chancellor was a partner when, together, he and his predecessor gambled and lost. Now he is going for double or quits.

Those with gambling fever, often quiet souls, may applaud the right hon. Gentleman's daring; more prudent souls—and Labour Members are very prudent because of the stock from which they spring; by definition, there is no one to pick up the pieces if it all goes wrong—will worry about the extent to which the Chancellor is risking our future. Nor is the gamble the only real resemblance between this Chancellor and his predecessor. There is never enough money to do everything that we might wish, but it is when the room for manoeuvre is least that we see most clearly the nature of the choices made—and the nature of those choices differs not one whit from the nature of the choices made by his predecessor. For all the kind words for small businesses, the cost of the Chancellor's measures for them pales into insignificance beside the cost of his gesture to the City. He told us that the abolition of stamp duty on stocks and shares will cost £120 million in 1990–91. He did not mention that it will cost £800 million in a full year. The Chancellor has introduced tax relief for charitable giving up to £5 million. That is very nice, but how much is intended to give extra encouragement to private donations to city technology colleges which help a tiny minority of the nation's children at the expense of the rest? The concessions on workplace nurseries, the composite rate of tax and poll tax rebates are all welcome, but the Chancellor is only alleviating the burdens imposed by the Government.

The concession on the poll tax will help fewer than 1 per cent. of poll tax payers, and in any case the figures were wrong. The clawback of such help as is given will be severe, assuming that people are earning 20 per cent. on their capital, and the shambles over Scotland exposed once again the incompetence and the injustice of Government policy.

Let me give the House an example of someone who assumes that he will get help from the Chancellor's concessions on the poll tax. Someone with savings of £13,000 would have been debarred by the capital limit under the old system. The assumption of the income from that capital means that a person facing a poll tax of £400 who is eligible for the maximum rebate of 80 per cent. and had to pay £6·15 a week would find that it was offset by the potential income of £6, so there would be no rebate whatsoever.

People will have to apply for the concession on the poll tax. As always, under the means-tested schemes introduced by the Government, help is what they call targeted only on those in the greatest need. Speaking of prudence, I contrast that with the help given in last year's Budget to people such as the Prime Minister to subsidise their private health insurance. That was not targeted on people in any need and will be given automatically and people will not have to apply for it. Perhaps the Chancellor will tell us about the prudence of that.

I now turn to the Budget analysis of the state of the economy. In the Chancellor's speech and on the succeeding four days we have heard about the Government's brilliant record in economic management —the record that led us to the biggest balance of payments deficit and the highest mortgage rates in our history, inflation higher than that of our major competitors, and falling investment.

One of the claims repeatedly made in defence of what we are told is a temporary setback is that, under the present Government, we have seen the longest period of expansion in 50 years. Sometimes we are told that it has been the longest period of expansion in our history. That sounds good, but unfortunately it is not true. Before the OPEC price increase in 1973, all the usual measures of growth in gross domestic product show steady growth under all Governments, including the last Labour Government—from at least 1958 to 1973, or, if one chooses the measure of disposable income, from 1948 to 1973. There were stop-go cycles then, but what are we experiencing now? Without the cushion of North sea oil, we would probably have seen an earlier example of stop-go under the present Government, as balance of payments constraints would have occurred far earlier.

We are told about the remarkable growth in output after 1982, greater than that in Germany, France and Italy. However, if one examines the entire period from 1979 to 1989—the period during which the Government have had responsibility—the growth in output was average. We were out-performed by Italy, and relatively our position in the OECD, Europe and the G7 countries declined. We are told that exports stabilised as a percentage of world trade after falling for decades. Yet the volume of exports grew less than the volume of world trade in all but the two years 1982 and 1987, and the volume of imports grew massively more in every year except 1980 and 1985 and was roughly the same in 1989.

We are told that total investment has grown since 1980 because of the growth of business confidence, and that total United Kingdom investment has grown faster than that of any other European country. In fact, from 1980 to 1986, gross domestic fixed capital formation as a percentage of gross domestic product was lower than in 1979. In 1981, it fell to the lowest level since 1959. Even in the boom year of 1989, it did not reach the post-war record achieved in the period 1968–70 under a Labour Government.

In any case, manufacturing investment—the engine of recovery—was lower in every year between 1980 and 1987 than it had been in 1979, and from 1981 until 1983 it was at levels not seen since the mid-1950s. As for the claim that it grew faster than in any other European country, one can only say that it evidently needed to recover. In fact, in the period 1979–89 the growth of investment in this country was exceeded by Spain, Portugal, Finland, Turkey and Norway—and that is only in Europe. Moreover, all this growth in investment still leaves us near the bottom of the league—18th out of 23 OECD countries—in levels of investment as a percentage of GDP. And we had the benefits of North sea oil.

The Government claim also that, since 1983, they have created more jobs than any other European country—sometimes they say, more than all the others combined. Again, that is just not true. According to the most recent reliable figures, we made up a quarter of the total number of jobs created in the EEC Twelve—not more than all the rest put together. Percentage gains in employment were greater in Italy, the Netherlands, Denmark, Luxembourg, Greece and Portugal.

We staged the strongest recovery after 1983, but between 1979 and 1983 we lost more jobs—1·8 million out of a total EEC job loss of 2·8 million. In addition, all the figures for jobs created in this country include Government schemes. If the numbers of people employed on Government schemes are stripped away, one finds that the number of jobs created in the 1980s was much the same as the number created in the 1970s, when we had no oil —indeed, we had a huge hike in the price of oil—and when we had less favourable terms of trade. Yet we claimed no miracle.

Photo of Mr Richard Page Mr Richard Page , South West Hertfordshire

How does the hon. Lady contrast her figures with the 5·6 per cent. average in the United Kingdom and the 8·8 per cent. average in the EC? Is it not a fact that, in terms of employment, we in this country are better off?

Photo of Margaret Beckett Margaret Beckett Shadow Chief Secretary to the Treasury

I do not know whether the hon. Gentleman was listening, and I do not know what figures he is quoting. I have just said that the Tory Government claim to have created more jobs in the 1980s than ever before, and that is simply not true.

Even if all these claims could be made without qualification—and they cannot—to boast of their achievements, as this Government continuously do, without mentioning oil is like someone claiming credit for having prospered more than his neighbour without mentioning that he had won the pools.

But the Government do not make misleading claims just about their overall record. They claim, most misleadingly of all, that the underlying problems of our economy—our lack of competitiveness and our low rate of growth in traded goods and services, what we sell abroad to make our living—has been resolved. Again, the figures give the lie to that claim. Manufacturing output fell by 19 per cent. between 1979 and 1981 and since then it has grown roughly in proportion to total GDP. So, while GDP grew by 24 per cent. in that period, overall manufacturing output grew by only 13 per cent., and is again flat. No wonder we remain 17th out of 20 OECD countries for the rate of growth in output over the period.

The significance of that low place lies also in the fact that, with growing internationalisation and interpenetration of markets, we need to hold on to our market share at home, as well as sell abroad, if we are to succeed. We all know that this is one of our major problems. The export volume may have risen by almost 50 per cent. between 1979 and 1989, but the import volume rose by 110 per cent. While our output growth has been 13 per cent., our expenditure on manufactures has risen by 30 per cent. Hence, again, we have the deterioration in our trade balance in manufactures, from a £2·7 billion surplus in 1979 to a deficit of nearly £17 billion in 1989—the first deficit in manufactured trade in our history, and it appeared under this Government.

The Government used to argue that this was all totally unimportant, as the income from invisibles—from traded services—would keep us going. The forecast now is for a surplus of £1·5 billion on invisibles, compared to £2·5 billion in 1989 and £6 billion in 1988. This suggests that perhaps last month's deficit was not quite the aberration that we were told it was.

The export volume of all services rose by under 15 per cent., and of those financial services contributed by far the greatest growth. We have seen a collapse in earnings from merchant marine and tourism, from which, as usual, the Government have stood aloof, and we are all now reaping the consequences. While the export growth of traded services rose by 15 per cent. between 1979 and 1989, the import growth of traded services rose by over 50 per cent. Although our service trade balance has not yet disappeared, it has fallen as a percentage of gross domestic product.

Tragically, it appears that the Government are not ready even to recognise that problems exist, let alone that they have any duty to help to remedy them. We called in our pre-Budget background briefing, as my hon. Friends have done in the debates, for support for investment, training, research and development and the inputs that have made, and are making, the performance of our competitors superior to ours—the inputs without which we approach 1992 with not one but both hands tied behind our backs.

What did the Chancellor say about training or research and development? In effect, that everything was wonderful. In an unbelievably complacent speech, the Secretary of State for Employment said the same. My hon. Friend the Member for Sedgefield (Mr. Blair) demolished that argument this afternoon.

The Chancellor said that spending on business research and development had risen by 50 per cent. in the past five years. That is good, because between 1981 and 1985, the last period for which good international comparisons are available, we had the lowest rate of growth in total research and development expenditure in real terms of all the OECD countries, except Yugoslavia. We were the only OECD country, except Turkey, to experience a fall in total research and development as a percentage of gross domestic product.

Within those figures, the rate of growth of business-financed research and development was the worst of all OECD countries, except Australia and New Zealand. We were one of only three countries—the others being New Zealand and Eire—in which Government-financed research and development declined in real terms. Since then, Government support has been cut further, while our most successful competitors continue to spend a higher proportion of wealth on research and development than us.

The danger in which that places us is highlighted by two recent press reports. The first appeared yesterday in the Mail on Sunday and is only the latest in a series of articles on the brain drain from this country of qualified scientists and technologists. Until recently, the Government refused to acknowledge that the brain drain existed, and have taken no steps to resolve it.

The second article appeared in The Guardian on a report from the 1FO Institute in Munich, that some 40 per cent. of all manufacturing products that will be internationally traded in 1995 are not yet in production.

The pace of innovation in products is quickening, and if we are to remain competitive, there must be more investment and research. Manufacturing investment is falling, and the Government's Budget predictions show that they expect it to fall, yet they continue to stand aside.

The international comparisons made for the Japanese company Yamaichi are bad enough for this year. They show us at the bottom of the growth league, at the top of the inflation league and with the highest trade deficit in Europe. More worrying, they show no change in the position in their forecasts for 1990 or 1991.

Photo of Margaret Beckett Margaret Beckett Shadow Chief Secretary to the Treasury

I agree—it is depressing.

There is no vision in the Budget, nothing to prepare us for the 1990s and no fiscal incentives, however minor, for good environmental policies, apart from the differential on lead-free petrol. There is nothing for those struggling to pay the extra charges that the Government have imposed on them. The excess price increases in electricity, water, fares and rents have all been imposed as a consequence of Government policy.

There is nothing for the small business or mortgage payer to alleviate, by even the smallest degree, the burden of interest rates, and nothing to create the conditions in which they might be lowered. All we get is a series of little exhortations—"no gain without pain", as the Chief Secretary said. That makes one wonder what Treasury Ministers are reading these days. I have a theory: the Prime Minister has embroidered a couple of samplers with those mottoes, and the Chancellor and the Chief Secretary have been forced to hang them over their desks and read them each morning.

As I contemplate the Government's continued reliance on their one-club interest rate policy, the proverbial blunt instrument approach, I am strongly reminded of the descriptions I remember from school history lessons of the mediaeval practice of medicine—what I believe later and wiser generations called "heroic medicine". It seems that what we are experiencing at the hands of the Government is heroic economics.

I see the Chancellor as a sort of economic equivalent of the mediaeval barber surgeon, someone who knows only a limited range of drastic remedies to cleanse the system—all that purging and cupping, cures that were frequently applied with such ferocity that they killed more people than would have succumbed to the disease. Who can doubt that the mediaeval barber surgeon would have said to the patients and their anxious families, as he drained that last fatal pint which weakened the patient beyond the point of recovery, "If it isn't hurting, it isn't working."

Almost every Opposition speaker, from whichever party, and even some courageous souls on the Conservative Benches, have identified the Budget as yet another missed opportunity for the nation, perhaps even a missed opportunity for the Conservative party. The truth is that we are all paying for the sins of 1987, 1988 and 1989, and those who benefited least are paying most.

There is a clear attempt to put much of the blame on the right hon. Member for Blaby, but most of the Government's policies have, with a few honourable exceptions, been not just supported, but supported wholeheartedly—as many hon. Members made clear in the Budget debates—by all Conservative Members, including all the potential contenders for leadership. I see that no one seems to want to take a bow. Collectively, they have frittered away the greatest windfall that this country has ever seen, not just in our lifetime, but for many generations. They have frittered away £83 billion, at today's prices, of income from the North sea. They have frittered away our opportunities, our children's opportunities and our grandchildren's opportunities, as well as their own.

In the words of the most destructive, damaging and unjust piece of legislation that even this Government have passed, we intend to hold them, one and all, "jointly and severally liable".

Photo of Mr John Major Mr John Major , Huntingdon 9:27 pm, 26th March 1990

The hon. Member for Derby, South (Mr. Beckett) ended the Opposition's contribution to this debate in much the same manner as her right hon. and learned Friend the Member for Monklands, East (Mr. Smith) opened it on Wednesday. Her speech was amusing, occasionally opaque, statistically selective, strong on criticism, but almost totally devoid of any detailed alternatives.

In the hon. Lady's statistical selections there were, alas, some facts that she missed. She missed the fact that between 1980 and 1989 this country grew faster than any major European country except Spain. She missed the fact that, even with slower growth forecast for 1990, the United Kingdom will have recorded higher growth in the past 10 years than either France or Germany. She missed the fact that, since 1980, the United Kingdom's manufacturing output has grown faster than that of either France or Germany, in stark contrast with the 1960s and 1970s when the United Kingdom was bottom of the growth league. Those are just a small selection of the facts that the hon. Lady missed.

Opposition Members have now been in opposition for a decade or more. After such a lengthy period, it is a little puzzling that they have so little constructive to say about the future. Either they do not have policies or they will not say what those policies are. I know that the right hon. and learned Member for Monklands, East is an intelligent and perceptive politician and, therefore, after 11 years of being an intelligent and perceptive politician he must have policies. If he does not have policies after 11 years, he is too incompetent to be in government. If he does have policies and he will not say what they are, he is too shady to be in government. The Opposition are now secretive to the point of deception.

There is a new tendency in the Labour party. The "don't say, won't say" tendency is now running the Labour party from the Opposition Front Bench. That tendency is led by the right hon. and learned Member for Monklands, East —a distinguished Queen's counsel—and under his guidance the Labour party has opted for the right to silence, for fear that it will incriminate itself by telling people its policies.

Labour Members are not silent only in the House. These days they are also silent in the media. When did we last see a significant interview with the right hon. and learned Member for Monklands, East, with the right hon. Member for Islwyn (Mr. Kinnock) the Leader of the Opposition, the hon. Member for Dunfermline, East (Mr. Brown) or any of the Opposition Front Bench in which they have exposed themselves to discussion of their policies? Not having seen such an interview for some time, can we ever expect to see one again?

Over the past few days, we have had a wide-ranging debate. There have been a number of compelling speeches to which I wish to refer. Today there were a number of outstanding speeches to which a reply is merited. My right hon. Friend the Member for Blaby (Mr. Lawson) made two specific points in a compelling speech. First, he said that a tax increase at present would be unwise and I will refer to that later, as the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) and others also referred to that issue. Secondly, my right hon. Friend the Member for Blaby called for early entry into the exchange rate mechanism of the European monetary system, and that call was echoed by my hon. Friend the Member for Horsham (Sir P. Hordern) and others.

I reaffirm to my right hon. Friend the Member for Blaby and to my colleagues that progress is being made towards entry and that we will enter the exchange rate mechanism when the conditions that we have set out are met fully. As my right hon. Friend the Member for Blaby will be aware, we wish to see inflation fall before we enter the mechanism. That concern is not shared simply by us; it is shared also by the governor of the Bundesbank. When sterling enters the exchange rate mechanism, it may well be turbulent not only for us, but for our European partners. There should be no doubt that join we will, when the conditions that my right hon. Friend the Prime Minister set out have been met.

My right hon. Friend the Member for Blaby also referred to the Opposition's policy—or lack of it—on the exchange rate mechanism. Of course the Opposition say, "We will join the exchange rate mechanism", although the hon. Member for Newham, North-East (Mr. Leighton), in a speech that I was sorry to miss, apparently has a different view about that. The Opposition's promise is so hedged by codicils as to be almost meaningless. They are not so much proposing to join the exchange rate mechanism as to abolish it. Their conditions for entry would drive a coach and horses through the existing system.

Last year the right hon. and learned Member for Monklands, East told the House that the conditions that the Labour party attaches to joining the mechanism, apart from the difficult condition of joining at the effective rate—which he did not identify—are that there should be adequate swap arrangements between the central banks, a well-organised regional policy within the Community and that the thrust of economic policies within the Community should be for growth not for deflation.

As Brian Walden pointed out to the hon. Member for Dagenham (Mr. Gould)—

Photo of Mr John Major Mr John Major , Huntingdon

Mr. Walden was a distinguished member of the Opposition Benches.

Mr. Walden said that Labour's terms for entry are much tougher than the Government's. For instance, he said that Labour wants a huge regional policy. It wants a guarantee that weaker currencies will be defended much more effectively than at the moment. Labour wants the whole purpose of the exchange rate mechanism to be changed.

The truth is that Labour's commitment to the mechanism is a sham. It is an attempt to take a soft option, but the exchange rate mechanism is not a soft option. As my hon. Friend the Member for Horsham made clear, it is a discipline, not a soft option. Financial discipline is something that the Labour party never has understood and never will understand. We understand it, and, in due course, we will join the exchange rate mechanism.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

Will the Chancellor say here and now whether we will join as long as the right hon. Lady is Prime Minister?

Photo of Mr John Major Mr John Major , Huntingdon

For the hon. Gentleman, that question is uncharacteristically cheap. My right hon. Friend the Prime Minister made the decision that we would join and, in Madrid, set out the terms under which we would join.

My hon. Friend the Member for Croydon, South (Sir W. Clark) also made a powerful speech in which he particularly welcomed the introduction of the tax-exempt special savings account. I was sorry to learn recently that my hon. Friend will retire at the end of this Parliament. Conservative Members will miss him and his contributions to our debates. As he said, the new tax-exempt savings scheme represents a considerable incentive for saving. We have already seen the success of personal equity plans, the brainchild of my right hon. Friend the Member for Blaby, in encouraging saving in shares. TESSA offers similar incentives. It is tailored for savings with building societies and banks which, for many people remain, and will remain in future, the most convenient and popular vehicle. I hope that the tax privileges of TESSA will get many people started on the saving habit and enable many more people to feel that it is worth building up savings for the future. I am glad to see that banks and building societies have responded positively to this innovation. For example, the Royal Bank of Scotland said: This is what the banks and building societies have wanted for years. It will do a great deal to encourage the small saver and we will be aiming to introduce the TESSA account as soon as possible. I hope that many others will follow that lead and that many people will take up the new savings incentive to build security and independence for themselves and their families.

During the span of the debate, a number of Opposition Members have chosen to quote relatively disobliging remarks from brokers' circulars and from other sources. Tempting though it is, I will not respond by quoting what some of those very same people recommended just a few days before the Budget, but it is striking how warm a welcome the Budget has received from business and industry.

Photo of Jack Straw Jack Straw Shadow Secretary of State for Education

What about the electors of Mid-Staffordshire?

Photo of Mr John Major Mr John Major , Huntingdon

The trouble with the hon. Member for Blackburn (Mr. Straw) is that he fears that the strategy will work, and he is right—it will.

The particular help that the Budget offers for smaller businesses has been acknowledged not only by Opposition Members but by the Association of British Chambers of Commerce, which welcomed the combination of a powerful boost to savings with control of inflation. It added: the business community should be well pleased with it. The Confederation of British Industry, the Institute of Directors and others have offered their full support for the determination to bring down inflation.

There was support, too, from many business leaders such as Sir Denys Henderson of ICI, Mark Boleat of the Building Societies Association, and many others, including Peter Morgan of the 10D. Most of those people know that, in present circumstances, we cannot offer this as a giveaway Budget, nor do I think at present that business would thank us for one.

Businesses know that the one overriding risk to our economy and to everyone in it would be to give up the battle against inflation. They remember only too well that rapidly rising prices in the past have destroyed planning, investment and motivation, and, above all, industrial relations, because inflation is the mother and father of industrial conflict. They know, too, that that was in the 1970s—not the 1980s—When the Labour Government were in power.

Business men know that with increasingly open markets and tough competition in the future, Britain simply cannot afford that sort of self-inflicted wound. That is why business understands and approves both a tight fiscal stance and a tight monetary stance. I offer my right hon. and hon. Friends the promise that that is precisely what we will keep—in the short term, in the medium term and in the long term, because we are determined to bring inflation down and to keep it down. British business does not contain many adherents of the sado-masochistic school of economic policy—those who think that the first Budget to put up taxes since 1981 did not put them up enough. It is not surprising that that doctrine has more supporters among those whose business is writing than among those whose business is business. Not many people in British industry would derive much comfort from a gratuitous helping of fiscal austerity.

City fashions come and they go. At the moment, the fashionable view may be that the fiscal brakes should be jammed in an emergency stop. However, that ignores all the evidence of recent years about the way in which fiscal policy works, as my right hon. Friend the Member for Blaby made clear. If one looks at our economic history, it is clear that when Governments have attempted to fine-tune fiscal policy to beat the cycle, more often than not that has turned out to be precisely the wrong thing to do at precisely the wrong time. Contrast that with the highly beneficial effects of stable or falling tax rates on the supply side of the British economy. It does not make any sense to set them at risk by a panicky fiscal reaction which, in retrospect, might turn out to be overdone.

I make no apology whatsoever for the fiscal judgment that I made when I framed the Budget. The right hon. Member for Ashton-under-Lyne spoke in his usual thoughtful and gracious way. In doing so, he questioned both the Budget judgment and the fiscal judgment and referred to market difficulties, as did the hon. Member for Durham, North (Mr. Radice). In so doing, they did not mention—although I reminded the right hon. Gentleman of this—that even as they spoke sterling was higher than when I delivered the Budget speech last Tuesday. When I pointed that out to the right hon. Gentleman in an intervention, he said that we must await the longer term. Of course that is right—and perhaps the Budget's critics would be wise to wait for the longer term as well before making their criticisms.

In all our debates, the one substantive criticism has been that fiscal policy was not tight enough. The right hon. Member for Llanelli (Mr. Davies) made that same point. I agree neither with the right hon. Gentleman nor with the critics. Sometimes the right thing to do is to stand still with a neutral fiscal Budget. That is what I chose to do on this occasion. If I had judged that it was necessary to raise taxes, I should have raised taxes, but I did not reach that judgment. My right hon. Friend the Member for Worthing (Mr. Higgins) shares that view. He accurately pointed out the difficulties of making such a judgment at present, not least difficulties with the statistical base, which I am considering how to improve.

Let us consider the fiscal position and record. In recent years, the country has been repaying its debts year after year. No. G7 country, except Japan, either is doing that or has been doing it in recent years. Moreover, the sheer scale of our repayments has already made a sizeable inroad into our public sector debt.

As for the future, under the fiscal judgments that have been reached, fiscal policy will knock out a further £17 billion of debt over this year and the next two years. As a result of that, we shall have reduced national debt, which stood at the beginning of this year at around £160 billion, by massive sums in total. That is the reality of the fiscal judgment. Our fiscal strength also means that debt as a proportion of GDP will continue what has been a headlong fall—from 50 per cent. in 1979, to 32 per cent. in 1989 to a forecast of 28 per cent. in 1990. It is now down to levels not seen since the beginning of the first world war. It is hard and intellectually indefensible to suggest that the fiscal position is neither satisfactory nor tight.

It is tight for other reasons, too, for we plan to repay £7 billion this year—and £7 billion next year. Even though this year has had the benefit of cyclically stronger growth than next year, the debt repayment next year will remain the same. The reason why it turned out at £7 billion and not £14 billion this year was not because fiscal policy was artificially relaxed. There has been no change in tax rates or structure. It was the one-off effect of the corporation tax shortfall as a result of the build-up of allowances for high investment, of the results of the national insurance rebates, as so many people took out personal pensions, costing the PSBR £2·5 billion, of the result of slightly lower privatisation proceeds than we had imagined and of the result of truly massive overspending of local government as councils sought to avoid new capital controls. To call that a loosening of policy is a perversion of logic. It may fill the columns of newspapers, but it ought not to fill minds as being the reality of what has happened. [HON. MEMBERS: "Oh."] If Opposition Members listen, they may learn something.

Photo of Mr John Major Mr John Major , Huntingdon

It is, I grant, unlikely that they will listen, but we shall try.

My right hon. Friend the Member for Worthing pointed out what advocates of higher taxation would say if such taxation generated either lower growth or higher wage demands. He was, as ever, both perceptive and right. My right hon. Friend also welcomed a number of other measures in the Budget and especially the abolition of composite rate tax, as did my hon. Friend the Member for Isle of Wight (Mr. Field). As my right hon. and hon. Friends know, composite rate tax was introduced because it brought substantial administrative savings. The Inland Revenue did not have to check the interest on millions of accounts to collect what were often small amounts of tax. Instead, tax was automatically deducted at source. I have no doubt that we are right to abolish the composite rate. I can think of no other example where tax is collected from people who have no liability to pay it and where, in no circumstances, can it be reclaimed once it has been deducted. Once independent taxation comes into force, as many as 14 million people would have paid tax that they did not owe on their interest.

However, let me say a word about the scale of the task of abolition. There are some 34 million interest-bearing bank and building society accounts and, during the year, many of the people holding them will change from being taxpayers to being non-taxpayers. Therefore, we shall need to negotiate with the banks and building societies with the aim of introducing a simple scheme of self-certification to allow non-taxpaying savers to receive their interest gross. Those who cannot self-certificate for any reason will be able to reclaim tax. Such arrangements are not easy to introduce and it will be a great challenge to have them in place by next April. Many felt that it would take at least two years to put them in place. It is for this reason, and for this reason only, that composite rate tax cannot be abolished immediately. If it had been possible to do so, I would have done so.

A number of the measures that I introduced in the Budget last week have been widely welcomed throughout the House and outside. I am especially pleased by the widespread welcome that has been given to the proposal for a reduction in pool betting duty to contribute to the cost of safety improvements at football grounds. As we have been in the business of quotes today, particularly from Opposition Members, I shall quote the chief executive of the Football Association, who called it the start of a new era for football". I hope that that is true, especially in terms of the conditions in which fans have to watch the game.

It is surely a measure of success that the Opposition appear to be queuing to take credit for having thought of the scheme. I have no objection to that and no party points to make about it. At Wembley yesterday, with the hon. Member for Newham, North-West (Mr. Banks), who may not care to admit to the company that he was in, and with the hon. Member for Middlesbrough (Mr. Bell), it was clear that the change is widely appreciated by both fans and administrators. The House may wish to know that the Football Trust and the pools companies will be meeting tomorrow to discuss the arrangements. I hope that they can agree on the details speedily so that we can reduce the duty without delay.

There has been a considerable welcome from charities for the new gift aid scheme. A number of charities have said that they receive a substantial number of one-off gifts of £600 and over. In future these gifts will carry the bonus of tax relief for the charity. This alone will increase their income, but I have no doubt that if the scheme is promoted actively many more people will be encouraged to give generously to a range of good causes. As the director of the Charities Aid Foundation commented: This package of measures is the best ever by any Government. He added that the package should be worth £50 million a year if charities pull themselves together and market it properly. I hope that he is right. The CAF was joined in its welcome by the Imperial Cancer Research Fund, the National Council for Voluntary Organisations, the Charities Value Added Tax Reform Group, the National Arts Collection Fund and the Royal National Lifeboat Institution. We now have a proper structure for charities and for giving. There are covenants for the regular giver over years, a payroll giving scheme to be deducted and paid weekly or monthly, and gift aid to provide, for the first time, for one-off gifts of cash. It is the best system of charitable giving, I suspect, of any nation in the European Community.

The measure to exempt the benefit of workplace nurseries from income tax has been widely welcomed. I have been informed today that a number of employers are responding already by announcing plans to open workplace nurseries for their employees. For example, it is reported that BP will be setting up workplace nurseries for its 30,000 staff following the Budget. There are a number of other employers who will be doing likewise, notably the Midland bank, which is proposing to set up 200 workplace nurseries. That is an extremely sensible response to the labour market conditions that many employers now face. I hope that the scheme will be taken up widely.

I made it clear in my Budget speech that I wished to encourage savings and I introduced incentives to do so. I know very well the difficulties that many people face with interest rates. I wish that it were possible to promise that interest rates would come down again soon. I cannot promise that they will do so and nor can I rule out a further rise if I judge that necessary. If they have to rise, they will rise. I can promise the House, however, that interest rates are working. They are encouraging saving and discouraging spending and borrowing. I have no doubt that they will get the economy back on track, and in the time scale that I set out in the Budget judgment. Opposition Members who doubt that should not underestimate the crucial importance of savings. Higher saving is not merely a short-time objective. On the contrary, I believe that high levels of saving will be extremely important throughout the 1990s if the British economy is to compete as it should.

If there is a high level of savings, we can sustain a high level of investment, which we all wish to do. The tax changes add considerably to the armoury of measures already in the system to encourage saving, and which have already resulted in massive culture changes in British society. Some 11 million shareholders and millions of other people will, I hope and believe, be able to save free from the victimisation that they suffered under the policies of the Labour Government. I find it ironic that Opposition Members mock the savings incentives in the Budget. Let people be warned—if there is ever a Labour Government again, the savers can forget about keeping up with inflation or obtaining a decent return on their money.

We hear a great deal about how the Opposition have changed. The right hon. and learned Member for Monklands, East and his loyal lieutenant the hon. Member for Dunfermline, East tell us, in every newspaper that we open, that Labour has changed and that as they lunch their way around the City, as they do day after day, they are finding a very appreciative audience. [Interruption.] They look very good on it. They sit on the Front Bench, the house pets of the board room in the 1990s. I have no doubt that the right hon. and learned Gentleman is an extremely entertaining lunchtime companion. We have never questioned his entertainment value, but I wonder whether he is deluding himself about the esteem in which he is held. I was amused by an article by the City firm Goldman Sachs—which is not exactly run by closet Conservatives—entitled: Meeting the Challenge?—Labour's Policy". Goldman Sachs said that it did not very much like what it had seen of the right hon. and learned Gentleman's policies. It said: Monetary, fiscal and exchange policy will be used to promote the competitiveness of British industry … This implies a willingness to depreciate. They are devaluers today just as they always were. Indeed, the policy review states that Labour will end the reliance on high interest rates and an uncompetitive currency. Goldman Sachs concludes: this seems to undermine Labour's commitment to join the exchange rate mechanism of the EMS and to threaten its counter inflationary policy. Indeed it does. Labour has no counter-inflation policy.

The problem with Labour's economic policy is the lack of any means to control inflation. There is no incentive for people to control costs. Labour is now in the age of glitznost—let the glitter be the substance. There has been a great deal of fraud and a few facts during the debate. My right hon. and hon. Friends should make no mistake—we have seen all that we are going to see of Labour's plans to deal with inflation. On that they are implementing Labour's election strategy—smarten up and shut up.

How many basic rate tax payers will be worse off? Labour Members will not say. How many people will suffer from the increase in the national insurance ceiling? They will not say. How much will people lose by the loss of the married couples allowance? They will not say. That is the reality. They will not vote for a policy that will reduce inflation and recreate growth. In this Budget we have a policy to bring down inflation and to create growth. I commend it to the House.

Question put:

The House divided: Ayes 338, Noes 228.

Division No. 139][9.59 pm
AYES
Adley, RobertChope, Christopher
Aitken, JonathanClark, Hon Alan (Plym'th S'n)
Alexander, RichardClark, Dr Michael (Rochford)
Alison, Rt Hon MichaelClark, Sir W. (Croydon S)
Allason, RupertClarke, Rt Hon K. (Rushcliffe)
Amery, Rt Hon JulianColvin, Michael
Amess, DavidConway, Derek
Amos, AlanCoombs, Anthony (Wyre F'rest)
Arbuthnot, JamesCoombs, Simon (Swindon)
Arnold, Jacques (Gravesham)Cope, Rt Hon John
Arnold, Tom (Hazel Grove)Cormack, Patrick
Ashby, DavidCouchman, James
Aspinwall, JackCran, James
Atkins, RobertCritchley, Julian
Atkinson, DavidCurrie, Mrs Edwina
Baker, Rt Hon K. (Mole Valley)Curry, David
Baker, Nicholas (Dorset N)Davies, Q. (Stamf'd & Spald'g)
Baldry, TonyDavis, David (Boothferry)
Banks, Robert (Harrogate)Day, Stephen
Batiste, SpencerDevlin, Tim
Beaumont-Dark, AnthonyDickens, Geoffrey
Bellingham, HenryDorrell, Stephen
Bendall, VivianDouglas-Hamilton, Lord James
Bennett, Nicholas (Pembroke)Dover, Den
Benyon, W.Dunn, Bob
Bevan, David GilroyDykes, Hugh
Biffen, Rt Hon JohnEggar, Tim
Body, Sir RichardEmery, Sir Peter
Bonsor, Sir NicholasEvans, David (Welwyn Hatf'd)
Boscawen, Hon RobertEvennett, David
Boswell, TimFairbairn, Sir Nicholas
Bottomley, PeterFallon, Michael
Bottomley, Mrs VirginiaFarr, Sir John
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 RhodesFinsberg, Sir Geoffrey
Braine, Rt Hon Sir BernardFishburn, John Dudley
Brandon-Bravo, MartinFookes, Dame Janet
Brazier, JulianForman, Nigel
Bright, GrahamForth, Eric
Brown, Michael (Brigg & Cl't's)Fowler, Rt Hon Sir Norman
Bruce, Ian (Dorset South)Fox, Sir Marcus
Budgen, NicholasFranks, Cecil
Burns, SimonFreeman, Roger
Burt, AlistairFrench, Douglas
Butcher, JohnFry, Peter
Butler, ChrisGale, Roger
Butterfill, JohnGardiner, George
Carlisle, John, (Luton N)Garel-Jones, Tristan
Carlisle, Kenneth (Lincoln)Gilmour, Rt Hon Sir Ian
Carrington, MatthewGlyn, Dr Sir Alan
Carttiss, MichaelGoodhart, Sir Philip
Cash, WilliamGoodson-Wickes, Dr Charles
Chalker, Rt Hon Mrs LyndaGorman, Mrs Teresa
Channon, Rt Hon PaulGorst, John
Chapman, SydneyGow, Ian
Grant, Sir Anthony (CambsSW)Maclean, David
Greenway, Harry (Ealing N)McLoughlin, Patrick
Greenway, John (Ryedale)McNair-Wilson, Sir Michael
Gregory, ConalMcNair-Wilson, Sir Patrick
Griffiths, Peter (Portsmouth N)Madel, David
Grist, IanMajor, Rt Hon John
Ground, PatrickMalins, Humfrey
Grylls, MichaelMans, Keith
Hague, WilliamMaples, John
Hamilton, Neil (Tatton)Marland, Paul
Hampson, Dr KeithMarlow, Tony
Hanley, JeremyMarshall, John (Hendon S)
Hannam, JohnMarshall, Michael (Arundel)
Hargreaves, A. (B'ham H'll Gr')Mates, Michael
Hargreaves, Ken (Hyndburn)Maude, Hon Francis
Harris, DavidMawhinney, Dr Brian
Haselhurst, AlanMaxwell-Hyslop, Robin
Hawkins, ChristopherMayhew, Rt Hon Sir Patrick
Hayes, JerryMellor, David
Hayhoe, Rt Hon Sir BarneyMeyer, Sir Anthony
Hayward, RobertMiller, Sir Hal
Heath, Rt Hon EdwardMills, Iain
Heathcoat-Amory, DavidMiscampbell, Norman
Heseltine, Rt Hon MichaelMitchell, Andrew (Gedling)
Hicks, Mrs Maureen (Wolv' NE)Mitchell, Sir David
Hicks, Robert (Cornwall SE)Moate, Roger
Higgins, Rt Hon Terence L.Montgomery, Sir Fergus
Hind, KennethMoore, Rt Hon John
Hogg, Hon Douglas (Gr'th'm)Morris, M (N'hampton S)
Holt, RichardMorrison, Sir Charles
Hordern, Sir PeterMorrison, Rt Hon P (Chester)
Howard, Rt Hon MichaelMoss, Malcolm
Howarth, Alan (Strat'd-on-A)Moynihan, Hon Colin
Howarth, G. (Cannock & B'wd)Mudd, David
Howe, Rt Hon Sir GeoffreyNeale, Gerrard
Howell, Rt Hon David (G'dford)Nelson, Anthony
Howell, Ralph (North Norfolk)Neubert, Michael
Hughes, Robert G. (Harrow W)Newton, Rt Hon Tony
Hunt, David (Wirral W)Nicholls, Patrick
Hunt, Sir John (Ravensbourne)Nicholson, David (Taunton)
Hunter, AndrewNicholson, Emma (Devon West)
Hurd, Rt Hon DouglasNorris, Steve
Irvine, MichaelOnslow, Rt Hon Cranley
Irving, Sir CharlesOppenheim, Phillip
Jack, MichaelPage, Richard
Janman, TimParkinson, Rt Hon Cecil
Jessel, TobyPatnick, Irvine
Johnson Smith, Sir GeoffreyPatten, Rt Hon Chris (Bath)
Jones, Gwilym (Cardiff N)Patten, Rt Hon John
Jopling, Rt Hon MichaelPattie, Rt Hon Sir Geoffrey
Kellett-Bowman, Dame ElainePawsey, James
Key, RobertPorter, David (Waveney)
Kilfedder, JamesPortillo, Michael
King, Roger (B'ham N'thfield)Powell, William (Corby)
Kirkhope, TimothyPrice, Sir David
Knapman, RogerRaffan, Keith
Knight, Greg (Derby North)Raison, Rt Hon Timothy
Knight, Dame Jill (Edgbaston)Rathbone, Tim
Knowles, MichaelRedwood, John
Knox, DavidRenton, Rt Hon Tim
Lamont, Rt Hon NormanRhodes James, Robert
Lang, IanRiddick, Graham
Latham, MichaelRidley, Rt Hon Nicholas
Lawrence, IvanRidsdale, Sir Julian
Lawson, Rt Hon NigelRifkind, Rt Hon Malcolm
Lee, John (Pendle)Roberts, Wyn (Conwy)
Leigh, Edward (Gainsbor'gh)Roe, Mrs Marion
Lennox-Boyd, Hon MarkRossi, Sir Hugh
Lester, Jim (Broxtowe)Rost, Peter
Lightbown, DavidRowe, Andrew
Lilley, PeterRumbold, Mrs Angela
Lloyd, Sir Ian (Havant)Ryder, Richard
Lloyd, Peter (Fareham)Sackville, Hon Tom
Lord, MichaelSainsbury, Hon Tim
Luce, Rt Hon RichardSayeed, Jonathan
Lyell, Rt Hon Sir NicholasScott, Rt Hon Nicholas
McCrindle, RobertShaw, David (Dover)
Macfarlane, Sir NeilShaw, Sir Giles (Pudsey)
MacGregor, Rt Hon JohnShaw, Sir Michael (Scarb')
MacKay, Andrew (E Berkshire)Shephard, Mrs G. (Norfolk SW)
Shepherd, Colin (Hereford)Townsend, Cyril D. (B'heath)
Shepherd, Richard (Aldridge)Tracey, Richard
Shersby, MichaelTredinnick, David
Skeet, Sir TrevorTrippier, David
Smith, Tim (Beaconsfield)Trotter, Neville
Soames, Hon NicholasTwinn, Dr Ian
Speed, KeithVaughan, Sir Gerard
Speller, TonyViggers, Peter
Spicer, Sir Jim (Dorset W)Waddington, Rt Hon David
Spicer, Michael (S Worcs)Wakeham, Rt Hon John
Squire, RobinWalden, George
Stanbrook, IvorWaller, Gary
Stanley, Rt Hon Sir JohnWalters, Sir Dennis
Stern, MichaelWard, John
Stevens, LewisWardle, Charles (Bexhill)
Stewart, Allan (Eastwood)Warren, Kenneth
Stewart, Andy (Sherwood)Watts, John
Stewart, Rt Hon Ian (Herts N)Wells, Bowen
Stokes, Sir JohnWheeler, Sir John
Stradling Thomas, Sir JohnWhitney, Ray
Sumberg, DavidWiddecombe, Ann
Summerson, HugoWiggin, Jerry
Tapsell, Sir PeterWinterton, Mrs Ann
Taylor, Ian (Esher)Winterton, Mrs Ann
Taylor, John M (Solihull)Wolfson, Mark
Taylor, Teddy (S'end E)Wood, Timothy
Tebbit, Rt Hon NormanWoodcock, Dr. Mike
Temple-Morris, PeterYeo, Tim
Thatcher, Rt Hon MargaretYoung, Sir George (Acton)
Thompson, D. (Calder Valley)Younger, Rt Hon George
Thompson, Patrick (Norwich N)
Thorne, NeilTellers for the Ayes:
Thurnham, PeterMr. Alistair Goodlad and Mr. Tony Durant.
Townend, John (Bridlington)
NOES
Abbott, Ms DianeCook, Frank (Stockton N)
Adams, Allen (Paisley N)Cook, Robin (Livingston)
Allen, GrahamCorbett, Robin
Alton, DavidCorbyn, Jeremy
Anderson, DonaldCousins, Jim
Archer, Rt Hon PeterCox, Tom
Armstrong, HilaryCrowther, Stan
Ashdown, Rt Hon PaddyCryer, Bob
Ashley, Rt Hon JackCummings, John
Ashton, JoeCunliffe, Lawrence
Banks, Tony (Newham NW)Cunningham, Dr John
Barnes, Harry (Derbyshire NE)Dalyell, Tam
Barnes, Mrs Rosie (Greenwich)Darling, Alistair
Barron, KevinDavies, Rt Hon Denzil (Llanelli)
Battle, JohnDavies, Ron (Caerphilly)
Beckett, MargaretDavis, Terry (B'ham Hodge H'l)
Beith, A. J.Dewar, Donald
Bell, StuartDixon, Don
Benn, Rt Hon TonyDobson, Frank
Bennett, A. F. (D'nt'n & R'dish)Doran, Frank
Bermingham, GeraldDuffy, A. E. P.
Bidwell, SydneyDunnachie, Jimmy
Blair, TonyDunwoody, Hon Mrs Gwyneth
Boateng, PaulEadie, Alexander
Boyes, RolandEvans, John (St Helens N)
Bradley, KeithEwing, Harry (Falkirk E)
Bray, Dr JeremyEwing, Mrs Margaret (Moray)
Brown, Gordon (D'mline E)Fatchett, Derek
Brown, Nicholas (Newcastle E)Faulds, Andrew
Brown, Ron (Edinburgh Leith)Fearn, 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, BobGalloway, George
Clelland, DavidGarrett, John (Norwich South)
Clwyd, Mrs AnnGeorge, Bruce
Cohen, HarryGodman, Dr Norman A.
Golding, Mrs LlinMowlam, Marjorie
Gordon, MildredMullin, Chris
Gould, BryanMurphy, Paul
Graham, ThomasNellist, Dave
Grant, Bernie (Tottenham)Oakes, Rt Hon Gordon
Griffiths, Nigel (Edinburgh S)O'Brien, William
Griffiths, Win (Bridgend)O'Neill, Martin
Grocott, BruceOrme, Rt Hon Stanley
Hardy, PeterOwen, Rt Hon Dr David
Harman, Ms HarrietPatchett, Terry
Hattersley, Rt Hon RoyPendry, Tom
Healey, Rt Hon DenisPike, Peter L.
Henderson, DougPowell, Ray (Ogmore)
Hinchliffe, DavidPrescott, John
Hoey, Ms Kate (Vauxhall)Primarolo, Dawn
Hogg. N. (C'nauld & Kilsyth)Quin, Ms Joyce
Home Robertson, JohnRadice, Giles
Hood, JimmyRandall, Stuart
Howarth, George (Knowsley N)Redmond, Martin
Howell, Rt Hon D. (S'heath)Rees, Rt Hon Merlyn
Howells, GeraintRichardson, Jo
Howells, Dr. Kim (Pontypridd)Robertson, George
Hoyle, DougRobinson, Peter (Belfast E)
Hughes, John (Coventry NE)Rogers, Allan
Hughes, Robert (Aberdeen N)Rooker, Jeff
Hughes, Roy (Newport E)Ross, Ernie (Dundee W)
Hughes, Simon (Southwark)Rowlands, Ted
Illsley, EricRuddock, Joan
Janner, GrevilleSalmond, Alex
Jones, Barry (Alyn & Deeside)Sedgemore, Brian
Jones, Ieuan (Ynys Môn)Sheerman, Barry
Jones, Martyn (Clwyd S W)Sheldon, Rt Hon Robert
Kaufman, Rt Hon GeraldShore, Rt Hon Peter
Kennedy, CharlesShort, Clare
Kinnock, Rt Hon NeilSkinner, Dennis
Kirkwood, ArchySmith, Andrew (Oxford E)
Lamond, JamesSmith, C. (Isl'ton & F'bury)
Leadbitter, TedSmith, Rt Hon J. (Monk'ds E)
Leighton, RonSmith, J. P. (Vale of Glam)
Lewis, TerrySnape, Peter
Litherland, RobertSoley, Clive
Livingstone, KenSpearing, Nigel
Livsey, RichardSteel, Rt Hon Sir David
Lloyd, Tony (Stretford)Steinberg, Gerry
Lofthouse, GeoffreyStott, Roger
Loyden, EddieStrang, Gavin
McAllion, JohnStraw, Jack
McAvoy, ThomasTaylor, Mrs Ann (Dewsbury)
McCartney, IanThompson, Jack (Wansbeck)
Macdonald, Calum A.Turner, Dennis
McFall, JohnVaz, Keith
McKay, Allen (Barnsley West)Wall, Pat
McKelvey, WilliamWallace, James
Maclennan, RobertWalley, Joan
McNamara, KevinWardell, Gareth (Gower)
McWilliam, JohnWareing, Robert N.
Madden, MaxWatson, Mike (Glasgow, C)
Mahon, Mrs AliceWelsh, Andrew (Angus E)
Marek, Dr JohnWelsh, Michael (Doncaster N)
Marshall, Jim (Leicester S)Wigley, Dafydd
Martin, Michael J. (Springburn)Williams, Rt Hon Alan
Martlew, EricWilliams, Alan W. (Carm'then)
Maxton, JohnWilson, Brian
Meacher, MichaelWinnick, David
Meale, AlanWise, Mrs Audrey
Michie, Bill (Sheffield Heeley)Worthington, Tony
Michie, Mrs Ray (Arg'l & Bute)Wray, Jimmy
Moonie, Dr LewisYoung, David (Bolton SE)
Morgan, Rhodri
Morley, ElliotTellers for the Noes:
Morris, Rt Hon A. (W'shawe)Mr. Frank Haynes and
Morris, Rt Hon J. (Aberavon)Mr. Ken Eastham.

Question accordingly agreed to.

Resolved,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;
  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.

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

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, on the motions for procedure and the money resolution on the Finance Bill.