A Budget is not just about revenues and fiscal policy. It provides an opportunity for the Chancellor of the Exchequer to make an important statement about the management of the economy and to assess the prospects for the future. It has been noticeable that this Government have used forecasts about our economy ruthlessly and irresponsibly to conceal the real trends in economic performance by always painting a reassuring picture about future prospects. However depressing is the reality of today, happy days are promised for just round the corner. Hence, in this Budget statement we are told that recovery from deep recession is imminent and, indeed, is assured to happen as soon as next year.
The Government's technique has become familiar because this is not the first assurance that we have had about prospective economic improvement. After all, we were told not so long ago that, as part of the miraculous economic achievement, the scourge of inflation had been eradicated. In his 1988 Budget statement, the right hon. Member for Blaby (Mr. Lawson), whom the Chancellor apparently regards as his mentor, told us:
It is a testimony to the soundness of our policies that the present strong and sustained upswing, unlike almost all its predecessors, has not led to any resurgence of inflation."—[Official Report, 15 March 1988; Vol. 129, c. 994.]
The right hon. Gentleman was not alone. The then Chief Secretary—the present Prime Minister—told us in the autumn statement debate of that year:
Inflation is low and will remain so".—[Official Report, 14 January 1988; Vol. 125, c. 549.]
We know now, of course, that they were both completely wrong. Inflation doubled, rising to more than 10 per cent.
last year. So much for Conservative assurances about the prospects for inflation. Even as it rose relentlessly, it was described as a "temporary blip".
Similarly, we had expansive assurances that recession would not occur, that any pause in the economy would be—to quote the present Chancellor—"shallow and short-lived". Of course, good news is always predicted. Any disturbing tendency is minimised, or concealed by a fresh declaration of confidence, hard on the heels of the last disappointment. A classic of this genre appeared in last year's Budget statement, when the then Chancellor told us that, whatever had been the problems of 1990, we could be confident about good times in 1991. He said:
Growth should return in 1991 towards its sustainable rate of around 2¾ per cent. I am confident that the period of low growth will be short lived."—[Official Report, 20 March 1990, Vol. 169, c. 1011.]
That statement is characteristic of the present Prime Minister. In the Red Book he published a growth figure of 1·5 per cent., but he could not restrain himself from hinting that it might be 2·75 per cent. It would take a Chicago lawyer to get at the real meaning of this remark:
Growth should return in 1991 towards its sustainable rate of 2¾ per cent.
What on earth does that mean? However, it is typical of the Prime Minister that he should publish one figure in the Red Book and, in his statement to the House of Commons, hint that the situation might be much better. But it does not really matter what he intended to say. He was right about at least one thing: growth was short-lived. There was none at all. Far from growing at anything like 2 per cent., the economy slid into recession.
But exactly the same rose-tinted forecast was made by the then Chief Secretary, who is now the Chancellor. Concluding his speech in last year's Budget debate, he made this ringing declaration:
Pain there may be, but gain there will also be. By this time next year, the prospects will be distinctly brighter. [Official Report, 21 March 1990; Vol. 169, c. 1142.]
Here we are, one year later—[AN HON. MEMBER: "The prospects have been brighter for him."] They have been a little bit brighter for him. There were some ups and downs on the way, and I gather that there is a continuing argument between the right hon. Gentleman and his predecessor as Prime Minister as to what precisely was his role in these events. However, perhaps I should not inquire too closely into matters of private grief—[Interruption.] The hon. Gentleman may get more attention for that sedentary intervention than he planned. I can tell him that the right hon. Member for Finchley (Mrs. Thatcher) keeps a careful eye on all that is happening. I think that the hon. Gentleman is trying to take some of the heat off the Chancellor of the Exchequer. Come to think of it, he looks a bit like a lightning conductor.
As one reads earlier debates, one finds that some feelings that have obviously been kept under tight control for a very long time are beginning to peep out. [Interruption.] Someone says that Conservative Members are glad that the right hon. Member for Finchley has gone. Unfortunately, he did not get as good a reward as did the right hon. Member for Kingston upon Thames (Mr. Lamont), who, as Chancellor of the Exchequer, now holds one of the senior positions in the Government. I must not be diverted by the seated interjections of members of the Government Front Bench, however entertaining they may be.
We must examine the brighter prospects that we are enjoying this year compared with last year's Budget forecasts. In last year's Red Book, it was predicted that in the first half of 1991 there would be growth of 1·5 per cent. Yesterday, the Chancellor of the Exchequer told us that it would fall by 2 per cent. We were told last year in the Red Book that manufacturing output in 1991 would increase by 0·75 per cent. Yesterday, that estimate was revised to minus 5 per cent. Last year, fixed investment in 1991 was expected to decline slightly, by 0·75 per cent. Yesterday, it was reduced massively to the almost unprecedented level of nearly 10 per cent.—9·75 per cent. to be precise.
Do the new and grim forecasts for 1991 reveal the distinctly brighter prospects that were promised 12 months ago by the then Chief Secretary, who is now the Chancellor of the Exchequer? Since that Budget, unemployment has increased by almost 400,000. Is that another feature of the brighter prospects that were promised last year for the year that lay ahead?
We see from the repeated contradictions between promise and performance how thin is the credibility to be attached to any forecast about anything in the economy that comes from Ministers of this Government. Let us keep at the forefront of our minds when considering their blithe asssertions the fact that, after heading sharply downwards, the economy will suddenly recover to growth of 2 per cent. in lime for the last available date for the next general election. What a happy statistical coincidence. What a wonderful world we live in when we can create on the basis of bogus predictions and misdeclarations about the economy.
It was surely significant that the Chancellor of the Exchequer drew our attention to the severe penalties that were attached last year by the Government to incorrect declarations in the value added tax system. The present Chancellor of the Exchequer reminded us yesterday that especially severe penalties had been introduced for those who persistently made inaccurate financial returns. The right hon. Gentleman referred specifically to the serious misdeclaration penalty which was introduced in April 1990. His experience since then appears to have given him a special sympathy for the miscreants to whom the penalty was directed. He told us that there had been widespread protest that the penalty was too severe. I give the Chancellor of the Exchequer credit for realising that it was wholly inappropriate to impose such a penalty on those whose misdeclarations were minor matters compared with the gross misdeclarations about the economy that Ministers have made year after year.
Whatever the Government try to do, the facts eventually catch up with them. Yesterday, the Chancellor of the Exchequer was noticeably reticent about some key economic indicators. Not a word did he say to the House about the estimate for fixed investment for 1991. The right hon. Gentleman's predecessor told us last year that fixed investment would decline by slightly less than 1 per cent. The forecast that the present Chancellor of the Exchequer has been obliged to print in the Red Book reveals, as I have already said, that the forecast for 1991 is a precipitate fall of almost 10 per cent. Why, we wonder, was that omitted from the Chancellor's Budget presentation yesterday and, indeed, from his television broadcast last night? Come to that, the right hon. Gentleman made no reference to the projected fall in manufacturing output. It was forecast a year ago that it would increase by almost 1 per cent., yet it is now expected to drop by as much as 5 per cent.
These are, for the Government, embarrassing indicators of what is happening in the real economy and of the depth and seriousness of the economic recession that afflicts our nation. At least it seems to be accepted that there is a recession. I have no doubt that that is only because it can no longer plausibly be denied—not that the Government did not try to do that as well. In December 1989, the present Prime Minister scoffed at the notion that there would be a recession at all. He said in a speech to the Association of British Chambers of Commerce:
I do not believe myself that a recession is either likely or necessary.
Not to be outdone, the present Chancellor of the Exchequer, after being cornered by the Select Committee on Treasury and Civil Service, and having to accept that there was indeed a recession, told us that it would be
shallow and short-lived".
Let us ponder for a moment the now admitted fact that investment will fall by 10 per cent.—as far as I can discover, an unprecedentedly bad prediction. Investment is the seed corn of economic progress, yet here in Conservative Britain it is falling through the floor. Ominously for us, that is not happening elsewhere. The latest figures of the Organisation for Economic Co-operation and Development show that all the other members of the Group of Seven are maintaining positive and superior levels of growth in investment.
Investment is vital for economic recovery, particularly in the context of the single market after 1992. It does not seem to worry the Government that in other European countries 1991 is a year of preparation and investment. In Tory Britain it is a year of cuts and decline. That is why we in the Labour party called for a Budget for investment and for recovery. That is why we proposed lower interest rates and a package of investment incentives for manufacturing industry. The Government felt obliged to make reductions in corporation tax—no doubt because of the parlous condition of so many smaller companies as a result of the recession and the years of high interest rates. We should have preferred the fiscal relaxation to have been targeted on the stimulation of investment in the manufacturing sector which, after all, is the crucial wealth creator and the most internationally tradeable part of the economy.
We also proposed a major investment in training, another area of policy which, like manufacturing, seems not to concern the Chancellor of the Exchequer very much. We proposed that the foolish cuts in the training budget of £245 million should be reversed. How can the Government justify those cuts when we have skill shortages in the midst of sharply rising unemployment and when we are now in the most absurd of all situations, putting trainers on to the dole?
We also recognised the human problem as well as the economic waste of rising unemployment, up by 85,000 last month alone or more than 4,000 lost jobs for every working day of the month. We proposed to tackle that by a temporary employment scheme to provide both work opportunity and training for the growing number of our citizens without work. Our proposals in this regard would have cost £340 million, and we would have invested £300 million in a new skills fund to provide much-needed extra resources for the training and enterprise councils and non-statutory training organisations.
The only acknowledgement of any training need in this Budget was the tax allowance for individual training costs at an estimated cost to the Treasury during 1992–93 of £20 million. Such a sum shows how totally inadequate is the Government's appreciation of the scale of the training disaster that our country has suffered in the Conservative years.
I have been trying to follow closely the argument of the right hon. and learned Member for Monklands, East (Mr. Smith). Is it implicit in what he has just said that the previous undertaking given, I think, by him and the shadow Chief Secretary, the hon. Member for Derby, South (Mrs. Beckett)—that the only areas of public expenditure which would be expanded under a future Labour Government were child benefit and pensions—will be extended to cover increased expenditure on these other worthy purposes to do with training? If so, what items of public expenditure does he intend to reduce to make room for those increases?
The hon. Member for Carshalton and Wallington (Mr. Forman) should have read some of the proposals that we published last week. First, he misrepresents what my hon. Friend the Member for Derby, South (Mrs. Beckett) said. We indicated the priority that we attach to certain items of expenditure, but we did not exclude the possibility that we would enter into proposals for other areas of expenditure.
That was why I drew the hon. Gentleman's attention—I could not have done so more specifically—to the precise sums in our proposal. I hope that he does not think that I did that just for fun. I did so to show the House that we were entering into a commitment to achieve precisely that end. He should consider why on earth the Government whom he supports do not enter into a similar commitment to tackle our training problems. Surely a man of his perception, knowledge and experience of such matters knows that we have a training disaster in this country. What does he do about it—does he merely wring his hands and say that there is nothing that he can do about it?
The answer to the nation's training needs is to be found in the TECs, which are going ahead very satisfactorily—[Interruption]—and the sensible tax relief proposed for individual training.
I do not wish to be disrespectful to the hon. Gentleman, who tries to make a helpful contribution to our debates, but he should have listened to what I was saying. I drew attention to the Budget proposals for tax relief for people on individual training programmes, but I said that £20 million—not this year, but the year after next—is hardly an adequate response to the scale of Britain's training problems.
The hon. Gentleman referred to TECs. Does not he know that almost all the TEC chairmen protest loudly that they have been given responsibilities by the Government without being given the resources to carry them out, and have recruited various people from the private sector to contribute to the TECs, who discover on arrival that there is no money for them to carry forward the programme? My constituency is suffering from that very problem. The Government amalgamated the Scottish Development Agency and the Training Agency into a new organisation, Scottish Enterprise, and set up many local enterprise companies. The one that affects my constituency, Lanarkshire Development Agency, has had to cut the training programme that had already been promised. Its first job is to deliver the bad news that the Secretary of State for Employment lost the argument with the Chancellor on the previous autumn statement figures. That is why, unhappily, money is being cut from training. I hope that, when he reflects on it, the hon. Gentleman will see that there is a great deal of wisdom in what we are saying.
There are some proposals in the Budget——
I wonder whether, before the right hon. and learned Gentleman hastily moves on from Labour's shadow Budget—[Interruption.] He would have been wise to move hastily because he will know that I have been asking the hon. Member for Oldham, West (Mr. Meacher) to explain the major balancing item in the shadow Budget, an alleged saving of £619 million by withdrawing the personal pensions incentive. That could be done only by taking back money to which people already have a legal entitlement and wrecking 4 million personal pensions. Is that the Opposition's policy?
The right hon. Gentleman knows perfectly well that that was one of the changes that we proposed. Our proposals clearly suggested that the bribe for people to enter personal pension schemes should not be continued. The precise figure—which I understand the right hon. Gentleman also contests—was supplied by his Department in a parliamentary answer. On the whole, we should be entitled to rely on that. That is the answer.
The right hon. Gentleman should know perfectly well that, since that proposal was introduced by the present Government, the Labour party has said that it would be one of our ambitions to withdraw it. We are merely proposing once again that that bribe should not be continued.
The right hon. Gentleman's other shot at this subject was to try to say that we had dropped our commitment to uprate old-age pensions according to prices or earnings, whichever was the higher. We do not have to repeat that commitment on every occasion because it is so clearly understood by the public and the House as one of the Labour party's major commitments.
The right hon. Gentleman asked why we included proposals for child benefit. That was because they are highly relevant to Budgets in which child tax allowance used to be a feature. It looks as though we did some good by putting it into the shadow Budget because the Chancellor appeared to listen to what we said in our proposals.
I must move on to the other proposals——
The right hon. Gentleman cannot complain because I have given way to him twice. He asked two absurd questions to which he has received adequate answers.
There are other items in the Budget, some of which my right hon. and hon. Friends will be disposed to welcome as the Labour party has, for many years, campaigned for them. I shall draw the right hon. Gentleman's attention to one. It seems at last to be recognised, at least for future conduct—I hope that the right hon. Gentleman will pay attention to this because it affects his Department—that a potential Conservative Government would uprate child benefit according to the inflation rate.
It is hard to believe that the Government are seeking congratulation on the abandonment of a posture of unfairness and obduracy that no Government should ever have contemplated, let alone pursued. They know full well that they broke an all-party understanding that child benefit—the product of the amalgamation of family allowance and child tax allowance—would be regularly updated in the same way as a normal tax allowance. In addition, they were perfidiously misleading in their shameful manifesto reference to the subject at the last election. Even now, when a sense of penitence on their part should have led them to make good the entire shortfall of the freeze, we have a proposal merely to increase the first child's benefit by £1, while the increase for other children is limited to a miserly 25p—all of which will not be paid, as I understand it, until October of this year. The Labour party proposed that the increase should take child benefit up to £9·55 for all children. Clearly, it will be left to the next Labour Government to put right an injustice which has been only partially, if revealingly, acknowledged in this year's Budget.
There are other items, such as the changes in mortgage tax relief——
I acknowledge that, but the right hon. and learned Gentleman might acknowledge that the biggest single proposed item of expenditure in the shadow Budget was social security expenditure, to which I am about to come, and that the biggest single item of saving was the personal pensions incentive, to which I have referred.
The right hon. and learned Gentleman made a number of points on child benefit. I should like his comments on a point that I have put to him and his right hon. Friends—[Interruption.] The proposal that the right hon. and learned Gentleman put in his shadow Budget is costed in such a way that I million families on income support, and with more than 2 million children, would have gained no benefit. The proposals that my right hon. Friend announced yesterday give full benefit to all parts of the population, including the poorest. The document that he published——
I will answer the question in my own way and in my own time. The Opposition are well used to abuse from Conservative Back-Benchers, but I see that it has moved forward.
I give a straight answer. The difference between the Opposition and the Government is that we would have increased child benefit properly and they did not. That is what it is all about. Had there been a Labour Government, child benefit would be £9·55 per week for each child. That is not the case under the Government. If the right hon. Gentleman wanted to show support for the poorest people in our society, he has had plenty of opportunity to do so during his period in office.
As I was endeavouring to say, there are other items, such as the change in mortgage tax relief, which the Opposition support and which have long been resisted by the Government. Imitation is, in many ways, the sincerest form of flattery and I suggest that for guidance and enlightenment the Conservative party would be well advised to read the Labour party's policy statements with care and attention. [HON. MEMBERS: "We have "] I am glad to hear it. If they read them with a more open mind than heretofore, they will find some extremely attractive, eminently sensible and much-needed proposals to create the strong economy and the fair society to which an increasing number of our people aspire.
The Government are no doubt inhibited by a feeling that cheap imitation is no substitute for having policies carried out by those who believe in them and are committed to them for their worth—a view which I think will prevail in the coming decisions of the electorate.
But what caused many of the headlines following the Budget was the humiliating U-turn executed by the Government on the poll tax which was presaged by the increase in VAT of 2½ percentage points—a percentage increase of more than 16 per cent. in the tax.
Well, the right hon. and learned Gentleman's voice was on the radio. He probably was asleep, but I certainly heard it. He said that it would be wise for us to suspend judgment on the question of local government taxation until the Government's full proposals had been revealed.
I gather that there is some irritation among members of the Government that one of their colleagues regularly leaks information in Central Lobby. Anyone who took a wander out there a day or two ago could have seen his minions in the act. It is well known that the Secretary of State for the Environment has been leaking like a sieve the proposals that are before the Government. He does not seem to have suffered much, so no doubt he will continue to do so. Since the Government do not tell us very much, we should be grateful for the odd crumb that we get from the right hon. Gentleman.
We will consider carefully what the Government put forward and when we see the Bill—we do not even know its title—we will be able to give a considered reaction.
I am asked to give advice on something that is happening in the Conservative party, not about Labour party policy. I was asked to give my opinion about what the Secretary of State for the Environment was talking about. Well, he was not actually talking about VAT. He did not get that one. But he sought to capture publicity before the Chancellor's announcement about VAT. The wicked thought crossed my mind that he was trying to bounce some of his Cabinet colleagues into taking a decision at a particular meeting by drumming up support here and there for his proposals. As far as I can see, no one in the Government is denying that that process of leaking went on. But it is for the Government to decide how Ministers behave in their Administration.
The 16 per cent. increase in that indirect tax will mean that, when we buy the wide range of goods to which the tax applies—household equipment is an obvious example—or pay for services such as in our telephone bills, we will all be paying a poll tax surcharge. It is not clear to me—unless the hon. Member for East Lindsey (Sir P. Tapsell) can give me an opinion—whether the VAT proposal is intended to bury the poll tax or to keep it alive.
Conservative Members know perfectly well that many among them see in the Chancellor's VAT increase a possible lifeline for the continuation of the poll tax in one form or another. But of course the House of Commons has not been shown the whole prospectus. It does not know whether the poll tax is to go or stay, what is the proposed allocation of services between central and local government or what financial burdens have been allocated and to whom. We get Budget proposals one day, we are told that a Bill will be presented on another, and although the House has not been told what the legislation contains, it is told that the normal processes of legislation will be steamrollered to suit the political convenience of a Government running hither and thither in a desperate attempt to extricate themselves from a poll tax fiasco of their own creation.
Enormous changes in the relationship between central and local government, of great significance to the balance of our constitution, are revealed in insidious leaks by the Secretary of State for the Environment and are then packaged in a panic form to be bulldozed through Parliament. Was there ever an example of more foolish or ill-considered government?
The latest burden in VAT increases is just the most recent cost of the poll tax fiasco. Hundreds of millions of pounds—I am generous in that estimate—have been wasted in the constant changes in local government administration and finance which have been imposed by the Government. The tragedy is that all the money could have been used to improve the services which local government exists to provide and which are the real victims of the Government's ludicrous incompetence.
Let it not be said, as I understand the Chancellor to claim, that the VAT increase that he proposes will not affect the cost of living. The system of retail prices indexing may be such that the effect of VAT increases can be statistically disguised, but, as many newspapers today have pointed out, that is little more than sleight of hand. The price increases will be real. They will be paid by our constituents, who will not be impressed. They are well capable of spotting another inflationary own goal coming in their direction.
Of course, the retail prices index will fall in the months ahead. That is statistically inevitable as previous price rises fall out of the calculation. One effect of flattening the economy and causing unemployment to rise is that inflation will fall. It would be wise for the House to look with some care at the detailed figures in the Red Book. The gross domestic product deflator, which measures inflation in the economy as a whole, rather than the limited bundle of goods contained in the retail prices index, remains almost unchanged, easing only from 7·75 per cent. in 1990 to 7 per cent. in 1991. That is still well above the equivalent GDP inflation rates of the other major European Community countries. Again, we must be wary of the Government's optimistic forecasts, in the light of the information buried in the statistics which they themselves have presented.
During the past 12 years the Government have indulged in the economics of the roller-coaster. We are back to the cycle of boom and bust, back to the stop, go and stop again policies which have been the chief characteristic of Conservative economic policy for decades. In the 1960s we saw the Maudling dash for growth, in the 1970s it was the Barber boom and in the 1980s the right hon. Member for Blaby and the present Prime Minister organised their own spend now, pay later credit spree.
There has been a Conservative boom and bust in each of the past three decades. Why on earth should anyone believe that another Conservative Government in the 1990s would behave any differently from what they have done three times before?
The Budget confirms how little the Government and the Conservative party have learnt from their experience. I am sad to say that it is yet another missed opportunity. Sooner rather than later I hope that we shall elect a Government who are committed to making the breakthrough to economic success which is so desperately needed for our country in the 1990s. We need it if we are to secure our living standards and to help us build a more decent society. It will fall to that Government to present a Budget for investment and recovery. We in the Labour party look forward to that opportunity.
Yesterday, my right hon. Friend the Chancellor charted the course of the British economy during the next decade and proposed measures designed to help business through the current recession and to maintain the momentum of a decade of supply-side reform. He introduced proposals to make the tax system fairer and to enhance the quality of life. Finally, my right hon. Friend announced a massive switch between local and central taxation—a switch that lays the foundation for a lasting solution to the problem of local government finance.
History will show that my right hon. Friend's first Budget was right for its time, right for the economy and right for Britain, and it certainly was not dull either. That is the almost universal view of today's press, the mood of which is well summed up by the Financial Times which, in the opening words of its editorial, said that the Chancellor
has played a difficult hand bravely and skilfully.
What is clearly recognised in that editorial, as in so many others, is that this Budget puts the long-term health of the British economy and British business first.
It is not. It is a Budget for business and to reduce the community charge, and it succeeds magnificently in both. I shall come to the chapter and verse. It is to the discomfiture of Opposition Members that it succeeds so well.
So far in this debate we have heard speeches from he Leader of the Opposition, who, alas, is no longer present, and the shadow Chancellor—a winning combination, the Labour party would have us believe. I do not know whether they are familiar with the old Russian proverb about partnership, of which I am irresistibly reminded when listening to both of them. The Russians say that there are two people in every partnership—the one who chops the wood and the one who does the grunting. I do not know which was which. They were hotly competing for the title of the grunter, but it will be interesting to see how both of them have shaped up in this debate.
The Leader of the Opposition's performance was quite astonishing. I have watched him, as have my hon. Friends I am sure, for some years carrying out that task. It is certainly a difficult one. It is a real ordeal to have to respond immediately to a complex Budget. It is a difficult speech to bring off and it is the particular facility of the Leader of the Opposition to make it seem impossible.
Let me make clear exactly what I mean. First, most of his speech had been typed up well beforehand. [HON. MEMBERS: "So is yours."] If ever there was the wrong speech, by the wrong writer for the wrong occasion, that was it. It is a speech that we have already heard—[ Laughter.] Opposition Members may wish to hide their discomfiture about the performance of the Leader of the Opposition, but—[Interruption.] I thought that Opposition Members were supposed to be behaving well in speeches these days, Mr. Deputy Speaker, and showing us up.
I shall come to the chapter and verse of why the Leader of the Opposition was unwise not to discard his script. Everything in my script is predictable because of the predictable speech by the Leader of the Opposition, who said nothing new.
The Leader of the Opposition said that he had been listening to a "tinkering" Budget. Whatever it is, it certainly is not tinkering. I would like to hear the Leader of the Opposition's definition of a radical Budget if this is tinkering. However, it is a fitting tribute to the right hon. Gentleman's forensic skills that because his script said tinkering he continued to call it tinkering, although, as is perfectly obvious to everyone, this Budget is very different.
When it came to the spontaneous bits, the Leader of the Opposition was unable to keep up with his pre-prepared description of a tinkering Budget from a Government that he said "will not learn" because he went on to say that our child benefit proposals were "another spectacular somersault", and he had to describe the reduction in the community charge as
the biggest climb-down in … political history."—[Oficial Report, 19 March 1991; Vol. 188, c. 182]
He should make up his mind—is it tinkering or a U-turn? After all, he is supposed to be the decisive one. Mind you, Mr. Deputy Speaker, it cannot have been easy for him. All his favourite foxes were shot—the level of the community charge, mortgage relief, offshore trusts, and company cars. Perhaps the right hon. Gentleman should have been congratulated merely for continuing to stand there while all those rugs were pulled out from under his feet.
I wish to return to the substance of what the Leader of the Opposition said so that I have the attention of the right hon. and learned Member for Monklands, East (Mr. Smith) and to some of the matters mentioned by my right hon. Friend the Secretary of State for Social Security, which appeared in the Labour party's shadow budget. That has exposed, once and for all, Labour's claims to be the party of fiscal responsibility. Despite saying that the child benefit proposals were another spectacular somersault, the Leader of the Opposition went on to say that he wondered that the right hon. Gentleman had "the gall to come" to the House to announce them, but those measures will cost £450 million in a full year. Indeed, when taken together with the increase that is coming into effect next month, the full year cost is more than £700 million. I should have thought that the real gall is to say that one is financially responsible and then sneer at that level of financial commitment. Heaven knows what would happen if the Leader of the Opposition were in charge with that sort of thinking.
I will in a moment.
I would like to return to the point made by my right hon. Friend the Secretary of State for Social Security about the measures costed by the right hon. and learned Gentleman in the shadow budget. The right hon. and learned Gentleman will be aware that our proposals alter the income support level so that the poorest families, with a quarter of all children, receive the full benefit of the increase in child benefit. The right hon. and learned Gentleman sought to fudge what was said in the shadow budget. The trouble with publishing documents is that we read them and subject them to scrutiny. What do we find? We find the costing of his child benefit proposal at £775 million.
The right hon. and learned Gentleman is perfectly at liberty to intervene if I have got that wrong. However, it is clear that he knows only too well that £775 million is the costing if no allowance is made for families on income support. If he was to give the full benefit to the poorest families, the total cost would be over £1 billion. Once again, the figures just do not add up.
The right hon. and learned Gentleman seems to be studiously engaged in discussions with the hon. Member for Newcastle upon Tyne, East (Mr. Brown) to avoid the argument. If he wants to stand up and make it absolutely clear what he meant, I shall be happy to give way. Were the poorest quarter to be better off or not? Were the poorest quarter to have their income support varied on the right hon. and learned Gentleman's calculations or not? [HON. MEMBERS: "Silence!"] As I have said to the right hon. and learned Gentleman before, we hear plenty of quarter sessions huff and puff from him, but when we look for the beef, it simply is not there.
The right hon. and learned Gentleman has published a shadow budget riddled with errors and inconsistencies. We have already exposed the hole in the middle of the child benefit proposals, but there are more. There is the repudiation, which he acknowledged this afternoon, of Beckett's law, which stated that Labour had only two priority spending pledges—pensions and child benefit. We know, and he has acknowledged, that a raft of additional measures on training, capital allowances, temporary work programmes and so on was included in the shadow budget.
When it comes to paying for all that, the whole thing begins to fall apart. The right hon. and learned Gentleman may want to clarify other points in the shadow budget, and that would be helpful to us all. First, £1 billion of the cost of the shadow budget was to come from withdrawing mortgage tax relief from top-rate taxpayers and reducing the subsidy on company cars. We have done that, and money cannot be spent twice. What is next in line? Sooner or later the right hon. and learned Gentleman may have to return to the subject that always embarrasses the Labour party so much—the level of income tax. Labour Members have been anxious not to commit themselves on that topic since the fiasco of their promise at the last election that income tax would have to go up to 29p in the pound.
According to the shadow budget, £619 million for investment and recovery will come from ending the 2 per cent. personal pension incentive. That figure has a nice ring. It sounds accurate, because it is not a round figure, and some people might be taken in by it. As has been made obvious this afternoon, they should not be.
The right hon. and learned Gentleman may benefit from what I am saying next time he has a go at the same exercise. The elimination of the 2 per cent. personal pension incentive would yield, not £619 million, but about £10 million a year. Where, then, does this little pot of gold come from? As my right hon. Friend the Secretary of State for Social Security has made clear, it comes from the retrospective removal of the 2 per cent. rebate that has already been given to 4·3 million of our fellow citizens who have opted out of the state earnings-related pension scheme and taken up private pensions.
I shall make myself available to the right hon. and learned Gentleman if he wants to correct any of what I have said. I shall be happy to give way to him.
The retrospective removal of the 2 per cent. rebate would rob a man on average earnings of a £272 contribution to his pension scheme for this year alone, and would slash his pension contributions by £5 per week. Is that really what the Labour party wishes to do to millions of working people up and down the country?
The hon. Gentleman has been in the House long enough to know better.
The Labour party is in considerable disarray on this point. I do not know to what extent the hon. Member for Oldham, West (Mr. Meacher) is privy to the discussions that result in the shadow budget, but he assured my right hon. Friend the Secretary of State for Social Security that the proposal was only for the future. Is it, or is it not? Does the right hon. and learned Gentleman wish to intervene to tell me the answer? If so, I am anxious to give way to him. Surely the Labour party should know what its policy is.
Diversionary tactics are no use. Is the proposal for the future, or is it not?
Silence speaks volumes; sometimes it speaks louder than words. The right hon. and learned Gentleman will not intervene, even with a lengthy, lawyer-like evasion. Labour will have to sort the matter out. It is clear that if Labour wishes to persist with the idea that £619 million will be saved, it will have to face the wrath of 4·3 million of its fellow citizens whose money will be taken back from them. If the removal of the rebate is not retrospective, however—if it is only for the future—the £619 million figure becomes £10 million, and knocks a hole in the heart of this so-called responsible document, the shadow budget. [HON. MEMBERS: "Give way"] No. I am still dealing with the shadow budget. I shall be happy to give way later, but I have not yet finished discussing the anomalies in the document. For instance, it refers to closing the tax loophole available through offshore trusts. Labour implies that that would be worth £1 billion. As the right hon. and learned Gentleman knows, we have closed that loophole. The Inland Revenue's estimate of the benefit to be gained from closing it is £100 million—
The right hon. and learned Gentleman, who is recovering his composure and voice, says insouciantly that it is our estimate. It is not our estimate. It is the Inland Revenue's estimate—the same Inland Revenue as would have to advise him if he were Chancellor.
Our proposal will be more professionally drafted than the right hon. and learned Gentleman's proposal for closing the same loophole last year, and it is more far-reaching than his, yet it yields only one-tenth of the amount that the shadow budget says will be forthcoming. In one of his more memorable phrases, the Leader of the Opposition said yesterday that the Government's plans were a con. The biggest con in this debate is the Labour party's shadow budget. Until we get answers—we certainly have not had any this afternoon—it will not just be Conservative Members who think that it is a con.
Such generosity bewilders me, but I am grateful to the Minister for giving way. From his briefings, will the right hon. and learned Gentleman tell the House and the country what percentage of an average income is now paid in direct taxation—income tax and national health insurance—as opposed to when the Government took office? Is the Minister aware that many of my constituents would be over the moon to pay a higher rate of income tax if they could get a job to enable them to pay tax? The Prime Minister has done away with many jobs since coming to power.
Direct taxes are down. If the hon. Gentleman wants to talk about the average family—the man on a national average wage with a non-working wife—he must be aware that after five years of Labour government that man was one pound a week better off. After 12 years of Conservative Government he now has £58 more in his pocket. That is the reality. [Interruption.] I have answered the question. If the right hon. and learned Member for Monklands, East answered questions so candidly, we should have got a bit further this afternoon.
Unless the right hon. and learned Member for Monklands, East has already recorded the broadcast, he will have some time to rethink some of the points that have been made.
In the time that remains I shall return to the central proposition in the Budget. [Interruption.] I have answered the question of the hon. Member for Falkirk, East (Mr. Ewing) and in a way that discomfited him. I provided a statistic that the hon. Gentleman is unable to disprove. I said that the average working man is £58 a week better off after 12 years of Conservative government. I am prepared to answer that question 10 times every day because it does not embarrass me.
The right hon. and learned Member for Monklands, East properly spent time discussing the environment for business. The Chancellor predicted that inflation will fall to 4 per cent. by the end of the year and that will provide a great fillip to national self-confidence and morale. It is a clear sign we are on the right track. Obviously there is no painless or quick way to conquer inflation, but this time there will be sustained progress and the low figure will be maintained. The decision to join the ERM last October was a clear signal of our overriding commitment to stay the course and to stick to the task until inflation is decisively defeated. The prospect of sharply falling inflation provides the assurance that business needs that the recession will soon be behind us. The Budget provides more than reassurance for business; it provides action.
This is a good Budget for business.
The hon. Gentleman realises that there has been an unprecedented expansion in business investment over the past decade—80 per cent. over eight years and nearly 50 per cent. in the three years from 1986 to 1989. Inevitably, from that very high plateau, there has been some falling off. This is a Budget for business, which increases companies' liquidity and will allow investment to rise again. As the hon. Gentleman knows, there is no such thing as a straight line in these matters.
I want to push on a little more. I shall give way to the hon. Gentleman later. If I give way, I shall simply spend my whole time giving way and not making the points that will allow some of my hon. Friends and other hon. Members to intervene.
Our proposals look forward to the next decade. They build on the major reforms carried out by my right hon. Friend the Member for Blaby (Mr. Lawson) who, in a reform of business taxation in 1984, cut corporation tax from 52 per cent. to 35 per cent. and removed accelerated investment allowances and gave tax relief at rates that more closely reflected commercial depreciation.
As I have already said, we were told that that was the end of capital investment as we knew it. It was, but in a way different from that assumed by the critics. There was an unprecedented increase in company investment not only in terms of money expended, but in terms of quality—investment that was not distorted by the availability of allowances and that made the investment seem good, whether or not it was profitable. Today, the entrepreneur makes his own decision on whether to invest and he reaps his reward—if he gets the decision right—by having a low taxation business economy. Those reforms have stood industry and commerce in good stead. They have been good for the entire nation.
Over 3 million jobs have been created since 1983 and we have become an attractive place to invest, not only for British entrepreneurs but for entrepreneurs from Japan and the United States. In recent years, the Americans have put two-thirds of their investment in the European Community into Britain and the Japanese have invested over 40 per cent.
I understand the right hon. and learned Gentleman's point about investment being related to profitability. However, in the case of capital allowances, only 25 per cent. is allowed in the first year. To think that one can use a piece of equipment for one year and sell it for 75 per cent. of its worth is nonsense in many areas of capital equipment purchase. That 25 per cent. is probably eaten up by the commission for the seller. We are getting not a capital incentive but a disincentive. It is the removal of that which is important.
It is a better rate than commercial depreciation. The right hon. Gentleman knows that the record of the past 10 years is that there has been an upsurge of investment. It is better to look at the outcome of policies than at academic points. [Interruption.] The facts speak for themselves. The level of business investment in Britain has never been higher. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) spoke about disincentives. When he held responsibility, the incentive was to invest, whether good or bad. That is not an improvement.
In the Budget we have seen major changes in corporation tax. The first change is to reduce corporation tax rate in two stages to 33 per cent., which means that once again we have the lowest company taxation rate in the developed world. It also looks after the smaller businesses. Over 4 million businesses do not pay the main rate of corporation tax. We have already done much to help them in times past but now, building further on the enterprise culture that has been created in the past decade, my right hon. Friend the Chancellor has dramatically raised the profit limit for the lower rate of corporation tax. He has also pushed up the VAT registration threshold by no less than 40 per cent. to £35,000. He has cut down bureaucracy and tax forms and helped cash flow by delaying PAYE, national insurance contribution payments and so on.
What does all that mean in terms of improved cash flow to business this year? Some £380 million is to come from corporation tax, and that is only the 1990–91 retrospective cut, not the cut that is to come next year; £150 million is already due to come from bad debt relief, now there is a further £190 million on top, and £210 million is to come from later payments of PAYE and national insurance contributions. A further £25 million will come from the lifting of the VAT threshold, and a further £30 million from the reduction of the serious misdeclaration penalty. All that represents a transfer from the Exchequer to business of almost £1 billion, directly benefiting business across the spectrum. That is where companies will find extra resources to invest.
The hon. Gentleman knows very well that the uniform business rate removes the uncertainty that was created by the extraordinary changes in the business rates imposed by a number of local authorities. He also knows that business rate increases cannot be above the rate of inflation, whereas, during the past decade of local authority control of business rates, they increased by 40 per cent. over the rate of inflation. The hon. Gentleman does not make a good point if he suggests that we may have been wrong to change the system.
Given that this is a Budget for business, what matters is not what the Opposition say—they have an interest in deriding what is said and done—but what is said by the business community. Rarely has the business community greeted a Budget with such a chorus of approval. Sir Brian Corby, the president of the Confederation of British Industry—[HON. MEMBERS: "Scotland?"] He is the president of the CBI nationally, and we are one nation. Sir Brian Corby said:
This is almost precisely the Budget that the CBI recommended—a Budget for soundly based recovery, for saving and for investment. The prospect for further reductions in interest rates, a resumption of growth and low inflation are better tonight than they were this morning. The Chancellor has listened to those who create the nation's wealth.
The Chancellor has taken the action that the Institute of Directors asked for—on corporation tax, VAT, bad debt relief and the carry-back of losses. The relief to business will be a major help to those with cash flow problems. The IOD said of the Budget:
It addresses the immediate economic ills of business as part of an imaginative long term fitness campaign and the promotion of the individual in the market economy.
I am sure that the hon. Gentleman would find it helpful if he applied his mind to these matters a little more seriously.
The National Federation of Self Employed said:
This is a Budget to bring a smile to small businesses.
When did the organisation last say that about a Labour Budget?
The Association of British Chambers of Commerce said:
He really listened to everything we had to say. Chambers are delighted at the practical measures of support to help businesses during a difficult time. This was a Budget for business we needed.
My right hon. Friend the Chancellor deserves congratulations for eliciting such praise, which is not often given readily and which is given in genuine appreciation of his achievements.
We shall see. [HON. MEMBERS: "No, we will not."] The hon. Member for Norwich, South (Mr. Garrett) asked a serious question and I shall give him a serious answer. He knows very well that the expansion in business investment which has already been referred to—it has almost doubled over the past decade—will feed through into increases in productivity. That is the basis for that investment, which will not be distorted by bogus allowances. Such genuine investment will maximise production opportunities. That is the answer to the hon. Gentleman's question, although it may not be to his taste.
What does the Budget do for the supply side? One of the great strengths of the past decade has been the supply-side reforms to which the Government have paid so much attention. Our record speaks for itself. We took a machete to the jungle of banana-republic controls that existed under the Labour Government. Pay, price and dividend controls all went. Hire purchase controls were swept away and foreign exchange controls were abolished.
All those reforms liberated British industry and brought benefits that will last well beyond the end of the decade. Yesterday, we took a further major step forward in the supply side. My right hon. Friend gave profit-related pay a further important boost when he announced that, in future, the profit-related element would be entirely free from tax. That is particularly important when profits are under pressure and firms may be tempted to shed labour. Profit-related pay helps companies to contain labour costs without losing jobs, and provides the work force with incentives, which the Chancellor's proposals for share schemes will also do. We are not keeping share schemes in the boardroom. We have given incentives for them to spread to the shop floor. That is an example of the Conservative party's approach to industrial democracy which, in the long run, will prove far more efficacious than anything that the Opposition propose.
Is my right hon. and learned Friend aware that in areas such as south Derbyshire and Derby, where major engineering industries continue to do well and are optimistic about the future, employee share ownership schemes play a major part in ensuring that employees not only understand the way in which their businesses work but are committed to them, which enables businesses to do well?
That is absolutely right. That is why my right hon. Friend the Chancellor introduced those measures.
We have heard a great deal from the Opposition about training. It is a good thing if there is a commitment to training on both sides of the House, but it is a bit rich for our record to be criticised given that our expenditure on training this year is £2·7 billion—two and a half times in real terms what the Labour Government were spending, even though unemployment more than doubled under Labour. Under the Labour Government, when did the unemployed have the opportunity of job clubs, employment training, the advice that is given at regular intervals and the job guarantee scheme?
We must also take into account the fact that some people wish to take responsibility for their own training needs. That is why we have recognised that we have a role in supporting employees who wish to help themselves, and the tax system should not stand in their way. That is why my right hon. Friend announced a new tax relief for people enterprising enough to get training for themselves. That was warmly welcomed by the training and enterprise councils and the business community and is a further major contribution to supply side reform.
Let me say something about the changes to the community charge. In recent weeks, there has been much talk about fair taxes—particularly in relation to the community charge and the level of local taxation. My right hon. Friend the Chancellor tackled both issues head on. The package that he announced yesterday brought the community charge throughout the country down to what the Government regard as a fair and tolerable level. Indeed, in some of the best-run councils in the country there will now be no charge to pay at all.
Opposition Members have already started to say that the proposal for an across-the-board reduction in the community charge by £140 is not fair. The switch to VAT is fair, sensible and fully in line with the Government's wider tax objectives. VAT is a pay-as-you-buy tax. The more you buy, the more you pay. The essentials of life—food, housing, domestic fuel, power and even public transport—are all zero rated, so these goods bear none of the burden of reducing the community charge. For lower income groups, zero-rated expenditures account for a higher proportion of total spending than they do for the better-off. As a result, VAT accounts for a larger proportion of household expenditure the higher the income of the household.
Opposition Members are, as usual, facing all ways at once. On the one hand, they want higher investment and higher savings; on the other, they seem to be opposed to switching from a tax on income to a tax on spending. On the one hand, they shout from the steeples that the community charge hits the poor; on the other hand, when we reduce the community charge they tell us that too, hits the poor. [HON. MEMBERS: "Abolish it."] Are the Opposition proposing to abolish local government and local government services? Labour councils have contributed to the overspending that has led to unacceptably high community charges. Perhaps only Scotsmen on the Conservative Benches believe that "You canna spend what you have nae got." If a Labour Government—if there ever is one—wants to sustain Labour councils, they would have to find a way to resource their extravagances. By reducing the community charge, we have proved that there is no free lunch. If the reduction has to be made through local taxes, the only honourable and principled thing to do is to impose them on national taxes while continuing to press local authorities to improve efficiency.
One of the principles that we understood was very important to the Conservatives was accountability. If the people of Wandsworth are to be subsidised by the people of Teesside and pay no community charge, how can the council be held accountable by the local community? If the charge is £1 in the Orkneys, how can that council be held accountable by the local community?
The council is reaping the benefit of being efficient. Wandsworth has the second lowest amount of Government assistance of the inner-London boroughs. It receives a much smaller amount of money per head from the Government than Lambeth, but the community charge in Lambeth will be £450 due to the feckless irresponsibility of Lambeth council. Far from accountability being abolished, it is just as sharp. Throughout the country it will be possible to draw differences between sensibly run councils and foolishly run councils, and the communities will be able to make choices.
Over the past few weeks there has been a great deal of speculation that this would be a small or insipid Budget. No doubt the commentators are feeling a little foolish about those predictions today. My right hon. Friend the Chancellor has introduced a Budget that manages to be both prudent and imaginative. It reinforces the Government's central aim of defeating inflation and it contains a number of important measures to help business through the recession. It also contains particular help for small businesses.
The Budget helps families. More than that, it helps all community charge payers and it continues the Government's policy of making the tax and national insurance system fairer. Above all, the Budget tackles the big issues. This is not the Budget of an indecisive Government. It is the Budget of a confident Government who are ready, willing and able to go on and on.
We are debating today the Chancellor of the Exchequer's first Budget, the production of which is by common consent an awesome task. We welcome the VAT assistance to small businesses and the concessions on corporation tax. We also welcome the commitment on mortgage relief which is to remain at £30,000, but only on the basic rate. The Chancellor is also trying to organise additional support for sport and the arts through the pools promoters. However, those proposals can be summed up as small beer.
The Prime Minister also introduced only one Budget, and it is reasonable and fair to say that, since then, the British economy has gone from bad to worse. The country is now in severe recession. When preparing his Budget, the Chancellor saw the imminence of a general election. He knows that that major political event is drawing even closer and he considered the warring factions in the Conservative party, particularly in respect of the nightmare of the poll tax.
The Daily Telegraph, that organ of Conservative thought and opinion, on 14 March described the poll tax as
the biggest self-inflicted political wound of modern times.
The poll tax was the personal crusade of the right hon. Member for Finchley (Mrs. Thatcher). It was the flagship policy of her Government. However, it is clear that the ship has run aground.
I appreciate that any Chancellor of the Exchequer must be concerned about income and expenditure. I understand that the poll tax will cost £500 million to collect in 1991–92. The cost of collecting rates would have been a fleabite in comparison.
The Chancellor must have used his blinkers in reading the Audit Commission's report that was issued a few days ago. The report reveals that more than 7·5 million summonses will have to be issued. It states that courts will need a significant injection of resources if they are to cut the backlog of cases. Most councils have had to resort to borrowing to bridge the gap between current expenditure and what they hope eventually to collect. The Audit Commission's report tells a story of delays, backlogs, bad debts and underpayments, all coupled with a colossal administrative work load.
I did not exaggerate when I described the poll tax as a nightmare. The Chancellor seems to have reached the same conclusion. Yesterday, he announced one of the biggest turnarounds in modern political history: the switch of £4·25 billion expenditure from local to central Government, with the leeway made up by a 2·5 per cent. increase in VAT.
The Labour party has long recognised that there is too much financial pressure on local government, but the Government's move is essentially a panic measure in an attempt to save the Conservative party's skin at the forthcoming general election. The Government have discovered that the poll tax is impossible to collect while VAT amounts to cash on delivery. Apparently there is to be a further chapter in this remarkable episode—or what I describe as a skin-saving exercise—when the Secretary of State for the Environment makes his statement tomorrow. There has been speculation—as well as suggested leaks—about the Government reducing local government to one tier and transferring certain services to direct central Government control.
I have always had considerable regard for British local government. Before I became a Member of this House, I served on a major local authority. I appreciate that there have been a few rogue elephants in recent years, but over the years local government has served Britain well and is very much a part of our democratic tradition. I have never been convinced that the man in Whitehall necessarily knows best. I warn the Government that restructuring local government and also reorganising its revenue-raising powers is a pretty tall order. Administrative costs could be substantial, and chaos could be caused. Last Thursday, the latest unemployment figures showed that no fewer than 2 million people are out of work. The total is rising by about 80,000 a month. On present trends, the jobless total could top 3 million in a year. This year, no fewer than 20,000 businesses will go to the wall. Business investment will fall by 16 per cent. when the rest of Europe gears up for the 1992 single market. Last year, 44,000 homes were repossessed by building societies and banks—that is easily a record—and mortgage arrears are now at record levels.
I am particularly concerned about the situation in Wales. Unemployment is again at more than 100,000. For males, the figure is 10·3 per cent. Of course, that is without any allowance for the doctoring of statistics in which the Government have engaged in recent years. Listening to the Secretary of State for Wales during Welsh questions on Monday one would have thought that he was achieving the mother of victories. Perhaps he has been taking lessons from Saddam Hussein. Sadly, one third of unemployed people in Wales have been out of work for more than 12 months. Approximately one third are under 25. What a waste of a priceless asset—our young people. Much of our unemployment is directly due to the rundown of British manufacturing industry.
I recall the right hon. Member for Blaby (Mr. Lawson), when he was Chancellor, saying that manufacturing industry was no longer important. Earlier this month, the House of Lords Science and Technology Select Committee produced a report entitled "Innovation in Manufacturing Industry", which made the serious accusation that, in the 1980s, there was virtually no net investment in British manufacturing industry. What an indictment or the vintage Thatcher years. The present Chancellor, when he was in the lower echelons of Government, used to talk about the British miracle, and he repeated that theme yesterday. He compares our achievement with those of Germany. Some British miracle; some comparison.
The House of Lords Select Committee also found that the United Kingdom was the only country in which gross domestic expenditure on research and development declined as a percentage of gross domestic product over 1981–88. That decline was largely the result of the reduction in Government support for research and development. That has happened despite the oil wealth and the privatisation proceeds that were poured into the Treasury coffers. It is no wonder that British economic output per head is now lower than it was two and a half years ago. That decline, that mismanagement, can no longer be accounted for in terms of idle employees or obstructive trade unions. The heart of the problem is the Government's managerial incompetence.
The weakest. such as pensioners, are losing. If state pensions were uprated in line with earnings, a single pensioner would be £11·75 a week better off, and a married couple would gain £18·95. Of course, there was no mention in the Budget about any increase for pensioners. I am glad that the Government have rediscovered the virtues of child benefit. It is a welcome move, for it gives most help to low-income families, who account for three quarters of those receiving child benefit.
The Chancellor seems to be relying on a reduction in interest rates to get him out of his difficulties. I agree that interest rates are a major economic indicator, but for two and a half years they have languished at around 15 per cent. As a result, we have suffered a damaging dose of monetary overkill, which was inflicted on the country by a Government who, even after 12 years in office, lack self-confidence and credibility.
Of course we welcome the recent decreases in interest rates, because lower interest rates are vital to restore industrial confidence, to ease family budgets, and to get the country out of the recession in which the Government have put it. Of course inflation will come down. As my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) said, that is the inevitable consequence of recession.
However, the real problem is the weakness of our industrial capacity and competitiveness. We need to invest in our manufacturing industry. A Labour Chancellor would help to reverse the decline. We need a new programme of expenditure on training, not cuts of £245 million, as was announced recently. Likewise, we need a temporary employment scheme to assist the unemployed. I have often said that unemployment is like a tap that is left running—sheer waste.
I conclude on the point with which I began. This is the Chancellor's first Budget. The nation faces enormous problems, but the Budget will do nothing to solve them. The measures that he has introduced are essentially panic-stricken, in an effort to save the Tory party at the polls. The Chancellor will not succeed, because people will eventually realise that the major problems of the economy remain as vivid as ever. We have a massive trade deficit. How much longer can we finance it? We have 2 million unemployed, and the number is fast increasing. Also, there is a continuous decline in manufacturing industry. A change of Government is urgently needed. A Labour Chancellor will introduce the necessary measures once again to put Britain back on the road to recovery.
I begin by declaring my interests, which are all listed in the Register of Members' Interests, as some of them may be thought at least partly to inform some of my remarks, although I dare say that some of my comments are blindingly obvious.
I congratulate my right hon. Friend the Chancellor on an excellently presented Budget. If it was a beginner's Budget, I hope that he will have opportunities to present many more. He hoped that his Budget would be known as a Budget for business. It probably is a Budget for business, but he will have some difficulty in getting that title to stick, at least in the early days, because of its dramatic impact on local government finance.
I make no bones about welcoming my right hon. Friend's direct approach to local government finance. I agree that it has become unsatisfactory that the share of the cost of local government services has shifted more towards the local taxpayer, and away from taxpayers at a national level. The correction that he has made is a good one.
However, it will always be difficult to convince people about the way in which local government services should be financed. There is no doubt in my mind about the unpopularity of the community charge. I have had plenty of letters on that score, but interleaved with them have been many other letters saying that more should be spent on local government services. People constantly ask for improvements. Indeed, both those points have sometimes been made in the same long letter of complaint about the community charge. Some letters have started with a complaint about paying the community charge, but ended with the demand that more money should be spent.
People must realise that there is no magic cure to this problem., somehow or other, the costs of the services must be financed. We have a choice between tying the payment to property, which does not move, or to people, who do move—and, my word, how people move. Apparently, my own electorate has shrunk by 3,000 in the past year. I do not believe that that is because of any decay in my area. People have disappeared. That highlights one difficulty about taxing people rather than property.
If one wants to tax people effectively, one must do so either through their income or through their spending. I do not believe that we should be looking for ways of increasing direct taxation—so that leaves only indirect taxation. In the circumstances, the system that my right hon. Friend has chosen, which is to put extra on VAT, is perfectly reasonable, because those who spend more will pay more and those whose incomes are spent largely on the essentials of life will not make a particularly heavy contribution.
It is difficult for the Opposition to seek to stigmatise VAT as regressive while continuing to embrace the idea of domestic rates, because nothing in domestic rates made that form of taxation essentially progressive. What my right hon. Friend has done is therefore absolutely right, because we shall now have a more sensible balance and distribution of costs between national and local taxpayers.
My right hon. Friend the Chancellor probably hoped that people would regard his Budget as a green Budget. Conclusions on that point may be somewhat qualified: the Budget has green tinges, but obviously not enough for some people. We need to face the fact that my right hon. Friend's attempt to include environmental considerations in his Budget will undoubtedly hit certain people very hard. The increase in excise duty on petrol and the increase in the taxation on company cars will not be welcomed by a great many people. There will not be any singing and dancing in the streets by the people who will be affected by those taxation changes.
Even so, what my right hon. Friend has done is evidently not enough for the thoroughly green parties in this country. Writing in today's edition of The Independent, Julie Hill of the Green Alliance states that the 15 per cent. increase on excise duty on petrol
is unlikely to have a significant effect.
I hope that, when people at the pumps are paying an extra 16p, 17p or 18p per gallon, they will remember that the Green Alliance thinks that that is not nearly enough of an increase.
My right hon. Friend the Chancellor has been sensible to deal with such matters progressively and in not deciding simply to make a gigantic switch that would grab the headlines. If he had done so, he might have received plaudits from the Green Alliance, but he would not have received many from the people outside. People are not ready for such a comprehensive switch in taxation.
Julie Hill of the Green Alliance also stated:
company cars are still unjustifiably subsidised".
That may be so, but in taking a further step in taxing that benefit my right hon. Friend has adopted the right approach. Those who would plead for more to be done more quickly on that issue are forgetting that such moves would have a serious effect on the car industry, which is going through a difficult time, and that such a policy would also be difficult for those who earn their living in the manufacture of motor cars.
My right hon. Friend the Chancellor took another step towards the environmental lobby by increasing the duty on tobacco by more than the rate of inflation. I very much welcome that, but I am afraid that I would go further. Although I speak with the prejudice of a non-smoker, I believe that it is nonsense that we continue to include tobacco in the retail prices index. I hope that the House can reach a general agreement that the Government should re-examine the RPI and remove tobacco from it. Logically, I must add that alcohol should be similarly considered—[HON. MEMBERS: "Why?"] Because tobacco and alcohol are the bolt-on extras to the cost of living. They are by no means essential, and I do not see why the RPI should be bolstered by products that the Government believe harm health—and that are proven to harm health.
As we are urging people to curb their consumption of such products, I do not see why they should be allowed to boost the RPI and, as a result, to boost spending.
My right hon. Friend the Chancellor could have gone a little further with provisions affecting motoring without embracing the vengeful approach of the green parties. If we are to keep vehicle excise duty, I do not see any justification for freezing it at its present level for all motor cars. It would be sensible to adjust it according to the size of the car. If we are not to use VED in that way, we might as well forget about it.
I know that the former Paymaster General, my right hon. Friend the Member for Mid-Norfolk (Mr. Ryder), has argued that adjusting vehicle excise duty by, say, £10 or £20 would have only a small effect on people's choice of car when they are contemplating expenditure of several thousand pounds. But who is thinking of £10 or £20? I am thinking of something much more dramatic. A 1,000 cc car may well attract vehicle excise duty of £100, but why should not a 2·5 or 2·9 litre car bear a vehicle excise duty of £300 or £400? That would influence people's choice of motor car and drive them towards smaller and more fuel-efficient cars. That idea deserves greater consideration.
The gap between unleaded and leaded petrol should be widened. I welcome the fact that my right hon. Friend the Chancellor widened that gap somewhat in his statement yesterday, but it already seems to be being interpreted as a differential of only 2p in the price at the pumps, despite what my right hon. Friend said about 3p per litre on unleaded petrol and 4p per litre on leaded. Cannot that gap be widened without cost to the Exchequer?
I wish to make a similar point about catalytic converters, in which I have a particular interest. By law, they will be necessary on all new cars from 1 January 1993, but a boost could have been given to their early purchase now, either through VED or through the car tax. Again, that would have helped the car industry at a difficult time, and might have persuaded a few more people that it would be worth buying a new car now rather than putting it off for a few more months. On balance, therefore, my right hon. Friend the Chancellor made some sensible decisions on environmental measures.
However, I come back to the question whether it was a Budget for business. I believe that it was. My right hon. Friend is to be congratulated on putting the emphasis on corporate rather than personal taxation. The real test is whether the Budget will get us out of the recession. That judgment may depend on how quickly and by how much interest rates come down. Understanding the exact characteristics of a recession is not easy. They can sometimes be long and shallow, or short and shallow, or short and deep. This time people have been laid off, but not many factories have closed. There has been a great deal of investment over the last three years, the effects of which have to come through. I believe that the pick-up may be swift.
Manufacturing industry feels neglected and unwanted. I agree with my hon. Friends the Members for Hertfordshire, South-West (Mr. Page) and for Staffordshire, Moorlands (Mr. Knox) that we must give more emphasis to manufacturing industry. People in manufacturing are a little like teachers: they do not think that the Government compliment them enough. The fact that some good words are said about them does not seem to affect them. They notice only the occasional critical comments.
Manufacturing is important. The only way that the country will survive is by our success in making and selling things. The sooner the Government make it clear to the industrial sector that they think the same, the better. We must revive confidence. Confidence will depend on low inflation. The Budget is headed determinedly in that direction. Confidence will also come from oil price stability, which fortunately we seem to have. It will come too from exchange rate certainty, which is also implicit in the Budget.
I believe that the Chancellor's mixture is right to achieve the cure that industry as a whole and manufacturing industry in particular need. We can look forward with confidence to a substantial and sustained economic recovery over the next few months.
The Budget and most public discussion of it has been dominated by the poll tax: £10 billion later, we still have the poll tax, extra VAT, the prospect of a new property tax tomorrow and water rates which are rising to levels above those of the old rates. Of course, water rates still operate on the rating system. One curiosity tomorrow will be to find out what will happen to water rates now that property taxes seem to be back in the Government's favour.
In order to proceed with the changes, parliamentary procedure will be drastically truncated, with no proper debate on the Bill which will be necessary to implement. the shift in local finance. I remind the House that, when measures are not properly debated and amendments are not properly considered, great mistakes are made and magnified. That happened with the poll tax originally and will be even more evident if there is no proper debate on the details of the new Bill.
The result will be no adequate tax base for local government, with local government finance divided over several taxes, and a weakened local government system, with more power taken to the centre. That could all have been avoided if the Government had gone for a local tax in the first place.
In any other walk of life, people rarely have opportunities to make mistakes on the scale of the poll tax mistake. If they make colossal mistakes, they are apt to lose their jobs. I can think of no better case for people losing their jobs than the scale of the errors made on the poll tax. So the first problem that the Government addressed in the Budget was the poll tax mess that they themselves had created. The second was the economic mess——
I shall certainly not oppose the reliefs which are to be given to poll tax payers. The poll tax is incapable of bearing the levels of charge being put on it. It is an unfair system of tax, and relief should be applied. It would have been much better not to have it at all but to have a fair local income tax, which would not have needed to be baled out.
The second problem which the Government had to address in the Budget was the economic mess which they created, with a recession, rising unemployment, high interest rates and high inflation. That meant that the Chancellor had to convince the markets that he would be fiscally responsible and firmly committed to maintaining sterling's position in the exchange rate mechanism.
That is all well and good, and the Chancellor has made a reasonable attempt in the Budget to demonstrate that fiscal responsibility and that commitment. But they could have been achieved more clearly and over a longer period by announcing the measure that we proposed, of greater independence for the central bank on monetary policy. That would have removed the need for the premium on interest rates which arises from uncertainty about the Government's attitude to monetary policy and the level of sterling. That would have allowed us to loosen fiscal policy slightly to counteract the deepening recession.
The fiscal responsibility which the Chancellor had to assume was forced upon him by the Government's own mistakes. The creation of the recession has led to the automatic stabilisers and to the return to deficit. That, together with the need to bale out the poll tax, conditioned the Chancellor's whole approach in his Budget.
There was an interesting phrase about the exchange rate mechanism in the Chancellor's speech:
The time has come to apply ourselves wholeheartedly to the task of making our membership a success.
I take that to mean that, up to that moment, the Government had not applied themselves wholeheartedly to the task of making a success of our membership of the exchange rate mechanism and that what the Chancellor said signifies a new approach. He followed that up by saying that at the moment he had no plans to move to a narrower band. I can only take that to be a signal that that is under more active consideration than before. I hope that that is what is intended.
Another interesting phrase appears on page 9 of the Red Book:
Interest rate convergence will follow inflation convergence. Both are likely to take some time to achieve.
However, that contrasts with what the Chancellor said yesterday:
The prospect, therefore, is that we will narrow the inflation gap with Europe remarkably quickly."—[Official Report, 19 March 1991; Vol. 188, cols. 165, 167.]
The Chancellor was saying in one breath that it will happen quickly, and in another that it will take some time to achieve. Only one of those statements can be true, unless they apply to totally different measures of inflation. Perhaps that can be clarified.
What the Chancellor said yesterday on inflation needs most of all to be qualified. He referred constantly to the forecast of 4 per cent. for headline inflation. It is not long since he as Chief Secretary, and his two predecessors as Chancellor, were lecturing us about how misleading the headline inflation figure is, and how vital it is to look at the underlying rate of inflation. I listened to all those lectures and was greatly moved by them. Perhaps I was influenced by their strictures to look more closely at the treatment of inflation.
I find that the GDP deflators set out in the Red Book show none of the wonderful improvements. They show that we will continue to have a high rate of underlying inflation. Even if we take account of the effect of that on the introduction of the 2·5 per cent. extra VAT, it will still show a failure to converge with lower inflation rates in other parts of the European Community.
If we take some of the other indices, such as producer output price inflation, which is quite a good index of underlying inflation, we find much wishful thinking in the Red Book. Indeed, we find the statement:
This recent pick up in inflation is surprising.
Surely, after all these years, the Government are no longer surprised by the persistence of British inflation. It is worrying that they seem to grasp at the straw of 4 per cent. headline inflation and do not recognise the 7 per cent. underlying inflation rate which all their forecasts contain.
Figures that have been put before us in the debate and in the documents tell the story. Output is down by 5 per cent. and fixed investment is falling by 9·75 per cent. Those are alarming figures, particularly when set alongside the unemployment forecasts and the serious unemployment that we face.
The Government seem to think that, despite all that, productivity will rebound with the recovery in activity and that that will keep down unit labour costs. If the recovery is as slow as the Government forecast, how will productivity rebound? I suppose the Government would argue that it will do so because business will have a better climate as a result of the Budget measures.
How good is the Budget for business? Many of the tax changes, large and small, are welcome. Indeed, they follow closely the submissions which we made in the Liberal Democrat alternative budget, including the proposals for raising the VAT threshold, changing the VAT bad debt scheme and changing the VAT serious misdeclaration penalty scheme. The measures on corporation tax are welcome in principle but they are less effective in serving the purposes that I favour than the measures that we propose. The Government's measures will not stimulate investment.
I do not share the Labour party's view that it is possible to distinguish between manufacturing investment and other types of commercial investment. That understates the value of the services sector and the general tradeability of services. However, measures designed to encourage investment in general, such as indexation of depreciation allowances, might have been a better stimulus to industry than the proposed changes in corporation tax.
As I said to the Chief Secretary, when one adds up all the changes—the Government's estimate is that there are almost £1 billion-worth of tax reductions for industry, which it will take at face value—one must set that against the extra £2·2 billion that business will pay in uniform business rates in the coming year. That is an absolutely massive increase in liability for businesses both large and small. It will be felt particularly keenly by small businesses.
The fundamental problems for United Kingdom industry remain, against the background of the inadequacies of our education system and transport system. People have practical problems in simply getting to work by public transport, especially in London. There was no new investment in education or transport.
The tax relief for training does not address any of the serious problems that we face. It does not even begin until next year. It will help only a limited range of qualifications, and it will not add up to a tenth of what the Government have cut from the real training budget during the current year. Investment in training, transport and education would all have been sensible measures to take at this stage, which would have justified some loosening of fiscal policy.
I welcome some of the measures in the Budget, including the tax easement for people who were hostages and prisoners in the early stages of the Gulf conflict and lost the benefit of the tax relief which they could have expected to receive for the year. I have pressed Ministers on that several times during parliamentary questions, and I am glad that the Chancellor has now conceded the point. It will give deserved relief to people who have gone through a terrible experience.
I also welcome the removal of top-rate mortgage interest relief. Again, we have pressed that measure on the Government for several years. We also welcome indexation of excise duties, closing the capital gains tax loophole, the Chancellor's increases in petrol duty and his rather incomplete measures on company cars. Those are all measures that we pressed on the Chancellor. However, in the case of company cars, he has been careful to ensure that only the employer's contribution will be affected, and not that of the employee.
May I take the hon. Gentleman back to his point about tax relief for people who were connected with Kuwait? Has not he misunderstood the Budget proposal? Will it not benefit people who were in Britain at the time of the outbreak of hostilities who could not return to Kuwait? The mere fact that they could not return meant that they were in Britain for more than 12 weeks and therefore did not qualify for exemption from tax. As they were here for more than 12 weeks, they were liable to pay tax. The Chancellor announced yesterday that the Government are waiving that liability to tax. It has nothing to do with those who were held hostage.
I do not know whether the category that the hon. Gentleman describes is included in the relief. I assumed from what the Chancellor said that he intended to benefit the people whose eligibility for tax relief was lost because they returned from the Gulf before the end of the tax year when they were released from being held hostage. The matter is a Finance Bill Committee point. We can consider it in detail in Committee. I hope that the hon. Gentleman will serve on that Committee. He can raise the point then.
I was listing some tax-raising measures which the Government were right to take. However, the trouble with the Government taking such measures—which we ourselves proposed—is that the compensating benefits have not been provided. The Government have raided tax-raising measures without spending the revenue where it should have been spent. They have increased the tax penalty on the use of a private motor car, but where is the improvement in public transport to enable people not to use their cars for essential journeys and journeys into city centres? Where is the improvement in rural public transport to compensate people in rural areas for the high cost of petrol when they have seen such a staggering decline in rural transport since bus deregulation? Investment in public transport should have been undertaken and paid for out of the gains in revenue. The purpose of taxes which are directed at the environment is not merely to raise revenue but to change the way in which we treat the environment.
There are several items missing from the Budget. Several measures that people expected were not taken. There is a large gap when it comes to green measures. I have already referred to measures on the motor car, but where were the measures referred to by the hon. Member for Saffron Walden (Mr. Haselhurst) on catalytic converters? Where were the pollution taxes hinted at in the Government's environment White Paper? When pressed on such taxes, the right hon. Member for Bath (Mr. Patten), who now chairs the Conservative party and was previously Secretary of State for the Environment, said that the Chancellor would be considering them. It seems that he is still considering them, because they were riot in the Budget this year.
Another trumpeted possibility that we pressed on the Government last year was wider tax relief for child care. That has not appeared in the Budget this year. Things have gone very quiet on that front, at a time when the Government were widely expected to give greater opportunities for women who want to do so to work, even where workplace nurseries are not available. Indeed, that facility is available to very few people.
The effect on charities of the 2·5 per cent. increase in VAT strengthens the case for more extensive relief for charities. Charities will face serious problems after the Budget.
This was a Budget to get the Government out of a mess of their own making, not to deal with the present and future problems of the United Kingdom economy. The measures in the Budget were the result of the rejection of the poll tax by the electors of Ribble Valley, of the inflation and the recession—which resulted from the credit boom that the Government stimulated—the failure to control inflation and of the failure to keep child benefit up to date. The Budget was a clean-up operation for the Government's failures. It is not sufficient to guide us safely out of recession.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) made several cogent points to which I shall return later. First, I congratulate my right hon. Friend the Chancellor of the Exchequer on a thoroughly civilised as well as an astute Budget. My right hon. Friend the Member for Aylesbury (Sir T. Raison) and my hon. Friends the Members for Broxtowe (Mr. Lester) and for Hornchurch (Mr. Squire) and I and other hon. Members have vehemently opposed the Government's freezing of child benefit for several years past. So my right hon. Friend the Chancellor's assurance yesterday that those bad old days were over and that in future child benefit would be uprated with inflation was enormously welcome.
The increase in child benefit is equally welcome, although I am puzzled by the form that it took. When my right hon. Friend the Secretary of State for Social Security announced that he would not uprate in general but only for the eldest child, I pointed out that the only countries which gave more in child benefit or child allowances for the first child were Iran and Malta. I am puzzled as to what close affinities the Government find between Iran and Malta and our social system and customs. Such affinities do not immediately spring to mind. One would have thought that we had closer affinities with countries on the European continent, some of which differentiate between children but give more to the third child. That has slightly more rationale because it is well known that the worst poverty is in families with large numbers of children. However, on the whole it is better to keep the rate uniform. Whether the change is illogical or not, what has been done is enormously welcome and the Chancellor's assurance is greatly valued.
I also welcome the Government's tolerance of running deficits and their intention to have a public sector borrowing requirement this year and next year. However, it may be rather larger than is predicted in the Red Book. Nevertheless, the firm realisation that Budgets can be balanced at best only over the medium term, leaving open how medium the term is and how long it will go on, seems an excellent idea.
Like the hon. Member for Berwick-upon-Tweed, I welcome what is being done by way of corporation tax and for small businesses. Having forgotten that there was a heavy extra burden on the uniform business rate, I take the hon. Gentleman's point. I welcome very much the fact that a great deal is being done, even if in a minor way, for businesses. I welcome also the uprating of tax on tobacco, alcohol and petrol. It seems to me that, in a possible—perhaps probable—election year, that is a thoroughly responsible thing to do. I regret very much the fact that the lottery that we had been rather led to expect will not be introduced. Help for the arts, sport and other good causes would have been very welcome.
Football pools are indeed a lottery. I welcome also what is being done by the sports and arts trusts. However, as I understand it, the scale of benefit is very much smaller than would be provided by a national lottery. Although I welcome what is being done, I regret the fact that a national lottery will not be set up. I hope that that will be remedied next year.
Having been a heavy opponent of the poll tax from the word go, I welcome very much the fact that such a hefty chunk is being taken out of it. Of course, until we see what happens tomorrow, there is not much point in saying anything more about that. I am not wholly sure, however, that the Chancellor is wise to finance the reduction out of VAT. As other hon. Members have said, the headline rate of inflation will be improved, but the core rate will increase, and consumer spending, on which the Government greatly rely to get the country out of recession, may take a knock.
I come now to my main point. While fully recognising the great merits of the Chancellor's individual proposals, I am concerned about the strategic plan that must be presumed to underlie them. We have to consider where the economy is headed—not just in the short term, but for the next few years. The Chancellor, in his Budget speech, said that he expected output to grow by 2 per cent. during the year up to the end of the first half of next year, and that this should be followed by annual growth of more or less 3 per cent. That does not sound too bad; indeed, it sounds pretty good. However, it is worse than it appears. The forecast growth rate is little better than the long-run trend. Starting where we are now, there is no prospect, on the basis of the Chancellor's own showing, of any decline in unemployment. The very sorry prospect is of unemployment hovering indefinitely around 2 million or 2·5 million. But will things be even as good as that?
It has now been accepted by the Treasury that a severe recession is under way. The Treasury, with characteristic honesty, has produced, in its Red Book, a table showing how last year's forecast of 1 per cent. growth in GDP in 1990 turned out to be a growth of only 0·5 per cent. The right hon. and learned Member for Monklands, East (Mr. Smith) said that this was a Government and Treasury technique to make things seem much better than they really were. He suggested that it was all rather dishonest. I only wish that it were a technique, but I acquit the Government and the Treasury of any such design. I am sure that they actually believed the forecast—and that is more worrying. I think that the Treasury has been wholly honest, but I wish that it had carried its honesty even further and emphasised the full scale of the revision that it has had to make. That can be done only by taking a slightly longer period than 1989–90.
In last year's Red Book, the Treasury forecast that, between 1988 and the first half of 1991, GDP would rise by 4·75 per cent., with manufacturing output rising by 5·5 per cent. The comparable figures for that period of two and a half years are now zero growth for GDP and minus 1·25 per cent. in the case of manufacturing output. These downward revisions mean that the level of GDP is now nearly 5 per cent. lower than was expected only a year ago, while in the case of manufacturing output there is a drop of nearly 7 per cent. That is a staggering discrepancy.
I am not making an abstruse, technical or academic point. When we, as laymen, give our support to the Chancellor for his Budget proposals, we are completely dependent on the accompanying economic forecast being approximately—if only very approximately—correct. The Chancellor himself must agree that his Budget proposals can be justified only if they are followed by events that bear some slight resemblance to what was forecast. There must be some point at which it would have to be conceded that events had taken a turn so different from what had been expected that the entire rationale of existing policies was destroyed.
We are not all that far from such a situation—certainly not as far as I would wish. Professor Wynne Godley, whose forecasting track record is probably second to none, forecasts in the New Statesman not a rise in output from now on, but a continued decline through 1992. Unfortunately, the Budget papers contain nothing that wholly convinces me that Professor Godley is wrong. Indeed, all that we need is a repeat performance from the Treasury forecasters to make his forecast come true. Another error of the same size as that of last year would mean that, after the drop of 2 per cent. in output in 1991, there would be not the expected rise of 2 per cent. in 1992, but a further fall of 3 per cent.—and unemployment would be rising towards 4 million rather than 3 million.
I hope that before the end of the debate Treasury Ministers will make good what is at present an unacceptable gap in the material that we have been offered. In other words, I should like to be told why things have turned out to be so much worse than was expected, so that we may have more confidence that, next time round, Treasury forecasts will prove to be right. The weakest part of the Red Book is the short section devoted to recovery. I profoundly hope that the Treasury forecasts are correct at last and that my right hon. Friend the Chancellor can look forward to framing a number of successful and socially aware Budgets.
The backdrop to the Budget is a recession that is very deep indeed—precisely as the Opposition forecast. Indeed, last October, the Treasury Select Committee found that the economic indicators showed a profile of decline in economic activity in this country much the same as in the year 1980–81. Over the last year or so, Chancellors have said that this recession was not a recession; then that it would be shallow and short; then that it was deeper, but was only a ripple from the world trade cycle—as if it were something from the act of God department. In fact, it is a deep and dangerous, home-grown slump.
The fall in GDP this year is no less than 2 per cent., whereas the Treasury, in the autumn statement four months ago, forecast a rise of 0·5 per cent. This is a phenomenal level of error over a mere four months. These Treasury sources, whose forecasting record, as the right hon. Member for Chesham and Amersham said, is spectacularly worse than that of other bodies, let alone the Treasury Select Committee, now foresee a most tremendous turnround, taking us to a growth rate of 2 per cent. from this mid-summer to next mid-summer.
It would be interesting to know what the source of this turnround might be. I suppose that it could be restocking, or the end of destocking, by industry; but restocking is not what it used to be. As industry has become more efficient, it needs less in the inventory and in work in progress for a given level of output. Or there could be a spectacular rise in exports, but that does not seem to be forecast in the Red Book. After 25 years of reading Red Books, I have come to the conclusion that Treasury economic forecasts are a form of institutionalised leg pulling. The results never bear out the optimistic scenarios. As a member of the Select Committee on the Treasury and Civil Service off and on since the mid-1970s, I believe that the Committee needs alternative forecasting machinery of its own so that it can serve the House with more objective calculations. The Committee is well served by its advisers but it needs an analytical staff to provide an alternative view to the nonsense with which we have been presented by the Treasury on the public sector borrowing requirement, trade, employment, inflation and monetary volumes, at least over the past few years.
It is clear that, in this recession, the economy will decline by the greatest amount in one year since 1980. We are seeing a stream of business failures, the collapse of corporate profits and dividends, and rapidly rising unemployment. As the right hon. Member for Chesham and Amersham said, it is difficult to believe the Government's figures for the PSBR in the coming financial year at a time of such deep recession. It seems that the £8 billion that appears in the Red Book will be £10 billion or £12 billion, and that it will be a greater sum in the following year.
It is clear that, unless the Government fiddle the unemployment figures for the 30th time in a decade, unemployment will reach, and probably exceed, 2·5 million this year. All that is coupled with a cut in training places. We should spend on training during a recession so that we have a skilled work force ready for the upturn. My constituents are being turned away from training courses because resources for training are being cut. In Norwich, scarcely a week goes by without redundancies in the food, footwear, engineering and construction industries. The retailing and construction industries in East Anglia have come to a full stop. They are important engines of growth and economic development in such a region. The increase in value added tax will hit both industries.
Consumer spending in 1991 was forecast in the autumn statement—we are back to Treasury forecasts again—to increase by 1·75 per cent. Instead, it will fall by 1·75 per cent. Imagine the impact that that will have on the retail trade. Manufacturing output will fall be 5 per cent. in 1991, which will take it to roughly where it was in 1979. So much for the decade of the enterprise economy.
It is said that this is a Budget for business, but that does not bear too close an examination. We are told in the Red Book that corporation tax will be reduced by about £1 billion, but company national insurance contributions will rise by over £600 million. As the hon. Member for Berwick-upon-Tweed (Mr. Beith) said, paragraph 1·2 on page 7 of the Red Book tells us that rates—mostly the uniform business rate—will rise by £2·2 billion in one year. When challenged on that, the Financial Secretary to the Treasury said that at least the UBR gave us continuity. I do not know what sort of continuity it is when we read that there will be an increase of £2·2 billion in rates as a result of the impost on businesses.
Part of the miraculous upturn in mid-1991 derives from an even more miraculous improvement in unit labour costs at the same time. Chart 3·11, which appears on page 30 of the Red Book, shows British labour costs falling from an annual increase of 10 per cent. in early 1990 to 3 per cent. or 4 per cent. in mid-1992. The graph is unbelievable. It seems that our relative labour costs rise, only to fall off a cliff, as it were, in 1991. At that stage they join—surprise, surprise—or converge with the rate of change in unit labour costs in the 16 major industrial countries.
After we have experienced greater wage inflation than other countries, there is suddenly to be an improvement within a few months. In other words, there will be a huge increase in labour productivity that will be associated with a vast decline in investment. The Financial Secretary's answer to my intervention on that issue seemed to be merely a smokescreen. The effect of past "investment" cannot produce that level of productivity increase, given that companies have been disinvesting on a large scale. The Government's assertions strain belief.
I welcome the green tinges in the Budget, including the price that will be charged for unleaded petrol and the provisions that bear on company cars, but the effect on energy efficiency will be perverse. The increase in the rate of VAT will lead to an increase in the cost of making home improvements, such as better insulation and double glazing. That will hit the small builder substantially and reduce energy saving, an area in which our national record is extremely poor. Indeed, in the past two years investment in energy-saving measures in buildings has fallen by 28 per cent.
There was an opportunity to use taxation or, failing that, Government grants as a way of encouraging home insulation, the fitting of double glazing and home improvements generally. If that opportunity had been taken, a boost would have been given to the small builder, while energy bills would have been reduced. It seems that a substantial opportunity has been lost.
I welcome the increase in child benefit, but the 25p increase for children other than the first is derisory. I suppose that the increase will provide for a pair of shoelaces. One constant problem for poorer families is the tax burden that falls on the low-paid because of the lack of progression in our tax system, which has only two income tax levels. All other European countries have far more sensitively graduated steps for the entry into paying income tax so that the taxation levels are much more progressive and much more sensitive to circumstances. In not changing our system of tax thresholds the Chancellor of the Exchequer missed an opportunity to relieve family poverty.
The Budget will do little for industry, jobs, the environment or the family. It produced great theatre at the very end of the statement, but it was largely irrelevant to our economy.
I apologise to the hon. Gentleman. Both he and my right hon. Friend placed some reliance on the accuracy of various economic forecasters. That is entirely wrong. Economic forecasters are about as reliable as old-fashioned weather forecasters. They never project with any precision what the state of the economy will be. The condition of the economy will depend on many variable factors, such as changes in the confidence of business entrepreneurs. Those changes will have an effect on their investment decisions. Other changes are dependent on international fluctuations in currencies or other economic factors. A modest upturn or downturn in economic activity, when contrasted with the predictions of economic forecasters, will make a relatively considerable difference in the Government's tax yield, and an exaggerated difference in the public sector borrowing requirement. All experience shows that economic forecasters are most unreliable and that we should place no reliance upon them.
Much the most important thing is to ensure that we get the economy right by reducing inflation, reducing interest rates and introducing steady growth in the economy. Although those objectives cannot be achieved at once, I believe that the policies that are set out in the Budget statement are the right ones to bring them about. They will be achieved safely and reliably without giving another twist to the inflationary spiral by the implementation of the proposals that my right hon. Friend the Chancellor of the Exchequer set out. Only when we reduce inflation can we safely reduce interest rates.
I warmly congratulate my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), the Chancellor of the Exchequer, who is my constituency neighbour. I should be grateful to the Financial Secretary to the Treasury if he would be kind enough to convey my feelings to my right hon. Friend.
I commend the 15p increase——
I have a very good constituency, thank you.
I commend the 15p increase in the tax on cigarettes. A direct relationship has been established between the smoking of cigarettes and the incidence of lung cancer, bronchitis and coronary heart disease. There was a disturbing increase in smoking by young people, especially young girls, in the second half of the 1980s. The increase in tax will make them think twice. It is entirely right and proper to use the Budget, and thereafter the Finance Bill, consistent with economic policy, to promote health. I am glad that the Chancellor has proposed it and I hope that he does it again next year.
I was delighted by the cut in community charge of £140 per person. In Twickenham, this will mean that the community charge goes down from £419 to £279. It takes some of the sting out of the community charge. I believe that most people will hardly notice the corresponding increase of 2·5 per cent. in value added tax.
I hope to speak later on this subject. When the hon. Member for Twickenham (Mr. Jessel) is dealing with the 2·5 per cent. increase in value added tax, instead of invoking the phrase that the more those who are richer spend, the more they contribute, will he address himself to the facts? It is the proportion of the income that is spent on goods with value added tax which matters. The proportion is greater for low-income workers than for richer people.
I respect the sincerity of the hon. Member for Hartlepool (Mr. Leadbitter), but I think that he is talking nonsense, because value added tax is not charged on the basic essentials of life—food; housing, whether by way of rent or mortgage; fuel, whether coal, electricity, gas or oil; or fares, whether on buses, trains or planes. There are a few items such as books and newspapers on which it is not currently charged, but those are the main items, and they make up a much larger proportion of the family budget of the poorest families than of the better-off families.
The hon. Member appears to be wanting a fight, but all zero taxes affect the rich as well as the poor. The hon. Member for Hartlepool is not referring to zero taxes; I am referring to those value added taxes that everyone, whatever their income, must invoke. The proportion of that for people on low incomes is bound to be higher than that for people with bigger incomes.
It is not bound to be so, and I have just explained why. Poorer families spend a larger proportion of their income on those basic essentials and the richer families tend to spend a larger proportion of their income on items on which value added tax is charged. Furthermore, the 2·5 per cent. increase in value added tax is not 2·5 on 100; there is already a 15 per cent. value added tax, so it is 2·5 per cent. on 115, and that is an increase of only just over 2 per cent. Once one has allowed for the fact that something like half the budget of the average family goes on essentials, however, the figure reduces to a little over 1 per cent. on the budget of a family—perhaps between 1 per cent. and 1·5 per cent.—and against that must be offset the reduction of £140 in the community charge.
That is why, at a time of falling inflation and soon, I hope, falling interest rates, I believe that I was right to say a couple of minutes ago that the 2·5 per cent. increase in value added tax will hardly be noticed.
My hon. Friend the Member for Twickenham is absolutely right. A family on average income whose community charge was reduced by £140 would have to spend more than £5,500 on items on which VAT is payable to spend the equivalent in additional VAT. Does my hon. Friend agree that that represents about half the national average income? In other words, someone on average income will almost certainly be better off by the reduction in community charge than worse off by the increase in value added tax.
My hon. Friend the Member for Fulham (Mr. Carrington) is absolutely right.
I return to what my right hon. Friend the Chancellor of the Exchequer said in his Budget speech about inflation:
We must get inflation down, and this time we must keep it down. The overriding lesson of the past few years is that the battle against inflation is never won.
He went on to outline the evils of inflation and how they affect ordinary families.
I hope, however, that my hon. Friend the Financial Secretary to the Treasury will enlarge on what the Chancellor meant when he said that local authorities should play a part in the battle against inflation and that when community charges were to be reduced in the coming year
the money will not be available to increase local authority spending."—[Official Report, 19 March 1991; Vol. 188, c. 166, 180.]
This is very important because it is vital to get inflation down, and local authority spending is not always helpful in the battle to control inflation. Here, if my hon. Friend the Member for Fulham will allow me, I refer to an advertisement in The Guardian on 27 February for the appointment of a chief executive for the London borough of Hammersmith and Fulham at a salary of £78,000. The advertisement was headed "Facing the Future" and part of its text read:
We can offer you a negotiable salary of c. £78,000 plus a car and benefits package. Not to mention the satisfaction that comes from making a personal impact on the future of local government.
That negotiable salary of £78,000 should be contrasted with the top pay unit's monthly review of salaries and benefits for chief officers of local authorities of England and Wales. For the London boroughs and metropolitan districts with populations of up to 300,000, the maximum recommended amount was £50,600. It also compares with the current salary of a full admiral, a full general or an air chief marshal of £77,000, or the £59,000 salary of a Cabinet Minister with responsibility for running an entire Government Department.
This is getting out of hand and we must do more to stop it. It is a very serious matter in the battle to restrain inflation. It tends to have a knock-on effect on the salaries of chief officers of other local authorities and on the economy as a whole. I hope that the Public Accounts Committee will look at it. We must get a better grip on this particular part of public spending, and I hope that the Government will have more to say on how it can be done.
If my hon. Friend had looked at The Sunday Times of the same week, he would have found that Hackney was also advertising for a chief executive at or about the same salary, as were Hammersmith and Fulham and one or two other Labour authorities. It is perhaps an indication of the difficulties of obtaining a chief executive of any ability who is prepared to undertake the running of an authority controlled by Labour, with all the rough and tumble and the likely breaking of the law that often takes place in certain cases. It has to do with market Forces rather than the type of work.
Liberal authorities such as Richmond upon Thames borough council are also sometimes extravagant. That council has in the past three years constructed a new town hall costing £11 million.
That is relevant because, by any standards, £6 billion has an effect on the national economy.
The arts and heritage bring enormous benefits to the British economy. Theatres, concerts, opera, ballet, museums, art galleries and historic houses have a total turnover of more than £5 billion. More people in Britain go to the theatre than to football matches. The arts not only enhance the quality of life of the British people, but draw to our shores visitors who spend not only on the arts and heritage, but on hotels, restaurants, shopping and internal travel, all of which generate income, employment and foreign exchange. It is true that during the Gulf war traffic across the Atlantic to this country diminished, but it has begun to pick up again. Those overseas visitors, whether from other continents or Europe, come here not for our weather, but to see our arts, countryside and heritage.
My right hon. Friend the Minister for the Arts is strongly positive in his support and encouragement. The Treasury team that he has to consult has a history which suggests that they are likely to support the arts. The Prime Minister is also First Lord of the Treasury; when he was Chancellor of the Exchequer he sanctioned increases in the Arts Council budget, well above the inflation rate, in the two successive autumn statements of 1989 and 1990. Those decisions were shared by the present Chancellor of the Exchequer when he was Chief Secretary to the Treasury and by the present Prime Minister when he was Chancellor. The present Chancellor of the Exchequer was once a Parliamentary Private Secretary to the former Minister for the Arts, Lord St. John. The present Chief Secretary to the Treasury is a former Minister for the Arts, a job for which his enthusiasm was obvious in the short time in which he held the position.
I shall make two fiscal points relating to the arts. The first deals with the proposal for a national lottery for arts and sports. I wish that yesterday my right hon. Friend the Chancellor could have gone further than he did when he announced a scheme for a national arts and sports trust, which would raise £60 million a year. That is a substantial sum, but in an Adjournment debate last Thursday introduced by my hon. Friend the Member for Hyndburn (Mr. Hargreaves), my hon. Friend the Member for Basildon (Mr. Amess) said that if the figures for national lotteries in practically every continental country were extrapolated to the United Kingdom, the turnover would be £3 billion a year and the profit available for arts and sports, after expenses, administration and the distribution of prizes, would be about £1 billion a year. That is 15 or 17 times as much as the £60 million which the Chancellor of the Exchequer mentioned in relation to the other scheme. I hope that what was proposed yesterday will be no more than a stepping stone towards a national lottery, which I hope will come because it could do a massive amount of good for the sports and arts.
I now turn to the tax position of actors and actresses, and declare an interest as my wife is a singer and actress. In the pursuit of their profession, actors and actresses are not allowed to offset against income, for tax purposes, anything other than agents' fees. Actors and actresses often have to bear the cost of lodgings when they appear in performances away from home. They also have an abnormal number of auditions because of their separate appearances in different shows. Those are obviously much more frequent than the job interviews of people in different occupations. All those professional costs should come under schedule D so that they can be offset. I do not believe that it is enough to offset merely agents' fees. I hope that the Government will consult British Equity, the actors' union, and take another look at the matter because I believe that it would help the theatre industry, which is so important for tourism and for bringing visitors from overseas to the United Kingdom.
I shall not venture too far into the arguments of the hon. Member for Twickenham (Mr. Jessel); nor do I wish to get involved in the quarrels about councils in Great Britain—we have enough problems at home. However, I say to the hon. Member that, if one third of the profits of a national lottery went to the arts, the punters would not come out of it well. I should have thought that those who invested their hard-earned cash in such a lottery would want a better return than that scheme would apparently give them.
Yesterday, I listened to the right hon. Member for Plymouth, Devonport (Dr. Owen), who said that he had just listened to the first social market budget. A friend of mine is reputed to have said that, whenever the term "social" is used before the word "market", it means that the market will be negated by the adjective.
I was gratified when the Chancellor, in his opening remarks, said that he was committed to at least one of the virtues underlying the Thatcher years, in that his central economic aim was to bring down inflation and keep it down. It is nice to turn the circle every 10 years or so, but I wish that the Government had managed to do so the first time.
I have been here long enough to know that not everything said by a Chancellor in a Budget speech is necessarily accurate, any more than autumn statements are. Certainly, Chancellors have not got it all that right lately. Some hon. Members have already belaboured the Treasury's forecast team; time will prove the accuracy of its forecasts and let us see, as events unfold, just what has been known and left unsaid.
I have a number of concerns about the economy and what we heard in the Budget yesterday. In a sense, we heard two Budget speeches yesterday—one was the normal Budget speech and the other related solely to the money that is to be put into local government. I shall begin where the Chancellor finished: with the £4·5 billion, which will have vast consequences for all parties in the House and in the country that fight elections, and for the future of local government—its structure, functions and finance. Anyone who thinks that it will not lives in a dream world.
Unless the Bill to be presented is carefully designed, we shall get into even deeper difficulties. The Bill will deal only with the first step in a much larger reorganisation of local government. We see here the abandonment of the principle of the direct link between those who pay local government taxation and those who spend it, the councils.
I am concerned about that, because we are moving too far away from the principle of accountability, which the community charge tried to address, perhaps not successfully. But that issue will remain with us. If we reach the stage when accountability disappears, local government as we have known it in this country for a long period will be utterly swept away—there is no escape from that conclusion.
We in the Ulster Unionist party believe that everyone should pay something towards the cost of local government. Therefore, the Bill that we shall see tomorrow is of great importance. We had two basic objections to the community charge. One was that Northern Ireland was not treated in exactly the same way as the rest of the United Kingdom—a problem that we have always had. Our other objection was more serious in its application—that we were simply replacing one crude tax with another. Local government taxation needs a wider tax base. The revenue that local government collects in other countries, especially in America, is specific to the functions that local government bodies perform.
I must disagree with the hon. Member for Twickenham (Mr. Jessel) who said that the 2·5 per cent. increase in VAT would work out at only 2 per cent. I am sorry, but we are moving from a VAT rate of 15 per cent. to one of 17·5 per cent. That is my understanding and I am sure that those on the Treasury Bench will agree with me rather than with the hon. Gentleman. That 2·5 per cent. is important.
We may have to wait until tomorrow to find out, but I would like to know whether that 2·5 per cent.—that widening of the tax base to which I have no great objection if it is done properly—will be specific to one level of local government or to a specific function of local government. If so, we are going down a sensible road. If not, we are simply throwing money at the problem of local government finance. Doing that in such a panic-stricken atmosphere will eventually put us in an even worse hole than we are in with the community charge which many hon. Members seem to forget was introduced because of the panic-stricken state of the Conservative party in Scotland as a result of the revaluation there.
In the political arguments between parties in the House, hon. Members seem to forget the root causes of the problems of local government finance, which are very real and which would not go away even if the rates were restored. Because we in Northern Ireland have been able to stand back, we have taken a more jaundiced but perhaps more accurate view of the real difficulties of the Government and the difficulties which any Government would face in trying to put local government on a sound basis, where people see their money spent and know what it is spent on, and so hold their councils responsible for its spending.
We do not believe that the fire service, the police or education, to name but three of the functions of local government, should be completely under Government control. That would be a wrong step. The more money is put into local government by the Government, the more the Government's hand will control every aspect of it. That is inherently wrong. We must create a system of local government with proper financing which not only works but which commands a consensus across the House.
Looking at local government in Great Britain from the perspective of Northern Ireland, we see councils fighting a national battle when they should be getting on with administering efficiently their local government functions, which, far too often, does not happen. The hon. Member for Twickenham touched on some cases where money was literally being thrown away in local government. That is the impression that I as an outsider get, and I think that it is an impression shared by many in the community outside. We must seek a consensus which works even if there is a political battle in the House to get it. The sooner we start getting such a consensus, the better.
It would be false to believe that to do away with one tier of local government would result in a better service. I do not believe that the three services that I have just mentioned can be dealt with at district council level. A wider geographical area with perhaps a rather larger population than is contained in a district is needed if they are to be provided efficiently. If we do away with a tier and have only single-tier local councils, there will be great difficulties in the future. There is a real need to maintain a two-tier structure in future in local government, and I hope that the Government will not lightly abandon that. If they do, they will be straight back into another and possibly even deeper boghole.
Another question to which I would like an answer tonight concerns the application of the 2·5 per cent. VAT increase in Northern Ireland. Enough has already been said in exchanges across the House this afternoon to show that it will not receive universal acclaim or affection, but I am curious about what will happen to rates bills in Northern Ireland in the coming financial year as a result of that 2·5 per cent. VAT increase. How will the electorate in Northern Ireland who are paying the rates bill—a very different tax from the community charge—receive the average £140 per head rebate? That is a question which everyone in Northern Ireland would like answered and answered soon. But perhaps the Government have not yet worked that out.
I am sure that before the debate is finished we will hear more about these matters, not least about the effect of VAT on low-income families where it will have a different impact. Both the hon. Members for Twickenham and for Hartlepool (Mr. Leadbitter), who took part in an argument across the Floor of the House a few minutes ago, had a lot going for them. That concerns the nuts and bolts of the tax, which I would like to see explored more deeply.
There is, as I have said. already far too much central control of council work. Hon. Members from all parties would desire less. But if there is to be less, some of the councils will have to show a sight more responsibiity, and perhaps party leaders will have to impose more responsibility on them right across the board. Some of the behaviour that we have witnessed is not good for Britain, for democracy or for the people on the ground.
Unfortunately, Thursday's Bill will be rammed through. I hope that when it is being rammed through all hon. Members will have a glimmering of the anger that we in Northern Ireland feel at the Order in Council procedure which is used for changing the law in Northern Ireland. The statement made by the Secretary of State for Northern Ireland today was another vivid illustration of that. The Government do not dare to bring before the House a Bill to privatise Northern Ireland Electricity.
But the Bill on Thursday will not be the end of the local government argument. It simply means that one method of financing local government is being changed, or perhaps only modified. Far ranging changes will still be needed and any changes to the financing of local government will also affect its structure and functions.
We have a long way to go. I hope to take some part in future debates to explore the matter more deeply. We in Northern Ireland would like to see a common system of local government throughout the United Kingdom, even if there is some variation from jurisdiction to jurisdiction. We would like to see a system which is recognisable from one end of the kingdom to the other.
The measures that were announced for business were welcome and they will help. but when the nuts and bolts are examined, business will not be universally content because in one way or another considerable burdens are being placed upon it. I hope that by the end of this debate the Chancellor and his colleagues on the Treasury Bench will have heard a fair number of well founded criticisms of their proposals.
Unfortunately, we were told nothing about interest rates yesterday. They are the greatest burden that business has to bear at present. The sooner that interest rates come down and stay down the better, but that is tied to inflation, and we do not want negative interest rates again. Across the board, the business community is hoping for an early and a fairly large cut in interest rates but I appreciate—and I hope that all those who cried out for entry into the ERM appreciate—that the Government lost an enormous amount of freedom of action on entry and cannot make the cuts in interest rates that they would have been able to make a year ago.
Business, especially manufacturing, needs more investment. Investment is falling and I should like to think that it will rise rapidly and soon. I agree with those hon. Members who have said that manufacturing industry is the source of a nation's wealth. Although service industries provide jobs, they do not provide national wealth in the way that manufacturing does. The more encouragement that is given to manufacturing the better, and I regret that more incentives to invest are not given in the Budget.
I also regret that the inventor seems to be overlooked. We must do more for the fellow in the back shed who is up to something. Even in these days when huge sums are spent on research and development, individual inventors still come up with a nice idea which will provide 40 or 50 jobs when it gets to the market. Getting to the market is not simple, cheap or easy. Often inventors do not want to let go of their investment as it is the only chance that they have to make a few quid. We should be doing something to help them with the cost of patents, which can be a considerable cost to the individual.
We should also help with development costs. I am always telling the Secretary of State for Northern Ireland that, even if some of the money were lost, it would be far better to spend money on our own people than on some fellow with a big hat and a Texas drawl, who usually collects a few million and heads back to Texas again. I would prefer a few million pounds to be lost every year on promoting our own home-grown inventors than to hand millions to overseas people who only come here to try to defraud the Government and the country.
I also note that the increase in value added tax may well affect the capacity of some firms to pay money to charities. The VAT increase may not be universally acceptable to charitable organisations.
I noted with regret that the Chancellor once more praised entry into the exchange rate mechanism as a secure framework against inflation and said that we needed the discipline of the ERM. I always thought that that discipline was inherent in the claim that Anyman made whenever he was asking folk to vote for him. I always thought that people elected Governments to exercise discipline in financial matters. I point out to Ministers that the Germans did not need ERM to succeed after the war: all they needed was financial discipline. It could well be said that such discipline was imposed by the Bundesbank. I wonder why other Governments have not exercised the same discipline since the war. All it takes is the guts to do what is right when the right moment comes and not to bend with every passing wind.
If Governments accepted and imposed that discipline we would not have needed the ERM and we would have the freedom of action to change interest rates whenever it suited us. That might have been useful to the Conservative party at the present time.
In election after election the Conservative party has attacked the Labour party for not exercising financial discipline. Now we are told that the Conservative party needs someone else to prop it up in that financial discipline. It is a sad failing and a fall from the high standards which their predecessors employed.
I hope that the forecast that inflation will be down to 4 per cent. within a year is correct. Those of us who study past forecasts will not be as sure that it will happen as the Government Front Bench is. Considering that we have repaid £26 billion of our national debt during the past few years, which is a vast and welcome change from the rake's progress which characterised financial behaviour for many decades, I cannot but listen with dismay to the prophecy that there will be a minimum £8 billion deficit next year, and possibly a good deal more. We are told that it may be much larger the year after.
What really stuck in my gullet was the fact that the excuse given was that it was merely because of our place in the business cycle. If one can make that excuse for debts, will it also be applied to the £26 billion in repayments? How can one say that a deficit is a result of the cycle and in the same breath not have to admit that the repayments are a result of the cycle? I do not think that they are altogether the result of a cycle; they are the result of good management or mismanagement. I do not look with any pleasure upon the return of a deficit to Government finances.
The Chancellor said that failure in generations past has put a burden upon us and that, if we do not get back to a balanced budget, we will put a burden on future generations. That is a paraphrase but is basically the meaning of his words. However, yesterday he did not say that he was hoping to get back to a state of affairs where he could make repayments. He was merely looking for balanced budgets in the medium term. Therefore, one must accept that there has been a massive departure from the position for a few happy years when public sector debt was repaid.
I hope that it will dawn upon Ministers that many people in this country would like the public sector debt to be eliminated eventually, or at least reduced to a much lower level than at present. I am talking not about the percentage of gross national product but of a real decrease in cash terms in what we owe to the rest of the world.
As far as the taxation changes are concerned, I am disappointed that the fuel tax has risen so much because it increases the problems for rural dwellers, raises transport costs and is inherently inflationary in some respects. If the Government had decided to do that, why did they not go the whole hog? Why did they not simply replace the road fund licence while they were at it? That would have meant that everyone paid and there would not be so many tax dodgers floating around.
The tobacco tax increase, which has been so widely welcomed, will not be so widely welcomed in areas of the country where there is a tobacco industry. Tobacco is dangerous and I do not smoke myself—thank God, I never have. However, that increase will cost quite a lot of jobs in Ulster and will not necessarily stop people smoking. It might mean that we suck in imports of a lower quality and thus do more damage to people than any apparent good that may come about. The increase, which is above the level of inflation, was unwise at this time.
The mortgage interest relief changes may have only a minor effect upon house prices and may stop them taking off again. I certainly hope that that is the case, but I am curious as to whether it signals a slow shift from the special treatment of mortgages for housing purchase, which has been the case for many years, towards treating them like any other capital investment.
Other changes to be welcomed are those to capital gains tax and inheritance tax. Given the drop in the price of agricultural land, we are getting to a stage where most working farmers—rather than large estate owners—will not have to worry much about insuring themselves against inheritance tax because their farms will soon be well below the limit.
Child benefit has been considered time and time again as a means of helping families with children and it is probably still the best way to do so. The Chancellor said yesterday that, while he had considered child tax allowances, he had come down against them. Because of the changes made, I think that child benefit will be with us for the foreseeable future, and we should try to ensure that all mothers get the benefit of that money.
Yesterday, there was no mention of privatisation income. I have had a quick glance through the Red Book, and I cannot find it there either. I wonder how much money we shall get from Northern Ireland Electricity? Frankly, I hope that the Government's efforts to put that legislation through the House fail, although, sadly, I fear that they will not. There simply cannot be privatisation and competition in the Northern Ireland context. We were in effect told today that one large power station would supply far more electricity than the Province needs, so how on earth can there be privatisation if we are to get into that state? And that is bound to come, because the existing plant is wearing out.
One of the two Budgets is a thing of bits and pieces, many of which we welcome and some of which will have unforeseen consequences. The other contains a massive change to the system of local government finance. The effects of the first are quantifiable, but experience suggests that those of the second cannot be reduced so easily to common sense and specific figures.
Once again, battle is joined over the financing, powers and structure of local government, and I think that that battle will continue for a long time. We are entering an unknown minefield, and, if we are not careful, the whole system of local government as we know it will be swept away. That will harm the country, local government and the people who live in the areas concerned, and, ultimately, will cost far more. We should not dare to bring such matters under the control of central Government. We must search assiduously for an acceptable means of financing local government that will keep it in sensible hands within the community.
I agree with the hon. Member for Londonderry, East (Mr. Ross) that the Bill which will be presented tomorrow will by no means complete the process that is required for reform of local government—it needs a thorough overhaul. It must also be accountable. As my hon. Friend the Member for Twickenham (Mr. Jesse!) said, offering enormous salaries to chief executives does not promote accountability and has a detrimental effect on other authorities.
I congratulate the Government on producing such a sane and sensible Budget in the present circumstances. For one thing, the Budget will provide encouragement for small and large businesses. As the hon. Member for Londonderry, East observed, it is important that our industries should be helped to build themselves up to be able to compete with those of our European partners. I think that that is what the hon. Gentleman meant—and I see that he is nodding his agreement.
This country recognises that savings, too, should be encouraged, and I am glad to see that the Government also accept the importance of that. I am not talking about personal equity plans or the tax-exempt special savings account; I am talking about the accumulation of wealth by all sections of the community—not just the top section—to provide them with reserves to fall back on and a base for their retirement. The encouragement of such savings, like the encouragement of home ownership, is Conservative party policy.
I hate the way in which managing directors are given enormous freedom to purchase shares in their companies while the workers are denied it. My right hon. Friend the Chancellor is right to want to ensure that the same facilities are offered, in a smaller way, to workers who, having become shareholders, will become more interested and involved in the work of their company. The widening of share ownership serves two purposes: it builds up a capitalist society among all classes, and it gives the workers an interest in the work that they are doing with their own hands.
I note that special provision has been made for those—married women in particular—who wish to use their initiative and train for an occupation that will be of use to the country in the future. I also welcome the help that has been given to charities.
I want to say something about local government, because what was said by the right hon. and learned Member for Monklands, East (Mr. Smith) has somehow been incorporated into the Budget. I think that the Government were right to raise VAT by 2·5 per cent., but I am not sure that I like the idea of that becoming permanent. Hon. Members have mentioned a property tax. Having spent 20 years on the rating and valuation tribunal in London, I find it terribly difficult to value houses. It is almost impossible. One house may be given a completely different valuation from the one next to it. Linking valuations with a property tax will mean an enormous undertaking if we are to get the tax right, and it will be as unfair as the present system.
Of course, successive Governments were wrong not to increase rateable values. That, indeed, gave rise to the poll tax, which was the only alternative to a property tax that the present Government could see. I disagree with the hon. Member for Londonderry, East—I think that the fire, police and education services should be financed directly by the Exchequer. After all, the Exchequer pays a considerable sum to local government—about 48 per cent. It is not all raised through local rates. Financing those services centrally would merely mean that the Exchequer would contribute a little more.
Although central Government provides local government with money—and is to provide more—local authorities must be made far more accountable. Councils should be run not by officers, but by elected members. The hon. Member for Londonderry, East is right to say that a complete reappraisal of the local government system is needed.
I was pleased to learn of the help that the Government will give to seamen. It may seem a small point, but such help is important to the Merchant Navy, which is declining. We want British sailors on board those ships, and we welcome the concessions that have been given to them. The same applies to those employed in the Gulf, who, through no fault of their own, were forced to leave because of the war and have been heavily penalised fiscally. No doubt the Ministry of Defence had a word in my right hon. Friend the Chancellor's ear. The tax on alcohol and tobacco strikes me as reasonable. After all, they are luxuries.
I have always advocated a move from direct to indirect taxation. Tomorrow's Bill is part of that, but I should like more to be done in that regard. Other countries in Europe operate such systems, and run their affairs very successfully.
I welcome this excellent Budget, and congratulate my right hon. Friend the Chancellor on it.
If the hon. Member for Windsor and Maidenhead (Sir A. Glyn) will forgive me, I shall not take up all the points that he made. I shall deal with one later—the question of local government. First, I want to deal directly with his point about savings.
I am the first to agree that savings are very important to the country and its citizens. Tragically, however, one of the results of the Government's 12-year tenure is that savings have reached their lowest-ever level as a percentage of net disposable income. Despite the various incentive schemes introduced in last year's Budget, savings still have not taken off. After the introduction of those incentive schemes—building societies would be the first to tell us this—people merely transferred money that they had already invested from one savings account to the greater tax-incentive savings account. The tragic truth is that, as a percentage of net disposable income, savings are at their lowest level ever.
Over the past 12 months we have seen a traumatic recession and we have still not reached the depths of it. We have seen a dramatic increase in unemployment, which is beginning to accelerate. We have also seen some spectacular business collapses. If anyone had told the people of Glasgow or the west of Scotland that the massive Lewis's department store in Argyll street would go bankrupt in 1991, they would not have believed it, and nor would the people of Manchester and the other cities in which that store was located. It was an institution in those cities. We have seen the recent spectacular collapse of the International Leisure Group and Air Europe. We have seen an increase in inflation, which we have also seen begin to decrease.
Against that backdrop, the Government have failed at every by-election to hold some of the safest Conservative seats. The Liberal Democrats won Eastbourne and Ribble Valley and that is matched by the fact that the Labour party won Mid-Staffordshire with an equally massive swing. Sometimes I think that the Labour party does not give itself credit for the stupendous victory of my hon. Friend the Member for Mid-Staffordshire (Mrs. Heal).
There is a feeling—my hon. Friend the Member for Copeland (Dr. Cunningham) spoke on television about Ribble Valley—that those seats will revert to the Conservative party at the next election. I part company with my hon. Friend because the electorate are giving a great deal of thought to the way in which they will cast their vote. Political parties will, at their peril, take for granted the view that those seats will return to what is loosely described as their natural home at the general election. I do not believe that, but it remains to be seen whether my analysis is correct.
I wondered where the Budget had come from. As I listened to the Chancellor introducing his Budget, I realised that it was not the Government's Budget. In fact, the Chief Secretary told us today where it came from. He said that the Confederation of British Industry announced last night that the Budget contained every proposal that it had made to the Treasury. He also said that the Institute of Directors announced last night that the Budget contained every proposal that it had made to the Chancellor. The Chief Secretary also told us that the Association of British Chambers of Commerce had announced that the Budget contained its proposals. The spokesman for the Liberal Democrats, the hon. Member for Berwick-upon-Tweed (Mr. Beith), said that the Budget contained everything that his party had suggested to the Government. Where was the Government's input? It is fairly obvious that the Budget was a hotch potch, put together against the backdrop of the panic of the past year and the prospect of a general election.
I welcome some aspects of the Budget. For example, I welcome the increase in the VAT registration threshold for small businesses to £35,000. I welcome also, although it was not a financial incentive, the Chancellor's determination to encourage Customs and Excise to persuade companies of a certain level of turnover to pay value added tax when the account is paid rather than when it is sent out. I welcome also the increase in child benefit.
It was a pleasure to listen to my right hon. and learned Friend the Member for Monklands, East (Mr. Smith), who displayed a far superior grasp of the economy and its future needs than did the Chancellor and the Chief Secretary put together. My right hon. and learned Friend made it clear that had there been increases in line with inflation and, had the Labour party been in power, we would have been starting child benefit from a base of £9 per child.
I enter a note of personal sympathy. All my life I have suffered the disadvantgage of being a twin. My brother is 10 minutes older than me and, for the life of me, I do not understand why my mother would have received more money for him than for me. I cannot accept that. Perhaps the Minister will explain what happens in the event of multiple births and how they are separated for the payment of child benefit. I am glad that the Government have moved away from their refusal to increase child benefit because that was inflicting hardship and suffering on families.
One of the greatest disappointments in the Chief Secretary's speech was that he did not mention unemployment. The Budget will not put a single person back to work. Indeed, yesterday the Chancellor made it clear that unemployment will increase. I heard forecasts today of unemployment reaching 3 million and the right hon. Member for Chesham and Amersham (Sir. I. Gilmour) forecast 4 million. That is unacceptable. A total of 2 million is unacceptable and will severely damage Britain's social fabric. It will introduce trends into the social fabric which will be difficult to deal with by whichever Government are in power if they are not dealt with now.
If the Government are prepared to sit back and allow unemployment to rise to 3 million or 4 million, the quicker they are out of power, the better. I say that not only for the Labour party, although I declare a vested interest, but for the people of the United Kingdom. We simply could not tolerate that level of unemployment.
There is no hope in the Budget. I am speaking from the point of view of a Scottish constituency. There is no hope for the work force at Ravenscraig or for the work force at Rosyth naval dockyard. There is no hope for the 1,000 textile workers who lost their jobs in my constituency when clothing manufacturers had to close because of the recession.
I hope that the Minister will pay attention here. The Government wax eloquent about the need for share ownership among employees. I am in favour of that, but I hope that the Government will not give the impression that employees' jobs are protected just because they happen to own shares in the company. I can tell the Government a different story. ICI is world famous for its employee share ownership scheme, but in Grangemouth in my constituency, only two weeks ago, ICI announced that 250 workers—or shareholders—were to lose their jobs. In anyone's language that is a warning on employee share ownership. We should not give the impression, as the Government have done, that owning shares protects employees' jobs. It does not, and we should not mislead working people in that way.
I shall now refer to the link between VAT and local government finance. As the hon. Member for Londonderry, East (Mr. Ross) said, there has been a debate about whether the increase in VAT was 2·5 per cent. In my view, an increase of 2·5p on 15p in the pound is an increase of 16 per cent. If the Government were reducing VAT by 2·5p they would have claimed that that was a 17 per cent. reduction, but because VAT is going up by 2·5p they say that it is only a 2·5 per cent. increase. That increase is to finance the review of poll tax so that poll tax payers can pay £140 per head less.
That is one way of financing the poll tax cut, but the Government have chosen another way of raising revenue, too. Contrary to what the hon. Member for Londonderry, East said about there being no mention of the proceeds of privatisation sales, the Chancellor announced yesterday that the Government intend to sell at least part of their 48 per cent. shareholding in British Telecom. Part of the money is being raised by the Government selling public assets. The sale may affect the BT pension fund—I hope that the Minister will consider that question.
The hon. Member for Twickenham (Mr. Jessel) challenged the hon. Member for Berwick-upon-Tweed (Mr. Beith) to say whether he was in favour of the £140 per head reduction in poll tax that will be effected by the Bill to be introduced tomorrow. The hon. Member for Berwick-upon-Tweed said that he was in favour of it, but I am not in favour of the millionaire in his mansion getting a reduction of £140—he spends more on cigars in a week than that—and the old-age pensioner in her humble home getting a £140 reduction, too. The millionaire in his mansion should get nothing and the old-age pensioner should get three times £140. That would at least begin to approach social justice, or we might begin to be, as the Prime Minister put it, a nation at ease with itself.
We have not yet seen the Bill to be introduced tomorrow, but we understand that it will contain only one or two clauses. Anyone who thinks that it will be universally accepted has another thought coming. In arranging for a £140 per head rebate the Government have made the same fundamental error as they made in introducing the poll tax. Where everyone pays the same everyone will get the same refund. No one can convince me that the millionaire in his mansion is entitled to £140 back, in the same way as the old-age pensioner in her humble home.
We are talking about a complete review of local government. We are told that the Budget set the scene for it, so it is relevant to the debate. The hon. Member for Windsor and Maidenhead mentioned local government, too. I shall not be here in the next Parliament so I shall not have a say in what happens. Let me warn the Government, and my hon. Friends who may have responsibility if a review is to be undertaken, that we should not do what was done when local government was reorganised in England and Wales in 1972 and in Scotland in 1973. The democratic element was reduced by 50 per cent. We cut in half the number of elected councillors, and in the process increased the bureaucratic element by more than 50 per cent. Everyone in the House knows that bureaucracy in local government grew because there was no democracy there to stop it.
Hon. Members on both sides of the House talk about local accountability. They should get off councillors' backs. That applies to all parties—I do not make a political point. Councillors from all parties do an excellent job in difficult circumstances. When the poll tax was introduced we were told that it would get the Government out of local government, that the Government would not interfere, and that local government would be accountable to the electors in each area. Local electors would deal with overspending. That concept was soon shed, first with poll tax capping and now with the Bill that will be brought before us tomorrow. We shall see the Secretary of State for the Environment at the Dispatch Box making the biggest climbdown in political history. But there will be a reduction in interest rates, too, to take some of the spotlight off that climbdown—let there be no ifs and buts about it. I choose my words carefully when I say that the Conservative party is the first party in the political history of the United Kingdom to put a price on a vote. The Government will try to buy the vote of every person over the age of 18 in this country for £140 a time—that is their strategy for the next election. Anyone who thinks that the British electorate will fall for that con trick has another thought coming.
I saw the Minister of State on "Kilroy" this morning. My better side tempted me to feel sorry for her, but my realistice side said that she deserved all that she was getting. She got a going over from people affected by the Budget.
We have heard a lot about the CBI, the Institute of Directors and the chambers of commerce. Just as I accept that sometimes trade union leaders do not speak for their members, I know that the CBI, the IOD and the chambers of commerce do not speak for their members. On "Newsnight" last night the managing director of a furniture manufacturing company in Bristol with 270 employees and a turnover of £50 million tore the Budget apart. He was asked if he had ever voted Conservative and he said, "Yes, but I am seriously considering whether I will ever vote Conservative again." That is the sort of comment on the Budget that we are hearing from the business world. Business men can see through the Budget. This is not a universally acceptable Budget and its backdrop is one of disaster after disaster.
The Budget was introduced with the general election in prospect. My interest in the date of the election differs from my interest in the election's outcome. I am interested in the election's date because I want to know whether I will be going home in June to start to grow chrysanthemums and gladioli and to tend my garden again or whether my departure will be delayed until October, November or even until next year.
The Government are taking a massive gamble. The Budget is the last throw of the dice for a desperate Government. If their gamble fails, we will see a political slaughter in this country such as we have never seen before. The Government are gambling with the future of the people of this country and the people know what is happening. That is why by this time next year my right hon. and learned Friend the Member for Monklands, East will be Chancellor of the Exchequer and my right hon. Friend the Member for Islwyn (Mr. Kinnock) will be Prime Minister. There will be a Labour Government, much to the joy and relief of the people of Great Britain.
The city of Troy had only one Cassandra, but on the Opposition Benches today there has been a flock of Cassandras. Opposition Members have been forecasting more and more disasters. They have claimed that the public will take us to task because we are reducing the community charge. How far from reality are the Opposition? I have been chums with the hon. Member for Falkirk, East (Mr. Ewing) for many years. Why go out with such a black outlook? He should have faith in his country and in the work force. He should have faith——
Well, the hon. Gentleman can replace me if he thinks that I am not doing my job very well. Opposition Members should have faith in their country. The stock market is buoyant, the foreign exchange is steady, the ERM is not affecting us and we will be able to reduce interest rates in the very short term. In the face of all that, why all this gloom and despondency?
It is clear that the Opposition received a terrible shock yesterday. I watched their faces. The Liberal Democrats, like Labour Members, were decimated——
Obviously the shock was so great that they are now huddling together somewhere trying to create another policy on something.
I am almost inclined to apologise for yesterday's shock. I did not know what was going to happen. If I had known, I would have told some of my chums to relieve the shock. Some of them might have had cardiac arrests. I do not like the phrase "shooting foxes" because we might lose the animal lobby, but there is no doubt that several very promising attacks on the Budget had to be completely rewritten as a result of yesterday's shock.
I sense a great upsurge of relief. At long last we have a Cabinet that is determined to act. I want to recount the history of the community charge in Southampton.
I know, and I have written many letters saying that I cannot exonerate myself. However, when I first voted for the community charge, the estimated charge for Southampton was £178. I said to myself, "Okay. We're a low-rated area, but on the other hand £178 is quite reasonable". So I supported it. On the second occasion that I voted——
We voted on it twice. As a loyal supporter of the Government I voted for something that I believed would be much better than the rates. That evening, there was a minor rebellion on the Conservative Benches and I was appalled because my first loyalty has always been to the party.
I believe that the country is best served by the Conservative party and that fits in with my sense of loyalty.
On that evening, I was told by members of the Cabinet who are no longer members of the Cabinet, "There's no need to worry, James. It'll be about £278 and we think you can sell that." When the Labour-controlled council announced its community charge of £317, I very nearly fell over. I thought that no one in the low-rated area of Southampton, Test would be able to pay it. A real cloud had appeared.
I kept hoping that others would view matters as I viewed them. Slowly, but surely, that began to happen. No matter what the Liberals have or have not done, they fought a good election in Ribble Valley. The public came out clearly on the community charge: they said, "Get rid of it." We were then accused of dithering and all the rest of it. When the dagger came out and went straight through the heart of the Leader of the Opposition, we were no longer dithering——
I am pleased that you, Madam Deputy Speaker, are protecting me from the violent elements on the Opposition Front Bench. I need as much of that protection as I can get. The hon. Member for Brent, South (Mr. Boateng) said that someone was stabbed. It was a perfectly democratically arranged leadership election. It would be counter-productive to consider what happened in those days. Why should we always think of the past? That brings me back to the Cassandras. Opposition Members always think about the terrible things that have happened and do not believe that anything good can happen in future.
The community charge will be reduced by £140 a head throughout the land, regardless of people's incomes, but we are already beginning to hear objections to that. Council leaders and treasurers claim on television that the notices cannot be issued in time. They claim that they will be working night and day and that it will cost another £60 million. They want more staff and, no doubt, longer tea breaks.
My right hon. Friend the Secretary of State for the Environment will introduce a Bill on Tuesday that will incorporate everything that we have said about the community charge today. I hope that the Bill will include a provision to the effect that there is no need to issue another lot of invoices or bills simply because those bills must be issued before 1 April. People have enough savvy to strike £140 off their existing bills or, if they normally pay 10 cheques during the year, to strike £14 off their cheques. Let us at least save £60 million and much hard work for local authorities.
My local authority was dilatory when housing benefits were introduced, and it is just as dilatory now in respect of exemptions. People are getting two or three forms. The council is writing to the dead and to people under 18. That is all part of the system. The computerised society, which many hon. Members do not like, is not as efficient as we are told. I should not mind at all if my right hon. Friend the Secretary of State were to table an amendment to the Bill.
No. The hon. Gentleman had a good innings. My goodness, I sat here wondering what he had to do with the community charge. Irishmen are always pleasant and enjoyable to talk to, but not to listen to for too long. Today I thought that the hon. Gentleman spoke for a little too long.
The increase in VAT to 17·5 per cent. will be the source of a little grievance. That is possibly the hardest aspect of the Budget that I will have to sell to my constituents. It is difficult when the hon. Member for Falkirk, East accuses us of wasting more money on the community charge. Before long, everyone will realise that the additional VAT will pay for the extra help with the community charge. The majority of families will readily pay another 2·5p in VAT. I hope that the child benefit policies that have been introduced will make up for that increase.
Debates on business are not welcome in this House. We are always told that millionaires live in mansions. People ask, "What about the Japanese, Germans and others?" Millionaires who live in mansions can be Japanese, German, Irish or English. The hon. Member for Falkirk, East says that, for some reason, a person who invests in industry must be a millionaire. I have not yet heard of any trade union groups investing in industry, but no doubt I will hear about that later. Private investment mainly comes from people with money. Not all people who invest in the marketplace or the stock market or people who invest privately live in mansions. Some of them are humble—one can hardly tell that they have a penny to spare. Nevertheless, the main way to attract the attention of those people is exactly what has been done with corporation tax. Reductions in corporation tax from 35 per cent. to 34 per cent. in 1990–91 and to 33 per cent. in 1991–92 will do more than a thousand speeches by the hon. Gentleman.
No, the hon. Gentleman may not be here, but that is the way to encourage investment.
There are many items in the Budget for the small business man. Small business men are people such as tobacconists who supply workers with cigarettes, milk and so on. There is no doubt that the small business man has been under pressure. If we can raise the profit limit of small businesses to £250,000—it used to be called the small business relief, but I am sure that the new Chancellor will call it something else—we will help business enormously. My right hon. Friend the Chancellor recognises small shopkeepers' problems. He has raised the VAT registration threshold by nearly £10,000 to £35,000. A small shopkeeper can now have a trade of £700 a week and not even have to register for VAT. How different that is from what happened in 1979.
There are problems with personal taxation. I have one little grumble. It is not like me to grumble, but personal allowances and all age-related allowances are raised in line with inflation, whereas the married couples' allowance for the under-65s is unchanged. Why? What is behind that policy? Is it the Conservative party, the party of the settled family? Is it more possible for two people——
I do not mind the Parliamentary Private Secretary, my hon. Friend the Member for Colne Valley (Mr. Riddick), or anyone else saying that. Two single people living in a house get two personal allowances, but for a married couple the position is unchanged. [Interruption.] Luckily my hon. Friend is not allowed to speak. [Interruption.] Married couples had better get on and have a few children? Is that what I am told by my Government? I hope that that is not so. We have had that problem in respect of council accommodation and so on.
One extremely good point that has not been mentioned is tax relief. [Interruption.] Would hon. Gentlemen on the Opposition Front Bench kindly listen? Tax relief for businesses would help to provide equipment for schools and other educational establishments. That is to be encouraged by hon. Members on both sides of the House. If a benefactor wants to present a kit of footballs, football jerseys, soccer boots and so on, why should he not be allowed tax relief on it? Exactly the same applies to the arts. My hon. Friend the Member for Twickenham (Mr. Jessel) made a good plea. That side of our social life needs more assistance. A lottery would have been absolutely right. I am sure that we shall get around to that in the not-too-distant future.
There has been tax avoidance through the use of non-residential trusts. That matter is almost white hot. The Jersey island of Bergerac has been used for many non-residential trusts. People gain. They pay only 20 per cent. on the island of Jersey, yet practically all their investments are held in the United Kingdom. It will be an extremely interesting Finance Bill. I look forward to listening to the reasons why non-residential trusts should be closed.
Opposition Members are aggrieved that there was a reference in the Budget to British Telecom shares being sold off. I do not see why they should be aggrieved, but I rather like the idea that the shares should be sold from high street shops. I like to think that Marks and Sparks or Boots or almost any other high-street shop will be able to sell shares over the counter. Although we have talked about selling shares over the counter, we have always been strapped into the stock market and it has been the brokers or the banks who have made the money. Now, however, there is a chance that shares will be sold from high-street shops. I hope that we get 100 per cent. support from the Opposition on that.
I represent a conurbation and have had the problem of having to go along with the community charge. I have never been happy about it. When someone said on "Newsnight" last night that a stake had been driven through the heart of the community charge, I thought that it was good news. I sat there smiling and today I am still smiling. I am afraid that it will mean a desperately poor election for the Opposition. I am sorry that a lot of Opposition faces will disappear. Nothing will be safe. Once we get the policy into place and explain it properly, I am sure that we will be returned overwhelmingly.
It is always a pleasure to follow the hon. Member for Southampton, Test (Mr. Hill). However, having been watching the clock, I must advise him that it was a bit rich of him to chide my hon. Friend the Member for Londonderry, East (Mr. Ross) for going on a bit: I can honestly tell him that he was not far behind. I had the same feeling when the hon. Gentleman was speaking as he obviously had when my hon. Friend was speaking. However, I richly enjoyed his speech and the fact that he found bits of the Budget as laughable as many of us found them. I assure the House that I shall be briefer than both those hon. Gentlemen.
The Budget has been marked by two facets—one of fear and one of panic. As many hon. Members have shown, chief among the manifestations of the panic and fear have been the Government's desperate attempts to get themselves off the hook on which they have impaled themselves over the poll tax. As we all know, they have been defending the poll tax both inside and outside the House for many months. They did not listen to the advice of the experts or to the interested organisations. Most of all, they failed to listen to the electors.
Generally, most panic measures fail when they are put under any scrutiny. The electors of this country would be mistaken to think that only the poll tax has attracted ill-thought-out and hasty measures from the Government, but, as many of my right hon. and hon. Friends have already mentioned many of them, I do not intend to go over that ground again.
I had originally intended to raise the problems experienced by direct labour organisations, which are being penalised for ensuring that a high level of apprenticeship is maintained in the construction industry, and which are being hampered by the compulsory competitive tendering processes. Many of the apprentices who have been trained in the construction industry then go into the private sector. Although in some cases as many as 75 per cent. do so, the private sector is not playing as big a part as the direct labour organisations in continuing that process. However, as I realise that the arguments on that are lengthy, I shall not stress that point tonight.
It will be no surprise to many hon. Members who know me that I intend to highlight a crucial area of the nation's life that will suffer enormously as a result of yesterday's announcements. I refer to sport. Given the Government's hype about the Budget proposals for funding sport, hon. Members may find it curious that I am raising this. However, like most of the Government's dealings with the sporting industry, the Budget is yet another case of broken promises and smokescreen tactics, coupled with the hasty and last minute cobbling together of a scheme to avoid a national lottery, to which the hon. Member for Test referred. I shall seek to explain how yesterday's announcements can be described as a "conning Budget for sport". I hope that the Minister is listening. The House should consider many aspects of this issue, not just the question of a national lottery.
The Budget certainly does not contain any move to abolish corporation tax for sport, at which many people, including the Minister for Sport, hinted. Along with the Prime Minister, the Minister has been happy to bask in the glow of the initial, but now proven sadly misguided, title of "the dream ticket for sport". I hope that the author of that title is eating his words tonight. The Budget has delivered a rude awakening to any who may have shared that view.
In January, the Minister for Sport promised The Mail on Sunday that he would
look very hard at the financial structure of sports so that they can be released from having to pay corporation tax",
and professed to feeling
very strongly about the tax sport has to pay".
I believe we can change this and get more money into grass-roots sport",
but those worthy promises have proved to be just words. Perhaps the Minister for Sport should come to the House now to tell us how strongly he feels about the refusal of his partner in the so-called "dream ticket"—the so-called "sporting Prime Minister"—to aid sport in that way. If the Minister of State replies to the debate, I hope that she will answer those points. If one of her colleagues is to reply, I hope that she will pass on those comments.
Perhaps the Minister for Sport would explain to our rugby players, athletes and tennis players why he has failed to deliver the goods that he intimated that he would deliver, and what has happened to the much-trailed national lottery. That proposal appears to have been shelved or buried. In its place, we have a commitment to take £60 million out of football, where it is desperately needed to fund the requirements of Lord Justice Taylor's report, and to give it to some new body, the members of which we do not know, the structure of which is unclear, and on which we have not heard a single assurance from the Government about accountability or the monitoring of decision making or performance.
However, what is clear is that that money will not even all go to sport. Some will go to the arts, which already receives eight times the level of Government funding for sport. Government figures that were given to me only last year in a written answer show that total funding of the arts has risen over the past four years by 43·9 per cent., whereas sport has seen only a 16 per cent. rise in grant to the Sports Council, and has suffered a cut of over a quarter in the amount of money that is given to inner-city sport through the urban programme. Like, I am sure, most of my hon. Friends, I do not wish to see the arts knocked. They should receive a proper level of funding from central Government—and rather more than they receive at present.
What infuriates me, however, and many other sports lovers is that the Government refuse to meet their own responsibilities for supporting the arts but expect an already grossly under-invested industry, which is what football is, to subsidise their own inadequacy and unwillingness. It is like asking Bob Cratchit to pay Scrooge's poll tax, but stranger things have happened under this Government.
We do not even have any guarantees that the new body will see the light of day. As I understand it, the scheme has been concocted as a result of negotiations between the Government and one pools company—the one that has 77 per cent. of the betting turnover. I wonder what has happened to the party that believes in free competition. It has now negotiated a deal that penalises the minority players in this market.
Will the Minister give a clear undertaking tonight that the other two companies involved will be consulted about the structure that is to be set up to dispense their money? I hope that the House will have an opportunity to discuss that structure, because it will be a baffling prospect to many that any organisation will be able to satisfy the demands that will be placed upon it by the sports and arts lobbies.
However, even more damning for sport, and possibly the biggest sting of all, is that the proposals will not lead to net investment or to even a single penny for sport. Many hon. Members will be fascinated by the figures. The Budget will result in a massive subsidy from sport to the Chancellor, not the other way round. Even if sport was to get all the money going from the Government to the new foundation, it would still receive only £20 million, not in direct grants but in Government revenue from the football pools betting duty.
The Royal Commission on Gambling said in 1978 that the rate of 40 per cent. on football pools betting duty was too high and recommended that it be cut to 37 per cent., and that the money should be ploughed back into football. That recommendation came long before Lord Justice Taylor's report was envisaged. How much more desperately does football need the money now, never mind the needs of sport in general?
When one considers the effect of increased VAT and excise duties, the figure of £20 million is dwarfed by the amount of hard cash that will come to the Government from sport. A Sports Council official confirmed to me that the effect of increased VAT on its own will mean that our sportsmen and women will cough up—through, for example, increased charges for equipment and admission fees—a staggering extra £77·5 million at 1985 prices which translates into £105 million in today's prices. That is a net profit to the Government of over £80 million. We could say that the Government's sporting horse has come in at a starting price of 4 to 1. That does not take account of the effect of VAT, increasing charges for voluntary sports clubs of hiring grounds and equipment, or increases in excise duties.
So much for the great dream ticket for sport; so much for the sporting Prime Minister; and so much for the concern of the Minister for Sport about the amount of tax that sport has to pay. The reality is that the Budget is the biggest con for sport in recent history. If the Government were a racehorse, there would be cause for a stewards' inquiry.
Last night, a Conservative Member—I will not name him, for obvious reasons—told me that he was ashamed of being a Tory. It is a bad Budget. It is designed to save the Tories' own neck rather than to build the country's future. The Minister of State, the hon. Member for Norfolk, South-West (Mrs. Shephard), had a rough time this morning, as we have heard. The Gravesend constituency is considered the most representative in the country. She must have got a clear message from the audience that they recognised that it is a bad Budget which will fail them. She is probably still bruised from that exercise.
The Government began their life by increasing VAT. They will surely finish their life in the same fashion.
I will not follow the hon. Member for Stalybridge and Hyde (Mr. Pendry) down the sporting route, although he knows that I follow the affairs of the football world with keen interest. Nor will I follow hon. Members who have discussed at length the effect of the Budget on the community charge, because that matter will be addressed tomorrow, probably in a statement. Remarks on that should be seen in their entirety, when we know how the community charge is to be altered.
There is no doubt that we have had a Budget for business because of the changes to the VAT regulations and rates, and also because of the changes in corporation tax. Business will also welcome the proposals for consultation about high street share shops. If we can persuade people to purchase shares in the high street from retailers, who may or not be banks or financial institutions but who will be much more accessible than the average stockbroker, that is an exciting prospect, if only because it holds out the opportunity of reducing transaction costs for share purchase. Transaction costs are one of the major obstacles to people buying shares. With the delay of the TAURUS system—transfer and automated registration of uncertificated stock—to 1992 in the London stock exchange, every effort should be made to ensure that transaction costs are kept to a minimum.
Having high street share shops to cover the primary market in shares may not be enough. They should also cover the secondary market, so that people could sell their shares as well as buy them in those shops. If the shops are to work in that context, consideration must be given to the operation of the secondary market in shares in the London stock exchange and the spread between bid and offer prices.
The principal item in the Budget which will be welcomed by business is the projection of Treasury economists, confirming the projection of other economists in the London market, that the inflation rate should be down to about 4 per cent. by the final quarter of the year. That would be a dramatic reduction and a great improvement on previous inflation projections. I believe that it will presage a tumbling of interest rates which will be extremely advantageous to business, large and small.
Interest rates have hit business and home owners badly. Businesses have also suffered because of the uniform business rate. In conjunction with the changes to the community charge, I hope that attention will be given to the effect of the uniform business rate on businesses in London and the south-east. It has by no means been beneficial, although there are undoubtedly major advantages to it.
There are dangers in low interest rates. If interest rates come down rapidly—I believe that they will, in a way which is sustainable within ERM constraints—the risk is that the property market will take off again, and that we will suffer another house price boom. The last property boom contributed to our troubles of high inflation and too much consumer spending because of leakage from the property market to the consumer market. As a result, interest rates had to be raised. We need to be cautious about how rapidly and how far interest rates drop because of the effect on the housing market.
I welcome the Government's decision to remove mortgage interest relief for higher rate taxpayers. That will be at least a constraint on the property market taking off again, although the benefits that such mortgage holders gained was by no means as great as other tax benefits from investing in their principal home. The major benefit is capital gains tax relief. Investment in principal homes rather than in other parts of the economy has led to a major distortion of the investment market. While it is not necessarily more beneficial to the economy to have investment in other areas rather than in bricks and mortar, it would be nice to get a better balance between property and other sectors of the economy.
As interest rates come down, and as people start to borrow, there will be calls from the Labour party, especially from the right hon. and learned Member for Monklands, East (Mr. Smith) and from the hon. Member for Brent, South (Mr. Boateng), for the institution of credit controls. Of course, credit controls are nonsense now and would be nonsense in future. There is no possibility of them working without the reintroduction of exchange controls. If the Labour party ever formed a Government and structured a Budget, it would introduce exchange controls to stop leakage, because in no other way could it introduce credit controls.
Labour Members talk also about compensating balances and reserve asset ratios for banks. But those are merely other means of jacking up interest rates. If one wishes to constrain the way in which banks lend, it is much better to do it through interest rates than by phoney ratios which have no other effect than indirectly to affect interest rates. They certainly have no effect of shaking off borrowing, other than through the indirect pressure on interest rates which they produce.
The danger we face is incidental to our membership of the exchange rate mechanism. It is important that we consider moving rapidly towards entering the narrow band of the ERM, because that constraint will be important to us. At present, we suffer in the ERM from the fact that the deutschmark is—or has been—extremely strong. There are now clear signs from the German economy that the deutschmark is about to enter a phase of structural weakness, if only because of the high cost of reconstructing eastern Germany and the consequential large budget deficits that the German economy will run. They will be offset partly by higher interest rates and a rise in German domestic taxation, but the result will almost certainly be a weakening of the deutschmark.
The consequence of a weaker deutschmark may also be that the pound will start to rise to the top end of the band in the ERM, forcing us to reduce interest rates more rapidly—indeed, to a lower level than we would otherwise have wished. In itself, that may have inflationary consequences in Britain, because, if nothing else, property prices would be stoked up.
The way to get around that within the mechanism of the ERM is to recognise that we must be either in the ERM or out of it. As we have decided to be in it, we ought to be in it entirely. We should ensure that the ERM is altered in such a way that there is a common interest rate and foreign exchange policy across European Community countries and control of the different reactions of currencies within the ERM. That would mean that we would not be forced to adjust for domestic German policy by changing our own interest rate policy. That can be done only if we enter the narrow band of the ERM and move fairly rapidly to some form of Eurofed or central bank in the EC. That is important, because the only alternative is to come out of the ERM altogether.
The Budget will benefit business. If for no other reason than the fall in interest rates, we shall start to see business take off again, and we shall begin to come out of the recession later this year. That will be welcome and will set us back on the path of growth and economic strength which will be the foundation for great prosperity. As I and all my hon. Friends believe, that will lead us forth to a successful general election campaign when it comes.
I have considered most of the comments made by the economic analysts in the press and other areas of information provision and concluded, after the most careful thought, that the Budget was a dog's breakfast. It does not meet, even in the slightest way, the problems of the country.
I do not have to call on Labour party opinion and policy or, indeed, any platform to underwrite what I have just said. I call in aid the report issued on 14 March of the Select Committee on Science and Technology, in another place. It said that the policies of the present Government include no commitment to industry. It is a Committee on which Conservatives are in the majority. After careful consideration and after examining witness after witness, the Committee's report said that, if the present policies were persisted with, Britain would not have any British-owned manufacturing industries. That is the risk. It also said that the Government had no strategy for industry and no policy that took into account the national interest.
This piddling little thing called the Budget—we had the usual ritual of the walk in the park before the Chancellor arrived here, and the little red box, which has more said about it than was in it—was a bit of a dog's breakfast. I call in aid another factor. In the House this afternoon, I raised a matter which is current. The calamitous news in Barrow-in-Furness will cripple the economy of that populace. I raised another matter this afternoon which is causing great concern. The Minister's answer was not much. He told me that he intended to talk to the Commissioner, Leon Brittan. I know that they deserve each other. Ministers made so much of the meeting. One might ask the Commissioner, who is a British subject, whose side he is on. I asked a question arising from Lloyd's List of 3 March, which said that there had been a calamitous decline in shipbuilding in the United Kingdom—of 80 per cent. in 10 years. Britain, which had the most magnificent shipbuilding industry in the world has experienced an 80 per cent. reduction of what was left 10 years ago. The newspaper added that Denmark, Germany and Italy have increased their share of world shipbuilding orders while Britain's share has shrunk to 0·77 per cent.
I feel a little ashamed. When I was a young lad, my father used to tell me about Britain. When I grew up, I began to learn about British-made. It was better than a handshake and a good deal done. Our word was our bond. What do we have now? We have not only a shipbuilding industry which is almost non-existent but a mere 0·77 per cent. share of world orders. There must be a state of madness in Government Departments to allow our great country's major industries to be in a state of decline.
Another matter which the Budget statement did not touch on was the closed Ravenscraig steelworks. Thousands of people have lost their jobs. One must apply a multiplier to the immediate unemployment created. If 2,000 jobs are lost at a factory, the multiplier, which is never less than two, makes it a loss of 4,000 jobs in the area. What a disgusting, messy nonsense it is that Black Bob—he got his name well enough as chairman of British Steel—says that he does not intend to allow anyone to buy the works to compete with him. As in the case of shipbuilding, the British steel industry, which once accounted for 20 per cent. of steel making in the whole of Europe, has now been reduced to a size that does not reflect the significance that it once enjoyed.
Did the Budget include any reference to the dilemma faced by people who want to save communities in the coal industry? Not very long ago we were producing 75 million tonnes of coal for the power programme. The figure is now 60 million tonnes. There is now talk of coal being imported from abroad—cheap coal extracted by cheap labour. Indeed, the privatised electricity industry is buying coal mines abroad. Is there something wrong with that? Of course there is. It stinks. When I go abroad I want to speak well of my country; I do not want to be reminded that the major pillars of our industrial economy have been knocked down.
The best economists and chancellors in the world are the housewives. The Conservative party need not think for one moment that what it is doing about the poll tax will get it anywhere. The housewife will ask, "What is it that is a charge on my domestic budget but is not being taken into account by the House of Commons?" We hear a great deal of impressive economic jargon. Hon. Members enhance their self-importance by referring to such things as the ERM. The ERM is just another name for the fixed rate. We all know the history of fixed rates in this country. The housewife, when she is talking to her husband about the week's budget, will say, "The new financial year is starting. We have been told that the price of electricity is going to rise by more than 17 per cent., and that we shall have to pay more than 12 per cent. more for water. We have been told that fares are about to go up, and that we are going to have to pay more for food and household goods. You will have to pay more for the petrol that you use travelling to work." The list goes on and on. The housewife will say, "How are we going to meet these extra costs? Those daft Members of Parliament tell us not to make wage demands, because they want to get inflation under control." Members of Parliament and other people who are well off do not have to ask how they will manage to meet the extra costs.
What of the poll tax? I chaired the Standing Committee that dealt with the poll tax legislation. Every member of that Committee expressed concern. What a stupid idea it is to try to tax at local level people who are always on the move. What an awful proposition. But now, having said time and time again over the past two years that the poll tax would work, the Government, in a panic, are doing something about it. The Ribble Valley by-election hit them on the head, and they said, "My god, we can't win an election. We had better get rid of the poll tax." So they put the extra burden on VAT.
I have news for the Government. Value added tax—and I am talking not about zero-rated goods—represents a higher proportion of limited incomes than of higher incomes, and is therefore a regressive tax. People on family income support who are under the threshold do not have to pay poll tax, but even they—people with less than £50 a week to play with—will have to pay an extra 2·5 per cent. in VAT. It does not make sense. For those without money in their pocket, life is going to be hard.
As other hon. Members have waited a long time for the opportunity to speak, I intend to say very little more, but there is one more point that I want to make. Irrespective of whether we like it, Members of Parliament have to make political judgments. There is great concern about how to get the best response from the electorate. Sometimes we make the mistake of making promises—offering carrots. I can tell the House that the electorate will respond favourably if they see consistency of principle, if they see in Members of Parliament examples of public service. They will vote for candidates whose behaviour demonstrates that they are concerned about people. They will not be fooled by carrots—offers of concessions—in the hope that they will deliver their votes in a few weeks' or a few months' time. The public are bigger and better than that. This is Britain. There are higher standards and better examples to be found out there than in here. That had better be understood. Otherwise, something else might be at risk—democracy itself.
I welcome the opportunity to speak in the debate. The hon. Member for Hartlepool (Mr. Leadbitter) has just made a stirring speech on behalf of the Opposition. I say to the hon. Gentleman, and to the many people who criticise the Budget from an expenditure point of view, that when the economy is not at its strongest money has to be earned. Industry has to prosper before money can be spent. That fact must be taken into account. Many of the industries to which the hon. Gentleman referred have changed in nature. They have become far more productive; with advancing technology, there is a smaller manual element. Thus, there are fewer jobs.
The most important element of the Budget is the community charge. The public cried out to us for a remedy. Rejection of the tax was widespread. It caused low-income and middle-income families a great deal of difficulty. It eroded the disposable income of many people and the situation had to be rectified. In introducing an extremely bold policy my right hon. Friend the Chancellor of the Exchequer has addressed the problem. The community charge will be reduced by £140 a head for every payer. It is a sensible measure that will be greeted by the majority of the British people as a common sense move. My right hon. Friend has chosen to raise the money to meet the reduction in the community charge by increasing value added tax by 2·5 per cent. I have listened to the complaints about that, but the reduction of the community charge means that the average family will save £280 a year. That family will have to spend at least £11,000 a year on goods and services that attract VAT before it is worse off. That puts the issue in context.
What are the main essentials for a family? When we answer that question we take into consideration items that are zero-rated, such as children's clothes and shoes, fuel for heating and housing costs. Those are essential items that form the basis of the bills that face every family. As they do not attract VAT, it is clear that the majority of families, including pensioners, single parents and those who are unemployed, will be better off as a consequence of the policy that my right hon. Friend the Chancellor of the Exchequer has produced.
I say in a jocular sense that I look forward to the other half of the Budget, as I see it, which will be introduced tomorrow afternoon when my right hon. Friend the Secretary of State for the Environment tells us exactly what he plans to do in the long term. Many of us appreciate that that will lead to the abolition of the community charge.
It is important to understand that we are discussing a Budget for business. Certain factors are not understood by Opposition Members. I listened with interest to the members of the Opposition's team of polytechnic lecturers who speak from the Opposition Front Bench on Department of Trade and Industry matters. They tell us how we should run the economy, but they have never had to worry about where wages come from, about the cash flow of a company or how they will ensure that their workers have training and expertise. These Front-Bench Opposition spokesmen have no experience of those matters. I am a barrister, the chairman of one company and the director of another, and I have relevant experience, as do my colleagues who sit on the Government Front Bench.
There will be cuts in corporation tax and additional help with bad debts. The cost of those measures will total £570 million. That sum will find its way into long-term investment, including the creation of new jobs that will be available when we see the upturn in the economy, which I am sure will come.
We cannot ignore the small business element. The Budget will lead to changes in the collection of tax and to national insurance relief. It will raise the limit of VAT registration to £35,000. The submission of small business accounts will be by way of statement when there is a turnover of only £10,000. These are major improvements that will be greeted with enthusiasm by those who run small businesses. They will work their way through in economic activity and job creation throughout the country. The theme that is forgotten is the overall downward thrust on inflation which in the next few months will lead to a reduction in interest rates. The present level of those rates is the major complaint of every business throughout the country and their reduction is the key to our future prosperity.
We took a bold decision to go into the exchange rate mechanism. It seems clear that the decision made on the value of sterling when we entered the mechanism will be sustained. That in itself will bring a downward pressure on interest rates. Who else will benefit from a reduction in interest rates? The answer is the 65 per cent. of British people who own their own houses and who pay mortgages. A reduction in interest rates will put more money into their pockets. That will lead to their having a greater disposable income and that benefit will work its way back into the economy.
Another important element is the green policy contained within the Budget. I make no apology to those who complain that the price of cigarettes will be increased. How much money do we spend on the national health service year on year to enable it to deal with smoking-related diseases? The hon. Member for Brent, South (Mr. Boateng) laughs, but we are spending millions of pounds on cancer research and treating people for heart disease within the NHS, much of which is related to the amount of smoking that takes place in society. We all received a letter from Action on Smoking and Health last week. That organisation is concerned about the increasing numbers of young girls at school and of married mothers at home who are smoking. An increase in the duty on cigarettes will be a major deterrent that will lead to an improvement in the health of the nation.
The same can be said of alcohol. Drinks that contain high levels of alcohol will bear the greatest amount of duty. My right hon. Friend the Chancellor of the Exchequer has rightfully decided that low-alcohol beers should attract a smaller amount of duty.
We have a major problem with the greenhouse effect, so we are encouraging lean-burn engines. It will cost more for petrol, but the encouragement is for lean-burn, smaller engines for the future. It is not without significance that, overall, Britain has the lead in lean-burn technology. As time goes on we shall probably benefit from that; the cars of the future will have smaller engines and will consume less petrol.
Although I believe that child allowances in tax terms should be the way to target money at the most needy, I know that the increase in child benefit will be greatly appreciated by the vast majority of families.
This is a diverse Budget which deals with a good many difficulties. It is imaginative and it attacks the major problems that face us today. I have no doubt that it will be greeted warmly by the vast majority of people.
I congratulate my right hon. Friend the Chancellor of the Exchequer on a highly intelligent and socially sensitive Budget. I also congratulate the Chief Secretary on his typically meaty contribution to the debate, and remark in parentheses that the broadcasting authorities and interests who have good reason to be grateful to him for his sensible and enlightened conduct of the Broadcasting Bill are lucky to have someone in the Treasury who will be sensitive to their concerns when these matters raise their heads again.
My main point concerns something that other hon. Members—I apologise for my temporary absence earlier this evening—have not addressed: housing. My right hon. Friend the Chancellor, in deciding to reduce the 40 per cent. mortgage tax relief to a flat rate of 25 per cent. for everyone, mentioned his desire to avoid another upsurge in the housing market.
We are in a curious situation in the House when it comes to housing. Whatever subject one may care to take, hon. Members on one side or the other, Labour, Liberal Democrats or ourselves, will tell the public the truth about the situation. It is all too rare for this to happen with housing, particularly with mortgage tax relief. Nothing should be taboo for discussion in the House, yet somehow we all know that there is something fundamentally, culturally wrong with housing finance. If one were to lock the Conservative, Labour and Liberal Democrat leaders in a room for half an hour and tell them that they must agree on one thing that would benefit the economy of the country in the longer term, however controversial it might be politically, they would all come out with the same answer: the total abolition of mortgage tax relief.
Let us not forget that this problem has a history. It is not so much a cultural history, it is a cult of house ownership. When the Government talk about encouraging further house ownership, it may be electorally appealing in the immediate future but it is also financially and economically damaging. How far do we want to go? We have nearly 70 per cent. house ownership now. Do we want 100 per cent. house ownership with all the immobility of labour that it implies? Have we spared a glance for the position in some other countriess, the economies of which tend to be in better shape than ours and where there is a healthier mixture of ownership, rental and state provision? It seems that there is something wrong and unhealthy with the state towards which we are heading, with 70 per cent. house ownership and beyond, because so much of that is based on state subsidy. It is no good arguing that the £30,000 tax relief limit is withering away, when the actual cost to the Treasury is going up by leaps and bounds. It has gone up by about 50 per cent. during the past few years and now stands at £8 billion. With my own little interest in education, I note that that is precisely the same sum as the cost of teachers' salaries—an interesting little side point.
The enormous figure of £8 billion which is coughed up by the Treasury does not help people to gain their houses or help first-time buyers, but, as everyone outside the House knows and says, it inflates the price of houses. The result in my constituency, which is rural, is that people born in villages cannot afford to buy houses in them. It is important for the subject to be debated honestly in the House. I understand perfectly well why the Government find it difficult to be as frank as they might be inclined to be on the subject, and I am tempted to say that I understand why the Opposition are a little reticent. However, it is important for us to confront the public with the realities of the inflated cost of housing.
One of the many distortions to which this state leads is in the private rented market. The Government have rightly introduced legislation to liberalise the private rented market, but no one in his right mind will rent a house if he can receive Government subsidy, in the shape of mortgage tax relief, to buy one. That is one reason why the private rented market has not taken off and remains at the stultified and completely artificial level of about 9 or 10 per cent., despite the Government's best efforts to improve it.
We could develop the subject ad nauseam. The Organisation for Economic Co-operation and Development has said that the existence of mortgage tax relief in the British culture of house ownership distorts the relationship between productive and non-productive investment—in bricks and mortar, money under the floorboards—to an enormous degree. It distorts the mentality of people's financial planning. Extraordinary figures show that the average mortgage indebtedness of individuals in this country is about double that of analogous countries. The culture of house ownership distorts our wage-claim philosphy. As soon as interest rates go up after a housing boom, people feel that they are entitled to ask for a wage rise to compensate them because their financial philosophy is based on mortgage tax relief and the extent to which they have got themselves artificially indebted because of their mortgage commitments.
This is a fundamental problem in the British economy which, uniquely, cannot be frankly discussed by the Government or the Opposition and so is rarely talked about in this place. However, every responsible economist outside the House and every major, quality newspaper, including The Times this morning—which asked why the Chancellor of the Exchequer had not done away with the whole damned thing while he was about it—agrees that this is a pernicious system that is damaging to the British economy, housing interests in general and home buyers.
There are paradoxes here. I recognise all the politial problems of doing away with mortgage tax relief. They are common to hon. Members on both sides of the House. We all understand the difficulties of presentation to the public. But if mortgage tax relief were done away with, the first thing that would happen would be that house prices generally would fall. In my personal estimation, they would fall by more than the tax relief in question. It is exactly like going to Harrods or any other shop during the sale—people tend to buy things that they do not need. In just the same way, the very existence of mortgage tax relief encourages people to pay more for their houses than they should.
The paradox—it is an important economic paradox—is that if mortgage tax relief were done away with or phased out, house prices would be reduced by more than the tax relief is worth. The result of that—this is the important point—would be that people's mortgages would be less than they are at present.
Since I am making a bit of a virtue of being honest, let us be honest about the repercussions of that. The general level of house prices would stagnate or perhaps even subside. Therefore, people's sense of what they owned in terms of capital might stagnate or subside. But we must be frank and honest about that. Is it a good thing for Britain's future economy that people should have a permanently inflated sense of the value of their property? I rather doubt whether that is so. In this, as in other elements of the Government's policy over the past 10 years, realism and honesty are probably the best policy, particularly in terms of Conservative philosophy. We cannot say that our philosophy in economic matters is based on choice and at the same time say that the be-all and end-all of a person's economic existence is house ownership. There is a fundamental contradiction there.
Economic choice in the housing market means a choice between buying and renting. It is as simple as that. But the market is skewed by the fact that we spend £8 billion a year—I repeat, the total cost of teachers' salaries—propping up artificial prices in the housing market. Our philosophy is skewed and contradictory and, while that goes on the private rented market in Britain will never take off in the way that the country needs, both to expand that stunted market and to create a level playing field in housing terms.
We are all grown-up people and no one, other than misguided individuals such as myself, talks about such matters before an election. But this is a fundamental problem which will not go away. That is why I am taking this opportunity to make some remarks that will be highly unpopular among many people in the country and which will marginally embarrass members of the Government Front Bench, except that they know that what I say is true and that the remedies that I advocate are the right ones. I suspect that the Opposition know that perfectly well, too.
I conclude with the perhaps slightly excessive remark that the continued existence of mortgage tax relief, which inflates prices, distorts the economy and contributes indirectly to the appalling problem of homelessness, is to some extent due to a conspiracy of silence in the House among all political parties. However, I have enough residual political realism to realise that nothing will be said or done about the problem this side of an election.
On the eve of the Chancellor's statement, the country looked to him for a Budget for manufacturing industry, for training and employment, for mother and child, for sustained and sustainable investment, and for growth and recovery within a decent environment.
Yesterday, the House and the country got a Budget born out of desperation and rooted in failure. The desperation prompted a squalid political bribe of unsurpassed proportions to be delivered, in an unprecedented fashion on the back of an unparalleled transfer from local to central taxation, by a substantial addition to the rate of value added tax. The failure was a failure in the economy.
In his opening remarks, the Chancellor paid a somewhat surprising, but nevertheless heartfelt, tribute to his predecessor, the right hon. Member for Blaby (Mr. Lawson). In so doing, he invited a comparison between the right hon. Member and himself that I think the Chief Secretary to the Treasury will well understand—a comparison in performance. I shall try to explain it. I said that I believed that the Chief Secretary would understand it because the English National Opera company—of which I am director—has a reason to be thankful to him in another incarnation and I know that he is a great lover of the lyric verse.
The best way to describe the performance of the right hon. Member for Blaby on these occasions used to be "bravura". The performance of the Chancellor was much more "sotto voce", more of an Italianate tenor—a lightweight Figaro. That is how I would describe him, as a deft but lightweight Figaro whose bits of business—we all know what a great one Figaro was for bits of business—were not designed simply to enhance one's understanding of the piece, although it must be said that they were ingenious bits of business and brought cheer to some of the audience who feared that they might otherwise lose their seats. Nor were his bits of business even designed to take the action forward, which is always a good excuse for a bit of business in opera. No, on this occasion they were designed to keep the set from falling down on the heads of the players.
That was the point of all of those ingenious little steps, although some were large, histrionic steps—consider the hike in the rate of VAT. We shall remember that performance. However, the failure is a serious matter.
No, Brunhilde is in the past. She has had her day and has been disposed of in the most unpleasant and Wagnerian fashion. The Chief Secretary must not be naughty, although his role in those matters is suspected, if not known. I want us to consider the failure that necessitated the bits of business. One hundred business failures, 4,000 job losses and 150 house repossessions every working day: that is the extent of the failure. The CBI's optimism indicator—an interesting criterion by which to judge a Conservative Government—is at its lowest since 1980, at minus 51 per cent.
Moreover, we must not forget the figures that the Chancellor left out yesterday. Fixed investment, predicted last year to fall by 1 per cent., is now predicted to fall by 10 per cent. Manufacturing output, predicted last year to fall by 1 per cent., is now predicted to fall by 5 per cent.
What we encountered was a phenomenon to which Opposition Members have grown accustomed. We encountered it last year with the former Chancellor, the present Prime Minister; even the right hon. Member for Blaby was given to using this simple device from time to time when he had cause to do so. The device to which I refer is best illustrated by a comparison with a certain cynical, indolent servant of the state—a figure whom the Chancellor, whose love of the cinema is well known, is bound to recognise. Hon. Members will remember the part played by Claude Rains in the movie "Casablanca". Whenever things got out of control and he—through his own indolence or unwillingness—was not able to put them right, he would latch on to the device of rounding up the usual suspects. "Round up the usual suspects!", he would say, and a few tattered figures would be drawn from the casbah.
Hon. Members will remember the scene. Time and time again, throughout the movie, the same thing happened—and that is what has happened in successive Budget speeches over the years. Who, then, are the suspects? It seems that the basic cause of the problem is the same everywhere. We hear of cyclical influences, global phenomena and—I think that this is the best of all—recession, the inescapable feature of the market economy. That is rich, coming from a party that has told us year in, year out, to worship at the feet of this Moloch. "Round up the usual suspects!"
I was a little worried by the fact that, this year, the usual suspects appeared to be pretty thin on the ground. I see the Chancellor craning his neck to see what is coming next. After a while, of course, all the suspects disappear; they are not so obliging in coming forward. The Secretary of State for Trade and Industry and aficionados of late-night debate will recall his contribution last year, when he was, if memory serves me right, Financial Secretary to the Treasury. It was a startling contribution. This year, however, he was clearly a little concerned that the usual suspects would not be readily to hand. From an article in the Financial Times of Monday 11 March—and a good read it was——
—we were to discover a new batch of "usual suspects": highly unusual suspects, in view of the Conservative party's composition and policy. We were told that our problems arose because
"we have an over-developed finance function, vis-a-vis the production function."
We could have told him that. Indeed, the last time I saw that phrase used was in the New Left Review. The correspondent with the Financial Times felt obliged to point that out.—[Interruption.] I see that the Minister of State, Treasury read the same letter as I did.
Why should we be surprised that those views have been espoused? After all, the Conservative party chairman felt it necessary to refer to the interesting concept of the social market economy in no less a publication than Marxism Today. If that is the vehicle of the chairman of the Conservative party, why should not the New Left Review be something from which the Secretary of State for Trade and Industry culls his new ideas?
He went on to say—this is where the "usual suspects" appear—that
We have 120,000 accountants compared with 7,000 in Germany. The inevitable thing in a company dominated by financial people is an excessive preoccupation with succeeding in making deals rather than the predilection of the production manager and the engineer to proceed by organic growth.
We now have a new batch of "usual suspects"—accountants. If there is a profession more populous among the new breed of Conservative Members than estate agents, it is accountants. In their desperation, the Government have turned on the accountants. However, I do not want us to become too hung up on the accountants. We should look at what the engineers have said about the Budget.
I shall give way later.
The Chief Secretary trotted out a series of favourable reviews. However, he overlooked the review by Ian Thompson of the Engineering Employers Federation—an engineer. That will please the Secretary of State for Trade and Industry because he is not yet among the "usual suspects". That review said that the Budget was
not an adequate response to the problems of United Kingdom industry and does not address the problems of companies not having enough cash to invest for the future.
That was the judgment of the engineers. This afternoon, we heard the judgment of the accountants, and we all know where they stand on the issue. We must look to Mr. Thompson and the Engineering Employers Federation to find the true reflection of the Budget's worth.
Concern has been expressed by many hon. Members about the belief that the engineering and manufacturing industries were not getting the deal that they deserved from the Budget. The hon. Member for Saffron Walden (Mr. Haselhurst) rightly said that he believed that the Government might have difficulty in making stick the view that this was a Budget for business. At least he was frank. The hon. Member for Fulham (Mr. Carrington) was less frank. He said that there is no doubt that it is a Budget for business. There was an ambivalence on the part of Conservative Members, and with good cause, because the Budget does not meet—as we would have it meet—the deep-seated needs of the British economy.
In the Budget statement and the Red Book which supports it we find a number of unlikely assumptions and false forecasts that lead us to believe that the Budget is about electoral considerations and short-term political advantage rather than about meeting the immediate needs of our economy.
The Chancellor said in his Budget statement:
If I may confess it, I do not believe in miracles".—[Official Report, 19 March 1991; Vol. 188 c. 166.]
Remember the economic miracle to which my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) had cause to refer time and again? It is an albatross around the Government's neck. We are told that the Chancellor does not believe in miracles, yet we are asked
to believe in a Budget that is constructed around a number of assumptions whose plausibility looks dubious even now and will look increasingly dubious in future. The Budget deficit of £8 billion must be delivered without spending cuts in the next autumn statement. Inflation must fall to 4 per cent. by the fourth quarter of 1991, and interest rates must fall dramatically. All that must be achieved within the ERM and in an uncertain world.
If we are to achieve 2 per cent. growth between this summer and next, interest rates will have to fall and stay down. The United States economy will have to recover and drive world growth. United Kingdom companies will have to disavow reductions in investment, jobs and stocks. Will that happen? Will the hon. Member for Derbyshire, South (Mrs. Currie) take a vow of silence? Will the hon. Member for Billericay (Mrs. Gorman), who has gone off in a huff, suddenly convert to the command economy? Will it happen? Will it hell.
I promise that we shall hear the apologia for the accountants in due course.
We can therefore be forgiven for being somewhat sceptical about the assumptions that lie behind the Budget.
The hon. Gentleman's speech is more entertaining than enlightening. Why does he not recognise that three of his favourite foxes—child benefit, mortgage interest tax relief and the community charge—have been shot, leaving him bugling away to the empty air? Will he now tell us exactly what he would do?
I do not have a favourite fox, but those among my acquaintances are very fit and will yet outrun Conservative Members.
In the moments that remain to me, however, let me seize with both hands the opportunity to examine what we believe needs to be done. We have outlined it clearly enough, but I am only too happy to reiterate it. We believe that it is important that the Government should reverse the cuts that they have made in employment training and youth training. We are disappointed that all we had from them was the paltry £20 million-worth of allowances. [HON. MEMBERS: "Paltry?"] Yes, it is paltry when compared with I he £245 million that the Government have cut from the youth training and employment training budgets. That cut should be reversed. We believe that there should be a temporary work programme for the long-term unemployed and we have called for a specific programme to achieve that.
We believe that, in regard to child care and support for children and mothers, the proposals in the Budget about child benefit are completely inadequate. Child benefit should have been increased to £9·55 a week for all children and we entirely accept the point made most cogently by the right hon. Member for Chesham and Amersham (Sir I. Gilmour). It makes no sense to distinguish between the first child and any subsequent children. This year, a two-child family will lose £154·70 as a result of the Government's failure to upgrade child benefit.
We believe that more should have been done in relation to the environment. To describe what the Government have done as a green tinge is a misuse of language. The Government had an opportunity, which they failed to take, to begin to create conditions that would have a real impact on the misuse of the car through the use of differential VAT and differential vehicle excise licensing, but they failed to take that opportunity.
We believe that it is important to emphasis research and development and to use capital allowances imaginatively and progressively to achieve that end. That was the call made by the Confederation of British Industry and by the engineers.
This has been an enjoyable debate. It is some time since I had the pleasure of taking part in a Budget debate and this has been a spirited and delightful day. I very much enjoyed the speech made by the hon. Member for Brent, South (Mr. Boateng). It was strong on style although a bit short on content. It was good on opera and films, but a little light on economics. It may be a pedestrian view, but I believe that a debate on the Budget should at least touch lightly on economics at some point. None the less, the hon. Member for Brent, South made a very good speech and we all enjoyed it.
My right hon. Friend the Chancellor of the Exchequer has not been with us in the Chamber for much of this debate. However, I suspect that his ears were burning as a result of the large number of compliments that were paid to his Budget. I will spare his blushes by not listing all the plaudits.
Very well, I will. My right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) described the Budget as civilised and intelligent. Many of my right hon. and hon. Friends used other adjectives. Very few of my right hon. and hon. Friends found anything to cavil at in the Budget. It was slightly disappointing that the hon. Member for Hartlepool (Mr. Leadbitter) chose to describe it as a dog's breakfast. If that is right, it is some dog and it must be a very filling and nutritious breakfast.
To paraphrase my hon. Friend the Member for Saffron Walden (Mr. Haselhurst), he pleaded that we should be nice to manufacturing industry. I believe and hope that we are. Perhaps I can say something nice about one particular part of manufacturing industry which has been the subject of much comment—the car industry. The car industry did astonishingly well during the past year—[Interruption.] Opposition Members may laugh, but it is an important matter. They may like to listen. In the past three months motor vehicle exports from this country rose by 50 per cent. over the equivalent period a year before. Opposition Members may think that that is funny, but we think that it is to be commended.
My hon. Friend makes a very good point. Is it not a credit to the fact that Britain has been prepared to invite inward investment from Nissan, Toyota and so on? People are building cars in this country and exporting them to the European Community, and that plays a major part in closing the trade deficit with which we are currently wrestling.
My hon. Friend is entirely right to draw attention to the large amounts of investment coming into this country. Despite Opposition Members' efforts to talk it down, this country is now a rather good place in which to manufacture goods, as people outside the Labour party increasingly recognise.
I shall deal briefly with the speech of the hon. Member for Berwick-upon-Tweed (Mr. Beith). The main burden of his song seemed to be that we should hand over control of monetary policy to an independent central bank. That demonstrates in an aspirant Chancellor of the Exchequer a certain lack of confidence in his ability to control monetary policy. If there were ever the prospect of his being Chancellor of the Exchequer, the attractions of having an independent central bank might become rather more apparent.
The hon. Gentleman wants to hand over control first to the Bank of England and then to a European central bank. I am bound to say that that view does not command much support on this side of the House.
The hon. Member for Norwich, South (Mr. Garrett) referred, as did my right hon. Friend the Chancellor, to the erratic nature of some forecasts. The hon. Gentleman expressed a strong preference for private sector rather than public sector forecasts. That represents a damascene conversion to the merits of the private sector which is wholeheartedly to be welcomed.
My hon. Friend the Member for Twickenham (Mr. Jessel), who also spoke in complimentary terms about my right hon. Friend's Budget, rightly emphasised the importance of getting inflation down. That is the major theme of the Budget and of the debate. Unless we get inflation down we cannot build for growth and prosperity in the future.
Several hon. Members talked about local government, and properly so because it featured in my right hon. Friend's Budget statement. I must ask them to contain their impatience until tomorrow, in particular the hon. Member for Londonderry, East (Mr. Ross), who asked several specific points. Those points will be dealt with in due course, but I must ask the hon. Gentleman to contain his proper inquisitiveness until then.
In the Budget there are several tax reform issues which take forward the Government's firm commitment steadily to reform the tax system where necessary. There is a consultation document on foreign exchange gains and losses—not, I accept, a glamorous subject, but it is important—in which we present proposals that we believe will bring rationality to a difficult aspect of the tax code. We have also presented a consultative document on resident trusts. That is the outcome of a review that was announced by my right hon. Friend when he was Financial Secretary to the Treasury. Again, that document would rationalise the law in a way that will simplify it and make it more comprehensive and helpful. We proposed to bring forward a consultative paper on taxation of the self-employed. The present arrangements for taxing companies and the self-employed are complicated and inefficient.
We are already introducing a new system, "Pay and File", which will simplify the way in which companies pay tax. It is now time to streamline the arrangements for the self-employed. We propose changing one of the oddest features of the present system which is that in any year the self-employed are taxed on their profits in the preceding year. Under the new proposals, the self-employed would, like employed people or companies, pay tax for one year on the profits earned in that year. We believe that that would help to make the rules much simpler. We also have proposals to cut the regulation of the self-employed by the Inland Revenue, by giving the self-employed greater responsibility for settling their own tax, as happens in other countries. It will not be possible to implement the reforms for some years, but, if we are to take full advantage of the opportunity for radical and imaginative reform, we need to start planning for it now.
The Budget contained a number of proposals about deregulation of the tax system. Taxes inevitably place a compliance burden on taxpayers and it may frequently be necessary for businesses to play a role in administering the system to ensure that it is as cost-effective as possible. Periodically, we must look at ways of easing that burden where possible, and must always take into account the compliance costs when considering options for change. Of course, the best deregulatory measures are those that take people out of the tax system altogether. That is why my right hon. Friend the Chancellor announced a 40 per cent. increase in the value added tax threshold. It will mean that up to 150,000 firms will no longer have to register for VAT.
We have also reduced the burden of the tax system on small firms through our proposal to allow up to 700,000 small employers to pay their PAYE and NIC payments quarterly instead of monthly. That will help them by improving their cash flow—although I accept that it will do so only slightly—and by reducing their administrative costs.
Next year we shall increase the number of taxpayers who may submit simplified three-line accounts to the Revenue from 1 million to 1·5 million. Again, that means a substantial reduction in compliance costs for those in business.
My hon. Friend the Member for Bedfordshire, South-West (Mr. Madel) asked yesterday about the proposed tax relief on vocational training and whether it would extend beyond examination fees, and tuition and course fees. The relief is intended to be given at source. Repayment systems always cause delay and confusion, so we propose that tax offices will be involved only in reimbursing organisations that provide qualifying relief and individual taxpayers who are entitled to relief at the higher rate. Because it is relief at source, it is not possible to extend it to travel, subsistence or accommodation costs or to the cost of books or equipment——
I observed earlier that it seems unnecessarily harsh that married couples should not have any increase in their tax-free allowance. I was told during the debate that that hinged on child benefit, but I can scarcely believe it. Will my hon. Friend look again at this matter because we are the party of the family, and married couples should receive an increase in that allowance?
I am sorry that I missed my hon. Friend's speech. He is right that we do not propose to increase the married couple's allowance this year. My right hon. Friend the Chancellor decided that the benefit for families should be directed this year at families with children, and especially the first child. I know that that seemed eccentric to my right hon. Friend the Member for Chesham and Amersham, but the main cost on a family comes with the arrival of the first child because that is generally when the mother has to stop work and other costs arise. If it is desirable—as we believe that it is—to target help on families with children, almost by definition it is less sensible to give help by way of the married couple's allowance to families without children.
This is a Budget for business. That is not just a slogan; it has been recognised as such by everyone from the business world who has commented on it. It will cut the administrative burden of the tax system and will help the cash flow of businesses.
The Chief Secretary made no reference to expected levels of unemployment. I suspect that the Minister is about to finish his speech without making any reference to them. Within the context of its being a so-called Budget for business, will he comment on the fact that tomorrow morning British Aerospace will announce 3,500 redundancies?
Clearly I cannot comment on that, except to say that if it is the case., I regret it. Obviously we all regret any loss of jobs. We have been frank about unemployment. The economy is going through a recession and a difficult time and unemployment is increasing. My right hon. Friend the Chancellor said clearly that it will continue to increase for a time, but there is no forecast. There is nothing surprising about that. So far as I am aware, no Chancellor has ever made a forecast of unemployment.
The Budget will release new money for investment—money that would otherwise have been taken by the taxman. There has been a clamour from the Opposition for capital allowancs to be changed. They want a return to the 1970s when there were over-generous tax incentives for business investment. It was not necessarily good investment; indeed, it was often the reverse.
The present system allows businesses to decide for themselves how much to invest. Decisions are taken on economic and commercial grounds and are not driven by tax. More generous capital allowances would deliver a subsidy through the tax system. They can make a bad investment look like a good one. They can make investing in expensive machinery look more sensible than employing extra staff, even when commercially the opposite is true.
Changes to capital allowances could distort business decisions in favour of capital against labour. It sounds surprising that the Labour party should want a tax system that favours capital investment rather than employment. It is odd until we look at what happened in the socialist economies of eastern Europe. They, too, thought that investment in capital was an end in itself. We all know what happened there—massive inefficiencies, bloated heavy industries and inflexible economies. Capital investment in Yugoslavia in the late 1980s was running at 38 per cent. of gross national product, double the rate here. Investment is a means to an end, not an end in itself. The end to which it is a means is improving business performance and profitability and underpinning economic growth. That is why our approach encourages companies to take investment decisions on business rather than on tax considerations. That must be right.
Following the 1984 reforms, business investment grew dramatically. In the three years to 1989 investment grew by 43 per cent. to reach an all-time high. Despite the recession, business investment remains at historically high levels. When profitability starts to recover next year, companies will be well placed to benefit from the upturn in activity as inflation drops. Therefore, the Budget will encourage further investment—not any old investment just for the sake of it, but worthwhile investment justified on commercial grounds. It will leave businesses with more of their own money to invest as they judge right. It is worth repeating that my right hon. Friend has cut corporation tax for next year by a full 2 per cent. to 33 per cent., the lowest rate of corporation tax in the European Community and among the G7 countries. At the same time companies will be able to carry back trading losses against profits in the previous three years.
All those measures will provide extra money which would have been taken by the taxman and will leave it with the companies for them to invest, if they choose to do so. For all the sneering from the armchair managers in the Opposition, it is clear that those who are running businesses agree with our judgment that the Budget will benefit businesses by removing burdens and by increasing cash flow.
The right hon. and learned Member for Monklands, East (Mr. Smith) had a good joke about misdeclarations. We all thoroughly enjoyed it. But I suspect that he began to feel uncomfortable with it when his shadow budget came in for some scrutiny. My right hon. Friend the Chief Secretary asked him some searching questions about it, but he did not give any answers. I was rebuked in a previous debate for not giving way to the right hon. and learned Gentleman, but if I had time I would willingly give him an opportunity to set the record straight so that we could know the answers.
The shadow budget that the right hon. and learned Member for Monklands, East set out is the greatest case of a serious misdeclaration that I have ever come across. Either the figures are simply wrong and he would not raise anything like the money that he claimed from his measures, or he is short-changing people either by robbing those who have already received benefits of those benefits or by keeping the benefits of children——