Budget Resolutions and Economic Situation

Orders of the Day — Ways and Means – in the House of Commons at 4:31 pm on 22nd March 1993.

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[Relevant documents: European Community Document No. 4683/93, the Commission's Annual Economic Report for 1993, and the draft Decision adopting the Report.]

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Speaker of the House of Commons

I draw the attention of the House to the fact that I must impose a 10-minute limit on speeches between 7 pm and 9 pm.

Photo of Mr Michael Heseltine Mr Michael Heseltine President of the Board of Trade 4:40 pm, 22nd March 1993

The Budget sets in place one more step in our strategy for industry. When coupled with the autumn statement, it must be seen as a comprehensive response to our industrial needs. First, it provides a sound economic background against which our companies can more effectively enhance their competitiveness. Secondly, it backs our drive on the export markets. Thirdly, it addreses a range of specific measures that industry has raised with us. Fourthly, it recognises the vital role that small and medium-sized firms play in economic vitality.

No Government have done more to create a favourable climate for enterprise and wealth creation. Interest rates have been cut by 9 per cent. As a consequence, industry's costs have been reduced by £11 billion a year. The Government's privatisation programme is perhaps one of the most radical changes in the United Kingdom's economic and industrial structure since 1945.

In 1978–79, the nationalised industries received subsidies of some £2·2 billion in today's prices. In contrast, in 1990–91, the privatised companies paid £3 billion to the Exchequer. The privatised industries are achieving striking improvements in productivity. British Airways has increased its productivity by more than 20 per cent. The number of customers per employee in respect of British Gas has increased by about 19 per cent. Productivity at British Steel, which is now considered to be one of the world's most efficient steel producers, has increased dramatically. It now takes only 4·8 man hours to produce a tonne of liquid steel, compared with 13·2 man hours in 1979–80.

Those improvements in productivity have been passed on to consumers as lower prices and rising standards of service. Since privatisation, gas prices have fallen by 18 per cent. for domestic customers and by 40 per cent. for large industrial customers. Those industries are, in many cases, now acting as flagships for Britain in overseas markets.

During the Prime Minister's visit to India last month, British Gas signed an agreement with the Gas Authority of India enabling both companies to take gas from offshore Bombay and send it through a new distribution network to more than 60,000 offices, factories and homes.

In Argentina, British Gas has won a $300 million contract to replace the Buenos Aires distribution system. The company is working as far afield as Indonesia and Kazakhstan. It is developing the Uisker oil field in Tunisia and converting the German town of Spremberg to natural gas.

Since privatisation, Rolls-Royce——

Photo of David Winnick David Winnick , Walsall North

The Secretary of State has mentioned gas and electricity and there is much confusion in people's minds outside this place. Will the Government fully compensate pensioners, and particularly those on very low incomes, in respect of the imposition of VAT? Is it not necessary for the Government to be quite clear, before the vote at 10 pm, precisely what is to be done, bearing in mind the tremendous hardship and misery that so many people on low incomes already face when they pay their heating bills during the winter months?

Photo of Mr Michael Heseltine Mr Michael Heseltine President of the Board of Trade

Of course that is important and that is why the Chancellor of the Exchequer made the position clear in his Budget statement and why my right hon. Friend the Prime Minister built on what the Chancellor had said when he addressed the House last Thursday. I will return to that subject when I reach that part of my speech.

As I was saying, since Rolls-Royce was privatised in 1987, its share of the world civil engine market has risen from 10 per cent. to no less than 22 per cent. Its aero-engine order book has more than doubled and currently stands at £6·7 billion. More than 70 per cent. of its output is exported. Its industrial and marine activities are also world wide. It recently won power supply contracts worth £67 million in India and the subsidiary, NEI Parsons, secured a £100 million contract for turbines in Singapore.

Ten years ago, British cars were hardly seen on the streets of Tokyo. In 1991, Rover exported 10,000 vehicles to Japan. The company produced 395,000 vehicles in 1991, of which about 40 per cent. went overseas, the bulk to other members of the single market.

As I said in the House last week, British Telecom is now one of the world's foremost telecommunications companies. Last year, it won a £350 million contract to install a network for the New South Wales Government.

Our water companies are making formidable strides in overseas markets. Thames Water is expected to sign a contract for £450 million for a water supply scheme in Izmit in Turkey to build, operate for 15 years and then transfer the scheme to the Turkish Government.

Photo of Andrew MacKinlay Andrew MacKinlay , Thurrock

What about the unemployed in Dock road, Tilbury? What about real people?

Photo of Mr Michael Heseltine Mr Michael Heseltine President of the Board of Trade

I heard the hon. Gentleman say, "What about real people?" Does the hon. Gentleman believe that real people do not work for those real companies? What sort of real people does the hon. Gentleman have in mind if people who export for Britain and design and manufacture for Britain are not considered by the Labour party to be real people? I suppose that, in the language of the Labour party, the real people are those who disrupt industrial relations, try to undermine Britain and talk the nation down: the real people of the left; yesterday's real people.

Photo of Dennis Skinner Dennis Skinner , Bolsover

Will the right hon. Gentleman give way?

Photo of Mr Michael Heseltine Mr Michael Heseltine President of the Board of Trade

Here is one of them. One of yesterday's real people stands before us.

Photo of Dennis Skinner Dennis Skinner , Bolsover

As a matter of fact, I am making inquiries about today's real people. The Secretary of State knows as well as I do that the mining industry could do with participating in the exports to which he referred. After a 15 to 20 per cent. reduction in the value of the pound, we could be exporting coal and today's real miners could be taking part in that.

Will the Secretary of State tell us today that the 20 million tonnes of coal imported into Britain will be massively reduced and that he will launch an export drive for coal? If we are exporting all those things to all those parts of the world, why has there been a announcement today of an increase in the balance of payments monthly deficit of £1·3 billion?

Photo of Mr Michael Heseltine Mr Michael Heseltine President of the Board of Trade

I can help the hon. Gentleman. Yes, we can export coal the day that we produce it at a price which the export market will absorb. If the hon. Gentleman had put his mind years ago to advising his constituents about the productivity gains that we are beginning to see in the mining industry, we might not have these imports of foreign coal. The price that we have paid for the views expressed by the hon. Member for Bolsover (Mr. Skinner) and his right hon. and hon. Friends and their failure to bring home the realities of a competitive marketplace to the miners of this country is now being visited on those very people.

Thames Water, as I said, expects to sign a contract for £450 million. Anglian Water has won a stake in a winning consortium for a Buenos Aires water privatisation project. North West Water, in conjunction with an Australian engineering firm, has signed a contract for 100 million Australian dollars to improve water quality in Melbourne.

That is a remarkable transformation. Not only are those privatised companies no longer loss making, in tax terms, but they are paying large sums of money to the Exchequer. They are now winning for Britain in a way in which, for the past 30 or 40 years, we denied them the opportunity even to try to.

I am not sure whether the hon. Member for Dunfermline, East (Mr. Brown) is in his place at the moment.

Photo of Mr Rhodri Morgan Mr Rhodri Morgan , Cardiff West

I am grateful to the right hon. Gentleman for giving way before he goes off on one of those manic, last deckchair attendant on the Titanic performances. Does he not realise that the reason why the water companies are able to make flash investments in places such as Turkey and New South Wales has nothing to do with the technology which they have to offer? It has everything to do with the guaranteed and ludicrously high prices which they are allowed to charge by the over-generous terms on which they were privatised by the Government in 1989. As a result of having that guaranteed income, the companies can spend overseas the capital which they have accumulated from the ordinary water and sewerage users in the United Kingdom. It is capital which we, the taxpayers, have provided. It is nothing to do with the skills of the companies.

Photo of Mr Michael Heseltine Mr Michael Heseltine President of the Board of Trade

Here we have the revisited Labour party. This is the Labour party which does not want to see real people involved in making real products. We now have a new concept: if a privatised British company goes out and wins in the marketplace of the world, somehow it is doing so because it is taking on loss-making contracts. That is what the hon. Member for Cardiff, West (Mr. Morgan) said. British companies are not winning on their merits. They are winning contracts because, somehow or other, they are being artificially supported in the domestic marketplace.

What sort of message does the hon. Gentleman think that he is sending to countries that are considering taking British tenders? The message has come from the British Labour party that it is a giant fix—that these are not competitive tenders but have all been sorted out on the back of the domestic market by the British Government.

I hope that all those people out there who are selling for Britain are listening to this debate and to the support that they are getting from the Labour party in the House. Labour Members of the revitalised Labour party say that they are backing Britain. They are backing Britain everywhere except when it comes to winning contracts in the overseas marketplace. If the hon. Member for Dunfermline, East (Mr. Brown) were here today——

Photo of Mr Michael Heseltine Mr Michael Heseltine President of the Board of Trade

The hon. Gentleman should not worry: I shall get on with it. The hon. Member for Dunfermline, East said: The central questions are how we invest in people for the future, how we invest in industry and how we invest in the social and economic fabric of our country to ensure that we will have not only rising production in industry but rising standards of living."—[Official Report, 17 March 1993; Vol. 221, c. 296.] That was the great sort of interrogation to which the Chancellor and the Chief Secretary were subjected by the hon. Gentleman.

What is happening to improve the living standards? What are the facts? As a result of the changes which I have been talking about, real spending on the national health service in England has increased by 60 per cent. since 1979. There are 19,000 more doctors and dentists and almost 38,000 more nurses and midwives, and 45 per cent. more acute in-patients and day cases are treated each year.

Photo of Mrs Elaine Kellett Mrs Elaine Kellett , Lancaster

Real doctors, real nurses, real patients.

Photo of Mr Michael Heseltine Mr Michael Heseltine President of the Board of Trade

My hon. Friend is right: this is another example of real people doing real things because a Tory Government have made it possible.

The investment programme in the privatised water industry is heading for an additional £30 billion by the end of the century. There has been record public expenditure on roads and the urban programme has been transformed. The essence of the matter is that, while Labour Members continue to talk about these problems, the Tory Government continue to do something about them. There has been much comment about the Chancellor's commitment to extend VAT to fuel bills. That applies with a rate of 8 per cent. in the year starting 1994 and moves to the full rate in April 1995. The Chancellor made his position clear in his Budget speech. On Thursday, the Prime Minister told the House that there would be extra help for less well-off pensioners and other people on low incomes. They will get the extra help from next April before the higher fuel bills come in. That help will be additional to the future increases in pensions and other benefits which will take place automatically. Cold weather payments will also be adjusted to reflect increases in fuel costs.

I was intrigued to read in The Observer that the Chancellor and I were engaged in a furious row on the subject. Apparently, I was furious that I had not been consulted. Perhaps I may say a word about the matter. I was consulted in an orderly way. I made no protest, for the simplest of all reasons—I shared the Chancellor's judgment that it was necessary to raise taxes in the Budget.

Of course any tax increases are likely to be difficult, but, frankly, I am not prepared to cop out of the difficult tax decisions on the most contemptible of arguments—that I agree with what the Chancellor is doing in principle, but I disagree with some specific examples of the difficult decisions which he must take. That is the sort of stuff of which Opposition arguments are made. That is the sort of argument which the Labour party relishes. Indeed, it is the sort of argument which keeps Labour Members pinned to the Opposition Benches.

Why did not The Observer take the trouble to check the facts about this great row between me and the Chancellor? It cannot be because it did not know exactly how to get hold of me. That cannot be the case, because I received a telephone call from The Observer on Saturday wanting to take my photograph. The House will be delighted that I turned down that extremely generous offer. If the picture editor of The Observer knows how to find me, is it too much to think that the serried ranks of industrial and political correspondents somehow cannot manage the same trick—or were they frightened that, if they put to me the straight question, they would get the truth and the truth would deny them any sort of headline at all?

I can see that this will be the revisiting of the inglorious past of the hon. Member for Livingston (Mr. Cook). This afternoon he will be in his element. If ever there was a story tailor-made for the hon. Gentleman, this is that story. There are millions of pensioners to frighten and spectres of ill-health and hardship to conjure up. The hon. Gentleman knows the arguments backwards, because, over the years, he has invented most of the arguments backwards. He is the seasoned practitioner on whom all those people out there will wish to make a judgment.

In The Times of 14 December 1987, the hon. Gentleman described the Government's intentions as to leave the NHS as a ghetto service for those who are too poor to afford anything better". In The Times of 1 February 1989, he said of GP budget holders: For the first time, GPs will have an incentive to turn away patients with a high price tag, the elderly, the disabled and the chronically sick. In The Independent of 5 October 1990, he spoke of an NHS in which pensioners queue up for their operations in an end-of-season sale". What happened? All the trusts are still in the public sector, and 1 million more patients are being treated than when the hon. Gentleman was making his statements.. The hon. Gentleman is a man with a record. He has been through it all before. He should be judged by how true it all turned out to be.

I took a little time off last Wednesday to listen to the hon. Member for Dunfermline, East, and I am glad to welcome him to our deliberations today. Some of us had the privilege to watch him. He was at his most ferocious. Psychologically, the red flag was up—I see that it is round his neck today. Red blood was flowing all over the carpets as he ended his speech with these fighting words: There is no one left for this Government to betray; they have no credibility in this country. The electorate will never trust them again. If Britain is to have a new start, it will need a new Government—and that will be a Labour Government."—[Official Report, 17 March 1993; Vol. 221, c. 298.] Trust a Labour Government! In September 1964, the Leader of the Opposition, Mr. Wilson, said: Over the period of a Parliament I believe that we can carry out our programme without any general increase in taxation. When that Government left office, they were collecting £2 for every £1 collected when their promise was made. In the same election campaign, the late George Brown[Interruption.] Oh yes. Opposition Members may laugh now. I know that it is a long time ago, but it is a long time since we had a Labour Government. The reason why it is a long time is because the Labour party said these preposterous things and was found out.

The late George Brown said: For new mortgages we have something in mind of the order of 3 per cent. By the time that Government left office, mortgage rates were 8·5 per cent. By the late 1960s we had the then Prime Minister, Lord Wilson, proclaiming on 17 April 1969: The Industrial Relations Bill is an essential Bill, essential to full employment and essential too for the Government's continuation in office. On 18 June 1969, the Bill was withdrawn from the legislative programme.

For those who are interested in the flights of fancy of the hon. Member for Dunfermline, East about trusting a Labour Government, what about all the bravura claim in October 1964: Labour will abolish poverty in Britain"? Six years later, the Child Poverty Action Group had sadly to conclude: in many ways the plight of poor families is now worse than when the Labour Government took office. Worse it was, worse and always it will be. Trusting the Labour party is not a matter of investing in risk. It is a matter of investing in certainty. All out. All up. All over.

The hon. Member for Bolsover asked a question about coal. I recognise, as will the House, that there has been much speculation in recent days about the coal contracts. Some progress has been made in respect of the base contracts. Work has continued now through several weekends. I hope that I am about to be able to report on the position. I hope that I may be able to do that in the not-too-distant future. However, as I have said many times, I have no powers to make people sign contracts. In the meantime, I have agreed that British Coal can extend the redundancy terms until the end of December this year.

Increases in productivity are often accompanied by falls in employment. We have had to face that problem in the coal industry over many years. But we are familiar with the general trend throughout manufacturing industry. Indeed, manufacturing employment peaked as far back as 1966. That phenomenon is not confined to the United Kingdom. Some decline in employment in manufacturing is evident in most industrial countries.

Increased competition and continuing technical progress mean that many firms will reduce employment to stay competitive. That does not mean that those firms are in difficulties. Far from it. The vehicle industry in the United Kingdom is producing 300,000 more vehicles a year than 10 years ago, but it employs 100,000 fewer people. The paper, printing and publishing industries increased their output by more than a quarter between 1980 and 1991, but employment fell by 12 per cent.

In many industries, successful firms are cutting jobs as they invest for the future to stay ahead of the competition. New firms and new businesses were the key to employment growth in the 1980s and they are undoubtedly the area of the economy to which we must look for new jobs in the future. We have been more successful in job creation than other European Community countries. The work force in employment grew by almost 1·5 million over the last economic cycle, between 1979 and 1990, so it is of critical importance that we recognise that every degree of support that we can give to new companies is most relevant to creating new jobs and new opportunities in our economy.

The next matter of dramatic importance in what we seek to achieve and must achieve is support for our export companies. Our companies know that there is no such thing as a secure market. Overseas firms face the same pressure to win as we do. We are pushing forward with fresh initiatives to help exporters.

Last November the Minister for Trade announced an export strategy to maximise our strengths and minimise our weaknesses. I have invited British companies to second to my Department 100 men and women to help us in the promotion of our exports. I am extremely gratified by the response that I am achieving. I believe that we shall have 100 such people by the summer of this year. That will give us experts with first-hand knowledge of overseas markets who will aim to identify and promote opportunities to help our companies to fulfil their potential.

Photo of Mr John Townend Mr John Townend , Bridlington

I am sure that my right hon. Friend agrees that our exporters are doing a fantastic job, but is not the United Kingdom's problem the fact that we import too much? Do we not have a cultural problem? A large part of the British buying public still believes that it is smarter or better to buy foreign, even when British goods are competitive and of the right quality.

I give my right hon. Friend an example from my constituency. I represent more pigs than people. We produce the finest pigmeat in the world. British charter bacon is of top quality and is internationally competitive. Yet 50 per cent. of the bacon bought by housewives is from Holland or Denmark. Is not that a national disgrace?

Photo of Mr Michael Heseltine Mr Michael Heseltine President of the Board of Trade

I understand my hon. Friend's anxiety. That is why I was delighted to notice the seminar which my right hon. Friends the Prime Minister and the Minister of Agriculture, Fisheries and Food, with leaders in both the retail and producing sectors of the food industry, held recently to address some of those difficult issues. As my hon. Friend says, that part of our economy is particularly important because it represents one of the largest deficits in our balance of trade.

The Budget of my right hon. Friend the Chancellor of the Exchequer will help business build on the achievements of the 1980s. It will promote the economic recovery by providing concrete benefits for business and a stable framework for business decisions. His Budget has successfully combined three aims, at least two of which were widely said to be incompatible before he rose last Tuesday and showed how it could be done. His Budget has avoided damaging the inevitably fragile early stages of recovery; it has achieved a substantial improvement in the public finances into the medium term; and it has done all this while keeping inflation within clearly defined limits. All three aims, and especially the continued control of inflation, are of vital importance to business.

We now hear less than we did two or three years ago about short-termism as a feature of our industrial and commercial life. To a large extent, this is because we have got inflation down, yet I do not doubt for one moment that deep-seated short-term attitudes are prevalent in our affairs; or that this is one important strand in understanding why we as a nation have performed less well than many of our competitors.

Such attitudes have led us to invest less than we might in technology and advanced means of production. They have encouraged growth in companies by acquisition and financial engineering, rather than through organic development and building on products and markets. They have led us to place far too great an emphasis on comparisons of near-term financial results in judging our companies, instead of considering the strength of management and its underlying strategy.

Those attitudes are all of a piece. They reflect much that is cultural, and they can be changed only slowly. But they have one great mechanism of reinforcement—inflation. Inflation is an evil which narrows the focus of attention into the short term. Inflation must be kept low in the years to come if our performance is to be improved. The Budget measures will reduce burdens on business by £1 billion in the year ahead. They will assist small and medium enterprises to do what they do best—create the wealth on which the rest of the country depends.

Photo of Ms Liz Lynne Ms Liz Lynne , Rochdale

On that specific point, can the President of the Board of Trade say why the Chancellor did not introduce a statutory requirement to pay interest on late payment of debt? That would have helped small businesses considerably.

Photo of Mr Michael Heseltine Mr Michael Heseltine President of the Board of Trade

We have no doctrinal view on that measure, but there are many doubts about whether it would have the effect that the hon. Lady suggests. We have discussed the matter. My noble Friend Lady Denton has exercised significant influence on late payment of debts. There has been a substantial improvement in the rate of payment. Not the least reason for that is that the Government have paid their bills in a timely way and encouraged large companies to do the same. My noble Friend has made it clear that she will take up specific cases if they are drawn to her attention.

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

I wish it were true that Government Departments had been settling their bills promptly. The Public Accounts Committee took evidence from the Property Services Agency, which was only paying when it received payment, and I shall shortly be criticising that strongly.

Photo of Mr Michael Heseltine Mr Michael Heseltine President of the Board of Trade

I fully acknowledge the high position of responsibility that the right hon. Gentleman has in our affairs. If he has examples that my Department should explore, I assure him that we shall do so, as that is an important matter. We have tried to do what we can to speed up payments, but we are aware that a statutory process might not improve matters in the way that people think, and have therefore hesitated to move in that direction.

For the second year running, no business will face a real increase in its rates bill. The package of value added tax measures introduced by the Chancellor will also be welcomed by every small firm. Finance for small businesses—a subject of great concern—will also be given a boost by the changes in premiums and loan size limits, under the small firms loan guarantee scheme. I have no doubt that my right hon. Friend the Chancellor has thrown a challenge to the banks. The Government have taken an initiative and it is now up to the banks to judge business plans and to make their loans in a way that will help businesses to grow.

The changes to capital gains tax will encourage reinvestment by not penalising those who use their profits to start another business.

I have referred to the need to help exporters. We are making available an additional £1·3 billion of cover for key markets. Together with the changes in the autumn statement that will mean that annual cover for United Kingdom exporters in priority markets will have increased by more than 75 per cent. in just four years. Premium rates have also been cut and are now more than 25 per cent. lower than in 1991–92. Those reductions will bring the average level of premiums charged in the United Kingdom down to around the average charged by the United Kingdom's competitors.

The Chancellor announced a special scheme in the Budget to help persuade foreign-owned companies to choose the United Kingdom as a location for international headquarters companies. The present advance corporation tax rules are an obstacle to their doing so. The new rules, which will be implemented next year, will remove that obstacle, which should attract new business to the United Kingdom, and bolster London's role as Europe's premier financial centre.

I know that oil companies have always recognised the responsiveness and stability that our North sea tax regime offers. However, the petroleum revenue tax regime was introduced in 1975, with the last substantial amendment in 1983. In keeping the tax system under review, it was important to keep in mind the fact that the North sea was maturing as an oil province—new fields tend to be smaller, and older fields are gradually declining. The Chancellor has now reduced petroleum revenue tax from 75 to 50 per cent. for existing fields from 1 July 1993, and abolished the tax for future fields given development consent on or after 16 March. The Chancellor's proposals move the North sea from a high-tax to a low-tax regime.

Conditions for recovery are in place. The United Kingdom has the lowest inflation rate for 25 years; the lowest interest rates since 1977; and the lowest base rates in the European Community. Interest rates have fallen by nine percentage points since autumn 1990, knocking £11 billion a year off industry's costs.

We have a fiercely competitive exchange rate; a set of Budget measures to boost confidence and stimulate growth; and confidence is rising. The Confederation of British Industry, the chambers of commerce and the Institute of Directors show rising confidence in their surveys. Retail sales are at record levels; car sales are up sharply; manufacturing investment in the fourth quarter of 1992 was up by 5·5 per cent. on the start of the year; the increase in average earnings is the lowest for 25 years and we expect a further decline in the coming months.

Rapid productivity growth means that United Kingdom manufacturing unit wage costs are lower than those in Germany or Japan, on recent OECD estimates, and they have fallen during the past 12 months. However, further pay restraint is vital to maximise the competitive advantages of sterling depreciation. This month's fall in unemployment is welcome, but too much should not be read into one month's figures, as the fall might not be immediately sustained and it may be some time before the underlying trend takes a downward turn. Unemployment is likely to be one of the last indicators to respond to any recovery in the economy.

Exports and productivity are at record levels and Britain is moving ahead. British business now has clear advantages in competing in the rest of the world.

Photo of Anthony Steen Anthony Steen , South Hams

While I agree with all that my right hon. Friend is saying, does he agree that the rules and regulations affecting small firms prevent them from competing with other countries on that famous level playing field? Something needs to be done to reduce the number of rules and regulations affecting small firms. Can he tell the House what the deregulation unit is doing about future and existing regulations, which are preventing the recovery that small firms so badly need?

Photo of Mr Michael Heseltine Mr Michael Heseltine President of the Board of Trade

As my hon. Friend knows, we have started to review proposed regulations and those already on the statute book and are applying the review to domestic and European Community regulations. We have been fortunate in securing the services of Lord Sainsbury and those of various other chairmen and significant figures from the private sector, who have helped us to establish seven task forces, to consider the 7,000 existing regulations, which obviously create the climate in which industry has to operate. I shall report to the House as progress takes place.

Photo of Mr Michael Heseltine Mr Michael Heseltine President of the Board of Trade

I shall not give way.

I assure the House that in all those ways the Government will play their full part to help the private sector in difficult circumstances.

As I told the House in a recent debate, we live in a competitive world. As we export such a high proportion of our output, it is impossible to believe that we can operate as an island economy. We are broadly comparable with many economies in the world. During the past year industrial production has fallen by 2 per cent. in Italy, by 2·5 per cent. in France, by 6·5 per cent. in Germany and by 7 per cent. in Japan, but in this country industrial production has risen in that period.

Japanese gross domestic product fell by 0·75 per cent. in the second half of 1992, output fell in France and Italy and there were three successive quarters of decline in Germany. Since 1981—the trough of the last recession—United Kingdom manufacturing output has risen by more than a fifth, manufacturing investment is up by nearly two fifths and manufacturing productivity by two thirds. Our export volumes are at an all-time high and by the end of 1990 there were about 400,000 more businesses operating in this country than in 1979.

The underlying strength of our manufacturing base can also be seen from our ability to attract inward investment. In 1991, we attracted one third of all inward investment into the European Community.

So, as we have said many times, despite the severity and length of the recession, Britain is in a strong position to take advantage of prevailing domestic and world economic circumstances. That can be done only by making this country's economy competitive, which can be achieved only by the relentless grind on costs and the pursuit of improved quality.

The Opposition are incapable of understanding those arguments, and view the British economy as an island apart from international pressures and the international marketplace. They keep peddling their view of an industrial strategy, which is simple and based on clear but irrelevant ideas: higher taxes to finance higher public expenditure; bigger training budgets; pushing up education standards; helping workers with statutory rights; and embracing the social chapter. They have pursued all those ideas in France, where their income taxes are higher and their education system renowned. They have extensive public ownership and have turned the social chapter into a Domesday book. What has happened under one of Europe's most substantial socialist Governments? The people living under it are sick to death of what is happening.

The French election result, if replicated in this country, would take a scythe to the parliamentary Labour party. It would be down to a rump of about 10 people; the impregnable Labour strongholds might be all that would be left if we had a Labour socialist Government. What would that Government look like? Perhaps the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) would be Foreign Secretary; the hon. Member for Rhondda (Mr. Rogers) would be Chancellor of the Exchequer; the hon. Member for Liverpool, Riverside (Mr. Parry) would be Home Secretary; and presumably there would be an early return to the Front Bench for the right hon. Member for Islwyn (Mr. Kinnock) as Secretary of State for Wales. We could count on the fact that the hon. Member for Bolsover would be there clambering on to any convenient barricade, searching for a starring role in "Les Miserables". What a brilliant piece of casting that would be, but it would be casting in the world of make-believe. The Budget contains real policies for the real world; I commend it to the House.

Photo of Robin Cook Robin Cook , Livingston 5:19 pm, 22nd March 1993

For the second time in a fortnight, the President of the Board of Trade has used a speech on the economy to make a statement on his energy review. For the second time, the statement that he made about that review consisted of things that he cannot do to save coal pits. The nation is tired of hearing what he cannot do to help the miners; what we are still waiting to hear, after six months, is what he will do to help them.

Every time the right hon. Gentleman rules out another solution to the problem, as he did today, he confirms what we have always warned about: that the immense flaw in the structure of that review is that the man in charge of finding a solution that avoids closing the 31 pits is the same man who thought it was the right course in the first place. I must warn the right hon. Gentleman that he is coming dangerously close to admitting that he has wasted six months in coming to the conclusion that he was right all along and everybody else was wrong.

If the President of the Board of Trade wishes to be remembered as the man who closed down Britain's coal Industry, the Chancellor will be remembered for his 1993 Budget. It was quite the most dramatic Budget since 1988, when Lord Lawson eyed up a overheated economy and poured petrol over it, creating a rip-roaring runaway boom which burnt itself out and left his successors sitting among the ashes—except for the President of the Board of Trade: he does not notice them.

As I listened to right hon. Gentleman's speech, as he fumbled among the ashes of the Government's industrial and economic performance, I heard him describe them as a bonfire of success. I started to convince myself that the trade gap must be a statistical error, that job losses from companies and manufacturing industry are a sign of their success. I must say that I was saved from giving in to the right hon. Gentleman once his speech finally orbited out of touch with ground control and reality and he blamed my hon. Friend the Member for Dunfermline, East (Mr. Brown) for the 1964 Labour manifesto.

I admire my hon. Friend and I have known him for 25 years—he was precocious even then, as a student—but I must admit to the right hon. Gentleman that, having known my hon. Friend that long, I know that he did not write the 1964 Labour manifesto. I predict that, 30 years from now, my hon. Friend will be sitting below the Gangway dignifying the Labour Bench and recalling to the House how the 1993 Budget swept him into the Treasury and Labour into office.

What makes this Budget dramatic is the admission of the damage the Government have done to the economy. No plea of guilty has been entered, and nobody has even said sorry, in three days of debate. No request has been made for 14 years of other offences to be taken into consideration.

But the admission was there in the lengthy speech of the Chancellor, which revealed the embarrassing and painful decisions forced on him by the severity of our economic recession. It is there in the thick Red Book that charts the bleak economic problems of the future. It was there in the admission of the damage that proved the curtain raiser to the Budget—the report specially commissioned by the President of the Board of Trade, which was leaked to The Sunday Times the Sunday before the Budget.

That report, from the competitiveness unit of the DTI, said that our industrial base is fundamentally weak, that our trade deficit will last for decades and that, instead of putting in place the conditions for recovery to which the right hon. Gentleman has referred, the Government have put in place low investment and low skills in industry.

Many Opposition Members share the distress that the right hon. Gentleman must have felt at people employed by the Government talking Britain down in that way. For that reason, last week, I asked the right hon. Gentleman to publish that report in full, or at least put a chained copy in the Library. He said that he could not publish it because "the report clearly reveals the devastating inheritance of 1979".—[Official Report, 17 March 1993; Vol. 221, c. 282.] That is why he could not publish it. He does not want to embarrass us; he wants to spare our feelings. I must say that that is not a sensitivity I had associated with the right hon. Gentleman before.

We know what the inheritance of 1979 was. It was manufacturing investment at 3·9 per cent., of GDP, a level the Government have never once returned to in 14 years in office. The legacy of 1979 was a surplus of £2·5 billion in manufacturing trade compared with a deficit of £7·5 billion last year. The legacy of 1979 was an unemployment rate of 1·1 million, which the Government have turned into an unemployment level of 3 million—and never in one month, in 14 years, have they got unemployment back to the figure with which they started. That is the inheritance of 1979.

The reason that the President of the Board of Trade is afraid to publish that report and shrinks from doing so is that it spells out the legacy of 1990, which they inherited from themselves. It confirms that, after 14 unbroken years in office, they have achieved industrial production with the lowest growth rate in Europe except for Greece, a manufacturing investment level lower than when they started in 1979, and a proportion of the work force with skills at half the level of other countries. That is the background aganinst which this Budget must be judged.

Photo of Mr Keith Hampson Mr Keith Hampson , Leeds North West

The hon. Gentleman is always very selective with his memory. Does he not remember that, in 1978, the previous Labour Government, against a backdrop of doubling unemployment and the collapse of manufacturing industry, commissioned the Finniston inquiry, which highlighted all our long-term failings to compete with our continental partners in the manufacturing and engineering industries?

Photo of Robin Cook Robin Cook , Livingston

My breath is taken away from me when I hear a Conservative Member complain that the previous Labour Government doubled unemployment. When they left office, the unemployment rate stood at 1·1 million and was coming down; the Government have twice taken it up to 3 million.

If the hon. Gentleman wishes to accuse me of selective use of statistics, it is particularly interesting that, in his selective use of them, he did not choose to express concern about the 68 per cent. rise in unemployment in his own constituency since the Prime Minister took office. If he is worried about rising unemployment, why does he not do his constituents the justice of expressing some concern on behalf of the 3,000 constituents who are now unemployed?

Photo of Robin Cook Robin Cook , Livingston

With respect to the hon. Gentleman, in the event that we have the wrong figure, I assure him that I will give him the correct figure very shortly.

We have dealt with the inheritance of 1979 and 1990. What this Budget must be judged against is the background of 14 years in which the Government have run down industry. Judged against that background, the Budget fails to meet the test of what is needed by industry. Industrialists have already returned their verdict. Neil Johnson, the director general of the Engineering Employers Federation, said: This Budget does nothing to bring about the massive switch to investment which is essential for lasting recovery. The representatives of the Machine Tool Technologies Association have said: This Budget fell short of directly encouraging UK companies to invest. We do not need to look outside the Government for those who tell us that the Government's policies in the Budget are failing industry. We can see the verdict returned in the Red Book. We only have to look at the contents of the Red Book to see the extent to which the Budget does not stimulate industry. My hon. Friends should handle the Red Book with caution, as it has never yet got it right. It has always erred on the side of unsupported cheerfulness and presented a best case scenario. Whatever the Government say in the Red Book, experience always turns out to be worse than the promises, which are bad enough.

If the President of the Board of Trade wishes to tackle me about talking Britain down, he should note that it was not me who made the forecasts—they were deposited by the Economic Secretary. If the President fears another fit of moral indignation coming over him about people talking Britain down, he should take out his feelings on the Economic Secretary instead of me

Before I turn to the financial statement and the Red Book I shall correct the hon. Member for Leeds, North-West (Dr. Hampson). He was wrong—the increase in unemployment in his constituency since November 1990 is 68 per cent., and unemployment currently stands at 3,264. I now fully understand why the hon. Gentleman did not refer to unemployment in his constituency—he does not even know the unemployment figures for his constituency.

Photo of Robin Cook Robin Cook , Livingston

No, I shall not give way to the hon. Gentleman, as it was perfectly clear that I was referring to the increase in unemployment since November 1990. If the hon. Gentleman does not know the increase in unemployment in his constituency since November 1990, I suggest that he does us all a favour, returns to the jobcentres in his constituency tonight and gives us an extra chance to beat the Government.

Photo of Mr Keith Hampson Mr Keith Hampson , Leeds North West

On a point of order, Mr. Deputy Speaker. For the record of the House, the hon. Gentleman chose a particularly——

Photo of Mr Geoffrey Lofthouse Mr Geoffrey Lofthouse , Pontefract and Castleford

Order. What is the point of order for the Chair?

Photo of Mr Keith Hampson Mr Keith Hampson , Leeds North West

For the Official Report to be accurate, I should say that the hon. Gentleman chose a particularly good year, when unemployment was low.

Photo of Mr Geoffrey Lofthouse Mr Geoffrey Lofthouse , Pontefract and Castleford

The hon. Gentleman knows full well that that is not a point of order for the Chair.

Photo of Robin Cook Robin Cook , Livingston

I chose the month in which the present Prime Minister took office, which was not a particularly good month for Britain, but that was the base that was inherited.

Photo of Robin Cook Robin Cook , Livingston

I am sorry to disappoint the hon. Gentleman, but we cannot have a private conversation; I must return to the debate.

The Red Book shows that, in 1993 business investment is expected to fall for the fourth successive year. Ours is the only country in Europe in which business investment will have fallen for four consecutive years. Other countries worry about recession when the rate of growth in investment is not as fast as usual. The Government are so desperate that they claim a recovery when the rate of decline in investment is not as fast as usual.

According to the Red Book, the consequence of the decline in business investment means that, in 1994, manufacturing output will be growing more slowly than in the rest of the economy. Since 1990, manufacturing output has collapsed faster than the rest of the economy. Now that the Government are claiming recovery, the growth in manufacturing output is expected to be slower than the rest of the economy. So much for the Prime Minister's passionate belief in expanding the manufacturing sector. According to the Red Book, the manufacturing sector will continue to decline as a proportion of gross domestic product.

Any lingering hope that the Budget is a Budget for industry or that the Government believe that their Budget will stimulate industry vanishes when one turns to the Red Book predictions for the balance of payments. We already have a ballooning trade deficit of more than £1 million for every hour. The Red Book admits that that deficit will swell by half as much again. What is damning about the failure of the Budget to expand industry is that all that increase occurs in the manufacturing deficit. In 1993, the deficit in manufactured trade is expected to be as big as the deficit for the past two years added together—that is the measure of the Government's 14 years of failure.

I notice that no Conservative Member is rising to ask about the Labour Government's record on manufacturing trade, and I know why. It is because they know that, in every year under the last Labour Government, there was a surplus in manufacturing industry. That is the inheritance that the Conservatives have squandered.

Unlike the President of the Board of Trade, I do not believe in for ever talking down our inheritance. Britain has much to be proud of in its past. It should be proud of its inventions and the technology that it has given the world.

In the two centuries since the industrial revolution, Britain has repeatedly led the way. It led the way in railway technology. We had a surplus in the trade of railway vehicles until 1979, when it stood at £260 million. Under this Government, for the first time, we have a deficit in the trade, of railway vehicles of £57 million. The pneumatic tyre was invented in Britain by John Dunlop, and we had a surplus in the trade in tyres until 1979, when it was £90 million. We now have a deficit of £38 million. The vacuum cleaner was invented in Britain and we had a surplus in the trade in vacuums until 1979, which has now, under the Government, been turned into a deficit.

I go some way to agreeing with the President and say that we should stop talking down Britain's proud past. We should start pinning the blame on the people who have pulled Britain down and turned our trade success into trade failure.

A fortnight ago, when the President was accusing me of talking down Britain, he produced as evidence of the recovery and the good things about Britain, which he said that I did not mention, the 400,000 small businesses that had started up and said: It is from the small and medium-sized company sector of the economy that jobs come". The right hon. Gentleman was so proud of that figure that he repeated it again at Question Time last week.

The President is right to say that small and medium-sized enterprises are a vital source of innovation. He was also right in that, last year, 445,000 small businesses opened bank accounts for the first time. What the President did not tell the House was that, in the same year, 570,000 small businesses closed their bank accounts for the last time, and 125,000 more small businesses folded than started last year.

The right hon. Gentleman invited the House to congratulate the Government on their record in a year in which the number of small businesses that folded rose by 4 per cent. Is that the best that he can do in trying to talk up the Government's record—to admit that it is from the small and medium-sized company sector of the economy that jobs are disappearing?

Last Tuesday, Budget day, a bumper 110 of those small and medium-sized enterprises were advertised as going into liquidation, 19 of them in the manufacturing or engineering industry. They included MET Plastics in London, which were toolmakers and moulders. When asked why, the company said: Bad debts and the length of the recession". HEE Equipment in Leeds made engineering machines, and when it was asked why it had folded, it said that it was because of bad debts. It was forced to make 100 people redundant. Hi-Spec Engineering in Nottingham made powered platforms and said that it had closed due to The economic recession which resulted in an extended period of losses. Action Work Force of Batley provided personnel to factories, and at one time employed 150 people in Batley. It failed because business in the factories "dried up".

When we rang up the companies, not one of them slammed down the phone accusing us of talking Britain down. Oddly enough, not one of those companies blamed the closures on the legacy of 1979 or mentioned how encouraged they were by the evidence of recovery around them. The President spent much time spotting that recovery. I understand that he is a noted bird fancier——

Photo of Robin Cook Robin Cook , Livingston

I am grateful to my right hon. and learned Friend—bird watching is not one of my sports. I understand that powerful binoculars are standard equipment in that sport. I warn the President that he should put aside those binoculars when he scans the economic indicators for signs of recovery that are not visible to the naked eye.

If the President wants to talk about recovery, I shall tell him what the Opposition understand by the word "recovery" and what they accept as its definition. Recovery will be achieved when unemployment falls to the 1·1 million figure that the Government inherited from us in 1979. When they obtain that figure, they can start to talk about improving the economy.

There is something much worse than talking Britain down—cheating. That is the next feature by which this Budget will be remembered—as an admission that the Government failed, and as an admission that they cheated.

The right hon. Member of Shropshire, North (Mr. Biffen) was the first Conservative to speak after the Budget speech. I have a great deal of regard for him; in the past, he and I have occasionally found ourselves on the same side of an argument. But on this occasion I was stunned to hear him say: I am happy to stand here, shamelessly, as a taxing Tory."—[Official Report, Tuesday 16 March 1993; Vol. 221, c. 202.] "Shameless" is probably the correct word in that sentence, because I have looked at the right hon. Gentleman's election address for Shropshire, North. He did not stand there then as a shamelessly taxing Tory—quite the reverse. What he told the good people of Shropshire, North was: There is a strong need to be modest about election promises. They all have to be paid for with your money. As ever, I shall bear that strongly in mind. What the right hon. Gentleman said in his constituency was the very opposite of coming here as a taxing Tory. I travelled up and down the country throughout the last general election, and I did not find a single taxing Tory anywhere in Britain at the time. The Tories fought the last election on the single proposition that they would cut taxes and Labour would put up taxes.

No one expressed this election strategy more succinctly than the President. In Corby on 21 March 1992, he said: This election in the first week is about tax. In the second week it is about tax. And in the third week it is about tax. And if Labour were to win this election the next five years would be nothing but tax. This from a man who sits in a Cabinet that has presented us with the biggest tax increase of any Budget in history. The party that promised year-on-year tax cuts has become a Government delivering year-on-year tax rises.

Photo of Mr John Townend Mr John Townend , Bridlington

I note the hon. Gentleman's opposition to tax increases. He will know that I am not in favour of high taxes, but does he accept that we have a major problem with the Budget deficit? It can be dealt with, but spending will have to be cut, or taxes will have to go up—or a combination of these. What spending reductions does the hon. Gentleman want in place of the Government's tax increases?

Photo of Robin Cook Robin Cook , Livingston

What the Chancellor said at the general election was that he could foresee no circumstances in which he would have to extend VAT—but the hon. Gentleman may be ahead of the Chancellor. He may have been smarter and more far-seeing than the Chancellor. He may even have been more honest with his electors, so I invite him to point out to us the passage in his election address that mentioned that there was a severe problem with the public sector deficit and that it would be necessary to increase taxes when the Tories returned to office after the election. If he can do that, we will treat his intervention seriously——

Photo of Robin Cook Robin Cook , Livingston

I look forward to hearing the passage in question.

Photo of Mr John Townend Mr John Townend , Bridlington

I did make it quite clear in my election address that I believed in sound Government finance. [Laughter.]

Photo of Robin Cook Robin Cook , Livingston

I am sure that the good people of the hon. Gentleman's constituency read that on the assumption that they did not need to expect a swingeing tax increase from him—not even those numbered among the increase of 83 per cent. in unemployment in his constituency since the Prime Minister took office.

I seem to remember a poster from the election depicting a bombshell with, slapped on the side, the figure £35 billion. That was what the Government said Labour would put up taxes by. It was always a lie. The tax increases proposed by Labour at the last election added up to one tenth of that sum—but the posters were distributed around the constituencies.

If they went back to their committee rooms, perhaps Tory Members could find these posters lying around under chairs in back rooms. They might consider putting them up all around their constituencies again. All they need now slapped on the side of the bomb is the figure £28 billion, because that is the amount that the Government will take in extra tax if this Parliament runs another four years, even if the Chancellor never comes back and raises another penny in tax or extends the scope of VAT again or increases national insurance contibutions. That is the cost of Conservatism—£28 billion, or, as the Government prefer to express it, £1,000 for every household in the country.

This is such a blatant deceit that even The Sun is embarrassed. No one was more diligent about repeating the Tories' tax propaganda at the election; no one was more naive about swallowing their threats of what Labour would do than was the editor of The Sun. And, bless his trusting heart, Kelvin MacKenzie feels cheated now. Last week he offered his honest, forthright advice to the Treasury: go away and lie down in a darkened room. This was a Budget of failure and a Budget of cheats, but there is a third and final dimension that needs to be filled in if it is to be seen in the round. It is a budget of unjust men—unjust because they made the mistakes and they now expect everyone else to pay for them, not themselves. None of them will pay: everyone else will. They are unjust, too, because the tax increases that they have chosen will hit the poor hardest—such as the 500,000 people now being asked to pay more in national insurance even though they are too poor to be liable for income tax. These are the people who never saw any of the tax cuts of 1988. What right do the Government have to ask them to pay more when they all pay less in tax as a result of Budgets that they drafted?

If the Government had more courage, they would ask those with more income to make an extra sacrifice, but no such sacrifice is asked of them in the Budget. However, an extra sacrifice demanded of pensioners paying their fuel bills. They are the ones being asked to make the real sacrifices to put the nation's finances to rights. The President has a special responsibility in this matter; he is the Secretary of State for energy. I read in The Observer that he was furious at the attempt to put VAT on fuel, and I thought that entirely plausible, as he has a very large house to heat.

We learned today, however, that the right hon. Gentleman was not furious. In fact, he is furious at the suggestion that he was furious. So he agreed to it. The Government's energy spokesman agreed to slap 15 per cent. on energy bills. I hope that we have heard for the last time ever the right hon. Gentleman say that he cannot save the coal pits because that might put up electricity prices. British Coal has been bringing down the price of coal while the Government have been putting up the price of electricity.

There was plenty of time for this consultation. We know this because of the Chancellor's indiscretion on the "Jimmy Young Show". He explained to Jimmy Young that the origins of the new tax go back to last summer, to the Rio convention on global warming: The moment the convention was signed I was sitting at home thinking, 'What are we going to have to do?'[Laughter.] I am not kidding. Of course, it was a bogus claim. VAT is not being applied to fuel because the Chancellor has gone green. It is being applied because the Government's books have gone into the red.

How can we believe that the Government are serious about curbing greenhouse gases after the vindictive way in which they have run down public transport, and made savage cuts in the home insulation programme? How can we believe that the Chancellor is serious about energy conservation, given the housekeeping bills from his Department in the last financial year, during which the Treasury's bill rose by 14 per cent.? Not much energy conservation there. The fuel bill at the Inland Revenue rose by 21 per cent., and at the Customs and Excise—the department that will apply the VAT to pensioners' bills—last year's fuel bill rose by 68 per cent. And these are the people who are going to ask pensioners to turn down their heating.

I do not know whether the President was furious, but I can tell him that the nation is furious, because this measure will hit the poor hardest. Every study has shown that those at the bottom of the income ladder spend four times as much on fuel as a proportion of their income as do those at the top. For those at the bottom, their fuel bill is the biggest that they will get, and the Chancellor has just increased it by one sixth.

The President was gracious enough to remind the House that I was once a health spokesman. It is a marked feature of the British mortality statistics that they are the highest in Europe in winter. Our figures are worse than those of Sweden, Norway or Switzerland, but not because we have colder winters—indeed, their winters are colder than ours. We lose more old people in winter than any other country in Europe, because we pay the worst state pensions anywhere in Europe. We leave more pensioners asking themselves whether to pay for their eating or their heating.

We ask again the question that the Chancellor must answer before we vote at 10 o'clock: will pensioners and people on low incomes be fully compensated for the increases in their bills—not have them taken into account, but fully compensated?

The right hon. Gentleman will not get away with saying that the increases will be reflected in the payments to those on income support and means-tested benefits. There are 1·3 million pensioners living on incomes just as low as income support, but not getting a penny of it. Some of them, perhaps because of a mistaken sense of pride, will not ask for a means test. There are another 1 million pensioners living within 10 per cent. of the level of income support who will never qualify for a penny of it. Will they be compensated? We ask that because that is what they ask us.

At the weekend, I received a letter from a constituent on invalidity benefit, who therefore does not qualify for income support. He said: I am aghast and worried over the new proposed VAT on domestic fuels. At the moment I only put on my immersion heater for one and a half hours in the morning to heat the water and I have the gas heating on for an hour and a half in the morning and the same at lunchtime and in the evening. If I am too cold, I just make a hot water bottle and retire to bed since I must work within the limits of what I can afford to pay for my fuel bills. Do Ministers have any idea what it is like for those who have to work within the limits of what they can afford to pay for fuel? Do they have any idea of the hardship that those people will now face, with the choice of going to bed even earlier or doing without another necessity?

Tonight, the House will have the opportunity to express its verdict on that proposal. We will vote against resolution No. 21 in order to record our contempt for a Budget of failures, of cheats and of injustices. We will do it to express our derision for the Treasury Bench of limpets clinging on to office after they have broken every promise that got them on to it. We will do it most of all to stop them making the poorest in society pay for their mistakes and their broken promises. It should not be the poor who pay: they should pay, and we will make it our job to ensure that they do.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup 5:52 pm, 22nd March 1993

A large part of the debate on the Budget has been concerned with undertakings which have not been fulfilled. Election addresses have been cited. Indeed, I read in one newspaper that Labour party headquarters is busy the whole day going through every election address by a Conservative candidate to find suitable quotations. I therefore want to get that matter out of the way immediately. I said in my election address: I opposed the Community Charge from the beginning because I believed it to be unfair, ill-planned, costly to administer and above all philosophically wrong and politically damaging. I was proved right. John Major, when he became Prime Minister, pledged himself to abolish it and has done so. I then went on to deal with the fast rail link. I did not look to the future of taxes, in whatever form. That exempts me from an embarrassing position.

I believe that it is wrong for parties at a general election to give undertakings about taxation—either its rate or its nature. When I fought elections in the 1950s and the 1960s, that was not done. No Government or Chancellor's record justifies their being able to say with conviction that they can foresee the economic future for the following five years. It has never been proved that they can do so. All that declarations about rates of taxation can do is to mislead the electorate and lead to further embarrassments for Government, which then weakens our economic position internationally. I want a return to olden times. In fact, the practice was first broken in the 1959 election by Hugh Gaitskell, who promised to reduce taxes by 6d, which so shocked the electorate that he lost the election. I hope that we now have a period during which we do not give such undertakings.

When changes to indirect taxation are made by a Chancellor—changes which my right hon. Friend has justified—we know that that is bound to affect many people on social security benefits and those just above the limit for those benefits. The right thing for a Government to do is, at the same time as the charges are introduced, to say that they recognise the problem and that those people will be fully compensated for those increases. That is what Rab Butler did in the 1952 Budget, and it is what happened with Iain Macleod in 1970 and with Tony Barber in 1971. It shows that we understand the position of the millions of people who are affected by such changes. It gives them confidence that the Government of the day understand them and their problems, and it gives society as a whole confidence that we care about these matters and that we will take action to deal with them.

My third point relates to my party in particular because of the targets that it has set for direct taxation. They are not achievable targets. I hope that my right hon. Friend the Chancellor will not say that, at some future time, we will reach the target of 20 per cent. and that the 40 per cent. rate will be reduced. There is no economic or moral justification for saying it. Although high taxes reduce efficiency and destroy a great deal of enterprise, we reach a point in the level of taxation where that is no longer the case. That is evident from the level of taxes paid by other countries with very successful economies, such as Germany and Japan, whose tax levels are higher than ours and higher than our targets.

When told bluntly what is required from them, the British people will respond. It is not necessary to try to smooth the path. I accept that the path in front of us is very difficult, and I have every sympathy with my right hon. Friend the Chancellor and the Government in the problems that they face. The economic position, with high unemployment and the destruction of so much of our industrial base, means that it will take many years to deal with the problems. There can be no easy, quick solution. If that is brought home to the British people, they will support the necessary steps—one of which is that the wealthier people should be prepared to pay a higher rate of tax. I believe that they would respond to a demand that they do so.

One thing that we desperately need in this country is a better superstructure. It is right to say that we have been spending more on that, but it does not meet the demands that our superstructure now makes.

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham

I think that my right hon. Friend means infrastructure.

Photo of Mr Edward Heath Mr Edward Heath , Bexley Sidcup

Yes, I mean infrastructure. So many countries in Europe, North America and the far east have infrastructures infinitely superior to Britain's.

We have only to look at London and the development needed there. There is no effective overall body to deal with that. Ours is the only major capital city in the world which does not have one. The former central body, the Greater London council, was abolished out of spite because of a handful of miserable Labour councils. Now we do not have that authority. To cite one specific example, when one drives out of London on the M4, as I frequently do, one must use a double-lane highway. In recent years, high buildings have been erected right alongside that road, so that if ever we have a Government who recognise that the M4, which was built 40 years ago, is totally inadequate for modern requirements, various new buildings will have to be pulled down to enable the construction of a new highway. That shows no sense of responsibility towards the demands of a very modern society. That is another case which desires urgent action. After all, improving the infrastructure provides jobs for many people.

As to the contraction of our industrial base over the past 12 years, we lost part of it at the beginning of the 1980s because we were so determined to push up the rate of sterling. Firms in my own constituency which has been established for 100 or 150 years went out of business. They never came back and they never will. That is happening in the present situation, with a further loss of our industrial base. My right hon. Friend the President of the Board of Trade rightly said that we must encourage industry, and he is doing so. Many of the measures in the Budget are extremely useful and make a great deal of sense. I am glad that they are being adopted by my right hon. Friends the Chancellor and the President of the Board of Trade.

In the mid-1980s, small firms went into business with a rush, and we know from the figures that they are in immense difficulty now. The kind of people who start small firms now have learnt the lesson of the 1980s and will not take the same risks. They will not allow themselves to get into that position. They also see how this country's banks behave when small firms get into difficulty. There is no relationship between the banks and industry in this country as there is in Germany and France, and that is what is lacking.

That apart, the major banks have enormous problems as a consequence of unwise investments, debts, loans and property purchases over the past decade. One must keep one's tongue in one's cheek when talking about London being the greatest financial centre in Europe or in the world; people outside know what is happening and can see the problems which have arisen in our banking system in the last 10 years.

My right hon. Friend the President of the Board of Trade mentioned Rolls-Royce. I will add to his remarks, especially as I know the attitude of so many of my hon. Friends on the Benches behind me. We took over Rolls-Royce in 1970 because it was bankrupt and its directors were trading against company law. We took over the company to save it from being prosecuted for tens of millions or hundreds of millions of pounds, but we were careful to do so in terms of a private company so that it could be privatised. That was exactly our plan.

That was not done without an attempt to persuade the private sector to look after Rolls-Royce. When a leading accountant reported to me that the company was not only heavily in debt but under contract to the Americans to produce an engine, would not make the delivery date, and would therefore be liable to a penalty of £400 million—a large amount of money in those days—I invited the chairmen of the four banks concerned to meet me in the Cabinet room. I explained the situation and said, "I hope that you feel that you can support industry in this country." All four flatly refused to help in any way at all. One chairman whose bank had offered a loan of £25 million, of which only £21 million had been taken up, promptly dashed back to his office and cancelled the remaining £4 million.

If we had not taken the action we did, all the military planes with Rolls-Royce engines would have been unable to obtain spares and would have gone out of action. The same would have been true of all civil aircraft with Rolls-Royce engines. It would have been grossly irresponsible for any British Government to fail to stand

That company could have been privatised much earlier, but the management badly miscalculated what would happen to the dollar in the early 1980s, so privatisation had to be postponed. The company was subsequently privatised, and it is now successful, but it would not have remained in existence if the Government had failed to take action. There are instances when a Government is justified in taking action; I hope that my right hon. Friend the President of the Board of Trade will always bear that in mind.

My right hon. Friend also mentioned delegations to various countries in support of British industry. I would take it a stage further. British Industry requires much more support from the Foreign and Commonwealth Office and from our embassies and consulates abroad. I do not in any way blame the Foreign Office—the three years that I spent there as Lord Privy Seal were among the happiest of my life. For a decade, the Foreign Office has been maligned and accused of every possible crime—of always selling out to the foreigner—and its staff has been drastically reduced. It needs its confidence restored and to be provided with an adequate level of staff. That means money from the Treasury. It is not good enough for the Treasury to say, "Where shall we slash? We'll make it the Foreign Office."

The Japanese, for example, have a full consulate in every major city in the People's Republic of China. Britain has only one—in Shanghai—in addition to our embassy in Peking. The British consulate in Shanghai has a staff of seven—the consul-general, deputy, and press officer, and four assistants. Two of the four assistants are the wives of other consulate members. The Japanese have 410 in Shanghai. I am not urging that level, but we must face the challenge from other countries looking after their industries.

Foreign policy should be directed at British interests, industry and finance. We are losing masses of trade in the middle east. That is true also of Iran, because of our relationships over that wretched book. If one writes a book and it offends, one can be protected in one's own country. I thought that the author in question was wealthy enough to protect himself, but we provide public protection—very well, but I see no reason why we should ruin our relationship with Iran, which can be a very profitable market.

We are responsible for the United Nations resolution on trade with Iraq. Unfortunately, it affects companies which traded before Saddam Hussein invaded Kuwait and war broke out. Those companies cannot obtain payment for trade before the war. That cannot be justified. Other countries have already made arrangements with Iraq for the time when sanctions are removed. They will get all the business, because of our foreign policy. The same applies to Libya, where there is massive trade to be done. We are not touching it, because we are standing by the Americans.

All that may sound like heresy to some people, but we must look after our interests through our foreign policy. If I am mistaken in any of my remarks, I am perfectly ready to stand corrected, but the fact remains that foreign policy must take into account our trading and industrial interests. Much as one welcomes a delegation led by a Minister, it honestly does not have a big effect.

The problem goes much deeper than anything that I have mentioned or that I have heard mentioned. I refer to the nature of our society in this country. That has been a problem for many years. Industry is still not recognised as a prime factor in our society. Do all the best and brightest in our universities say, "I must get into industry"? No; they want to get into the City, if they can—into some bank, preferably a private bank—or into public relations. The last thing they want is to work in industry. Nor am I certain that industry would welcome them; I am afraid that it does not always do so. Why is that? It is because comparatively few are management-trained at the top. Few have been to a top business school.

I recall only too well my visit to INSEAD at Versailles to present prizes. I asked the British contingent which firms they were going back to; only one person was returning to this country, and he was with one of the oil companies. He said, "The company paid for me to come here, and I feel that I am under an obligation to go back. I do not mind, because the company told me that if I was successful I would receive an increase in pay." When I asked the others where they were going, they replied, "There is no point in going back: they do not want us, and they are not prepared to pay us." They said that they would go and work for American, French or German firms.

That is the nature of our society. Despite all the changes of recent years—so many that we cannot even keep up to date with them—we have no satisfactory education system; we have not the major educational, scientific and technical system that the Germans have had since the last quarter of the last century. Moreover, we are not trying to secure such a system; we are not concentrating on that at all. Management feel that it would be rather a bore to employ people who have experienced a form of education that those currently at the top have never had, because there is just a chance that such people will know more than they do.

I emphasise that all the measures in the Budget are desirable, apart from one about which I am not quite sure—the measure relating to self-assessment for tax purposes. A number of my constituents come to me and say, "Look at what the Inland Revenue has said about our accountants' report—can you arrange for some action to be taken?" Heaven knows how many cases there will be in the event of self-assessment, but I will let that pass. I am concerned with the nature of our society; that is what we must aim to change if we are to make up the loss of our industrial base and secure a top management who can return us to a reasonable position in the world economy.

Photo of Mr Robert Sheldon Mr Robert Sheldon Chair, Public Accounts Committee 6:12 pm, 22nd March 1993

In his powerful speech, the right hon. Member for Old Bexley and Sidcup (Sir E. Heath) made a plea for manufacturing industry, with which I shall deal at some length. He made another important point, however: he said that there were greater priorities than a 20 per cent. tax rate, and asked for a larger contribution from those who pay the highest rate. A sad aspect of the debate is that we are unlikely to hear many echoes of that request; that is a great shame.

In the past two years, the Thatcherite adventure has ended. Those 11 long years of folly started with the belief that the philosopher's stone of monetarism had been discovered, and reached the high point of hallucination—the hallucination that we were in the midst of an economic miracle. In fact, as we know, we were living on fool's gold. That is why we squandered £120 billion of North sea oil money, and £40 billion or more of privatisation receipts. Instead of using those enormous and wholly exceptional moneys to recreate our industry and restructure our essential services, we spent them on importing foreign luxuries, thereby ruining our own manufacturers.

Personally, I can never forgive the Government for reducing the number of firms in my constituency by 30 per cent.—manufacturing firms, in the main; firms that provided the goods and services that we see in every country. The closing of some of those firms lowered what had been higher-than-average levels of employment and pay in the constituency.

That period has now come to an end—notably in the Budget—with a suddenness that surprised only those who believed the Thatcherite nonsense that they so readily proclaimed. It was never a free lunch, and now the bill must be paid. The measure of that bill—in just this one year—is a £17·5 billion balance of payments deficit, and a £50 billion public sector borrowing requirement.

How then do the Government intend to restore our finances, both internal and external? That is the critical question. There are no further increases in North sea oil to provide the necessary income; what the North sea is producing we are already spending. There will be few further receipts from privatisation: the barrel has been fairly well scraped. Indeed, whereas in the past the Government could rely on £5 billion a year—and spent it—they will suffer a fall in privatisation receipts from now on.

The position is worsening all the time, which is one reason why the Government are so adamant in opposing the social chapter. They depend on a Britain with cheap labour and weak trade unions, attracting investment on the basis that it is a part of the European Community with certain unique advantages which they wish to advertise. The existence of cheap and docile labour is the Government's solution to the economic problems that they have inflicted on us. The social chapter runs directly counter to that vision; they will therefore fight fiercely to prevent its enactment. That is their solution to the Thatcher years.

The Chancellor has repeatedly said how much assistance he is giving manufacturing industry, and the President of the Board of Trade said today that the Budget was one more step in the strategy for industry. I wish that I had observed any such steps. Undoubtedly, the right hon. Gentleman has been a great disappointment. There were those who strongly disagreed with much of his politics, but, when he said that he would intervene in industry at various times of the day, we thought that he would at least make some sort of effort: we expected something from a person of such energy and drive.

The Budget has given some assistance here and there, but it provides little for manufacturing industry. The £900 million for advance corporation tax relief, the £400 million for petroleum revenue tax abolition and a few other concessions may help some firms, but they do not matter much to the one industry that really counts in the long term—manufacturing industry.

Let me say in passing that I welcome the easing of certain VAT penalties. The Inland Revenue operates on the basis of an understanding of the real world, whereas VAT is the direct descendant of excise duties that resulted from the fact that, over the centuries, the establishment of a harsh regime was the only way in which to protect revenue. The system of VAT collection did not allow sufficiently for an understanding approach to genuine error.

I often feel that the greatest help that Government can give small businesses is to avoid adding to their burdens. Many small businesses would forgo any Government assistance if they could only be left alone. I know that, in this hard world, that cannot happen; but any help given by Government must be set alongside such a natural aspiration. Governments always require certain information to ensure that financial assistance is properly accountable; I understand that.

In a small firm, however, frequently only one person can provide such information—the person who is engaged in running the business, and who is diverted from the essential operation of the company. That person is even more diverted when there are substantial penalties for not carrying out the tasks required by Government. I therefore welcome the easing of the VAT penalties.

Let me turn to the next Budget that this Chancellor will present. The Chancellor has told the country that he does not wish to harm recovery by introducing large tax increases now; in the main, such increases will come later. Last week's Budget, however, is the first shoe to drop; while waiting for the second, people will be reluctant to spend. They know that the second shoe will soon follow, and their expectations will take account of that. The Government have shown us an unusual vista—the prospect not of jam tomorrow, but of vinegar for some years to come. This was a Government, however, who believed at one time in "rational expectations". Nigel Lawson believed that, by controlling the money supply, employers and trade unions would see that sterling M3 was coming down and would reduce pay claims on the basis of such "rational expectations".

Of course, employers and trade unions did no such thing. It is amusing—though sad—to recount the folly of those times. Rational expectations, however, can work only if people actually believe that things are going to happen. If they truly believe that taxation will affect them in the way that the Government have stated, spending will be curtailed, not just next year and the year after but this year as well. The only way that that will not happen is if people do not believe the Government. There may be something in that view. The Government have already back-tracked on compensation for VAT on fuel for certain groups of people. Who knows what further U-turns might lie ahead? This is, after all, a very weak Government. Many policy changes are possible.

There is a further factor that may change the income/expenditure picture to be painted by the Chancellor of the Exchequer in the autumn: that, while expenditure has to be fixed two or three years ahead, because of the planning required, revenue can be determined within a few weeks of the announcement. One does not have to make revenue plans anything like as far ahead as one has to make expenditure plans. We can be pretty sure how much the Government expect to spend in 1994 and 1995, but how much they will raise in revenue is still an open question. The Chancellor of the Exchequer's statement, although said to be definite, is still only an opening shot.

I particularly regretted, as did my hon. Friend the Member for Livingston (Mr. Cook) in his outstanding speech, the increase in VAT on fuel and power. In 1976, when we held the presidency of the Community, I negotiated the maintenance of our zero rating. That was always under attack by our Community partners, It was defensible, on the basis that it was the most important way of limiting the regressiveness of the tax. Without zero rating, VAT becomes a tax on the least well-off in our society. That remains true today. Those above income support levels, particularly the elderly, already find their gas and electricity bills a special burden. They spent most of their time indoors and have special needs for cooking and heating. They will be very unfairly hit by this tax.

For those who believe in a progressive system of taxation, the excessive reduction in the high rates of tax, the emasculation of capital transfer tax and now the abolition of VAT zero rating on fuel means, in effect, a transfer from a progressive system of taxation to a regressive system. Whatever other policy decisions my hon. Friends will decide upon, the return to more progressive systems of taxation must be an essential part of them.

What I found most depressing in the speech of the Chancellor of the Exchequer was the absence of any real help, which I believe that the right hon. Member for Old Bexley and Sidcup (Sir E. Heath) wishes to see, for manufacturing industry. The many limited measures set out to assist here were not satisfying. They seemed to he designed to placate the sufferers rather than to provide real solutions to real problems. The real problems are investment in our manufacturing industry and the restoration of the broader base, which has been allowed to shrink.

Manufacturing industry alone can provide the goods and the exports that produce the wealth which enable more people to be employed in the service industries. I accept that we cannot assume that there will be a large increase in the number of jobs in manufacturing industry. As manufacturing becomes more efficient and finds more methods of automation—an idea that was prevalent 20 years ago—it is bound to shrink in size. However, manufacturing industry will produce more, and the selling of those goods will provide the wealth to enable us to have the service industries, the infrastructure developments and the various requirements that we expect of our social services.

In the midst of all these problems, we have heard that low inflation and low direct taxation are the priorities, but if we are to have a priority among priorities, it must be our manufacturing industry. That is the fount of our prosperity. If we achieve success there, the balance of payments will improve and more money will be available for infrastructure development and the public services that I mentioned.

Prosperity cannot come from trying to spend our way out of recession. That will lead to yet more imports. The weekly assessment of any rise in retail expenditure is looked upon as a sign that recovery is coming. Those with longer memories of our recent economic experience will remember that such expenditure does not solve our problems. It is not consumption that will lead us out of recession. There was a case, of some sort, for that argument when we produced most of the goods that found their way into our shops. Today, so many of the goods we made we now import. Therefore, a rise in consumption is more likely to lead to greater imports and to a worsening of our trade deficit.

The only long-term way out of recession is by investment, particularly in the production process, and by a level of the pound that stimulates exports and weakens our partiality to import. I still believe that there is room for the pound to go down, if we are serious about acting upon imports and encouraging exports.

We need to limit the tendency to import, and that means a competitive pound. The voices of the City and the Bank of England, which would dearly like to emulate the power and independence of the Bundesbank, must be resisted. The lack of political influence of our manufacturing industry has always been one of the serious weaknesses of our economy. In any conflict between the needs of industry and the voice of the City, there is only one winner. As Winston Churchill said: Finance should be less proud and industry more content. It is an unequal contest. It arises from our centre of finance being a mile or so down the road and the centre of gravity of our industry being a hundred or more miles up the M1, the M6 and the M4.

Industry and the country require a competitive pound. If that means allowing the pound to decline still further, that will need to be accepted. We should not be in a hurry to return to the exchange rate mechanism, although I should prefer not only a competitive but a stable pound. There are great inefficiencies in foreign trade when the price of the goods purchased and sold cannot be precisely known. It is not sufficient that the forward foreign exchange currency market provides ample opportunities for hedging. The fact is that international trade is conducted on a basis more akin to the home market, with orders being delayed, deferred and cancelled with frequency.

Few overseas orders nowadays are on a letter of credit basis, where the date of delivery is tightly specified. In those conditions, such forward currency precautions used to be a controlled way of limiting currency risks. In the present currency see-saw, the foreign exchange losses can be greater than the profit on a transaction. Therefore, it is far better to have a stable exchange rate that can be adjusted from time to time. In the past few weeks, we have seen variations of up to 5 per cent. in the pound's value against major currencies. Adjustments made as required need not be more, would happen infrequently and would result in the fine pricing of contracts, with advantage to international trade.

What I had hoped to see was a Budget for industry. In 1991, we had a Budget that was supposed to be good for business. In 1992, we had a Budget that was supposed to be good for recovery. This year, we had a Budget for sustained recovery. What we needed was a Budget for industry. We did not get one. Therefore, the basic Problems that face our country are no nearer solution.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing 6:28 pm, 22nd March 1993

I suppose that this is positively my last appearance in a spring Budget debate. One of the pleasures over the years in these debates has been to follow the right hon. Member for Ashton-under-Lyne (Mr. Sheldon).

I intend to say a few words about the Government's proposals to change the time of the debate from the spring to the late autumn. It raises a number of difficult questions. The Government have published a White Paper on the issue. It referred to a number of Treasury Select Committee reports that were prepared under my chairmanship but, strangely, not a report, also under my chairmanship, that was prepared by the Select Committee on Procedure (Finance).

Trying to deal with public expenditure and taxation provisions at the same time will place a heavy burden on Treasury Ministers. Therefore, I commend to the Chancellor and his Treasury colleagues the Select Committee's suggestion that there is a strong case in future for dividing measures on taxation into three parts.

The first would be a Bill dealing essentially with economic management and, therefore, primarily with changes in tax rates. The second would be a taxes management Bill which could be introduced at any time during the year. The third, if a new tax were introduced, would be the procedure that we adopted when we introduced value added tax—a Green Paper, draft clauses and so on. Unless such changes are made, the burden on the Treasury and on the House of dealing simultaneously with public expenditure and taxation will be a real problem.

Following on from that, there is a danger that the House's opportunities to debate such matters will be significantly diminished. Until recently, we held debates on the autumn statement, on the public expenditure White Paper and on the Budget. If we debate the Budget only in the autumn, the opportunities for serious debate in the House, related to a specific proposal announced by the Treasury, will be reduced to one. We should not contemplate that, because it is important that the House should have the opportunity to debate these vital matters during the year.

I deal now with what has become the political, if not the economic, centre of my right hon. Friend the Chancellor's proposals—the proposals to levy VAT on domestic fuel and power at a rate of 8 per cent. from next April and of 17·5 per cent. from the following April. It is rather curious that, although the date of the Budget is to change from spring to late autumn, the proposals for changing the rate of VAT will still come into effect in April. It is rather like the smile on the Cheshire cat's face remaining after the Cheshire cat has disappeared.

When Iain Macleod and I, together with Professor Wheatcroft and Arthur Cockfield, devised the VAT system that we now have, we spent a great deal of time examining the experience of the countries of the Common Market, as it then was. We came to two clear conclusions. The first was that there should be only a single rate of positive VAT. The second was that there should be relief by way of zero rating for those at the bottom of the income scale. In that sense, the tax that we devised was superior to others in the Common Market.

At the same time, of course, we abolished the selective employment tax and the multi-rate purchase tax. The change from the SET and a purchase tax to VAT was not regressive because of zero rating. We got rid of a system of variable rates, or multi-rates, which had meant that the pattern of consumer expenditure was being distorted. Those two essential Conservative principles were important changes and meant that we introduced a better tax than those that we found in the European Community.

Having said that, I clearly view with considerable misgivings my right hon. Friend's proposal for imposing a positive rate of VAT on fuel and power consumed domestically. I believe strongly that it is a mistake to change the structure of taxation for short-term or tactical revenue-raising reasons, which is what we arc in danger of doing now, or, to put it more accurately, next year.

The change is not likely to be reversible. The right hon. Member for Ashton-under-Lyne intervened on my right hon. Friend the Chief Secretary on the second day of our Budget debate. The Chief Secretary replied: The proper argument against Community intervention in our zero rates is the right of the House to determine our taxation rates. It is the right of my right hon. Friend the Chancellor…to decide what they should be."—[Official Report, 17 March 1993; Vol. 221, c. 302.] However, we know what enormous pressure there has been on this country to harmonise our system of taxation and bring it in line with that elsewhere in the Community. If we abandon zero rates on fuel and power, it will not be possible to reinstate them at a later date.

Another worrying aspect is that the more one erodes the scope of zero rating, the greater the pressure from the European Community will become to remove it altogether, not only from fuel and power and newspapers but from food and other essential items. I am reminded of a remark made by my permanent secretary when we introduced VAT. The question of harmonisation arose, and he said, "If the Italians collect it, we'll harmonise it." There was something in that. We are increasingly under pressure to harmonise our VAT rate with a European form of that tax, which is less satisfactory than that which we originally devised. Therefore, the current proposal is an unfortunate development.

I am rather worried about the proposal to increase VAT on fuel and power to 17·5 per cent. in stages and the imposition of an 8 per cent. tax next year. That raises the issue of multiple rates which I have always believed that we, as Conservatives, did not favour. Once people have paid their direct tax, we should not use the tax system to distort the pattern of consumer expenditure.

I now come to the difficult question——

Photo of Mrs Elaine Kellett Mrs Elaine Kellett , Lancaster

My hon. Friend says that we should not use the tax system to distort consumer expenditure. What about the differentiation between leaded and unleaded petrol, which is an environmental factor? One could say that the imposition of VAT on domestic fuel and power is also an environmental tax because it has followed on from the Earth summit and we must reduce fuel consumption.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I was about to deal with that point, and I hope to be able to satisfy my hon. Friend in that respect.

I am bound to say that there has been a certain amount of confusion about the controversial question of compensation and precisely what the Government have in mind. I hope that my right hon. Friend the Chancellor will manage to clear it up when he winds up the debate this evening. There has been much talk, especially from members of the Opposition Front Bench, about compensation in full for the imposition of VAT on fuel and power. I saw the shadow Chancellor on "Question Time" the other night, saying that the Chancellor would be increasing the cost of fuel by 17·5 per cent. That is, of course, an economically illiterate view. It would be valid only if the elasticity of demand for fuel and power were zero. It is always the case that when an indirect tax is imposed, even at the final stage, a certain amount of the tax is absorbed by the person supplying the goods or services. Therefore, the idea of full compensation——

Photo of Ken Purchase Ken Purchase , Wolverhampton North East

Not in the case of a monopoly.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

Whether or not there is a monopoly. The idea of full compensation is, to say the least, difficult to define. In political terms, however much one compensates for the change, people will continue to say that it has not been enough. By way of an example, I cite the fact that we were unable to remove VAT from charities. When we introduced VAT originally, we introduced at the same time a number of proposals to give increased benefits to charities by way of covenants, and so on.

On two, if not three, subsequent occasions, further concessions have been made to charities to compensate for the fact that we have not managed to exclude them completely from the scope of VAT. I have not the slightest doubt that the total of those concessions is vastly in excess of the burden of VAT on charities, but charities will continue to say that they need to be compensated. I fear that the same will happen in this case: if we impose VAT on fuel and power, however much we compensate people, the political reality will be that we shall still be blamed. Overall, I have considerable doubts.

My hon. Friend the Member for Lancaster (Dame E. Kellett-Bowman) said that the tax was helpful for green issues and she referred to the Rio summit. We had a one-line Whip on the second day of the Budget debate and, curiously enough, I was invited to hear a speech at the Royal Geographical Society that evening given by Mr. Robert Swan, who is the United Nations roving ambassador on the environment. Rather more exceptionally, he is the only person to have gone on foot to both the north and south poles. He was desperately concerned about the effects on the ozone layer of global warming. I was impressed by his arguments which he put forward with immense expertise and passion.

The other side to the coin, therefore, is that there is a strong argument on environmental grounds for imposing a tax on fuel and power. However, I am bound to say that the impact is estimated to be 1·5 million tonnes, which is only a small part of the likely decrease that will be needed between now and the deadline of the end of the century, by which time there should have been a reduction of about 10 million tonnes. A big change will be required.

The vital point this year was that the Chancellor should do nothing to damage the present fragile recovery. I am glad that, by and large, the changes he has proposed for this year are broadly neutral. The Budget is not entirely neutral because there will be some increase in taxation. None the less, the Budget will not seriously damage the recovery that we all wish to see.

I have more serious doubts about the idea of saying that, as we must take account of the future deficit, we must legislate now for what happens next year and the year after, to reassure the City. Our record on forecasts is not so good that we can say that we shall legislate now for what happens in two years' time. I believe that one thing is sure. We do not know how much of our present fiscal deficit is structural and how much of it is cyclical. That is clearly recognised in the Red Book, which makes that point.

We must remember that it was not long ago that we were in budget surplus. That might lead us to suggest that most of the deficit is cyclical. In any event, we need to wait for the recovery to go rather further before we can decide how much is structural and how much is cyclical. to anticipate what will happen and to say that we propose to legislate now for what will happen next year and the year after puts too great a weight on our expectations of what is likely to happen to the fiscal deficit.

We must, of course, take account of the views of the financial markets which are worried about the size of the public sector borrowing requirement. My guess is that the Chancellor and the Treasury have overestimated the likely size of the fiscal deficit next year or the year after. I suspect that the deficit will not be as great as they suppose. That being so, there was a case for waiting until we saw rather more clearly how the economy was developing before proposing increases in taxation such as are suggested in the Budget. We can debate those matters during the proceedings on the Finance Bill and it is important that we should begin to approach the question analytically.

My fundamental feeling is that it is right that the Chancellor has taken no action that will affect the recovery this year. With the successive cuts in interest rates and the significant depreciation in sterling, recovery is likely to come faster than we expect. One point that can always be made about the economy is that one always underestimates turning points, whether from up to down or from down to up. The underestimate of the importance of the turning point has increased over all the cycles. That being so, I believe that we shall see recovery, probably faster than we believe likely, and with a faster decline in the deficit than is supposed. I have considerable doubts, therefore, about anticipating what is likely to happen next year and the year after.

Photo of Mr Archy Kirkwood Mr Archy Kirkwood Liberal Democrat Chief Whip 6:44 pm, 22nd March 1993

It is always a pleasure to follow the right hon. Member for Worthing (Sir T. Higgins). I was interested in two points. He said that the Chancellor had done nothing to damage the prospects for recovery, which was one of the stated aims of the Budget. Why, then, did the Chancellor find it necessary to announce in advance—for the first time, in my experience in the House—imposts of taxation in future years? It would have been perfectly reasonable for him to say that he reserved the right to increase taxes "as and when". That would have been an unexceptional position. By making the announcement in advance, he may have damaged the process of recovery. People are not daft—they can see next year coming and they may begin to take evasive action, especially in relation to the increased costs for fuel and domestic heating. I do not believe that the Chancellor can say that he has done nothing to damage the interests of and the prospects for recovery.

The right hon. Member for Worthing is an eminent figure and his voice is listened to carefully by the Government—as it should be—but he did not carry the House with him when he tried to justify the increases in value added tax on heating and on domestic fuel. He said that such matters were difficult and that there would always be political blame. By taking that line, the right hon. Gentleman is encouraging his right hon. Friend the Chancellor to consider other matters in relation to VAT.

The Government's stated position is that by the end of this Parliament they want to have a 20p rate of income tax. The only conceivable way in which they can do that, against the dire financial position in the past and in the future, is by increasing VAT, not only on newspapers and on sewerage, but on food, on new-build costs, on magazines and on children's clothes. That would be unconscienable. I hope, therefore, that the right hon. Member for Worthing will be careful about how he argues the justification for the changes made.

This has been an interesting debate, apart from the purple passages in which the President of the Board of Trade went native, as he always does. The hon. Member for Livingston (Mr. Cook) made a powerful speech which was witty and well argued. The one point that he established beyond all peradventure was that the Budget is regressive. The House should be concerned about that.

The right hon. Member for Old Bexley and Sidcup (Sir E. Heath) also made a powerful speech. I agree that we need urgently to assist exporters. We need to try to get a more industrial, scientific and technological ethic into our education process. I agree that, most importantly, the precedent for not making promises about taxation in political manifestos at elections should be considered carefully and that we should try to eschew such promises in future. Such promises serve no useful purpose. It does nobody any good to try to get political parties to anticipate financial and economic positions that they cannot foresee, and it does the political process no good to try to do so.

The Chancellor would have had slightly more credibility if he had admitted candidly that although he would not increase income tax, he would increase taxes on income. That is a reasonable action to take when facing deficits which are getting out of control. However, as the hon. Member for Livingston said, the Chancellor did not have to do that through regressive means or to make the poor pay most.

When the Chancellor set out his strategy, he said that he wanted to take no risks with recovery. He rightly said, too, that he had to cope with a burgeoning budget deficit. The economic difficulites that he faces are immense. The tax base has been eroded, and there is a long-term pattern of increase in public expenditure. Given that that is the case, certain things need to be done as a matter of urgency. As regards the balance of trade, the country is running an unsustainable deficit—and, what is worse, has been doing so during a recession. We cannot possibly expect to get away with an ever-deteriorating trade balance. In short, the economy is in a mess.

The right hon. Member for Worthing wondered whether the problem was cyclical rather than structural. I think that the evidence is against him, although I accept that it may be too early to say. In my view, the damage and the difficulties are structural rather than cyclical. As I said, history may prove me wrong. In any case, it is important to get the answer to that question right.

It is the height of irony that the principal stimulus that the Chancellor said would be the engine of recovery should have originated from a policy that the Government strove, until last autumn, to avoid—namely, devaluation and interest rate reductions. No one has yet asked what is happening to the exchange rate mechanism in all this. Is that question in Ministers' minds? I should be interested to know what will happen in the near future.

The growth forecasts in the Red Book are an awful lot more realistic than they have been in the past. I am staggered, however, to find that the forecasts for export volumes for 1994 are shown at 10 per cent. I am even more staggered to discover that the forecasts for import volumes for 1994 are shown at 9 per cent. Those are extraordinary figures. Frankly, I do not believe that it is possible to achieve such export and import figures in the period to which we are referring. Much of the Budget strategy is based on export-led growth. If the 10 per cent. growth in export volume is not achieved by 1994, all the Government's calculations may prove to have been built on sand. I do not think that the exchange rate is competitive enough to sustain export growth at the levels to which the Red Book refers. I certainly do not think that the European markets that we face at present are buoyant enough to enable us to achieve such targets. The level of market-led growth is therefore highly doubtful.

What of the increase in national insurance contributions? I was interested to discover that the Chancellor had chosen that device. The longer I serve in this place, the more convinced I become that national insurance contributions should be abolished. As I said earlier, the way in which the Chancellor has chosen to introduce revenue-raising tax measures is extremely regressive, but it is both particularly bad and silly to have chosen national insurance contributions as a vehicle.

National insurance contributions are anachronistic and anomalous and there is a strong case for sweeping them away and replacing them with a unified tax system. That would simplify matters and save a lot in administrative costs. We could then move, over a period, to an integrated system of tax and benefit—a partial basic income scheme of the kind that people have been discussing for some years. It would take time and effort, but it would be worth considering carefully the possibility of moving in that direction.

Let me say something about Budget secrecy. The right hon. Member for Worthing has played a valuable role in persuading the Government to make progressive changes in the way in which the Budget is introduced. The departmental White Papers are better than they used to be and although a unified Budget in November and December may cause problems for the Treasury, because it will involve revenue and expenditure being dealt with at the same time, the changes have been well worth while. But we are still left with this ludicrous Budget purdah, which causes all sorts of difficulties. The Government experienced some of them this year.

Other Government Departments need to know what is in the Chancellor's mind. The President of the Board of Trade had the confession dragged out of him that he was told about the proposed change in VAT on domestic fuel. If that is true, that is fine, but how much better it would be if all the Departments—the Department of Trade and Industry and the Department of Social Security, for example—were notified. The campaign to increase council house sales that the Department of the Environment is pursuing may have been significantly affected by the mortgage interest tax relief change in the Budget. Departments are interrelated as regards such matters.

How much better it would be to abolish Budget purdah and secrecy and have a draft Budget, or at least a White Paper outlining the options under consideration by the Chancellor, in the lead-up to the Budget. That would make for a better informed public debate and we should be able to sort out numerous difficulties. Lord Lawson experienced tremendous difficulties when he made changes in mortgage interest tax relief for people who were not married but living together. Such difficulties could be avoided if there were more openness.

Much of the technical dross which took up two hours of the Chancellor's Budget statement could also be avoided. The technical stuff could be dealt with outside the ambit of the Chancellor's strategic statement. We must address that problem as a matter of urgency. People from outside this country think that the way in which we conduct the Budget—with Ministers going into purdah, saying nothing to anyone and having to report to the Chancellor all meetings with financial journalists—is daft and makes no sense in a modern democracy.

What impact will the Budget have on the poor? The other day I heard the Under-Secretary of State for Social Security say that the increase in the 20p income tax band would help the poor. She was talking about increases in heating costs. The change does nothing of the sort. The only way in which we can get increased help to the poor—always supposing that that was what the Chancellor was seeking to do—is to increase personal allowances. The Chancellor did not do that; he froze them, which made the impact of the fiscal changes on the poor worse.

I wonder whether the Secretary of State for Social Security knew about the changes in VAT on heating and fuel. If he did, he should have ensured that the Government's plans for compensation were well thought out in advance so as to avoid the confusion which followed the Budget statement. If he knew, but took no steps to clarify matters from day one, he bears a heavy burden of responsibility because he has caused great concern throughout the country. I still do not understand what the Government have in mind. Newspaper journalists cannot be blamed for engaging in speculation and stories which get more exaggerated every time they go along the rumour chain. It is unconscionable to inflict such concern on people who stand to be deeply affected by such changes.

The Treasury had better look at the consequences outlined in the Scottish Economic Bulletin of February 1993. The Institute of Fiscal Studies conducted a study on the distributional aspects of environmental taxation. It ran a model, putting the 17·5 per cent. increase into fuel and petrol costs and running a test across England and Wales on the one hand and Scotland on the other. The conclusion is absolutely clear: Using a tax rate of 17·5 per cent., the additional tax payments amount to some 2 per cent. of total expenditure amongst households in the poorest 20 per cent. of the income distribution, but only around 0·6 per cent. for households in the richest 20 per cent. That is what we have been saying for the past several days: the measure will have a much more marked impact on the poor. The Institute of Fiscal Studies is a perfectly respectable and professional body of researchers. In February 1993, it showed that because of household types and access to different kinds of energy—particularly the lack of gas—there would be a widely disproportionate effect in Scotland. That is the kind of information that the Government should consider before gaily taking decisions to increase energy costs.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

The hon. Gentleman is referring to the difference between Scotland and England. Has he considered the difference between urban areas and rural areas? Most rural areas have little, if any, public transport. They are also more exposed to the elements. Households in such areas therefore require more heating.

Photo of Mr Archy Kirkwood Mr Archy Kirkwood Liberal Democrat Chief Whip

That is absolutely right and that point has been made very clear. I commend the IFS report to the Treasury Front Bench as it would repay careful study.

I have probably been speaking for too long, but I want to make a final point. The Government were elected in 1979. If someone had told me then that I was going to be in Government until 1996, with a working parliamentary majority, access to windfall resources from £100,000 million worth of North sea oil and gas and windfall revenue from £60,000 million of privatisation proceeds, but that I would end up with a public sector deficit of £30 billion, high unemployment and public expenditure running at 44 per cent. of gross national product, I would have considered that to be an absolutely appalling record. The Government forfeit any right to claim that they have a scintilla of economic competence.

If the question is, "Have the Government got a grip on the economic situation in this country?" the answer must certainly be no.

Several Hon. Members:

rose——

Photo of Mr Michael Morris Mr Michael Morris , Northampton South

Order. Before I call the right hon. Member for Horsham (Sir P. Hordern), I remind right hon. and hon. Members that Madam Speaker has imposed the 10-minute rule from 7pm to 9pm.

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham 7:01 pm, 22nd March 1993

I hope that my hon. Friend the Financial Secretary will forgive me if I do not mention the favourable parts of the Budget, on which I would otherwise have dwelt extensively. In particular, I applaud the measures to help small businesses. They were admirable and very well thought out.

I expect that the Budget will be judged—as it should be—by its overall effect on the economy. This is the first Budget that I can recall in which reducing the deficit has been postponed deliberately. I understand that the Government certainly do not want to trample on the recovery which is now under way. At the same time, as has been said, the Government must satisfy the City that enough is being done within the medium-term financial strategy to ensure that the deficit is dealt with.

However, I believe that that is a peculiar judgment. It is also strange that the seven wise economists have been given a special section in the Red Book. Those Gentlemen are no doubt very eminent and they are certainly very well paid. However, it is Quite extraordinary to include their opinions in the Government's Red Book to give the impression that they have official backing. That gives far too much importance to those sophisticators and necromancers.

I recognised the same names among the 365 economists who wrote to The Times in 1982 describing the Government's policy as disasterous. There then followed the most sustained period of economic growth since the war.

The public sector borrowing requirement for 1993–94, at £50 billion, is simply too large to finance without considerable difficulty. I remind my hon. Friend the Financial Secretary of a great change that has occurred in just one year. Last year, the Red Book forecast that the PSBR would be £6 billion in 1996–97. After the proposed tax increases of £10 billion, the deficit is still expected to be £35 billion in 1996–97. That makes a total increase of £45 billion. That shows that extraordinary swings are possible in such forecasts.

The debt interest amounts to £19·4 billion next year, which is an increase of £2 billion over the year before. I calculate that if we delay the rising of those taxes, there will be an extra £400 million a year in debt interest. We will not improve matters by issuing IOUs in promises of future high taxation. Of course I understand the reason behind this: it is dangerous to trample on the recovery. However, surely the promise of higher taxation is likely to have an inhibiting effect on spending. Therefore, we might just as well get on with it, if not by the full £17 billion in the first year, certainly in the first two years.

I know that there is much criticism about VAT on fuel and power. We have become accustomed to thinking that increases in VAT will feed straight through into price increases. I do not believe that that will be the case. In Sussex, Seeboard did not increase its prices last year, allowing for the rebate. I believe that there is every prospect that it will reduce its prices this year. That makes the coal review so important.

So long as the nuclear levy is phased out, the extra VAT may be fully absorbed or nearly absorbed within the increase in the cost of living during the next two years or so. I do not know what that will do to carbon emissions and our Rio target, but I doubt whether the increase in the RPI will be as much as some people believe. We must not neglect the capacity of the privatised electricity distributors to absorb costs.

It would have been better if we had got on with it. As it is, £50 billion is a huge sum to finance. Incidentally, I see that we are not going to finance it through full funding—that is, by selling gilts to the non-bank public. Instead, we are to allow the banks to buy gilts which will form their lending base.

In other words—and perhaps in a more complicated way than in the past—we will resort to printing money for the balance of the funds that we will not be able to raise by selling gilts to the non-banking public. The potential for inflation is there. The argument is that as soon as inflation shows signs of taking off, interests rates will rise once more. I wonder whether we will be quite so precise in making that judgment as one would hope. That is why I believe that the very large borrowing requirement leaves too much to chance for my peace of mind.

We will have to keep a close watch on inflationary signals and I hope that action will be taken at the right time. It would have been better not to have such a high PSBR in the first place.

I understand that we will deal with public spending in the next Budget and spending review. However, we must consider the matter carefully. My right hon. Friend the Chief Secretary to the Treasury is carrying out a careful survey of Government Departments. However, I do not believe that that is enough. Choices will have to be made between Departments and we will have to look at the long-term trends.

Defence is an obvious candidate; in that respect, I am talking about equipment and not personnel. If we consider equipment that was authorised over the past 10 years and the original estimates and compare that with the outturn and then note what would have been available at the time and ask what our forces would have preferred, taking into account overseas defence sales, we discover a surprising result.

We must also consider the cost of research and development on defence and the enormous sums involved. We must consider that in the context of an independent think tank to perform much the same function as the Rand Corporation in the United States. I served on the Public Accounts Committee with the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) for many years and I do not believe that it is good enough to expect the Ministry of Defence to make the estimates for us. The amount of money that we have spent on defence equipment, much of which has been absolutely wasted, is a standing disgrace. My hon. Friend the Financial Secretary should consider the matter very carefully.

The same sort of problem will arise with social security. By the year 2021, one in five of the population will be over 65, compared with one in 10 in 1951. There will be fewer young people to pay. There were only 11·5 million people under 16 in 1988 compared with 14·3 million in 1971. There will be a major problem to tackle in providing for social services in the future.

We must look to the future to see how social services will be provided. We must examine whether social services will need to be provided entirely through the state or whether they could be as they were of old—provided by the friendly societies or in some other way. We need to examine carefully the whole national insurance system and the national insurance fund to see what might be done. There is a great deal of scope.

I commend my right hon. Friend the Chancellor for the Budget in all sorts of ways, especially in bringing spending and revenue together. I hope that it will concentrate the mind wonderfully.

Photo of Ken Purchase Ken Purchase , Wolverhampton North East 7:10 pm, 22nd March 1993

Value added tax on domestic fuels has been the main talking point in my constituency since the Budget was announced. Indeed, older people can talk of little else. Their fear is already clear: they will not be turning on the heating in the way in which they should simply to protect their welfare in future years. That must be wrong. It was damnable that the Government did not have a plan to ameliorate the effects of that imposition of VAT on those at the margin of poverty. It is an absolute disgrace.

I shall refer to what was in the Chancellor's speech as a veiled but rather gratuitous insult suggesting that, first, his advanced corporation tax proposals were complex and, secondly, they would, as if by definition, be understood by only a few.

Photo of Alex Salmond Alex Salmond Leader, Scottish National Party

Is the hon. Gentleman one of them?

Photo of Ken Purchase Ken Purchase , Wolverhampton North East

I do not know; the hon. Gentleman will find out in a moment. He should not second-guess what I have to say.

If it seems to many that the Chancellor—by his lack of common sense, he has got into more scrapes than most—can understand advanced corporation tax, by similar definition it should be possible for the rest of us at least to get a grip of the subject.

Advanced corporation tax was introduced by the Tory Government in 1972–73. Amazingly, it worked well during the 1970s, when companies were making profits and could claim back their tax credits through the mainstream corporation tax. However, since the advent of Conservative anti-manufacturing policies and the determination to reward those who make money through shareholding rather than those who earn it through real work, advanced corporation tax has become a real problem for large and small companies.

The tax system is simple rather than complex. It takes tax which is due at source from those receiving dividends, and is then set off as a credit against mainstream corporation tax. That is done on the assessable profits of the dividend-paying company. The arrangement allows for the Exchequer to gather tax earlier than would otherwise be the case, and sets the final tax bills against that credit.

All that is okay while companies are profitable and able to use the tax credit which they have earned. However, recently companies have been obliged to pay dividends even though they have not made profits. In essence, that has meant that, first, an unprofitable company is producing a tax credit which it cannot reclaim in the relevant period for which it was paid and thus creating a surplus of tax; and, secondly—this is my theme—payment of the dividend has tended to reduce the net worth of such companies by bringing forward retained profits, which are properly intended for investment, to pay shareholders.

On the tax credit and the subsequent surplus advanced corporation tax, the scale of the surplus is estimated at £5 billion. That is a tax mountain equivalent to the infamous EC beef mountain. I do not know whether all the beef will ever be eaten. My hon. Friend the Member for Wolverhampton, South-East (Mr. Turner) could make a go of it, but we shall have to wait to see whether that works out.

I can say something about the tax mountain. Although companies are allowed to roll forward their credits against future profits, many thousands of firms will never benefit, for the simple reason that the Government have driven them out of business, especially those in manufacturing in the west midlands. Our wealth-creating base has been crucified by, first, the obsession with money supply and, secondly, phenonmenal real interest rates. Although interest rates are falling, they are still some distance from the historic norms of 1 and 2 per cent.

I recall many companies in the west midlands falling under the Thatcher/Howe axe of the early 1980s. I especially remember a typical local firm in Wolverhampton which specified and ordered special machinery—machinery at the cutting edge of technology. The development period was about two years. The plant had scarcely been fully commissioned and brought into profitable use when the monetarist experiment closed down the opportunities in manufacturing for which the special machinery had been planned and designed. The plant was unable to find new markets in time to meet the bank's demand for interest payments. A fine company of good managers and highly skilled workers was finished, and its surplus advanced corporation tax was lost for ever.

Earlier, I said that many companies are forced into making dividend payments even when the current year's profits are non-existent. Such payments eat into the value of a company but are demanded by the short-term considerations of shareholders who have become accustomed to dividends which bear no relation to work or effort, especially in the privatisation programme. The privatisation programme deliberately undervalued share prices and then rewarded those buyers who became sellers—and they were able to make a killing on the way.

In addition, the outrageous levels of interest which were offered to lenders and passed on as loans to borrowers by banks became more profitable and a safer haven for spare cash than the longer-term investments needed by manufacturing industry. Nevertheless, industry had to compete, which meant paying dividends at a time when none should have been available and at rates comparable to those available elsewhere from banks and building societies. In that way, companies were forced to damage themselves to keep the level of traded share values sufficient to attract investors.

The changes to advanced corporation tax which have been trumpeted by the Chancellor should not be seen as unproblematic, except perhaps by the relatively few profitable companies and those which have large overseas earnings. Because the changes could be disadvantageous to pension funds in some circumstances, managers may well be tempted to be cautious and buy gilts rather than take a positive view about the long-term equity and earnings of manufacturers who desperately need a continuing share of investment.

All in all, that aspect of the Budget does not provide a boost for industry. Indeed, the Chancellor claims that the measure will take £900 million in extra revenue from 1995–96 and that the benefit to companies will be restricted merely to reducing the rate at which advanced corporation tax surplus accumulates. Rather than being a boost for industry, the proposal serves to illustrate the appalling mess which has resulted from the Government's damning lack of interest in or knowledge of our country's wealth and welfare-creating manufacturing sector.

Photo of Mr Nigel Forman Mr Nigel Forman , Carshalton and Wallington 7:17 pm, 22nd March 1993

Because of the constraints on time imposed by the Speaker, I shall not follow the hon. Member for Wolverhampton, North-East (Mr. Purchase) or some of his hon. Friends in the way in which I would have wished in my remarks. I should like to preface my comments by saying that the appropriate test to apply to the Budget is what I would describe as the Barry Riley test. Those who read The Financial Times on Saturdays will know Barry Riley's column. On Saturday 13 March before the Budget, Barry Riley said, among other things: So the government's responsibility is not to engineer some kind of economic miracle, but rather to establish a stable financial framework and to attempt to reconcile people to the real world In a world of modest expectations—to which, alas, we have had to become accustomed recently due to the depth of the recession—that admonition from Mr. Riley is especially appropriate. By that test, the Chancellor will be seen to have succeeded—but, most clearly, in some months' time.

The dual curse of all Budgets and debates on Budgets is that commentators and Members of the House tend to rush to judgment, which is usually a mistake. Almost everyone expects too much of a Budget which in this case may tighten the fiscal stance by somewhere between £500 million and £2 billion, depending on how one assesses the real effect, in an economy of more than £600 billion. I remind the House that our economy represents no more than perhaps 3 or 4 percentage points of world gross domestic product. If one puts all these figures together, it is clear that one should have modest expectations for the national Budget of a country of Britain's size and weight in the world.

The Budget measures can be considered in greater and more appropriate detail in later debates on the Finance Bill. I wish to make a few comments on some of the key Budget judgments of my right hon. Friend the Chancellor and to examine his overall approach to economic policy. I intend to make my points as quickly as I can for reasons of brevity.

First, my right hon. Friend chose absolutely the right objectives for his Budget at this stage of the economic cycle. He described his objectives in the following words: first, to support the recovery in the year ahead; and secondly, to set out a clear medium-term strategy for bringing the borrowing requirement back towards balance."—[Official Report, 16 March 1993; Vol. 221, c. 169.] Secondly, my right hon. Friend was right to remind the House in his Budget statement of the profound impact of global developments on our national economic well-being. That is a truism, but one which is not sufficiently taken into account. For example, our export markets are principally—although not exclusively—in the rest of the European Community, as Opposition Members will know. Those countries are all going into recession after us, so just when we need them to pull us out on an export-led basis they will not be there in the strength that we would wish.

Mr. Foreman:

I am afraid that I cannot give way in view of the time available.

Equally, there is the super-competitive threat from the Pacific rim countries. That does not exactly assist us other than by sharpening the spur of competition, which is a good thing, of course.

Thirdly, unemployment is obviously the most critical factor in both the symptoms and causes of our economic difficulties. It is responsible in itself, either directly or indirectly, for a large part of both the cyclical deficit and, increasingly, the structural deficit. Indeed, one could argue on that point like mediaeval schoolmen and not get far. It is all deficit, whatever one calls it. Therefore, my right hon. Friend the Chancellor was right to say that a deep-seated problem needs more fundamental solutions. That is what he said about the medium-term deficit. I shall say a few words later about the fundamental solutions.

Fourthly, in the short run, my right hon. Friend the Chancellor was also right not to tighten his fiscal stance too much. Here I agree with my right hon. Friend the Member for Worthing (Sir T. Higgins) and I disagree with my right hon. Friend the Member for Horsham (Sir. P. Hordern). If my right hon. Friend the Chancellor had tightened his fiscal stance too much by taking what would have been largely symbolic action to increase taxes now, that could have had serious behavioural consequences which would have damaged confidence. Confidence is fragile at the moment, and such action would have prejudiced the recovery that we all want to encourage.

It is arguable that any Chancellor should act decisively for one year only at a given time. I agree with my right hon. Friend the Member for Worthing on that. A Chancellor should not imperil or mortgage the future by putting key decision-makers on the financial equivalent of death row—in other words, awaiting future fiscal execution. There is a great deal to be said for the old annuality approach of the Treasury, particularly on the revenue side of the accounts. My right hon. Friend the Chancellor's judgment for this year is right, but I hope that he will feel free to loosen policy still further if that proves necessary. He should do so preferably on the monetary side if the behavioural consequences of the Budget produce a half-hearted recovery. I very much hope that they will not, but we must guard against the possibility.

The growth in the economy in the next few years predicted in the Red Book, coupled with the underlying growth in productivity, which goes ahead almost regardless of recessions because it is a function of technology, and so on, will probably not be enough to reduce unemployment or significantly lift economic confidence for at least the next three years. That needs to be considered. With that sombre prospect, my right hon. Friend was right to say: Our strategy for sustained growth rests on three principles: first, that growth comes from the private sector, not from Whitehall; secondly, that a continuing commitment to low inflation is vital if competitiveness is to be maintained; and thirdly, that the only way to increase the country's long-term growth rate is by improving the supply side performance of the economy."—[Official Report, 16 March 1993; Vol. 221, c. 172.] I agree with that.

The process of recovery is also critically dependent on events with a capital E outside the United Kingdom and largely outside my right hon. Friend's influence, let alone his control. Therefore, any British Government must concentrate on doing the positive things which are in their control. That is why I welcome so much the support for improved quantity and quality in our education and training system, and I was pleased to be involved with the recently planned boost for further education, which will do important things of benefit to Britain's competitiveness. That makes some of the comments of my right hon. Friend the Member for Old Bexley and Sidcup (Sir Edward Heath) on that point slightly dated.

Looking to the future, my right hon. Friend the Chancellor may have been right to say: interest rates at their current level are consistent with the achievement of the Government's inflation objectives."—[Official Report, 16 March 1993; Vol. 221, c. 173.] That may well be true, but the dilemma is that we shall probably need a sustained period of even lower interest rates to give us a real chance of achieving our objectives for economic growth. It is the old conflict between the growth interest and the anti-inflation interest.

My right hon. Friend was right to warn of the medium-term threat of excessive public borrowing, especially when it starts as a cyclical deficit and could easily degenerate into a structural deficit unless we safeguard against it. As my right hon. Friend the Member for Horsham said, it is significant that next year the debt interest is likely to amount to almost 3 per cent. of GDP. That is pushing up towards the limit set in the Maastricht guidelines.

Both the personal and corporate sectors are rapidly restoring their balance sheets and will soon move into surplus rather than deficit. That would imply a further period of debt deflation. It is appropriate that the public sector should have a countervailing deficit until the effects of the private sector purgative have worn off and confidence and growth have reappeared. In other words, timing is everything. We cannot afford to allow the deficit to continue into the medium term. That is why it was essential that my right hon. Friend the Chancellor took the measures that he did. Equally, however, he was right to be cautious in the forthcoming financial year.

I welcome my right hon. Friend's determination to take a radical look at what the public sector does, and how. Indeed, he intends to examine the very boundaries and definitions of the public and private sectors respectively. That is likely to yield much bigger savings and make a much larger contribution to eliminating the public sector deficit than even the hardest fought public expenditure survey round.

I illustrate the argument with some examples. Should we continue for ever with a universal state pension and different pension ages for men and women? Probably not. Should we make a sustained attack on the tax expenditures and structural reliefs which now cost the Exchequer at least £90 billion—or £30 billion, according to the narrow definition? Those are some of the long-term questions that we need to consider. I commend the Budget for addressing them.

Photo of Andrew MacKinlay Andrew MacKinlay , Thurrock 7:28 pm, 22nd March 1993

After the general election, unhappily I found that I represented not just Thurrock but a large proportion of south-east England. Apart from my hon. Friend the Member for Oxford, East (Mr. Smith) and my hon. Friend the Member for Southampton, Itchen (Mr. Denham), who are on the geographical edge of the south-east region, I am the only Opposition Member in the south-east outside Greater London. That gives me a special responsibility to speak for millions of people who are suffering the full brunt of the Government's policies and feel betrayed.

More than half a million people are unemployed in the south-east region outside Greater London. The rate of male unemployment is 12 to 13 per cent. and I believe that it is rising. That area can legitimately be described as Thatcher's country, as the people who live in the south-east gave the Conservative party its successive parliamentary majorities and they now feel particularly betrayed by the Budget.

People in the south-east can remember the 1979 poster, "Britain under Labour isn't working", which showed a queue of allegedly unemployed people. If that poster were replicated today, there is not a billboard in the land that could accommodate the length of the queue—I should love us to try to construct one. In 1979 there were 1·1 million unemployed people. Now it is 4 million. Half a million in the south-east, outside Greater London, are unemployed, and languishing in the dole queue. Many of them have no hope of retrieving their quality and standard of life.

One year ago, many of those people fell for the lie that the cost of a Labour Government would be £1,250 per annum for each family. They heard the Prime Minister say, "Vote Conservative on Thursday and the recovery continues on Friday." Now these people, many of whom are unemployed, and have lost their businesses during the past year, are wondering which Friday the Prime Minister was referring to. Has it been? Is it yet to come? Is it Good Friday? They have been betrayed and they know that the cost of electing a Conservative Government one year ago has been much more than £1,250. Many of them are on short-time working and many have lost their jobs or their businesses. It is time that the Conservative Government were indicted for cheating at the polls and for betraying the people of the United Kingdom.

During the debate, Conservative Members have boasted, with a great deal of relief, about the slight drop in unemployment last week; but that is not the pattern in south-east England. Unemployment has increased in the counties of Essex, West and East Sussex and Berkshire and in many constituencies and travel-to-work areas including Crawley, Slough, Brighton and Heathrow. Unemployment is up and people cannot escape the fact that there is no sign that the rate will abate during the coming months.

Throughout the region there is great anger at the way that the Government are clutching at straws, in this minor decrease in the figures, and at their apparent indifference to the unemployed and to those who are struggling to maintain small businesses in which they have invested their life savings and who are working seven days a week and doing everything that they can to protect and promote the interests of their families. The situation is tragic and Conservative Members are to blame because of their indifference and the policies that they have prosecuted during the past 14 years and not merely the past 12 months.

In my county and in Kent, Harlow has more than 5,500 unemployed. Dover and Gravesend both have more than 5,000, while more than 6,500 betrayed people of Basildon are unemployed.

Photo of Andrew MacKinlay Andrew MacKinlay , Thurrock

No, I shall not give way because I do not have time and because the President of the Board of Trade discourteously refused to give way when I tried to speak on behalf of the people of south-east England just over a week ago.

We have been told that the Labour party is talking Britain down—what hypocrisy and humbug. The fact is that we wish to protect and to promote the people of this country and its enterprise and industry.

The President of the Board of Trade painted a picture of time and space. He did not mention what we expected to hear—what will be done to create employment and maintain enterprise in the United Kingdom and particularly in the south-east, which is my concern. Instead, he took us to every corner of the globe and back in time. He even referred to George Brown, as if he were to blame for the present situation. The Chancellor's Parliamentary Private Secretary was four when George Brown came to office and he was 18 when the Conservatives came to office. It was a long time ago. Only one group of people are to blame for the situation that the country is in—it is Conservative Members who have presided over Britain's decline and let Britain down.

Great play is made of the fact that the Government have brought down inflation. Certainly it is down substantially but that is no achievement if there are 4 million unemployed and if businesses are going bust. Surely, the art and skill of government should be to temper and to balance those difficult areas, to ensure that one constrains inflation as well as maintaining employment. The Government have singularly failed to do so.

Conservative Members have said a great deal about patriotism and implied that somehow we are letting Britain down. I and other Opposition Members are proud of our country, of its hills and landscape, of its great history and culture, and, above all, we are proud of its people. What is a nation but its people? Our people are being stabbed in the back by the Government's total indifference to the plight of those languishing in the dole queues, of those whose businesses are going bust and of the retired and poor people of this land, who will have to pick up the tab because of the imposition of value added tax on their essential fuel.

That is the failure of the Government, and it is only the beginning—a trailer for subsequent Budgets, when the Government will extend the base of VAT, which will hit the poorest hardest. Labour Members are making a stand and the Labour party will resist that all the way. We shall watch tonight as Conservative Members go into the Lobby to support the Chancellor who hit the poorest hardest.

The Chancellor's reference to the channel tunnel route was another feature of the Budget and it was a smoke screen for his inactivity and not knowing where to go. The Secretary of State for Transport also referred to the route in a statement this afternoon. The route, they argue, is important for the regeneration of south-east England and to create jobs. We must distinguish between enterprise which will create jobs in the south-east and this particular route, which is perverse and is dictated partly by the fact that the Chancellor needed something to divert attention from his inadequacies this week and partly to minimise the political impact on Conservative seats in Kent and south-east London.

The route has not been tested against any of the normal planning criteria that should be applied in a democratic country. If you wanted to put up a structure in your back garden, Mr. Deputy Speaker, or if you decided to build an airport in Northampton, you would have to go through a rigorous planning application, and no doubt if you were refused you would have access to a planning inquiry. The people of Kent and of south-east England are being denied that opportunity over the channel tunnel route, and that is outrageous. The route has been brought to us as a smoke screen, which shows that we have a bankrupt Government who have repeatedly failed over employment and the environment.

Photo of Mr Iain Mills Mr Iain Mills , Meriden 7:37 pm, 22nd March 1993

I represent a constituency in the heart of England, in the centre of the car and car component manufacturing areas, and I am joint chairman of the all-party motor industry group—[HON MEMBERS: "Hear, hear."] I hank my colleagues for their encouragement.

I have carefully examined the effect of the Budget on new car sales. The combination of the autumn statement and the removal of special car tax, which seems to have been forgotten, as well as aspects of measures in the Budget, have been helpful. As a result, in December, car sales in the home market were extremely encouraging, especially sales of Rover cars. I welcomed the President of the Board of Trade's mention of Rover, which has its headquarters in my constituency. In addition, in terms of export sales, would my hon. Friend the Minister pass on to his right hon. Friend the Chancellor the fact that the Peugeot 405 model sold in France is made at Ryton in Coventry on the edge of my constituency, which is a marvellous achievement?

Land Rover has also increased its sales through exports, as has Vauxhall, Ford and the Japanese manufacturers who have moved to Britain. The doom and gloom spread by Opposition Members ignores the fact that we not only managed to attract Nissan, the first Japanese car manufacturing company to come to Britain, which is now exporting cars made in Britain to Japan, but Peugeot, which is making French cars in Coventry and exporting them to France. They are not French cars but British ones. We have also attracted Toyota and Honda. All those companies have encouraged and sustained many component manufacturers. We have created a car manufacturing base that is a vast improvement on that of the past.

Opposition Members often get confused because our productivity rate is now so competitive that it no longer requires a high level of employment. Our output has improved greatly, but, because of that improved efficiency, there are fewer available jobs.

How has the Budget helped the car industry? The changes to car tax have produced excellent results, but I am rather suspicious about the changes in fuel duties and the recoupment of £750 million. The figures that have been provided to me by the Society of Motor Manufacturers and Traders, Ford and others suggest that between £1 billion and £1.1 billion has been recouped as a result of the changes in vehicle excise duty and the fuel duties. That is a lot more than £50 million, and I would be grateful if my right hon. Friend the Chancellor could comment on that difference.

The Budget was a lost opportunity, because if those who use leaded petrol had been penalised heavily, that could have provided a great encouragement to the use of unleaded fuel and diesel. I was disappointed that that was not done, because that change could have offered an environmental improvement. It could also have recouped some of the revenues lost when the Government got rid of the special car tax, which was a welcome move.

The future establishment of a simple system of company car taxation would be most welcome, because it is important. The Government have gone down the right route by offering a 35 per cent. discount, but I have a number of questions for my right hon. Friend the Chancellor. He said that, overall, the changes would have a neutral effect and that there would be gainers and losers. I believe that the proposals may create losers because some people's companies may have negotiated a low price for a car. In the proposed six or nine-month period, how will my right hon. Friend establish the cost of such a car?

If one company gets a better discount than another, will that be reflected in the taxation on an employee? Will the cost of the Austin Montego or the Rover 800 be established as a national figure in terms of the price at which a company could buy such cars, or will certain companies get a better deal?

Photo of Peter Bottomley Peter Bottomley , Eltham

It is calculated on the list price.

Photo of Mr Iain Mills Mr Iain Mills , Meriden

The changes relate to the cost price. Those in the industry were aiming for the list price.

Photo of Stephen Dorrell Stephen Dorrell The Financial Secretary to the Treasury

The answer is that the assessment will be made on the list price.

Photo of Mr Iain Mills Mr Iain Mills , Meriden

I am glad to know that, because I was not clear about the actual cost involved. If a company can get a better discount, however, that can create confusion, which is somewhat unfair.

I do not know whether my hon. Friend the Minister has seen the article in today's edition of The Daily Telegraph, which states that the latest changes may discourage company car use. That is something I fear. A saving of perhaps £510 on a two-litre or 1·8 litre car could result if a person gave up his company car and bought a car or was given money by his company to do that. That would result in a great loss of revenue to the Treasury. It would also lead to lower company car sales. I am keen to encourage such sales, because those cars are normally produced in Britain by manufacturers of all kinds rather than imported.

Representatives of Rolls-Royce came to talk to the all-party motor industry group and expressed great concern about possible changes in the Budget. I have spoken to Mr. Peter Ward, the chairman of Rolls-Royce, in the Select Committee on Employment, and I have corresponded with him in detail about the Budget changes. I have also written to my right hon. Friend the Chancellor about them, because I am concerned about how they will affect that company, which is facing great difficulties. The President of the Board of Trade referred to that company's success, but largely in terms of the aerospace industry.

There may not be too much sympathy from Opposition Members for Rolls-Royce owners, but under the changes proposed in the Budget, as the result of the new formula, some of those owners will be paying more than £7,000 in terms of their personal obligations to the Inland Revenue through taxation. That may seem a tiny sum in view of the cost of those cars, but given today's depressed market, there is every likelihod that the sale of Rolls-Royce cars will be seriously affected at a time when that company is close to its margins on performance.

It is desperately important to consider that issue, because the new arrangement imposes a burden of taxation on Rolls-Royce cars that is totally disproportionate to that imposed on other manufacturers. I shall be glad to correspond with the Financial Secretary on this, but I should appreciate his initial thoughts. The Chancellor should impose a cap on the new price structure at no more than £60,000 to avoid such unfair discrimination and distortion.

The effect of the Budget changes on home market car sales will be neutral, provided that those changes do not lead to a change from company car ownership. I am slightly disappointed about formula one motor racing cars. I know that the Financial Secretary is aware that their manufacture represents a major, high-technology industry in the south-east. Our industry dominates motor racing throughout the world. Despite the sad loss of our hero, Nigel Mansell, those companies will still produce the cars and the technology. I congratulate Nigel on his win in Australia on Sunday, and I wish that he would come back and join us.

Capital allowances would have helped motor racing as well as many other industries. I know the complex arguments about the advantages and disadvantages of such allowances, but it is important to encourage high-technology industries such as the manufacture of formula one motor racing cars. I am aware, however, that the extension of such allowances would provide widespread and unspecific help to industries, but I should appreciate my hon. Friend's comments on that.

As a member of the Select Committee on Employment, and as an hon. Member, I welcome the change in VAT regulations on horses. I congratulate the Paymaster General on his excellent ability to listen with sympathy and to make the right judgment on this matter. I am speaking on behalf not of the owners, but of the many thousands of people who are employed as grooms and stable lads, and in other occupations in the horseracing industry. I know that those Opposition Members who are punters will agree that the change is a good move.

I must end on a slightly negative note, however. When I met members of my association and others at the weekend, the concern about VAT on heating fuels was marked. The imposition of VAT will take place in two stages, but it is causing great concern to pensioners who are above the income support level.

Many such pensioners live in the older parts of my constituency, such as Castle Bromwich, and they feel that their savings have been eroded, particularly those who are dependent on the return on savings. The low levels of interest rates may be excellent for industry, but they offer a poor rate of return for those who have savings and who depend on interest payments. I ask the Financial Secretary to consider the effects of the VAT imposition on those pensioners who are not on income support.

Photo of Alex Salmond Alex Salmond Leader, Scottish National Party 7:47 pm, 22nd March 1993

The speeches by Conservative Back Benchers could be described as downbeat, pessimistic and almost fatalistic. I hope that they have considered the economic aggregates that lie behind the Budget, because they would certainly then know that economics could be considered the dismal science.

In the past week, I have been greatly impressed by the writings of Anatole Kaletsky in The Times. On 17 March, he wrote: Mr. Lamont is assuming that the economy will never grow by more than 2·75 per cent. a year in the foreseeable future. Last year, even when the economy was still in the depth of recession, the medium-term assumptions always contained several years of 3·5 per cent. growth. That raises an important and serious point, particularly for an economy that faces a £50,000 million deficit in its public sector borrowing requirement.

A 2·5 per cent. average growth rate will not be enough to close that deficit in the economy. That inevitably means that extremely painful choices will have to be made about tax increases. It also shows the mirage of the so-called economic miracle of the 1980s.

One might expect that any restructuring of the United Kingdom economy after the longest and most prolonged recession in living memory would bounce the economy dramatically into recovery. In fact, the Chancellor's figures do not forecast a bounce back in the economy, but a stagger back into some form of positive growth. It will be extremely difficult to square the circle of the £50 billion deficit in the public sector borrowing requirement and the disappointing growth rates predicted in the Chancellor's figures.

In terms of the economic aggregates, the underlying reality of the balance of payments shows a £12 billion deficit at the pits of the recession. That deficit is forecast to rise to £17 billion over the coming year. Although there will be some quantity effect after the depreciation of sterling, it is arguable that there is no equilibrium in the United Kingdom's balance of payments, and successive devaluations of sterling will chase down an economy that is fundamentally out of balance and out of equilibrium. It may be that the destruction of vast parts of the manufacturing sector over the 1980s has been so great that there are now black holes in the economy that will keep it in a permanent state of disequilibrium.

The dismal truth of those two underlying statistics is that there will be a strong emphasis on chasing the tail of recession, with constant tax increases, in a vain attempt to close a PSBR deficit which, because of the underlying poor performance of the economy, cannot be closed. That process would occur whatever Government were in charge of the United Kingdom, as the underlying message of the Budget is that Britain is bankrupt.

It is true that other Governments elsewhere have faced tough choices on tax increases. However, the difference between our Chancellor and President Clinton is that, when the President faced a tough choice over tax increases, he tried to ensure that the taxes fell on those who were able to pay them, whereas every choice taken by the Chancellor has aimed taxation at those least able to pay. Every decision has been aggressive, which means that the losers of the boom of the 1980s will turn into the double losers of the recession through the 1990s.

I shall mention three aspects of the Budget that are not just anti-poor—as the whole Budget is—but produce anti-Scottish effects. The first of those aspects involves the constant year-by-year increases in petrol taxation.

Rural regions will suffer greatly, and transport costs in the Scottish economy will increase substantially. Those of us who are active in Scottish politics remember only too well the Kincardine and Deeside by-election, when the Liberal Democrats were slated by the Secretary of State for Scotland for proposing, not a constant annual increase, but a one-off increase, in petrol duty. The Secretary of State for Scotland waxed eloquent about the impact of that surcharge—as it was called—on the rural areas and the economy of Scotland, but now the Chancellor's Budget predicts a substantial year-by-year impost on petrol duty.

The petrol increase might have been defended in environmental terms if some consequent attempt had been made to reinforce the transport infrastructure north of the border to sustain and develop the public transportation system. However, all the investments in public transport in the Budget are made in the south-east of England, where billions more pounds are being poured into the transport infrastructure. The Budget contains nothing for anywhere north of Potters Bar.

The second aspect involves oil taxation. The Chancellor announced with a flourish that he was abolishing some aspects of petroleum revenue taxation. Some commentators were even gullible enough to describe that measure as a boost for the oil industry. The consequence of the taxation will be perhaps as much as £600 million accrued by the Exchequer from the oil industry over the next year or so.

There is a case for increasing oil taxation at a boom time, because oil is a cyclical industry, and a taxation increase can be defended as a means of lowering the pressure of demand in the sector. But what possible case can there be for increasing taxation when the sector is already depressed? The immediate impact of the Chancellor's Budget measures announced last Tuesday has been the cancellation of drilling contracts in the North sea over the weekend, and hundreds of job losses in a sector that was already moving into a downturn.

The third aspect was the taxation on heating—by far the most controversial measure in the Budget. For many years, the Scottish National party has argued for a cold climate allowance to take account of the fact that, in some areas of Scotland, it costs 30 per cent. more to heat a home than in the south-east of England. We did not expect to achieve that allowance from the Government, but even we did not expect a cold climate surcharge, with the Budget measures increasing that disadvantage.

A number of statistics lie behind my concern. The report "Warm Homes in Cold Weather", released in October 1991, showed that, while deaths in January between 1976 and 1984 were 4 per cent. above the monthly average in west Germany, and 7 per cent. above the average in Sweden and Norway, deaths in Scotland in January were 16 per cent. higher than the average. Many Chancellors have been slated for not acting on the cost of living, but the present Chancellor deals in statistics that involve the cost of dying—the most severe aspect of the Budget.

Scotland is the most energy-rich country in Europe, and one of the most environmentally sensitive in terms of energy production. The Scottish electricity industry is either low-carbon or no-carbon in its production. It is ironic that poor people in Scotland—pensioners and those on low incomes—will suffer poverty amid plenty. Those are the serious effects of the Chancellor's Budget, which will not save the world through green taxation. The Budget sacrifices the poor and those most vulnerable in Scottish society and society elsewhere.

The House should vote against the first Budget resolution, on amendment of the law. If we passed that resolution, it would gag and bind the Bill in Committee. The first resolution does not allow subsequent discussion of the Bill to include any amendment proposing zero rating or reduced rates of value added tax. If the first Budget resolution is passed this evening, it will mean that, in Committee, hon. Members will have no chance to move zero rating on fuel for specific categories or even to lower the rate for some categories. No Minister has specified the amounts and funds available to help those most vulnerable in society as a result of the Budget impost. It would be incredible if, in Committee, hon. Members could not substantially amend the measure.

I have heard concern expressed on the issue, both over the weekend and by Conservative Members tonight. Even if they are not prepared to vote directly against the Budget measure, they should at least vote against the first resolution. Unless we vote against it this evening, it will be impossible later to ensure justice for the pensioners and those most vulnerable in society.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield 7:57 pm, 22nd March 1993

We are having a most interesting debate and I have much sympathy with a number of the contributions that have been made—not least that of my hon. Friend the Member for Meriden (Mr. Mills) and my right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath). I particularly agree with what my hon. Friend the Member for Meriden said about Rolls-Royce motors. The Budget will greatly penalise one of the great motor companies of this country. It produces expensive cars, but I do not believe that its production should be penalised, as the Budget has done.

I am deeply concerned about the impact of placing value added tax on heating and light, and the effect that it will have on those on low income, the unemployed and the elderly. I refer particularly to those on low incomes who fall just outside eligibility for assistance available under state income-related benefits.

Unless we get categorical assurances from the Government that the position of these groups will be fully taken into account in respect of this large additional impost, I shall not be able to support the Government's measure.

I come from an area where we have a good balance of industry and an excellent range of manufacturing industries, modern and traditional—Zeneca plc, the pharmaceutical division of ICI, Ciba plc, and a number of video technology, information technology and computer companies. We also have many companies in the traditional industries of textiles and clothing, such as Rieter Scragg, Mowbrays, Cressys and Adamley Textiles. These are traditional but still substantial employers, I am glad to say. We also have paper and board companies, and engineering firms, so we have a fine balance. I always seek to participate in these debates from a position of knowledge of manufacturing industry.

When I spoke in the debate nearly a fortnight ago I made six suggestions for consideration by the Government: the introduction of 100 per cent. capital allowances; a commitment to a further reduction in interest rates; the abolition of stamp duty; the creation of a new task force to identify import substitution; a more favourable tax regime for fees for part-time study; and an explicit political commitment to promote British exports. I also called for a review of our laws on liquidation anti bankruptcy.

For the very first time, the Chancellor has shown a receptiveness to the vital role that our manufacturing and construction industries play in providing employment and generating wealth. I am aware of the difficult balancing act that the Chancellor had to perform between the need to deal in the medium term with the threat of a spiralling PSBR and the need to ensure that the first weak breaths of economic recovery were not stifled by the dead hand of swingeing tax increases.

I make these comments to show that I fully appreciate the problems faced by the Government and that I welcome the greater attention that is being paid to our manufacturing and construction industries. The Manufacturing and Construction Industries Alliance, launched in this House about three weeks ago, together with the new all-party manufacturing group launched by my hon. Friend the Member for Coventry, South-West (Mr. Butcher) and the hon. Member for Huddersfield (Mr. Sheerman), and the initiatives in which the CBI and the Engineering Employers Federation are involved, have, I hope, had something of a catalytic, if not a causal, effect in concentrating the attention of the House and of Ministers on these important sectors.

It is also clear that the Chancellor sought to deal with a number of the principles that I highlighted by giving greater and welcome assistance to our exporters through a boost in the export credit guarantee schemes, by reviewing the stamp duty on the sale of houses in the lower price bands, and by renewing his commitment to greater public spending, in partnership with the private sector, on infrastructure development projects. I also warmly welcome the change to the loan guarantee scheme, which will cut the cost and improve the availability of bank finance for smaller businesses. We want more long-term, fixed-interest loan schemes. We want more equity taken by the clearing banks, and fewer businesses financed by overdrafts.

There is also much-needed help for small businesses in the form of a review of VAT procedures and an extension of the freezing of the business rate. Many thousands of small and not so small businesses will greatly benefit.

If the Chancellor, however, is being asked by the House to walk a tightrope between curbing the PSBR and encouraging economic growth, we should not overlook the fact that he is being required also to juggle. If, as the Prime Minister and the Chancellor have both said, the conditions for economic growth—low inflation and low interest rates—are in place, then, in the absence of growth, we must look around for the missing factor in the equation. It is, of course, consumer confidence. In the months ahead, the success or otherwise of last week's Budget will be assessed against its impact on consumer spending intentions.

That view, expressed by the alliance last week in a press release, is echoed by Mr. Howard Davies of the CBI, who, writing in the current edition of "The House Magazine", comments on the possible impact of the tax increases that have been announced by rightly saying: There is a risk that they will affect spending decisions this year"— not in the years thereafter. If the fears of the alliance and the CBI prove to be justified, the Chancellor's Budget will have failed to give consumer confidence the boost that is so desperately required, and the overall impact of his proposals will not be, as he has said, neutral: they will be negative.

When I spoke two weeks ago in a debate about manufacturing and construction, I called on all political parties to lay the foundations for a new cultural and political consensus that places the needs, problems and potential of these industries firmly on the parliamentary agenda. The intentions behind the Budget show that the Chancellor's mind is receptive to the proposals that I espouse, but, unfortunately, its practical proposals clearly show that he is not with us yet.

I ask the Paymaster General to assure me that any responsible proposals for greater help for manufacturers and exporters that are suggested in subsequent debates on the Finance Bill will be given careful and sympathetic consideration; and that if we make a convincing case for the introduction of 100 per cent. capital allowances, for example, it will be accepted and policies will be changed as a result.

We have heard some first-class contributions to this debate. I am delighted to see the right hon. Member for Ashton-under Lyne (Mr. Sheldon) in his place. I agreed with much of what he said; it is only a pity that so few hon. Members are present to be influenced by these considered speeches. When we come to vote, we will be voting not on the merit of the debate but in accordance with party lines. That is tragic, because there is great ability in all parts of the House.

Hon. Members on both sides have taken up the cudgels on behalf of manufacturing and construction. Let that expertise, experience and knowledge be put to good effect, so that we can once again regenerate the only source of non-inflationary economic growth: our manufacturing base. If we do, we will pass on a legacy to future generations of which the House and this Government can be proud.

Photo of Gordon Prentice Gordon Prentice , Pendle 8:07 pm, 22nd March 1993

I am pleased to follow the hon. Member for Macclesfield (Mr. Winterton). I represent the manufacturing capital of Britain. A higher percentage of people in Pendle than in any other constituency in the land work in manufacturing industry. My hon. Friend the Member for Livingston (Mr. Cook) opened the debate by referring to the fact—it is a fact—that the Government cheated their way back to power last 9 April. I want to pick up that theme, and to return to the Tory manifesto, "The Best Future for Britain".

Manifestos are important, and this one is no exception. It represents a contract entered into between the Government and the people, so the Conservative manifesto cannot be lightly cast aside after 11 short months. In that time a great many things have been cast aside, most notably honesty. The whole political process in Britain has been corrupted by this Government, who told the British people that the Conservatives are the only party that understands the need for low taxation. That rings hollow now.

In the foreword to that manifesto the Prime Minister told the British people that he believed in low taxes—no doubt in the same way that he believed that the Government's duty should be to protect the value of the currency without which all spending pledges are worthless. That was the man who devalued our currency. I doubt now whether he could talk about pledges, manifesto or otherwise, without being blown away in a gale of laughter. His pledges are totally devalued.

The right hon. Gentleman used to believe in manifesto pledges and the mandates that they conferred. On 29 October, The Times informed us that he told a packed meeting of the 1992 Committee—in the context of the internal debate within the Tory party on Maastricht, which rages now as it did then: The Conservative manifesto was not an a la carte menu from which they that is, Conservative Members— could merely pick the juicy items. The fact is that the manifesto was not a menu at all; it was a work of fiction.

At the CBI conference on 9 October last year, Mr. Philip Goldenberg of S. J. Berwin told the delegates, if that is what they were: If the Government's election manifesto had been a company prospectus it would have had the entire Cabinet in jail. Quite so, but it is not just fabrication and invention that characterise the Government's record—it is also incompetence. The chairman of GKN, Sir David Lees, told the same conference: A new economic theorem is developing known as Lamont's Law. It states that any economic indicator will invariably turn down once the Chancellor identifies it as a portent of economic recovery. He was telling us something that we already knew about—the green shoots syndrome.

People have woken up to the difference between what the Chancellor has been telling them and what has actually been happening. The scale of duplicity and mendacity perpetrated on the people of Britain is truly spectacular. The Sunday Times, in an excellent editorial yesterday, said that the Budget was not a budget for growth, or for jobs, or for business though it should have been for all three…It was a budget to pay for the past mistakes of John Major and Norman Lamont. There have been many mistakes.

The Prime Minister of manufacturing presides over the relentless deindustrialisation of Britain. In my constituency a fortnight ago, Progress Engineering went down the tube, taking 40 jobs with it. Last week Wadkin Colne of Trawden folded, with a loss of 65 jobs. Those come on top of the cascade of job losses in my constituency month on month and year on year.

The Prime Minister believes in protecting the value of the currency, but devalues in a move costing the country £5 billion. The Prime Minister pulled out of the exchange rate mechanism, although he had said that staying in the ERM was absolutely central to the Government's policy. The Prime Minister won the election on the basis of slogans such as "A double whammy" and "Labour's tax bombshell", but went on to hike taxes massively. I do not know what is worse—what was perpetrated on the British people 11 months ago, or what happened in 1979 when Saatchi and Saatchi said, "Labour isn't working'' and employment stood at 1·1 million: there are now 3 million unemployed.

The £17·5 billion tax rise announced in the Budget is the biggest in British history. Allowances have been frozen, mortgage tax relief has been cut and value added tax has been loaded on to domestic fuel. Yet at the end of our debates on the Budget there are still no cast-iron guarantees that the poorest in society will be fully compensated. As the hon. Member for Macclesfield said, it is people just above the income support level who lose, and who will always lose unless there are such guarantees.

What does it all mean for people in my region? In the north-west, 1,130,000 households will lose because MIRAS is to be restricted to the 20 per cent. rate and some 2,734,000 people will pay higher tax bills because allowances and thresholds have been frozen. Despite everything that the Government said at the time of the election about national insurance contributions—they lambasted Labour for its plan to remove the ceiling—there is to be a 1 per cent. rise which will affect 18 million employees generally, and 2,405,000 in the north-west.

Raising national insurance contributions is more regressive than a 1p rise in income tax because of the lower levels at which people start paying contributions.

As my hon. Friend the Member for Livingston (Mr. Cook) said, about 500,000 people on wages so low that they do not pay income tax will be caught by the increases in national insurance contributions. What a state of affairs. The Sunday Times yesterday said that income tax was effectively being increased in the Budget through the sleight of hand of an extra 1 per cent. on national insurance contributions. Sleight of hand comes easily to a Chancellor who is also a conjuror and a member of the Magic Circle. However, it is not how everyone sees the Budget.

I was speaking at a lunch meeting of the Pendle business club last Friday, which was presided over by Mr. Philip McIvor, the chairman of Farmhouse Biscuits. He told the meeting that the Budget was a Budget for jobs. That was pure fantasy, especially in Pendle where unemployment has risen by 85 per cent. since the Prime Minister entered No. 10. In the constituency in 1991—almost predating the current deep recession—269 companies registered for VAT, but 285 deregistered. It is not a Budget for jobs. In so far as Britain is pulling out of the recession, it is because there is a more competitive exchange rate which is likely to encourage export-led growth. That is purely fortuitous, because of what happened on 16 September when the Prime Minister and the Chancellor pulled Britain out of the ERM.

The right hon. Member for Old Bexley and Sidcup (Sir E. Heath) said that he feared for the future of Britain because of the destruction of so much of our industrial base. Lord Prior, a former Conservative Cabinet Minister, said that it would take 20 years to repair the damage that has been done—

Photo of Mr Geoffrey Lofthouse Mr Geoffrey Lofthouse , Pontefract and Castleford

Order. The hon. Gentleman's time is up.

Photo of Peter Bottomley Peter Bottomley , Eltham 8:17 pm, 22nd March 1993

Before discussing taxation and spending, I want to refer to what happened in Warrington on the weekend.

We have our debates and our arguments; other people use bombs and bleeding, bullets and maiming as a substitute for political argument. I believe that the House would want the message to go out that we prefer debate and rational argument.

If people want to put a point of view on Irish nationalism, they should get elected and come here, or get more than 2 per cent. of the votes for the Dail and speak in the Irish Parliament. They should not destroy children and crucify three-year-olds in pursuit of political argument.

The Government should be praised for giving so much information to the House and to the country. In the autumn statement, they provided "Public Expenditure Analyses"—Cm. 2219—and gave most of the hints and clues on tax expenditure in appendix D, pages 135 to 138. In effect, they stated the options that they would be considering for reducing some of the gap between spending and taxation.

In terms of extra duty on motor fuels, the Government were right. There are also strong arguments for their proposal to impose value added tax on domestic fuel. I criticise those hon. Members and commentators who take it for granted that some of the factors that increase fuel costs cannot easily be changed. Sixty per cent. of pensioners live in homes that have inadequate heating systems. That should be tackled under a five-year programme that would create worthwhile work for those who need it most—in the same way that we tackled roofing problems some time ago during an earlier period of high unemployment.

This coming week, we shall see the end of the coal obligation on generating companies—the requirement for them to pay an extra £1,000 million for the higher price of coal. The cost of burning coal to generate electricity and the extra profit margin involved probably have the same effect as VAT on domestic fuel. That obligation was accepted because it was felt that keeping more people under ground was a good thing, even though the cost must be met by electricity consumers. We have already heard that a higher proportion of that cost will be paid by those on low incomes, or the cost will account for a higher proportion of the incomes of those who are not earning. We should be realistic about both.

In the same way, I suspect that some hon. Members and people outside the House would have regarded it as better if the cost of domestic gas had remained as high as in 1986, when British Gas was privatised, to avoid the 17·5 per cent. VAT imposition over the next two years, even if that made people worse off. After privatisation and competition, the real price of gas has become 20 per cent. lower than it has been, so even a 17·5 per cent. increase on that reduced index would have left users better off. We must be rational.

As to reducing unemployment levels, I have a horror of not just the way that the coal communities appeared to have been disregarded but of the way that the debate has developed. If last autumn's argument was for an extra £100 million of spending a month to maintain an extra 25,000 jobs in mining communities, that represents £4,000 per miner job per month, or £48,000 a year.

On the fringes of my constituency in south-east London, seven miles from this place, is the Woolwich Arsenal site. Over the past 70 years, it has lost 73,000 jobs—the equivalent of a colliery closing every single year for 70 years. The last 1,000 jobs go this year. Unemployment is running at 60 per cent. in the Arsenal ward of the hon. Member for Woolwich (Mr. Austin-Walker). That affects many of my constituents as well.

A city challenge application asked for £12 million a year over five years—a total of £60 million—to generate between 2,000 and 4,000 jobs, with much private sector money coming in as well. It would have involved a development on derelict land seven miles from Westminster.

We should ask whether the Government can rationally decide expenditure over and above the level of their taxation revenue, and whether the subsidy provided by the consumer or taxpayer to help transition in the mining industry could not be partly diverted to meet some of the city challenge applications that could not be approved by the Department of Environment. Both the economic and employment effects would be substantially better—in the same way that an extra £500 million of capital investment in British Rail and London Underground would have a better economic and employment effect than transition being delayed too long for too many pits.

Getting the framework of taxation right does not get proper attention. If I had longer to speak, I might question whether there should not be the same VAT arrangements in respect of greyhounds as those made for horses. Why should not the sport of kings' arrangement work for those of us who are going to the dogs?

I praise the Government for acknowledging that they have lost £500 million a year in revenue on whisky—with or without an "e". We find that, because of fashion, recession and strangling the golden goose, whisky sales have been declining. In leaving whisky out of the count, and reducing the duty on that and other spirits, there may be a rebalance and people will be able to make a choice—especially when they are not driving.

We should also examine the properness of tax expenditure. I have argued for most of my 17 years in the House that mortgage interest relief is counter-productive. I repeat also my comments on previous occasions about personal allowances. It is back to the Grey Book, which details the large sums of tax forgone by permitting personal allowances—and I refer not just to the married man's personal allowance. I welcome its reduction to 20 per cent. I would reduce the personal allowance to 20 per cent. and do the same in many other areas, so that help is concentrated where people need it.

I remind of the House for the reason for the child benefit scheme, which was not mentioned in the Budget because it is dealt with relatively automatically. Child benefit is not a form of income support. I suspect that the Treasury would do better to wrap up the Department of Social Security and make its functions an adjunct to the Treasury, in the same way that the Inland Revenue and Customs and Excise are.

There are further important measures to be taken in respect of income support. Child benefit should not be part of that. What is the justification for a cash child allowance? Looking at the family life cycle in social and economic policies, when people have children their taxable capacity is reduced and their needs increase. That is the justification for the allowance. It should not be a tax allowance that gives most help to people in the 40 per cent. tax hand, about the same help to those in the 20 per cent. or 25 per cent. band, and no help to those below the tax threshold. Would it be better to have a flat cash allowance? The answer is yes.

My right hon. and noble Friend Lady Thatcher understood that, which is why in 1983 and after what I call the Lawson fallacy on child benefit, she made sure that the Chief Secretary to the Treasury and the Secretary of State for Social Security increased it. She understood, but we often forget. Every three or four years, it is worth making the argument again out in the open.

If I had time to make a longer speech, I would talk about the effects of the Budget on trade. It is right, too, to encourage small business.

We should ask when we will be willing to give up tax benefits at some stage or in some circumstances so that others—or people like ourselves in different circumstances—can gain more benefit either from tax expenditure, real benefits, or the chance of employment.

It is not a question of from whom we will take and to whom we will give. It is in each person's life cycle. When will they be willing to give up what they have, so that they and others can gain it when they need it?

Matching needs and resources better requires a debate that goes beyond the scope of a Budget debate. I hope that is something that Labour's social justice commission will examine and that the Tory party will find a way of making that match. I hope that some of those issues will be considered across the Floor of the House, so that the Budget deficit will be reduced, people's well-being will be increased, and avoidable disadvantage, stress and handicap are minimised.

Photo of Clive Betts Clive Betts , Sheffield, Attercliffe 8:27 pm, 22nd March 1993

The Budget stands condemned on four grounds. It contains broken promises, offers no hope to the unemployed, is based on a Government act of faith that recovery will somehow occur, and provides no means of dealing with the British economy's long-term structural problems.

We are told that, at the time of the 1992 general election, the Government had no plans to increase the scope of value added tax. Those are weasel words. The majority of people who voted for a Conservative Government did so in the firm belief that VAT would not be levied on goods or services such as domestic fuel during the lifetime of this Parliament. For the Government to claim now that they had no such plans in 1992 but that they might at some time during the next five years is dishonest.

The Government claim that their promises were made sincerely in 1992. What of current Government commitments not to extend VAT to children's clothes, food or books? Are those commitments just as sincere as those made in 1992?

The impact of the Budget measures was mentioned by several of my hon. Friends. We have not yet been given a figure by the Government, but they could still cushion the impact of their actions on people receiving income support and pensions. They cannot, however, protect the low-paid who are just above income support levels and for whom fuel expenditure represents pay a higher than average percentage of their income. Those same people must, on average, pay out a higher percentage of their incomes because of the national insurance increases. They, not the higher-paid, will suffer. The Government have offered those in low-paid employment a real double whammy.

I personally welcome the changes in mortgage tax relief. I do not consider the mortgage tax relief scheme defensible; I have held that view for many years. But why did not the Government use the money to introduce a benefit scheme for low-income earners with mortgages—people who are not only struggling to make their mortgage payments now, but, in many thousands of cases, facing the prospect of repossession? The Government could have used the savings resulting from the change in the mortgage tax relief system to introduce benefits to assist those whose earnings place them just above income support level.

What have the unemployed been offered? They have been offered no help and no hope. No help or hope has been offered to the 100-plus who are to lose their jobs at Whitbread in Sheffield, the 100-plus who will lose their jobs at Trebor Bassett and the 100-plus who will lose their jobs at Avesta Sheffield. All those job losses have been announced in the last few weeks.

What do we offer a 50-year-old ex-steel worker, made redundant up to 10 years ago, or a 25-year-old who has never had a job? Do we offer the possibility of one of 100,000 training places, when those people know, and we know, that there is no possibility of their getting a job at the end? That is not merely dishonest; it is immoral.

The Government could have done so much. They could have released the capital receipts that are still locked up in local authority coffers; they could have presented sensible proposals for the development of a proper transport infrastructure, rather than the shambles and the constant delays of the channel tunnel link and the fiasco of the Jubilee line extension.

When will the Government recognise that public investment must be in place before we can create a climate in which private investment can follow, instead of trying to cobble together deals that simply result in years of delay and no action on the ground? All that the Government appear to offer the unemployed is protection from the Labour party and the social chapter. That is a real bargain basement offer: "no pay or low pay" seems to be their policy.

The whole Budget seems to have been motivated by faith—the belief that the recession will end, some time, somehow. In imposing VAT on fuel, the Government have admitted that they got it wrong: they thought that recovery was coming 12 months ago, but it did not materialise; hence the increase in the public sector borrowing requirement. Their economic approach is almost equivalent to the national health service abandoning medical science in favour of faith healing. Behind the facade of the "seven wise men" arguing away, we can almost see Treasury Ministers and their civil servants in a room in No. 11 Downing street—on their knees, eyes closed, holding their hands in front of them, willing the green shoots to appear. There seems to be no more substance than that to Government medium-term strategy.

Every so often, a cry of joy will be heard as unemployment falls for a month—although every serious commentator recognises that that is merely a blip. Cries of delight will be heard when industrial production goes up in one month, but the fact that the far more important three-month average has not shifted will not be recognised. Retail sales have risen since Christmas, but, year on year, they are still down in real terms. Housing activity is increasing slightly, but the scale of the depression has been so great that that increase will not feed into the construction industry for a long time, and the Government are offering the industry no real assistance.

The Government are willing recovery to occur, but what will happen if it does not? What will happen if it is delayed for another year—delayed until the tax increases begin to bite? Where in the Budget is the recognition that recovery is not certain, and that the timing is problematic? Where do we read of the consequences of the Government's getting it wrong, and—as they did 12 months ago—predicting a recovery that does not happen?

Let us turn to the long-term problems. Where is Government policy in that regard? Since 1979, unemployment, manufacturing investment and the balance of payments have worsened. The Government's problem with the economy is not cyclical; it is a fundamental, structural problem. The 1980s were a decade of private consumption and borrowing, which created personal debt. The Government should be turning the 1990s into a decade of investment in manufacturing and infrastructure, but there are no signs that they are doing so.

The Government's dilemma—the PSBR is rising to record levels, while unemployment is doing the same—is a product of the real weakness of the British economy: the inherent failure of our manufacturing industry, its collapse in the 1980s, the loss of a third of manufacturing jobs and the dereliction and destruction of areas such as the lower Don valley in Sheffield, where 50,000 jobs were lost during that decade. The same fundamental problems have brought about our balance of payments crisis at the depth of the longest recession that the country has experienced since the war.

The one thing for which the Government can claim some credit, in their terms, is getting inflation down; but we must ask whether they have solved even that problem. They have brought inflation down to below 4 per cent., but that was at the depth of a recession; they have never managed to achieve the same result at any of the peaks of economic activity since 1979, although each of those peaks has coincided with a higher level of unemployment than the previous one. That is the scale of the problem that the Government not only face—as we do—but have created, and for which they will not accept responsibility.

The Budget does not recognise the existence of such problems. It does not attempt to solve the long-term difficulties of financing British industry, and the relationship between banks and manufacturing industry, which clearly is not working; it makes no attempt to deal with the long-term problems of financing and offering equity capital to small firms, and the skills gap that affects the whole of industry; and it does not try to stimulate research and development to secure long-term recovery. None of those issues is mentioned.

On all counts, the Budget has failed. It has failed the whole nation with its broken promises. It has failed the unemployed by offering them nothing; it has failed to give a clear direction on medium-term strategy, offering faith and hope as a substitute; and it has failed to recognise the inherent structural failings of the economy, or to provide any policies to deal with those failings. It is a failed Budget from a failed Government.

Photo of Anthony Steen Anthony Steen , South Hams 8:36 pm, 22nd March 1993

That was a merry speech.

I do not know whether the 10-minute rule will apply to me, as I am the last Conservative Back Bencher who will speak this evening; hon. Members on both sides of the House may wish to hear a little more from the Conservative party, and I am happy to speak for a little longer. The 10-minute rule means that hon. Members cannot mention all the speeches that they have heard, although I know that they will be mentioned in the winding-up speeches. Some interesting speeches have been made—for instance, the speech of my hon. Friend the Member for Eltham (Mr. Bottomley), who always speaks so brilliantly that his tour de force must be read very carefully if the reader is to understand all the finer points. I am sure that the House will wish to return to that subject.

In the nine minutes available to me, I want to speak about the Budget's interesting proposals for small businesses. Unlike its predecessors, which have tended to introduce fiscal measures of one kind or another, this Budget recognises that the administrative arrangements for small businesses are often equally important. It is no good giving companies tax breaks if there are so many rules and regulations that they are prevented from being profitable. I welcome the introduction of self-assessment for income tax purposes, the fact that self-employed people will pay tax based on current and not preceding year' estimates, and the fact that companies that are not incorporated will not be required to have a statutory audit.

The Budget, however, must be seen in the context of other initiatives to help small firms. The Government have abolished 5,000 business forms and 10,000 others. What did those forms do? How can the Government simply get rid of 5,000 forms? What were they all produced for, and what is the result of losing them? Why were they put there in the first place? What have we lost by taking them away? Will the number of civil servants and bureaucrats be reduced?

Does bureacracy in this country increase in direct proportion to the number of rules and regulations that are abolished? Is there a new Parkinson's law whereby the more things we get rid of, the more staff employed increase? The Palace of Westminster is a good example. I have my office in one of the outbuildings, where a very expensive security system has been installed. The door opens only after a card has been inserted. Before this high security system was installed, there were no security guards. Now, with the system, there are two full-time security officers as well as a very expensive security system. There seem to be more and more opportunities to duplicate our staff as well as our technology.

Photo of Patrick Cormack Patrick Cormack , South Staffordshire

And the doors often do not work.

Photo of Anthony Steen Anthony Steen , South Hams

That is perfectly true, but that is another matter.

Since 1957, the rate of introduction of Government rules and regulations has increased steadily. The trend has accelerated during the past six years. This most recent trend has been caused by the Government's practice of introducing new rules and regulations—statutory instruments—under ministerial powers, following primary enabling legislation. In 1992, the Government introduced 2,439 statutory instruments. It is not surprising that, in the same year, 24,424 companies became insolvent. It was not just the recession; it was the impact of the plethora of rules and regulations on enterprise. Many of the rules and regulations emanate from this place, as well as Europe.

Each set of regulations develops a life force of its own. As it spins into orbit, it attracts lots of people around it. It is self-generating; it attracts more and more officials as it spins off into space. Officials will fight to the death to keep each regulation in place. Every time we introduce a regulation, either in this House or in Europe, we also introduce a new bureaucracy to service that regulation. Far too much stick and not enough carrot is given to companies to implement the rules and regulations.

The Prime Minister has already said that he intends to do something about reversing that trend, but the buck starts and stops in Westminster. Just as central Government are trying to make local government more cost effective, so we need to apply the same rules to ourselves. I wonder whether machinery exists in the House to deal with central Government Departments that are churning out rules and regulations. Some hon. Members may say that the advantage of the Mastricht debate is that it is preventing the Government from introducing more and more rules and regulations.

I welcome both the Prime Minister's and the Government's intention, but we have to translate their belief into freeing up enterprise and reducing the amount of bureaucracy and the number of rules and regulations imposed on small businesses.

What is the problem? By privatising companies, we have produced two organisations: first, the provider of the service; secondly, the regulator. That has led to a new scenario. Water authorities used to provide both water and water services. They also used to be the gamekeeper. Today, the job of water authorities is to provide clean water and to free the sea from pollution. The job of the National Rivers Authority—the gamekeeper—is to scrutinise the work of the water authorities and to prosecute them if they do not comply. It is rather like a man with the stick chasing a dog.

The reason for the introduction of more and more rules and regulations and for their application with such ferocity and enthusiasm is because those two functions have been separated. We have not dealt with the effect of the introduction of the regulator.

The Audit Commission is breathing down the necks of local authorities. It spends most of its time pressing local authorities to increase their standards of performance. Some standards incur the more rigorous application of statutory duties and regulatory enforcement. Consequently, enforcement officers are more zealous when faced with target enforcement standards. It is the classic mistake of using input rather than output measurement—an increase in efficiency but not effectiveness. In general, the Audit Commission adopts a regulatory approach. That is a fundamental error, as there are other ways of encouraging British management and industry to comply.

The problem with negative enforcement is that it has resulted in a new approach that accepts accountability for compliance, with health, hygiene and safety standards, but oblivious to the current economic position. Rules and regulations shall be brought into force only when the nation can afford to do so.

How are we now to proceed? First, there are 70,000 rules and regulations on the books. We cannot repeal many of them. Furthermore, all these officials are implementing the rules and regulations. They would not give up their jobs lightly.

Secondly, we could starve the enforcement agencies, such as the National Rivers Authority or the local authorities so that they no longer had the money or the bureaucracy to enforce the regulations. The Chancellor of the Exchequer might find that approach attractive. He could save a lot of money by not providing resources to the enforcement agencies.

Thirdly, we could slow down the enforcement of the rules and regulations. We ought not to be the first of all the European Community countries to enforce the regulations. We should not necessarily be among the slowest, such as Greece and Portugal, but we should slow down the pace of enforcement. That would be extremely helpful.

Lastly, a new civil service culture is needed. That may be the result of the scrutiny team's recommendations. An announcement was made earlier this month that a team would be set up, and 500 small firms would be asked to tell the Government what should be done about the regulations from which they suffer.

Last year, red tape killed nearly 25,000 companies. Although I welcome the Prime Minister's initiative, I am concerned about how it will be translated into action. We shall be unable to compete with the rest of Europe so long as we smother business with rules and regulations which——

Photo of Mr Michael Morris Mr Michael Morris , Northampton South

Order. The hon. Gentleman's time is up.

Photo of Bill Etherington Bill Etherington , Sunderland North 8:46 pm, 22nd March 1993

I appreciate being called to speak in the debate, Mr. Deputy Speaker, having been absent for so much of it. However, I heard the President of the Board of Trade's speech this afternoon, and it was like a trip down memory lane. He referred to the dissatisfaction of the Conservatives with what they inherited when they took office in 1979. I am surprised that he did not go back to 1924 and castigate Ramsay Macdonald, or to 1945 and castigate Clement Attlee. What has to be realised, above all, is that the Government have been in power for so long that they cannot castigate anybody else for what has happened. They have been in power for over half a generation.

My constituency is very depressed. The Budget has given no encouragement to many of my constituents. Nevertheless, I welcome three things. I welcome the fact that mortgage interest relief is to be reduced. I have long believed that property prices have been kept artificially high for many years because of mortgage interest relief. It would be a good thing if it were abolished altogether, although I realise that that will take time. I am also very pleased about the abolition of stamp duty on premises that are sold for less than £60,000. That will be very good for first-time buyers who are short of money.

Most important of all, I am pleased not so much by what is in the Budget as by what was left out of it, although the Chancellor of the Exchequer made a playful reference to it. He told us that there is to be no imposition of VAT at this time on reading material. I very much welcome that announcement.

We must view the Budget in the context of what has been happening in the past 14 years. It is an ironic coincidence that the Library issued a very good publication earlier this month. It could not have come at a better time. Research paper 92/93, entitled "The Burden of Taxation", points out that, since 1979, those who have been on above-average earnings have gained at the expense of those on below-average earnings. I recommend that Conservative Members read the document instead of trying to mislead the public by telling them otherwise. It is now possible for a person earning 150 per cent. of average earnings to pay a smaller proportion of his earnings in direct taxation than a person on average earnings.

Every hon. Member is well aware that indirect taxation, such as VAT, bears more heavily on the poor. I wish to comment especially on the proposed imposition of VAT on domestic fuel at 8 per cent. next year and at 17·5 per cent. in 1995. Hon. Members, and especially Ministers, probably will not notice the increase in their fuel bills. It is fine for them to say that it is a good system, but they have clearly not considered the low-paid. I am not talking only about poor pensioners. Many pensioners have small pensions in addition to their state pensions, which takes them above the income support level. They will be hit especially hard, but 12 million people live below the European decency threshold, and they will be hit even harder.

It does not take much understanding to realise that many people whose incomes are not very high—perhaps both partners are having to work to give their children a reasonable standard of living—often live in premises that are not very well insulated. They do not always have a choice of fuel, and matters have not been helped by the fact that many councils have not been able to bring properties up to the required standard, because of a lack of cash. It is an indictment of the Government that they should consider a fuel tax when there is already so much fuel poverty. It is no exaggeration to say that, every year, people perish from hypothermia, largely because of the cost of fuel but also because many premises are not up to standard.

I always remember a good comrade of mine saying many years ago that one can always judge a society by the way it treats its very old and very young. Just as many pensioners will suffer from this pernicious taxation, so many young people will also suffer. It does not bear thinking about.

One of the most annoying aspects about the proposal is that, during the so-called boom years, many of those on above-average incomes did very well, and it seems only right and proper that, when the country runs into more stormy times, they should be expected to pay a little more, not less. Once again, the Government have shown just what sort of Government they are, how unfair and unjust, and how little respect they have for those who create the wealth, who are not necessarily those on high pay—indeed, I suggest, just the opposite.

It must also be said that the fuel tax will affect charities. It is worth bearing in mind that, because of the failure of so many of the Government's social policies, more pressure is being put on charities. Charities will not be able to claim back the extra VAT that they will have to pay on fuel, and they will also suffer a loss of income tax relief on their investments.

I may not know as much about finances as most Conservative Members, but I have been involved with charities. I know how they work, and I know that there often is a very thin line between them continuing to exist and having to wind up. I am very much afraid that the imposition of VAT will cause charities to suffer badly, especially those charities looking after old people, which will have to bear a disproportionate burden because of heating costs.

There has been a tremendous amount of hypocrisy about the green effect of the proposal, and about our having to meet emission standards. If this country were sincere about meeting those standards, we would be spending money to ensure that all properties were properly insulated; we would be doing something about transferring freight and passengers from road to rail; and we would be investing in tram systems to take buses off the road. We would also be interested in combined heat and power schemes as an alternative to the seedy system of so-called competition in the electricity generation and distribution industries, which, in addition to being monopolistic, have a vested interest against the efficient use of energy. Only when such measures are contemplated will I begin to believe that the Government are sincere in trying to meet their obligation to do something about emissions.

Photo of Patrick Cormack Patrick Cormack , South Staffordshire 8:55 pm, 22nd March 1993

I did not expect to have the pleasure of participating in this debate, but I am glad to do so, if only briefly.

I congratulate my right hon. Friend the Chancellor on an extremely innovative and thoughtful Budget. I am especially glad to be able to do that, as he is a very old friend of mine, and it is good to see him produce a Budget which will be something of a landmark Budget. He has been especially helpful to small businesses and, in spite of what the hon. Member for Sunderland, North (Mr. Etherington) said, he has done a great deal for charities, not only in this Budget but in a series of Budgets.

I am delighted that my right hon. Friend has come into the Chamber. I wish to appeal to him on the subject that has occupied many of the headlines in the past few days—his understandable but controversial decision to impose value added tax on domestic fuel. I understand what prompted him to do it, and I appreciate that there must have been a great deal of mental wrestling in deciding where revenue was to be raised. Of course, many of us would have been up in arms had he put VAT on books and newspapers. Whatever he had decided to do, he would undoubtedly have been the target for some criticism.

However, I ask my right hon. Friend to think very carefully in the year ahead. We have a year before any VAT is imposed on domestic fuel. It will first be imposed at 8 per cent., and will not reach its 17·5 per cent. level for two years. My right hon. Friend is well aware, as we all are, of the particular plight of the elderly. I worry very much about how many of them will be able to cope with a rate of 17·5 per cent. We have had assurances from the Prime Minister and others, for which we are grateful, that something will be done to compensate, but it has not been spelt out carefully or clearly enough. We want to know the full details as soon as possible.

I am confident that something will be done adequately to compensate those who are on benefit, but I point out that many elderly people do not qualify for benefit—through their thrift and frugality they have been able to look after themselves, and they take great pride in that. It is on them that the burden will fall with especial and peculiar severity.

I suggest to my right hon. Friend that there is a good solution. I have felt for a long time that there is a case for two-tier VAT. If my right hon. Friend puts 8 per cent. on domestic fuel next year, he should leave it at that. He should not raise the figure to 17·5 per cent. in the subsequent year. If the rate remains at 8 per cent., it will be far easier to cope with in terms of the increase in benefits. It will also be easier for those who do not have recourse to benefits to budget for the increase.

My right hon. Friend could also set a useful precedent. I fully agree with him that it is a fundamental belief of our party that we should increase indirect rather than direct taxation. However, many people feel that 17·5 per cent., on whatever it is levied, is a high level of VAT. It is certainly a high level on fuel, one of the basic necessities of life. I completely comprehend the green argument, and I was interested to receive from Friends of the Earth a paean of praise for the courage of my right hon. Friend——

Photo of Patrick Cormack Patrick Cormack , South Staffordshire

One can echo that to a degreee. Friends of the Earth are not always right.

In congratulating my right hon. Friend on what: he has done and in thanking him for producing a far-reaching and innovative Budget, I say to him as a very old friend, "Please think again about VAT at 17·5 per cent. on domestic fuel, especially as it affects our elderly citizens."

9 pm

Photo of Harriet Harman Harriet Harman Shadow Chief Secretary to the Treasury

I welcome the comments of the hon. Member for Staffordshire, South (Mr. Cormack). The way in which he, on behalf of his constituents, can get the Chancellor to think again about imposing VAT at 17·5 per cent. on gas and on electricity is to join us in the Lobby tonight and to vote against that proposal.

This is a Budget of betrayal and of failure. It betrays the hope of the unemployed and it fails to set the economy on course for growth and investment. It puts up everyone's taxes to pay for the Tories' economic mistakes and it is unfair. Those who will pay most are those who can least afford it.

The Tories' election promises on public services are now also threatened by spending cuts. The Tory manifesto promised that health spending would be increased year on year, that there would be more police on the beat, that there would be more nurseries and more help for students, and that pensions and child benefit levels would be protected. Yet it is to consider precisely those areas that the Chief Secretary is now to preside over a review of the Department of Health, of the Department for Education, of the Department of Social Security and of the Home Office. If the Tories can break their promises on taxation, how much easier they will find it to break their promises to defend a welfare state which few of their families use and which many of them despise.

The Budget not only threatens vital services and fails to set the economy on course for jobs, for investment and for growth—it breaks the Tories' central election pledge to reduce taxes. The economy needed a Budget for jobs and for economic recovery. We should have had a Budget to break out of the vicious circle of unemployment, of waste and of decline. We should have had a Budget which forged a new cycle of skills, of productivity and of growth.

In the past 14 years, manufacturing has grown by 50 per cent. in Japan and by 25 per cent. in America, but in Britain it has barely grown at all. We are falling behind on investment. The German industrial worker is backed by an average of £4,000 capital investment. The Japanese worker is backed by an average of £6,000. The British worker has only £2,500 capital investment behind him.

We are also behind on skills. West Germany, Japan, Hong Kong, Singapore, Taiwan and South Korea have more of their young people at college and in further education than is the case in Britain. The competitive edge of an economy will be the skills of its people, so falling behind on skills and leaving people unemployed is not only a waste of people's individual talent and potential—it means that we shall fall further behind as economies compete in future.

We are also behind on research and development. Japan sees eight times as much of its profits ploughed back into research and development as we do. The fragile state of our manufacturing industry was revealed in the Sunday Times leak of the Department of Trade and Industry report, which the Government still refuse to publish—indeed, they still deny the facts that were clearly set out in it.

Photo of Geoff Hoon Geoff Hoon , Ashfield

Does my hon. Friend agree that we get a lot of lectures from Conservative Members about the success of Japanese companies investing in the United Kingdom but that they rarely mention the fact that, threatened by recession, the Japanese Government have invested £40 billion to try to ensure that Japan remains competitive? Why are the British Government not trying to do the same?

Photo of Harriet Harman Harriet Harman Shadow Chief Secretary to the Treasury

I agree with my hon. Friend. Japan and the United States are investing and the EC wants to invest; the British Government alone, it seems, are blind to the lack of investment in our economy and try to tell us that everything is perfectly fine.

Photo of Mr Patrick Nicholls Mr Patrick Nicholls , Teignbridge

As the hon. Lady applauds a Government investment of £40 billion, will she now tell us what she thinks the public sector borrowing requirement should be?

Photo of Harriet Harman Harriet Harman Shadow Chief Secretary to the Treasury

The high level of the PSBR is the result of high unemployment and a failure in our economy. What we would do is to bring down unemployment, introduce a proper strategy for industry and growth and bring down the PSBR. The PSBR is too high as a result of the failure of this Government's economic policy and particularly as a result of their allowing unemployment simply to grow.

Photo of Mr Peter Thurnham Mr Peter Thurnham , Bolton North East

The hon. Lady blames the Government for unemployment. Is it not a fact that every Labour Government who have ever been in power have left unemployment higher than when they came to power?

Photo of Harriet Harman Harriet Harman Shadow Chief Secretary to the Treasury

Unemployment has more than doubled since 1979. It increased by 61 per cent. between December 1990 and December 1992. We have the highest rate of increase in unemployment in the European Community.

The Tories' economic judgment has been wrong throughout. They have been wrong about the fact of the economy going into recession. They have been wrong about the impact of the recession—particularly on our beleaguered manufacturing industry. They have been wrong about the length of the recession and they have been wrong about the depth of the recession. In 1989, the Prime Minister—then the Chancellor—said: I do not believe that a recession is likely". In September 1990, in true King Canute style, he said: We are not in recession". As soon as the Tories acknowledged that Britain was in recession, they began predicting the end of the recession. In December 1990, the Chancellor told the Select Committee on the Treasury and Civil Service that the recession would be relatively short-lived and relatively shallow. Now, as unemployment remains at more than 3 million, with predictions in the Budget statement that 200,000 more people will lose their jobs by the end of this year, and when the prospect ahead is a yawning trade gap, we are told that we have had a five-star week for the economy.

The Government have repeatedly had to revise their figures on the economy as, time and again, predictions of growth have been too high and predictions of national debt too low. While the Chancellor has become famous as the star of the movie, "Honey, I Shrunk the Economy", the Chief Secretary to the Treasury is now breaking box office records with the sequel, "Honey, I Blew Up the PSBR".

The human cost of unemployment is painfully high, with families and communities around the country blighted, but unemployment is also taking its toll on the public purse. It costs the taxpayer £9,000 per unemployed person per year in benefits paid out and lost tax revenue. The annual bill for keeping 3 million people who want to work unemployed is £270 billion a year. No wonder public finances are in a mess.

While unemployment has risen, training programmes have been cut and the Budget offers extra help to only half the people who are expected to lose their jobs by the end of this year. The net new money that the Government have agreed for schemes to help the unemployed—schemes which were trumpeted before the Budget—simply has not materialised. The figure is only £125 million. Since 1987, the Government have cut £1·5 billion in real terms from spending on training and help for the unemployed. As unemployment has increased, the Government are hardly creeping back to the situation which existed before the cuts.

Businesses have gone to the wall. There were 63,000 insolvencies this year, an increase of 31 per cent. since 1991. Against that background, the Department of Trade and Industry has suffered cuts. As my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) and my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase) explained, the Budget does nothing for business. In fact, it anticipates a fall in business investment this year. It anticipates that there will be £400 million less invested in business this year than was invested last year.

The President of the Board of Trade referred to a survey by the Institute of Directors as optimistic; yet that survey shows that half its members plan no investment this year. We would not be in this situation if the Government had taken the action that Labour has urged. Unless there is increased investment in capacity, skills and technology, British industry simply cannot recapture the markets that have been lost at home and abroad.

Photo of Mr Patrick Nicholls Mr Patrick Nicholls , Teignbridge

The hon. Lady talks about our losing markets at home. Will she bear in mind the fact that, as a result of the social chapter, we are actually gaining markets from overseas countries?

Photo of Harriet Harman Harriet Harman Shadow Chief Secretary to the Treasury

Countries in the rest of the European Community which believe that it is important to have high-skill, high-wage, high-tech economies are going ahead of us. There is no future for our economy if it is a low-wage, low-skill economy competing with under-developed countries.

Unless British industry is competitive, the trade deficit will grow and there will be no hope of a sustainable reduction in the PSBR. Raising taxes without tackling unemployment and industrial decline merely deals with the consequences of the economic problems we face. It does not deal with the causes.

The Government have not suffered from a shortage of public money. They received £115 billion in revenue from North sea oil and £62 billion in privatisation receipts, but that has all been frittered away. If the Government are hemmed in now—as they are—it is not as a result of lack of public money in the past. Rather, it is the result of a complete absence of ideas for the future. While our competitors invested, the Tories gave tax handouts to the rich. They were also content to see more and more millions paid out in benefits for the growing dole queue which they believed was a price worth paying. They have broken their promises, increased taxes and failed on the economy.

In this Budget, the Government have sought to remedy the soaring public debt by raising taxes. Public debt is soaring as a result of the Government's mismanagement of the economy. The high level of public borrowing is a consequence of their economic failure, not a cause of it. This is a Budget in which everyone else has to pay for the Tories' mistakes. However, they still have not learnt from those mistakes.

As my hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts) said, this is a Budget of yet more broken promises. Before the election, the Chancellor said: We will not have to increase taxes. He went further and said: I cannot see any circumstances in which that will be necessary. Before the election, the Prime Minister said: We have no plans to increase value added tax. Indeed, he went further than that and said: There will be no VAT increase."—[Official Report, 28 January 1992; Vol. 202, c. 808.] and he repeated: We have no need and no plans to extend the scope of VAT.

Photo of Liam Fox Liam Fox , Woodspring

As the hon. Lady finds it so unpleasant to raise taxes, will Labour now give a definite pledge to revoke the VAT[Interruption.]

Photo of Harriet Harman Harriet Harman Shadow Chief Secretary to the Treasury

Could the hon. Gentleman repeat his question? His hon. Friends were shouting and I could not hear him.

Photo of Liam Fox Liam Fox , Woodspring

I am glad to give the hon. Lady more time to think about my question. We have had a lot of confusion from Labour Members in the past week about whether a Labour Government would revoke the VAT on fuels. Can the hon. Lady clear up the confusion and give the House and the country a clear answer—would a Labour Government revoke the imposition of VAT on fuels?

Photo of Harriet Harman Harriet Harman Shadow Chief Secretary to the Treasury

The question before the House tonight is whether those Conservative Members who promised their constituents that they would not increase VAT and extend its scope will vote against the VAT increase. During the election campaign the Prime Minister said: We have no plans and no need to extend the scope of VAT. Labour Members will vote against the measure tonight to make the Government keep their election promises.

The Prime Minister also said: I have no plans to raise the top rate of tax or the level of national insurance contributions. In the first Budget after the election, the Government have increased taxes and national insurance contributions and put VAT on gas and electricity. It is hard to overstate the cynicism and betrayal that that represents.

The pledges on VAT and national insurance were not side issues: they were the centrepiece of the Conservative election campaign to cut taxes. It was put precisely by the President of the Board of Trade in a Conservative election release of 21 March 1992: This election in the first week is about tax, in the second week is about tax and in the third week is about tax. Following the re-election of the Conservatives, we know that the first year is about tax, the second year is about tax and the third year is about tax.

Photo of Mr John Bowis Mr John Bowis , Battersea

The hon. Lady and her party will vote against taxes, especially the tax on domestic fuels. Can she now tell us whether a Labour Government would repeal it?

Photo of Harriet Harman Harriet Harman Shadow Chief Secretary to the Treasury

I have made it absolutely clear that we shall be voting against the imposition of VAT on gas and domestic fuel. We shall not support the Government in breaking their promise—and if the hon. Gentleman had any conscience and sense of accountability to his constituents, neither would he. [Interruption.]

Photo of Mr Patrick Nicholls Mr Patrick Nicholls , Teignbridge

On a point of order, Mr. Deputy Speaker. I cannot hear whether a Labour Government would repeal the imposition of VAT or not.

Photo of Mr Michael Morris Mr Michael Morris , Northampton South

Order. The noise seems to be coming from both sides of the House.

Photo of Harriet Harman Harriet Harman Shadow Chief Secretary to the Treasury

If 11 Conservative Members voted against the measure, it would be defeated. I hope that that will happen tonight.

The pledges were echoed in speeches and Tory political broadcasts nightly: "You can trust the Tories—they won't put up your taxes." No one can be in any doubt now—the Government have put up taxes and they can never be trusted again.

Last week the hon. Member for Brigg and Cleethorpes (Mr. Brown) boasted that the Chancellor had sought his views. If ever we were in any doubt about the Chancellor's judgment, there is the evidence. The hon. Gentleman told us: The only thing I asked my right hon. Friend"— the Chancellor— to do was tax, tax hard, tax heavily and tax as soon as possible."—[Official Report, 17 March 1993; Vol. 221, c. 317.] That is not what he told his constituents when he asked for their votes less than a year ago. I shall give him the opportunity to remind the House what he told his constituents before I quote from the election special in the Evening Telegraph.

Photo of Mr Michael Brown Mr Michael Brown , Brigg and Cleethorpes

The hon. Lady should be aware that, since 1979, I have always told my constituents that, when it comes to a public sector borrowing requirement, we will have none of it.

Photo of Harriet Harman Harriet Harman Shadow Chief Secretary to the Treasury

Curiously enough, I find it difficult to reconcile that with what the hon. Gentleman said in the Grimsby Evening Telegraph in the election special headed "The Last Words". The hon. Member for Brigg and Cleethorpes, seeking election, said: Only a Conservative Government can continue the process of empowering the people with lower taxation. Not only have the Government broken their election promises, but they are hitting the poor hardest. When money is to be given away, the Tories give it to the richest. When money is to be taken, they take it back from the poorest. Chancellor Lawson gave £6 billion to the richest in 1988, and £6 billion is to be taken back in 1993 by the present Chancellor from everyone. The department of applied economics at Cambridge has calculated that all households will eventually be hit, but the full implementation of the measures over the next three years will cost the poorest tenth twice as much as the wealthiest tenth.

Photo of Mr Ian Bruce Mr Ian Bruce , South Dorset

When Labour presented its Budget for jobs—eight pages of A3—why were the only proposals for taxation a tax on water, a tax on gas, a tax on electricity and a tax on telephones? Why is Labour's so-called windfall tax, which would have hit both industry and the poor, good for Labour while the tax which has been introduced by the Conservatives, which will protect the poor, is somehow flawed?

Photo of Harriet Harman Harriet Harman Shadow Chief Secretary to the Treasury

That neatly illustrates the difference between Labour and the Government. We suggested using the accumulated profits. That would have had no impact on the ordinary consumer whereas the Government tax ordinary people, including pensioners and the low-paid, in order to protect the vested interests of their friends whom they put on the boards of the privatised utilities.

Taken together, the Budget's proposals for 1p on national insurance contributions, 17·5 per cent. VAT on fuel, a real cut of 2·6 per cent. in tax-free allowances, the limiting of the married couple's allowance to relief at 20 per cent. and the reduction of mortgage tax relief to 20 per cent., impose a tax increase on all households. Most will lose about 2 per cent. of their income in extra tax under the measures in the Budget, but on average the 10 per cent. of households with the highest incomes will lose less than 1·5 per cent. of their income while those with the lowest 10 per cent. of income will lose twice that and 3 per cent. extra of their income will go in tax.

The increase in tax will begin in April this year when 200,000 people who currently do not earn enough to pay tax start to pay it for the first time. Not only has the Chancellor increased taxes, but those least able to pay will pay most and those most able to pay will pay least. As my hon. Friend the Member for Pendle (Mr. Prentice) said, the 1p increase on national insurance will mean that half a million people who do not earn enough to pay income tax will have to pay an extra 1p in the pound.

The Financial Secretary owned up on the ITN "Talking Points" programme on Wednesday when he explained to us why the richest must pay least. He said: We mustn't kill the goose that lays the golden egg. That is the discredited trickle-down theory of economics. But while trying to protect the geese which at some future date may lay some golden eggs, the Chancellor has refused to answer the concern that the poorest will be hit by the increase in their fuel bills.

Let us examine what Ministers have said about compensation for pensioners and people on low incomes. There has been Government confusion before breakfast, before lunch and before dinner. The next day we get up and the Government are in confusion again. On Tuesday the Chancellor said that he would take the VAT rise into account. On Wednesday the Chief Secretary said that it was all a matter of swings and roundabouts. On Thursday the junior Social Security Minister said that the rise was nothing special and not out of the ordinary. By lunch on Thursday, the Social Security Minister said that extra help would be provided. On Sunday, the Chancellor ruled out full compensation as too expensive and too complicated.

So what is the Government's position? We know that that they have to compensate people for the rise in retail prices. They must give us a commitment tonight that they will compensate pensioners and people on low incomes in full for the rise in value added tax. Pensioners and families on low incomes spend £1 in every £7 on fuel. The average bill is £12 per week, so for many people VAT will mean up to £2 more per week on their fuel bill. Will the Chancellor compensate them in full? Will he not just say that there are swings and roundabouts, but compensate in full? Will he not just dismiss it as nothing special, but compensate in full? Will he not just give extra help, but compensate in full?

The Government went to the electorate with a commitment. They did not say that they had no plans to raise VAT; they said that they would not raise it. When they went to the electorate, they did not say that they might not raise VAT; they said that there were no circumstances in which they would raise it.

Photo of Harriet Harman Harriet Harman Shadow Chief Secretary to the Treasury

No, I have given way at least eight times and I shall not do so again.

If Conservative Members vote with the Government this evening they, too, will be guilty of breaking their election promises and no one will trust them again. Having said that they would not put VAT on fuel, they did so. Having said that there will be compensation, they are refusing to say how much. How can people trust them? The Government expect the House to vote for tax measures that we know will hit the poorest, but they have given no details of the compensation scheme. I suppose that we are expected simply to take them on trust.

Photo of Mr Michael Morris Mr Michael Morris , Northampton South

Order. The hon. Lady has made it clear that she is not giving way.

Photo of Harriet Harman Harriet Harman Shadow Chief Secretary to the Treasury

Last Wednesday, the Chief Secretary to the Treasury explained to the House how those promises came to be broken. He said that the Government had not intended to put up VAT, or to increase national insurance contributions. After the election, no one was more surprised than the Government to discover that the recession went from bad to worse—for reasons which were quite out of their control, of course. So the Government put VAT on gas and electricity and increased national insurance contributions, and the Chancellor told us that that was the plain truth. What are we to make of that?

The Chancellor also blamed circumstances beyond his control for the state of the economy in an interview with The Independent on Sunday on 14 March, when he said: what I think happened last year was that the situation deteriorated very much internationally". But the Treasury forecast for the economy cannot have been blown off course because in the 1992 Budget forecast just about the only prediction that the Government got right-was about the world economy. Either their judgment about the economy was disastrously wrong, or they were practising the politics of deception, or they made those promises without bothering much whether they would be in a position to honour them.

They used to say that George Washington could not tell a lie and that Richard Nixon could not tell the truth. Our Prime Minister cannot tell the difference. Under this Government, it is not merely the pound that has been devalued, but democracy itself.

If the Government's economic judgment was so disastrously wrong, why should the British people ever trust them again? They stand condemned not only for an unforgivable lack of foresight, but because they did not have the wit to listen to people who were warning them about the true state of the economy. Did they engage in deception, or did they fail to understand what was happening in the economy? The answer probably lies somewhere in between the two. The Government have such contempt for the electorate that they did not care whether they would be in a position to stand by their promises, just so long as they got in again.

There does not appear to be any sign of anguish on the Government Bench—no sign of regret for breaking their promises. The brows of the Chancellor and of the Chief Secretary remain unfurrowed. In fact, they have both been smirking their way through these debates and through radio and television studios. They think that they have pulled a fast one on the electorate and that they will be able to get away with it. It is the true sign of a party that has been in government too long when it sees the democratic process as nothing more than something to be manipulated to secure one more term of office. The British people will not be treated with such arrogance and contempt, and the party that did it will never stop paying the price.

I suggest to Tory Members, particularly those on the Back Benches, that if they have a conscience, now is the time that they should examine it. Tory Members have a choice tonight: what we have before us is an election fraud, and they can either go along with it or reject it. They can either follow discredited Ministers through the Lobby, or they can keep the promises that they made to their constituents and vote with us against the Budget.

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames 9:30 pm, 22nd March 1993

This is the fourth day of the Budget debate. Inevitably, I have been unable to listen to all the speeches, but I have read the Hansard reports of all the speeches that have been made hitherto.

Almost everyone has acknowledged that the Budget was framed against exceptionally difficult circumstances. That was the theme of the speeches made by my hon. Friends the Members for Aylesbury (Mr. Lidington) and for Staffordshire, Moorlands (Mr. Knox). I have had to make some very difficult decisions and face up to some very unpalatable choices. We know that the Labour party can never face up to difficult decisions.

Above all, in framing my Budget, I believe that I had to do two things. First, I had to ensure that nothing should damage recovery this year. Secondly, I had to address the problem of mounting Government debt to ensure that the nation's finances are put on a sound footing for the future.

I have no doubt that, unless Government borrowing is kept under firm control, it will be the biggest threat to sustained recovery in the 1990s. That was the theme of the speeches of my hon. Friends the Members for Rutland and Melton (Mr. Duncan), for Brigg and Cleethorpes (Mr. Brown), and for Cirencester and Tewkesbury (Mr. Clifton-Brown), who made a powerful speech—one which his predecessor, Lord Ridley, whom we remember with affection, would have agreed strongly with and commended.

Beyond those two specific objectives, I also wanted to show the country that the Government have a clear strategy for getting Britain back on the road to sound finance. As I said, that is the way in which to sustain recovery. That is the lead for which I believe the country was looking, and it was given in the Budget.

I have spelt out the tax and revenue plans not just for one year, but for three. With public spending ceilings now firmly established for the years ahead, I have laid down a medium-term fiscal strategy to match our medium-term financial strategy. I have made it clear that the strategy should be legislated for as far as possible in this year's Finance Bill so that it should carry credibility with the markets.

The result of my measures will be to reduce borrowing over the years by up to 1·5 per cent. of GDP and to cut the deficit by more than half in the next five years. Difficult decisions are involved, but those reductions represent a considerable step towards addressing the problem that must be addressed today.

In the year ahead, I have been able to give extra help to industry, so strengthening the recovery in its early stages. The Budget contained a huge variety of measures to help business in the short-term. First, there are measures to help the self-employed and small businesses, which have played such a crucial role in the past in the British economy and which can, again, lead us out of recession in the 1990s.

I doubt whether there has even been a Budget that has contained such a wide range of deregulatory measures that will sweep away so much of bureaucracy and red tape, which are extremely aggravating to, and time-consuming for, so many small businesses. I know from the speech of my hon. Friend the Member for South Hams (Mr. Steen) that that is of particular interest to him.

There are proposals to lessen the burden of the statutory audit. I am also making far-reaching changes to the VAT penalty regime—moving from a regime of automatic penalties to one that is more discretionary. I know that those changes will relieve much of the burden and many of the anxieties felt by many small business men. The changes have been widely welcomed by the organisations for small businesses.

I have proposed to introduce self-assessment for up to one third of all taxpayers. My right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath) was worried that some people might find that difficult, but there is a choice. There is no compulsion over the matter. However, I believe that many people will find it an attractive option. It goes together with the drastic simplification of the taxation of the self-employed that I announced at the same time. Taken together, those proposals represent the most fundamental reform to the administration of tax since the pay-as-you-earn system was introduced in 1944.

I announced proposals for extending and improving the loan guarantee system in a way to give an added incentive to fixed-rate borrowing, of which there is too little in this country. Over future years, it could give stability and security for small businesses.

Those measures add up to formidable package of help for small businesses. It was welcomed by my hon. Friends the Members for Cambridgeshire, South-West (Sir A. Grant), for Ribble Valley (Mr. Evans) and for Surrey, North-West (Sir M. Grylls), who rightly called it a five-star Budget for small business. One might have thought that the Opposition would welcome at least one of the measures, but they did not welcome any of them.

I have introduced a range of measures to help larger British businesses. The first of those is a massive increase in the Export Credits Guarantee Department facilities for companies operating in the most important and fastest-growing markets around the world. As a result of what I announced on Budget day, British firms will be able to go out and compete knowing that they do so on equal terms with their competitors.

Secondly, I introduced measures to deal with the admittedly highly technical problem of advance corporation tax. My hon. Friend the Member for Surrey, East (Mr. Ainsworth) said that he thought that he noticed some fluttering of the eyelids among hon. Members during that part of the Budget speech. That may be so, but, nevertheless, the proposals responded to great concern and were of great interest to some of the international businesses that operate in this country. The proposals will help to make Britain an even more attractive location for inward investment than it already is. I also took action over the uniform business rate to ensure that no business will face a real increase in rates this year. That will help 800,000 premises, many of them in the south, whose owners have given the move a warm welcome.

Finally, I made announcements about some private infrastructure projects, including the channel tunnel rail link. Those announcements have been widely welcomed; they followed on from the policy changes that I announced in the autumn statement. As my right hon. Friend the Member for Guildford (Mr. Howell) said, they will enable this country to do what many other countries do: tap private savings in order to finance large infrastructure projects in cities and elsewhere.

Those are substantial measures. Therefore, it is little surprise that, contrary to what the hon. Member for Peckham (Ms Harman) said, the Budget was warmly welcomed by organisations representing British industry and commerce. We heard a few quotations from Opposition Members who have tried to find the odd organisation here and there with critical views of the Budget. In a Budget that raised revenues by £6·5 billion and £10 billion, it would be surprising if somebody did not have something critical to say.

The list of organisations that have given a warm welcome to the Budget include the Confederation of British Industry, the Association of British Chambers of Commerce, the Institute of Directors, the Society of Motor Manufacturers and Traders, the Council of Mortgage Lenders, the Forum of Private Business and the Federation of Small Businesses. The chairmen and chief executives of many individual companies went on record as welcoming the Budget. They included GKN, GEC, Coats Viyella, Abbey National and BP. They are some of the most successful companies in the country, and they know that this Budget is good for them and good for business.

Photo of Stuart Bell Stuart Bell , Middlesbrough

Will the right hon. Gentleman deal with a significant point that I have not heard mentioned so far? Value added tax is a tax on value added, obviously, for those who wish to buy goods. Why, then, did he use VAT on heating and fuel bills to hit poor people who need to use electricity anyway?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

Much of this debate has centred on that very point—my decision to extend VAT to domestic fuel and power. I fully recognise the concern felt about the effect that these proposals will have on poorer households, particularly those of poorer pensioners. That is why I clearly stated in my Budget speech that we fully intend to give extra help to those on income-related benefits, over and above the automatic impact on pensions and other benefits through the higher retail prices index. I wholly understand the anxiety of some households, but we have clearly said that we will bring forward the uprating of income-related benefits so that the extra help that we provide will be available at the time that it is needed—before the increased fuel bills arrive next spring.

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

This party has an excellent record of helping the worst-off, not by keeping expensive, across-the-board subsidies, benefiting both rich and poor, but by doing what should be done in any modern welfare state: targeting the resources on the most needy and the worst off. That has been our priority. No Government have done more for poorer pensioners and families with children——

Photo of Gordon Brown Gordon Brown Shadow Chancellor of the Exchequer

Will the Chancellor accept that he said during the election campaign that there would be no circumstances in which a VAT increase would be imposed? Will he give us a straightforward answer to a simple question? Will he compensate pensioners and others on low income in full—yes or no?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

I have explained exactly what we are doing, and I assure the House that it will be our intention to protect the poorest people in the country. [Interruption.] The hon. Gentleman can shout all he likes. We do not want to put poorer people in a position in which they cannot pay their fuel bills because of the changes. We have made it clear that we will adjust the income-related benefits. We have an excellent record on that, and since 1988 we have provided additional help for less well off pensioners and disabled people—help that will be worth about £700 million in real terms next year. We have continued to increase the income-related benefits even while average fuel charges have been falling, by more than 8 per cent. in real terms since 1986. There is still downward pressure on domestic electricity and gas bills.

Because of these reductions, my proposal to put VAT on fuel will not necessarily mean that prices rise by anything like 17·5 per cent. over the next three years. Those on income support will also be able to keep the additions made to their benefits to reflect their liability to pay 20 per cent. of the community charge, even though they will not be required to make any contribution to the council tax. That alone is worth £2·80 to a married couple and £1·60 to a single person from next month. That shows our commitment to looking after those who are worst off.

Photo of Gordon Brown Gordon Brown Shadow Chancellor of the Exchequer

Why cannot the Chancellor give a straightforward answer to a simple question? Does he not understand that it is because he fails to do so that no one in the country trusts him? Will he compensate pensioners and others on low incomes in full—yes or no?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

I have answered the question. I will take no lectures from a party which, when in government, put up electricity bills by 30 per cent. in real terms. We know who the Minister at the Department of Energy was at the time. It was the Leader of the Opposition. That was what he did for poorer people then; what price his rhetoric now?

Photo of Mr John Smith Mr John Smith , Monklands East

The Chancellor has been asked a very simple and clear question—will he compensate pensioners in full? Why cannot he say yes or no?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

The right hon. and learned Gentleman, as always, cannot face up to the facts of his own record. I note that when he put forward his manifesto for the leadership of the Labour party, he even told us in his election address: We should…consider the increased use of the fiscal system to promote environmental protection and conservation. According to the Opposition, the idea of VAT on fuel and power never crossed their minds; they never considered it. How strange it is then that, in their policy document "Looking to the Future", under the heading "Value Added Taxation", they say: Zero rating on items such as food, fares, books and children's clothing should remain. But where, the country will want to know, was fuel and power—the zero rate that did not bark? I expect that the right hon. and learned Gentleman will tell us that it was a typing error. The trouble is that in the very next sentence the document says: we will look at ways of…increasing taxes on environmentally damaging products. This Government went to the environmental conference in Rio, fought for a reasonable and achievable deal, and have taken steps to reach it. The Opposition have wrapped themselves in greenery and chanted incantations about global warming, yet they now oppose the very steps that we are taking to deal with that. They are the people whose word means absolutely nothing.

Photo of Mr Rhodri Morgan Mr Rhodri Morgan , Cardiff West

The Chancellor cannot have it both ways. At one point he told us that the reason for the imposition of VAT on domestic fuel was the unexpectedly high increase in public sector borrowing subsequent to the election, of which he was wholly unaware at the time of the election. What he has just said directly contradicts that: he now says that the Rio summit is the reason. If my memory serves me right, the Rio summit was held before the election. Which is it?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

The hon. Gentleman is completely wrong; the Rio summit was in June last year.

As always, the most important question asked in the debate was the one asked not by the Opposition, but by Conservative Members. It was the question posed by my right hon. Friends the Members for Shropshire, North (Mr. Biffen) and for Westmorland and Lonsdale (Mr. Jopling)—whether the action that I propose in the Budget is extensive enough and early enough to meet the objectives that I have set. That is the real question and it is precisely the most difficult and central matter on which I had to make a judgment.

I very much took the view taken by my right hon. Friend the Member for Worthing (Sir T. Higgins) and my hon. Friend the Member for Woodspring (Dr. Fox), that we had to take account of the fact that confidence had been knocked hard by the length of the recession and that large tax increases too early would undermine recovery. Therefore, in my opinion, it was right not to raise taxes this year, but to go for a neutral Budget which, as my hon. Friend the Member for Woodspring said, would increase taxation as economic growth gets fully under way. I believe that to be a reasonable and appropriate reaction to the position that we face.

For those of us on the Conservative Benches, raising revenue is never a welcome task; it is something which we consider only when that is vital for the public finances. In this Budget, I had in mind two objectives in deciding how to raise revenue—first, that my particular tax measures should not hit particular sectors that would impede recovery; secondly, that the tax changes that I made should be sensible tax reforms in their own right. For that reason, I concentrated on tax measures that accord with the philosophy of this Government and of this party—that is, rather than increasing marginal tax rates, I concentrated on broadening the base of the tax system and on reducing the value of allowances.

Above all, I reconfirmed in many of my changes—particularly the reduction to 20 per cent. of certain allowances—our commitment as a Government to getting the basic rate of income tax down to 20p in the pound eventually. That remains our target and our objective.

As my hon. Friend the Member for Bridlington (Mr. Townend) pointed out, raising revenue is just one side. We must look additionally at public spending, which must also be expected to take part of the strain. We made a start on that process in last year's autumn statement. The settlement that we achieved then shows that the growth of public spending will be under control, because the growth in the new control total is set to be below the trend growth in the economy as a whole. The long-term review of public spending under my right hon. Friend the Chief Secretary is designed to address the problem.

If we want to control public spending, we must continually re-examine each and every Department and function of government and question whether it is appropriate and necessary to continue with it today.

This Budget is genuinely addressed to meeting the problems of the country. It is not something which Labour would ever understand because it is a Budget designed to do what is right—not to curry favour or popularity. It is a Budget designed to give the country hope for the future, by giving a clear lead.

What has been Labour's reaction? In four days of debate, we have heard not one word of policy. The hon. Member for Dunfermline, East (Mr. Brown) seems to have made a conscious decision not to have a policy. He is the first shadow Chancellor to give an hour-long speech about the economy, as he did the other day, without ever mentioning monetary or fiscal policy.

In all the hon. Gentleman's outpourings, sound bites, new approaches, fresh starts, agendas for the 1990s and new beginnings, he has not told us whether he thinks that Government borrowing is too high, too low or just right. The hon. Gentleman cannot tell us whether taxes are too high or too low. In four days of debate, the hon. Gentleman has not produced one constructive suggestion.

Since the hon. Gentleman became shadow Chancellor he has, we are told, made two important speeches about the economy. One was about agriculture. It was an interesting speech, but the hon. Gentleman is certainly the first would-be finance Minister to talk more about the suckler cow premium than about narrow money.

What of the hon. Gentleman's right hon. and hon. Friends? The right hon. and learned Member for Monklands, East (Mr. Smith) had just one suggestion. Replying to my Budget statement, he said that I should abolish Budget purdah. That certainly would not affect him very much, because the right hon. and learned Gentleman does not have any policies to hide.

All we heard from Labour in the debate was endless whining and harking back to the last general election. The right hon. and learned Member for Monklands, East is the last person who should complain about the general election. He did not do badly out of it. First, he lost the election for his party with his own tax proposals—then had himself made party leader as compensation.

If Labour wants to talk about the last general election, let us talk about it—I am happy to do so. The Labour party, as always, needs to have its myths if it is to exist. We heard in the debate the myth that somehow Labour was cheated at the last general election. In 1992, as in 1979, the Conservative party was elected as the party of sound finance and of low taxation—particularly low direct taxation. In 1979 and in the two years thereafter, the needs of the times dictated a rise in taxes. That happened in 1979 and 1981, but once we had borrowing down, taxes and spending were steadily reduced as a percentage of gross domestic product.

Photo of Mr John Smith Mr John Smith , Monklands East

Does the right hon. Gentleman remember saying, during a Channel 4 news broadcast—[Interruption.] I know that Conservative Members do not want to hear this. He said: We will not have to increase taxes. I cannot see any circumstances in which that will be necessary. What meaning did the right hon. Gentleman wish to convey to his listeners then?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

I have explained, and explained fully. I believe that not to have addressed the problem of the budget deficit would have been to run away from the most fundamental promise that we made to the British people.

There is a real difference and distinction between the two parties, and it is one that cannot be fudged or obfuscated. In 1992—as was shown by the speeches of all Opposition Front Benchers—the Labour party was committed to massive increases in public spending, and high public spending means high taxes: the two go hand in hand. It is impossible to pretend otherwise; to seek to deny the connection is truly to deliberately deceive the British people.

Opposition Members should listen to the hon. Member for Dagenham (Mr. Gould). He talks a lot more sense, especially after his lunches with my right hon. Friend the Chief Secretary. The other day, he said: I think the Labour party ought to accept that we will always be likely to have a higher tax burden than our opponents". We know that, he knows that and so do the British people.

If the Labour party wants to know why it lost the last general election, let me explain. It was for two reasons. First, there was the disastrous shadow Budget introduced by the Leader of the Opposition. This is the difference between the tax increases that he proposed, and the tax increases in this Budget: he proposed tax increases to expand public spending. He was trying to bribe one part of the electorate with the other part's money. Moreover, he could not add up and discover that many people in the south earn more than £20,000 a year.

Secondly, Labour lost the election because the shadow Budget was not the whole story; it was the beginning of Labour's potential tax hike. Labour's own spending programme amounted to massively more than those on the Opposition Front Bench ever admitted.

Photo of Mr Brian Wilson Mr Brian Wilson , Cunninghame North

Will the right hon. Gentleman give way?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

No.

I have always said that, as we move out of a phase of recession into recovery, there will be good figures and bad figures. One indicator, however, does not appear in the books: it can be seen only from the Conservative Benches. That indicator is the length of the faces of Opposition Treasury spokesmen. As the news gets better, those faces get longer—none more so than that of the hon. Member for Dunf ermline, East, who likes nothing more than a relentless diet of gloom and depression.

What a miserable time the hon. Gentleman had last week. On Monday, there was the news that manufacturing output had risen by 0·8 per cent., to its highest level since August 1991. Then, on Wednesday, retail sales were shown to have been nearly 2 per cent. higher in the last three months than they were a year earlier. On Thursday, the hon. Gentleman's face grew longer and longer as unemployment actually fell. A few more weeks like that, and he will be positively suicidal.

Opposition Members complain when we accuse them of talking Britain down. I shall set a simple test, in which I may have to involve my right hon. and learned Friend the Home Secretary. We shall launch a nationwide hunt over the next week: no stone will be left unturned, no avenue unexplored. We shall look everywhere. Nothing will stop us from finding the hon. Member for Dunfermline, East's press release welcoming Thursday's drop in unemployment.

Of course, the hon. Gentleman has a long track record. On Wednesday, he told us—we know how much weight to place on it— I make one Budget forecast—that, after the Budget, unemployment will rise this month".—[Official Report, 17 March; Vol. 221, c. 289.] True to form, the hon. Gentleman was wrong, as always.

British business is well placed to succeed and expand in the rest of 1993. My Budget will keep Britain on track for recovery. It is good for exporters; it is good for jobs; it will ensure sound finance; it will bring taxes down. And at the next election we shall bring Labour down—to their fifth and final defeat.

Question put:——

The House divided: Ayes 306, Noes 279.

Division No. 195][10pm
AYES
Adley, RobertArnold, Jacques (Gravesham)
Ainsworth, Peter (East Surrey)Arnold, Sir Thomas (Hazel Grv)
Aitken, JonathanAshby, David
Alexander, RichardAtkins, Robert
Alison, Rt Hon Michael (Selby)Atkinson, Peter (Hexham)
Allason, Rupert (Torbay)Baker, Rt Hon K. (Mole Valley)
Amess, DavidBaker, Nicholas (Dorset North)
Ancram, MichaelBaldry, Tony
Arbuthnot, JamesBanks, Matthew (Southport)
Banks, Robert (Harrogate)Freeman, Roger
Bates, MichaelFrench, Douglas
Batiste, SpencerFry, Peter
Bellingham, HenryGale, Roger
Bendall, VivianGallie, Phil
Beresford, Sir PaulGardiner, Sir George
Biffen, Rt Hon JohnGarel-Jones, Rt Hon Tristan
Blackburn, Dr John G.Garnier, Edward
Bonsor, Sir NicholasGill, Christopher
Booth, HartleyGillan, Cheryl
Boswell, TimGoodlad, Rt Hon Alastair
Bottomley, Peter (Eltham)Goodson-Wickes, Dr Charles
Bottomley, Rt Hon VirginiaGorman, Mrs Teresa
Bowden, AndrewGorst, John
Bowis, JohnGrant, Sir Anthony (Cambs SW)
Boyson, Rt Hon Sir RhodesGreenway, Harry (Ealing N)
Brandreth, GylesGreenway, John (Ryedale)
Brazier, JulianGriffiths, Peter (Portsmouth, N)
Bright, GrahamGrylls, Sir Michael
Brooke, Rt Hon PeterGummer, Rt Hon John Selwyn
Brown, M. (Brigg & Cl'thorpes)Hague, William
Browning, Mrs. AngelaHamilton, Rt Hon Archie (Epsom)
Bruce, Ian (S Dorset)Hamilton, Neil (Tatton)
Budgen, NicholasHampson, Dr Keith
Burns, SimonHanley, Jeremy
Burt, AlistairHannam, Sir John
Butcher, JohnHargreaves, Andrew
Butterfill, JohnHawkins, Nick
Carlisle, John (Luton North)Hawksley, Warren
Carlisle, Kenneth (Lincoln)Hayes, Jerry
Carrington, MatthewHeald, Oliver
Carttiss, MichaelHeath, Rt Hon Sir Edward
Cash, WilliamHeathcoat-Amory, David
Churchill, MrHendry, Charles
Clark, Dr Michael (Rochford)Heseltine, Rt Hon Michael
Clarke, Rt Hon Kenneth (Ruclif)Higgins, Rt Hon Sir Terence L.
Clifton-Brown, GeoffreyHill, James (Southampton Test)
Coe, SebastianHogg, Rt Hon Douglas (G'tham)
Colvin, MichaelHoram, John
Congdon, DavidHordern, Rt Hon Sir Peter
Conway, DerekHowarth, Alan (Strat'rd-on-A)
Coombs, Anthony (Wyre For'st)Howell, Rt Hon David (G'dford)
Coombs, Simon (Swindon)Hughes Robert G. (Harrow W)
Cope, Rt Hon Sir JohnHunt, Rt Hon David (Wirral W)
Cormack, PatrickHunt, Sir John (Ravensbourne)
Couchman, JamesHunter, Andrew
Cran, JamesHurd, Rt Hon Douglas
Currie, Mrs Edwina (S D'by'ire)Jack, Michael
Curry, David (Skipton & Ripon)Jackson, Robert (Wantage)
Davis, David (Boothferry)Jenkin, Bernard
Day, StephenJessel, Toby
Deva, Nirj JosephJohnson Smith, Sir Geoffrey
Devlin, TimJones, Gwilym (Cardiff N)
Dickens, GeoffreyJones, Robert B. (W Hertfdshr)
Dorrell, StephenJopling, Rt Hon Michael
Douglas-Hamilton, Lord JamesKellett-Bowman, Dame Elaine
Dover, DenKey, Robert
Duncan, AlanKilfedder, Sir James
Duncan-Smith, IainKing, Rt Hon Tom
Dunn, BobKirkhope, Timothy
Durant, Sir AnthonyKnapman, Roger
Eggar, TimKnight, Mrs Angela (Erewash)
Elletson, HaroldKnight, Greg (Derby N)
Emery, Rt Hon Sir PeterKnight, Dame Jill (Bir'm E'st'n)
Evans, David (Welwyn Hatfield)Knox, David
Evans, Jonathan (Brecon)Kynoch, George (Kincardine)
Evans, Nigel (Ribble Valley)Lait, Mrs Jacqui
Evans, Roger (Monmouth)Lamont, Rt Hon Norman
Evennett, DavidLang, Rt Hon Ian
Faber, DavidLawrence, Sir Ivan
Fabricant, MichaelLegg, Barry
Fenner, Dame PeggyLeigh, Edward
Field, Barry (Isle of Wight)Lennox-Boyd, Mark
Fishburn, DudleyLester, Jim (Broxtowe)
Forman, NigelLidington, David
Forsyth, Michael (Stirling)Lilley, Rt Hon Peter
Forth, EricLloyd, Peter (Fareham)
Fowler, Rt Hon Sir NormanLord, Michael
Fox, Dr Liam (Woodspring)Luff, Peter
Fox, Sir Marcus (Shipley)Lyell, Rt Hon Sir Nicholas
MacGregor, Rt Hon JohnShepherd, Richard (Aldridge)
MacKay, AndrewSkeet, Sir Trevor
McLoughlin, PatrickSmith, Sir Dudley (Warwick)
McNair-Wilson, Sir PatrickSmith, Tim (Beaconsfield)
Maitland, Lady OlgaSoames, Nicholas
Major, Rt Hon JohnSpeed, Sir Keith
Malone, GeraldSpencer, Sir Derek
Mans, KeithSpicer, Sir James (W Dorset)
Marland, PaulSpicer, Michael (S Worcs)
Marshall, John (Hendon S)Spink, Dr Robert
Marshall, Sir Michael (Arundel)Spring, Richard
Martin, David (Portsmouth S)Sproat, Iain
Mates, MichaelSquire, Robin (Hornchurch)
Mawhinney, Dr BrianStanley, Rt Hon Sir John
Mayhew, Rt Hon Sir PatrickSteen, Anthony
Mellor, Rt Hon DavidStephen, Michael
Merchant, PiersStern, Michael
Milligan, StephenStewart, Allan
Mills, IainStreeter, Gary
Mitchell, Andrew (Gedling)Sumberg, David
Mitchell, Sir David (Hants NW)Sweeney, Walter
Moate, Sir RogerSykes, John
Monro, Sir HectorTapsell, Sir Peter
Montgomery, Sir FergusTaylor, Ian (Esher)
Moss, MalcolmTaylor, John M. (Solihull)
Needham, RichardTaylor, Sir Teddy (Southend, E)
Nelson, AnthonyTemple-Morris, Peter
Newton, Rt Hon TonyThomason, Roy
Nicholls, PatrickThompson, Sir Donald (C'er V)
Nicholson, David (Taunton)Thompson, Patrick (Norwich N)
Nicholson, Emma (Devon West)Thornton, Sir Malcolm
Norris, SteveThurnham, Peter
Onslow, Rt Hon Sir CranleyTownend, John (Bridlington)
Oppenheim, PhillipTownsend, Cyril D. (Bexl'yh'th)
Ottaway, RichardTracey, Richard
Page, RichardTredinnick, David
Paice, JamesTrotter, Neville
Patnick, IrvineTwinn, Dr Ian
Patten, Rt Hon JohnVaughan, Sir Gerard
Pattie, Rt Hon Sir GeoffreyViggers, Peter
Pawsey, JamesWaldegrave, Rt Hon William
Peacock, Mrs ElizabethWalden, George
Pickles, EricWalker, Bill (N Tayside)
Porter, Barry (Wirral S)Waller, Gary
Porter, David (Waveney)Ward, John
Portillo, Rt Hon MichaelWardle, Charles (Bexhill)
Powell, William (Corby)Waterson, Nigel
Rathbone, TimWatts, John
Redwood, JohnWells, Bowen
Renton, Rt Hon TimWheeler, Rt Hon Sir John
Richards, RodWhitney, Ray
Riddick, GrahamWhittingdale, John
Robathan, AndrewWiddecombe, Ann
Roberts, Rt Hon Sir WynWiggin, Sir Jerry
Robertson, Raymond (Ab'd'n S)Wilkinson, John
Robinson, Mark (Somerton)Willetts, David
Rowe, Andrew (Mid Kent)Winterton, Mrs Ann (Congleton)
Rumbold, Rt Hon Dame AngelaWinterton, Nicholas (Macc'f'ld)
Ryder, Rt Hon RichardWolfson, Mark
Sackville, TomWood, Timothy
Sainsbury, Rt Hon TimYeo, Tim
Scott, Rt Hon NicholasYoung, Sir George (Acton)
Shaw, David (Dover)
Shaw, Sir Giles (Pudsey)Tellers for the Ayes:
Shephard, Rt Hon GillianMr. David Lightbown and
Shepherd, Colin (Hereford)Mr. Sydney Chapman.
NOES
Abbott, Ms DianeBarnes, Harry
Adams, Mrs IreneBarron, Kevin
Ainger, NickBattle, John
Ainsworth, Robert (Cov'try NE)Bayley, Hugh
Allen, GrahamBeckett, Rt Hon Margaret
Alton, DavidBeggs, Roy
Anderson, Donald (Swansea E)Bell, Stuart
Anderson, Ms Janet (Ros'dale)Benn, Rt Hon Tony
Armstrong, HilaryBennett, Andrew F.
Ashdown, Rt Hon PaddyBenton, Joe
Ashton, JoeBermingham, Gerald
Banks, Tony (Newham NW)Berry, Dr. Roger
Betts, CliveGould, Bryan
Blair, TonyGrant, Bernie (Tottenham)
Blunkett, DavidGriffiths, Nigel (Edinburgh S)
Boateng, PaulGriffiths, Win (Bridgend)
Boyes, RolandGrocott, Bruce
Bradley, KeithGunnell, John
Bray, Dr JeremyHain, Peter
Brown, Gordon (Dunfermline E)Hall, Mike
Brown, N. (N'c'tle upon Tyne E)Hanson, David
Bruce, Malcolm (Gordon)Hardy, Peter
Burden, RichardHarman, Ms Harriet
Byers, StephenHarvey, Nick
Caborn, RichardHattersley, Rt Hon Roy
Callaghan, JimHenderson, Doug
Campbell, Mrs Anne (C'bridge)Heppell, John
Campbell, Menzies (Fife NE)Hill, Keith (Streatham)
Campbell-Savours, D. N.Hinchliffe, David
Canavan, DennisHoey, Kate
Cann, JamieHogg, Norman (Cumbernauld)
Carlile, Alexander (Montgomry)Home Robertson, John
Chisholm, MalcolmHoon, Geoffrey
Clapham, MichaelHowarth, George (Knowsley N)
Clark, Dr David (South Shields)Howells, Dr. Kim (Pontypridd)
Clarke, Eric (Midlothian)Hoyle, Doug
Clarke, Tom (Monklands W)Hughes, Kevin (Doncaster N)
Clelland, DavidHughes, Robert (Aberdeen N)
Clwyd, Mrs AnnHughes, Roy (Newport E)
Cohen, HarryHughes, Simon (Southwark)
Connarty, MichaelHume, John
Cook, Frank (Stockton N)Hutton, John
Cook, Robin (Livingston)Illsley, Eric
Corbett, RobinIngram, Adam
Corbyn, JeremyJackson, Glenda (H'stead)
Corston, Ms JeanJackson, Helen (Shef'ld, H)
Cousins, JimJamieson, David
Cryer, BobJanner, Greville
Cummings, JohnJohnston, Sir Russell
Cunliffe, LawrenceJones, Barry (Alyn and D'side)
Cunningham, Jim (Covy SE)Jones, Ieuan Wyn (Ynys Môn)
Cunningham, Rt Hon Dr JohnJones, Jon Owen (Cardiff C)
Dafis, CynogJones, Lynne (B'ham S O)
Dalyell, TamJones, Martyn (Clwyd, SW)
Darling, AlistairJones, Nigel (Cheltenham)
Davidson, IanKaufman, Rt Hon Gerald
Davies, Bryan (Oldham C'tral)Keen, Alan
Davies, Rt Hon Denzil (Llanelli)Kennedy, Charles (Ross,C&S)
Davies, Ron (Caerphilly)Kennedy, Jane (Lpool Brdgn)
Davis, Terry (B'ham, H'dge H'l)Khabra, Piara S.
Denham, JohnKinnock, Rt Hon Neil (Islwyn)
Dewar, DonaldKirkwood, Archy
Dixon, DonLeighton, Ron
Dobson, FrankLestor, Joan (Eccles)
Donohoe, Brian H.Lewis, Terry
Dowd, JimLitherland, Robert
Dunwoody, Mrs GwynethLivingstone, Ken
Eagle, Ms AngelaLloyd, Tony (Stretford)
Eastham, KenLlwyd, Elfyn
Etherington, BillLoyden, Eddie
Evans, John (St Helens N)Lynne, Ms Liz
Fatchett, DerekMcAllion, John
Field, Frank (Birkenhead)McAvoy, Thomas
Fisher, MarkMcCartney, Ian
Flynn, PaulMcCrea, Rev William
Forsythe, Clifford (Antrim S)Macdonald, Calum
Foster, Rt Hon DerekMcFall, John
Foster, Don (Bath)McKelvey, William
Foulkes, GeorgeMackinlay, Andrew
Fraser, JohnMcLeish, Henry
Fyfe, MariaMaclennan, Robert
Galbraith, SamMcMaster, Gordon
Galloway, GeorgeMcNamara, Kevin
Gapes, MikeMcWilliam, John
Garrett, JohnMadden, Max
George, BruceMaginnis, Ken
Gerrard, NeilMahon, Alice
Gilbert, Rt Hon Dr JohnMandelson, Peter
Godman, Dr Norman A.Marek, Dr John
Godsiff, RogerMarshall, David (Shettleston)
Golding, Mrs LlinMarshall, Jim (Leicester, S)
Gordon, MildredMartin, Michael J. (Springburn)
Martlew, EricRoss, Ernie (Dundee W)
Maxton, JohnRoss, William (E Londonderry)
Meacher, MichaelRowlands, Ted
Michael, AlunRuddock, Joan
Michie, Bill (Sheffield Heeley)Salmond, Alex
Michie, Mrs Ray (Argyll Bute)Sedgemore, Brian
Milburn, AlanSheerman, Barry
Miller, AndrewSheldon, Rt Hon Robert
Mitchell, Austin (Gt Grimsby)Shore, Rt Hon Peter
Molyneaux, Rt Hon JamesShort, Clare
Moonie, Dr LewisSimpson, Alan
Morgan, RhodriSkinner, Dennis
Morley, ElliotSmith, Andrew (Oxford E)
Morris, Rt Hon A. (Wy'nshawe)Smith, C. (Isl'ton S & F'sbury)
Morris, Estelle [...](B'ham Yardley)Smith, Rt Hon John (M'kl'ds E)
Morris, Rt Hon J. [...](Aberavon)Smith, Llew (Blaenau Gwent)
Mowlam, MarjorieSnape, Peter
Mudie, GeorgeSoley, Clive
Mullin, ChrisSteinberg, Gerry
Murphy, PaulStevenson, George
Oakes, Rt Hon GordonStott, Roger
O'Brien, Michael (N W'kshire)Strang, Dr. Gavin
O'Brien, William (Normanton)Straw, Jack
O'Hara, EdwardTaylor, Mrs Ann (Dewsbury)
Olner, WilliamTaylor, Matthew (Truro)
Orme, Rt Hon StanleyThompson, Jack (Wansbeck)
Parry, RobertTrimble, David
Pendry, TomTurner, Dennis
Pickthall, ColinTyler, Paul
Pike, Peter L.Vaz, Keith
Pope, GregWalker, Rt Hon Sir Harold
Powell, Ray (Ogmore)Wallace, James
Prentice, Ms Bridget (Lew'm E)Walley, Joan
Prentice, Gordon (Pendle)Wardell, Gareth (Gower)
Prescott, JohnWareing, Robert N
Primarolo, DawnWatson, Mike
Purchase, KenWelsh, Andrew
Quin, Ms JoyceWicks, Malcolm
Radice, GilesWilliams, Rt Hon Alan (Sw'n W)
Randall, StuartWilliams, Alan W (Carmarthen)
Raynsford, NickWilson, Brian
Redmond, MartinWinnick, David
Reid, Dr JohnWorthington, Tony
Robertson, George (Hamilton)Wray, Jimmy
Robinson, Geoffrey (Co'try NW)Wright, Dr Tony
Robinson, Peter (Belfast E)
Roche, Mrs. BarbaraTellers for the Noes:
Rogers, AllanMr. Peter Kilfoyle and
Rooker, JeffMr. Alan Meale.
Rooney, Terry

Question accordingly agreed to.

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

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

Madam SPEAKER then proceeded, pursuant to paragraph (3) of Standing Order No. 50 (Ways and Means motions), to put forthwith the Questions necessary to dispose of the further motions.