Fuel and Power for Domestic or Charity Use

Clause 42 – in the House of Commons at 3:45 pm on 10th May 1993.

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Photo of Harriet Harman Harriet Harman Shadow Chief Secretary to the Treasury 3:45 pm, 10th May 1993

I beg to move amendment No. 1 in page 23, line 40, after 'use', insert 'subject to the exceptions set out in subsection 3A below'.

Photo of Mr Michael Morris Mr Michael Morris , Northampton South

With this, it will be convenient also to discuss all the other amendments to clause 42: No. 4, in page 23, line 40, after 'shall', insert 'except for supplies for domestic use'.

No. 5, in page 23, line 40, after 'shall', insert 'except for supplies for charity use'.

No. 39, in page 23, line 41, leave out from 'importation' to the end of line 42 and insert 'for domestic use made or taking place on or after 1st April 1994 and on that day notes 1(a), 2, 3 and 5 to the said group 7 shall be deleted.'.

No. 36, in page 23, line 42, at end insert— 'Except where the supply is for use by a charity in either or both of the following ways, namely —

  1. (a) otherwise than in the course of furtherance of a business
  2. (b) as a village hall or similarly in providing social or recreational facilities for a local community.'.

No. 18, in page 24, line 17, at end insert — '(3A) The supplies to be excepted are —

  1. (a) standing charges in connection with the supply of fuel and power;
  2. (b) rental charges for gas and electricity meters; and
  3. (c) charges for installation of and connection to fuel and power supplies.'.

No. 6, in page 23, line 42, leave out '1994' and insert '1998'.

No. 9, in page 24, line 4, leave out '1994' and insert '1998'.

No. 14, in page 24, line 4, leave out '1995' and insert '1999'.

No. 15, in page 24, line 8, leave out '1994' and insert '1998'.

No. 16, in page 24, line 8, leave out '1995' and insert '1999'.

No. 7, in page 24, line 1, after '(2)', insert 'For the purposes of this section'.

No. 8, in page 24, leave out lines 3 to 8.

No.11, in page 24, line 9, leave out '8' and insert '5'.

No. 17, in page 24, line 9, leave out '8' and insert '0.01'.

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

Today, the Prime Minister is having panic meetings to discuss the damage that the country— [Interruption.] Conservative Members do not seem to have noticed what has happened. Perhaps they are not aware that today the Prime Minister is having panic meetings to discuss the damage that the country has just done to the Tory party. Instead, he should be holding a meeting to discuss the damage that the Tory party has done to the country. He is listening to the chairman of the Conservative party—

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North

On a point of order, Mr. Morris. Would it be appropriate and proper —if so, I should be grateful—for you to tell us on which amendments the Committee is likely to vote later this evening?

Photo of Mr Michael Morris Mr Michael Morris , Northampton South

The Chair is, to a degree, in the hands of the Committee. The Chair must listen to the debate before making a decision. I certainly cannot say now when the votes will be.

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

The Prime Minister is listening to the chairman of the Conservative party, and to the Government Chief Whip; but he should be listening to the people of this country. Last Thursday, the Government suffered their worst county council election results ever, and their biggest by-election defeat for years. The Tory shires are down to just one. It is time for the Government to show that they are ready to dispense with their usual arrogance and complacency, and that they are now prepared to listen.

The first thing that the Chief Secretary must tell us today is what changes he will make to his policy. He should announce that he will drop the proposal to put VAT on gas and electricity, and on charities: that proposal had no support in the country on Thursday, and it has no support now.

The Government have begun to talk of change —

Photo of Ian Taylor Ian Taylor , Esher

May I interrupt the hon. Lady before she proceeds too far with her speech? Given that she is urging the Government not to introduce taxation, will she tell us specifically how she would reduce the public sector borrowing requirement?

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

The Government have allowed the PSBR to rise beyond their forecasts, and beyond the level to which they said they were prepared for it to go, because of the increase in unemployment and the lack of economic growth. Our proposals are intended to bring down unemployment, and to bring sustainable growth into the economy. That is how we intend to lower the PSBR:, we do not intend to do so by making some of the poorest and most vulnerable people—such as the elderly—pay the price of the Government's incompetence.

What did the hon. Member for Esher (Mr. Taylor) say in his election address to the people who he asked to vote for him? He did not say that he was worried about the public sector borrowing requirement; nor did he say that he would put up taxes to fill the hole in the public finances. He said, like all his Tory colleagues, that he would put down taxes. Hon. Members have had enough of the hypocrisy of Tory Members of Parliament who say one thing to their constituents before a general election and another thing after it.

Photo of Derek Conway Derek Conway , Shrewsbury and Atcham

I am sure that the Committee accepts that the hon. Lady expresses genuine concern about the less well-off, but if we are to take her concern to be more than skin deep, will she remind the Committee of what happened to electricity prices between 1974 and 1979, in real terms and, more specifically, what the Labour Government did to help those who were less well-off?

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

Under this Government, electricity and gas prices have risen faster than inflation. If the hon. Gentleman is as concerned as we are about the fuel bills of the elderly and families on low incomes, he will vote with us tonight to force the Government to keep their promises.

The Government have begun to talk about change, but talk, without the prospect of real change in Government policies—not just on VAT but on schools, rail privatisation and, above all, the economy.

The Prime Minister said on Friday that he would listen, that he had not been humiliated by the electorate and that it was an opportunity for him to learn. The Home Secretary admitted that the Government were in a dreadful hole, but on Sunday, speaking on BBC's "On the Record", the Chief Secretary was in his characteristically buoyant mood. Did he say that he would think again on VAT? Did he say that he would listen? No. Did he say that they had got it wrong? Did he say that they would listen? No, he did not.

Does the Chief Secretary even begin to recognise the insult that was felt by all those people who have lost their jobs or whose businesses have failed, when the Chancellor said that he had nothing to regret and then went on to hear, privately, Tory Members of Parliament say that the voters are a lagging indicator because they fail to recognise how rosy the economic prospects are? So it appears that the Chancellor regrets nothing. These are not the words of a Government who are prepared to listen but the epitaph of a Government who have been in power for too long.

We oppose the provision to put VAT on gas and electricity because it breaks a specific election promise that was made before the last general election in the most clear, specific and unequivocal terms.

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

I will in a moment.

We oppose VAT on gas and electricity because that increase will affect everyone. Everyone has to use gas and electricity. It is a basic necessity. It is not some optional extra.

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

In a moment.

We also oppose it because it will hit hardest at the elderly and those on low incomes. We oppose it, too, because it will hit charities at a time when the help that they are giving is needed by a growing number of people but when donations are falling because of the recession. Furthermore, we oppose it because this VAT extension paves the way for further VAT extensions to children's clothes, newspapers and food.

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

Before I give way to the hon. Member for Battersea (Mr. Bowis), perhaps he will tell the House whether he is one of those Tory Members of Parliament who, while saying nothing to his constituents, fills in survey forms saying that he is in favour of extending VAT to food, children's clothes and newspapers. Perhaps we shall have a bit of honesty in Committee from Tory Members of Parliament.

Photo of Mr Michael Morris Mr Michael Morris , Northampton South

Order. Before the hon. Gentleman replies to the hon. Member for Peckham (Ms Harman), may I remind the Committee that this is a debate on the extension of VAT to fuel and power. It is not a debate on the extension of VAT to children's clothing.

Photo of Mr John Bowis Mr John Bowis , Battersea

I am one of those Conservative Members of Parliament who recalls what happened in the past. Will the hon. Lady tell us what happened when the Labour Government put VAT on sweets, ice cream, crisps and soft drinks? Was that in her party's election manifesto? Was that promised beforehand? And what measures did her party introduce to protect the very people on low incomes, including children, who were affected by that step?

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

The hon. Gentleman need not delve too far back into his memory. He should cast his mind back to his own election address, in which he promised not to put up taxes but to cut them.

In a letter sent today to panic-stricken Back Benchers, the Chancellor of the Exchequer has said that it is necessary to put VAT on gas and electricity because it will set the economy to rights.

The crisis in public finance will not be resolved until we have policies that will build a strong economy and deliver sustainable economic growth. So instead of taxing pensioners on their fuel bills, the Government should direct their attention to training and skilling our work force to the same standard as our competitors, and to creating investment incentives so that we can begin to catch up with the investment levels of our competitors. They should attend to the crumbling social and economic infrastructure that holds our economy back, but instead they are imposing a flat rate tax on one of life's essentials. Everyone will pay.

Photo of David Winnick David Winnick , Walsall North

Does my hon. Friend agree that some of the worst problems that are faced by the poor and the old are fuel poverty, fuel hardship and fuel misery, and does not evidence show that a higher proportion of Britain's elderly people die during the winter months than in other western European countries?

Will not the imposition of VAT make the position much worse for so many of our fellow citizens who even now cannot afford to keep their accommodation warm during the winter and who therefore find all kinds of reasons to go out and, when they are in, heat only one room? Is not their life one sheer misery during the winter and are not the Government making it worse?

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

I am grateful to my hon. Friend for making that point. Conservative Members would do well to listen to the point that is being made not only by my hon. Friend but by organisations in their constituencies concerned with elderly and disabled people.

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

If I may, I will press on and give way later, when, perhaps, the hon. Lady will tell us what she told her constituents in Lancaster about whether she would put VAT on gas and electricity.

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

Are we about to have a moment of truth?

Photo of Mrs Elaine Kellett Mrs Elaine Kellett , Lancaster

The hon. Lady seems to be suffering from selective amnesia. Has she forgotten—she was not here at the time—that, under the previous Labour Government, electricity prices rose by 2 per cent. every six weeks and that absolutely no help was offered to meet those increases?

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

The trouble is that Conservative Members have selective amnesia about what they included in their election addresses.

Everyone will have to pay VAT on gas and electricity —even those who work but earn too little to pay income tax. Almost three quarters of pensioners pay no income tax, yet all of them will have to pay VAT on their gas and electricity bills. It is unfair, as the least well-off will be hardest hit by this tax.

For households that are fortunate enough to have more than £800 a week, the imposition of VAT on gas and electricity will increase their bills by only half of 1 per cent., whereas the budgets of households that struggle on less than £60 a week will be stretched by another 3 per cent. After VAT at the full rate of 17·5 per cent. is included, single pensioner households on income support—some of the poorest people in the country—will spend more than one fifth of their entire budget on heating bills.

This is a Government who do not think about what they are doing, who do not consult anyone about the effect of what they are doing and who do not listen to protests about what they are doing. They have had no discussions with organisations dealing with the elderly. If they had, they might have heard of the survey by Age Concern's institute of gerontology, which stated that pensioners often do not spend enough to heat their homes sufficiently, even to the level necessary to preserve their health. A third of pensioners surveyed did not heat their bedrooms, and nearly one quarter of those elderly people gave up other items to stay warm—mainly food. When we vote tonight, we should bear that in mind.

4 pm

As my hon. Friend the Member for Walsall, North (Mr. Winnick) said, this country has a higher death rate from hypothermia than countries with much lower winter temperatures, such as Norway, Sweden and Switzerland and that is because of poverty.

Age Concern was dismayed when it heard about the proposal, which came as a surprise because the Chancellor had not bothered to discuss it with the organisation. The average cost to a single pensioner will be £2 per week extra on fuel bills. There is also concern for families with children who are trying to live on a low income. In a letter to the Select Committee on Social Security, Barnardo's wrote: We already have contact with many hundreds of families across the UK who have difficulties with fuel payments for whom there are already daily decisions involving a choice such as whether to turn on the heat source or to buy food. In this House, none of us is in that position, but when hon. Members vote tonight they should bear in mind the fact that they do not have to face that daily choice and that the lives of the people who do will be made worse if the measure is pushed through.

Disability Alliance has said: We fear that the imposition of VAT will have a devastating effect on disabled people. The National Association of Citizens Advice Bureaux is certain that if the measure is pushed through it will mean more debt and more disconnections.

If any Tory Back Benchers are wavering—

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

When I have finished my sentence.

Any Tory Backbenchers who are considering their position should think carefully before justifying the measure to themselves on the grounds that compensation will be in the pipeline in a few months' time. They should think carefully whether they can safely rely on that pledge from Ministers.

I shall give way to the hon. Member for Teignbridge (Mr. Nicholls) on condition that he tells me whether he told his constituents that he would put 17-5 per cent. on the fuel bills of elderly people in his constituency.

Photo of Mr Patrick Nicholls Mr Patrick Nicholls , Teignbridge

I am grateful to the hon. Lady for giving way, and I am sure that she is right to lay such stress on election manifestos. Will she identify which paragraph of which of the Labour party's two 1974 manifestos stated that it would put VAT on petrol, which is a fuel, and what it did to compensate motorists?

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

As there is a vote tonight on the plan to impose VAT on gas and electricity, people outside this House will wonder why their representative is not prepared to deal with the issue but instead seeks to make party political points relating to some years ago. The issue is serious.

Many Conservative Members are salving their consciences by telling themselves that it will be all right because the worst excesses of the tax will be offset by a compensation scheme further down the line. Let me remind hon. Members that the Government had not contemplated any extra compensation when they first took the decision—they were completely surprised by the outcry. Although there will be some compensation, we do not yet know the details, only that it will certainly not be full compensation, even for the poorest people in the country. Even those people will be made worse off.

If compensation is to be linked to income-related benefits, there will be two results. First, it will deepen the poverty trap; secondly, it will not reach all those who need it. We know that there is low take-up of income-related benefits. According to the Department of Social Security, as many as one in three pensioners who are entitled to income support do not claim it. Why should hon. Members believe the promises of compensation when nobody believes this Government's promises?

They said that they would not put VAT on gas and electricity. The Prime Minister said it, the Chancellor said it and members of the Cabinet said it. I hope that tonight, Tory Members will remember that they promised tax cuts in their election addresses. Why should a Government who promised tax cuts, but who have now put up taxes, be believed when they say: "Let us put VAT on gas and electricity now; trust us, and we will give you a compensation scheme in the autumn"? Tory Members should have demanded details of the compensation scheme to cushion the effect of VAT before voting tonight to put VAT on gas and electricity.

Photo of Mr David Shaw Mr David Shaw , Dover

Does the hon. Lady accept that I was one of the Conservative Members who asked for the Chancellor's statement to be clarified? The Chancellor made an excellent statement to help those on income-related benefits. Does the hon. Lady also accept that one of the reasons that I asked for that statement to be clarified was because we on the Conservative Benches have an excellent record of looking after pensioners? We did not do what the Labour party did in government in 1976, when Barbara Castle fiddled the calculation of old age pensions. The Conservative party will make sure that it does not go in for Labour party fiddles on pension increases.

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

It is true that the hon. Member for Dover (Mr. Shaw) asked for clarification and raised the question of compensation with the Chancellor. The problem is that he stopped short of ensuring that there would be full compensation. The hon. Gentleman faces tonight exactly the same situation that he was in before he raised queries with the Chancellor. He has no details of the so-called "compensation scheme", which, as yet, simply does not exist, but we have the certainty that it will not be full compensation. We have the absolute certainty that, if the scheme is agreed tonight, even the lowest-paid and those struggling on the lowest benefits will find that they are worse off as a result. The hon. Gentleman may have asked the question, but he failed to take note of the answer.

The question of the effect of VAT on gas and electricity on charities is of concern to hon. Members on both sides of the Committee. In his Budget statement, the Chancellor boasted of extra help for charities' but charities were horrified to discover that they too are to be hit by the imposition of VAT on gas and electricity—not just VAT on the gas and electricity used by their headquarters, or by their administration, but VAT on fuel for their day centres, for their residential homes, for their respite care, for their hospices, and for the meals on wheels and laundry services.

That is ironic, because the pattern of provision of the charity services is that it is in what were formerly known as the Tory shires—areas that elected many Conservative Members—that the charities, work is most important. Over the years, the Tory county councils have failed to build up their social services provision, so the charities have stepped in to provide residential care, domiciliary care and day centres. Therefore, the threats to charities, which say clearly that, if they have to give a great deal of money back in tax to the Government, they will have to cut their services, means that the people who will be worst affected are those who live in areas represented by Conservative Members.

Photo of Tessa Jowell Tessa Jowell , Dulwich

My hon. Friend will no doubt be aware of the figures provided by the Cancer Relief Macmillan Fund. In 1992, that charity disbursed more than £3 million in patient grants, of which about £850,000 were grants for fuel, cancer being one of the conditions that requires its sufferers to be treated in conditions of warmth.

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

My hon. Friend draws attention to an irony: at the very time at which people will be looking to charities for more help with their fuel bills, charities will be in a worse position to help because of the tax that they will face on their own fuel bills.

The figures are significant. In answer to a parliamentary question tabled by me, the Government said that, next year, charities would have to give back £10 million in VAT. The year after, charities will have to give back to the Government £25 million in VAT. That is happening at a time when charities have seen their receipts from individual donors and from companies drop as a result of the recession.

The Charities Aid Foundation survey in December 1992 found that 64 per cent. of charities had experienced a real decrease in their total income since January 1991. Some 67 per cent. reported a fall in individual donations, and 61 per cent. a fall in corporate donations. At the same time, 90 per cent. said that their demand had increased due to higher unemployment, the fact that there were more people with debt and money problems and local authority cuts. Those were the three main reasons cited for the increased demand for charities' services.

The work of charities is important, and the Government should reconsider the imposition of tax on them. For that reason, we ask hon. Members to consider voting for amendment No. 5.

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham

Will the hon. Lady now give the House a pledge that the Labour party would remove VAT from heat and light if they won the next election?

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

If the right hon. Gentleman shares our concern—I hope that he does—we need not get that far. He and other Conservative Members should join us today in voting for amendment No. 5 which would remove the requirement to pay VAT on gas and electricity from charities, which are doing such important work.

The Government have added insult to injury—

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

I shall not give way to the hon. Gentleman, because I know that, if I do, he will ask about something that has nothing to do with the debate. I do not want you, Mr. Morris, to have to rule him out of order.

The Government have added insult to injury by claiming that this is an environmental measure. The use of gas and electricity is particularly insensitive to price. If it was simply an environmental measure, how could the Government justify putting VAT on charges for gas and electricity meters and on standing charges, which, by definition, do not vary with the amount of fuel used?

This is not a tax to deal with the hole in the ozone layer —perhaps we can lay that suggestion to rest. It is a tax to deal with the hole in the Government's economic policy. It is not a measure from a Government who have gone green; it is a measure from a Government who have gone into the red.

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

This is an opportune moment for the hon. Gentleman to rise—although I shall not give way to him —as I was about to say that the knives were out on the Tory Back Benches. The Chancellor may be the ritual midsummer sacrifice. It is said that the Chief Secretary is being mentioned as possible successor; they say that he impresses. I would only say that it would be very hard indeed for anyone not to shine when standing next to the present Chancellor. But a reshuffle at the top and a few changing faces will change nothing and fool no one. On Thursday, the voters were saying not simply that they wanted someone different doing the job, but that they wanted the job done differently.

It is right that the Chancellor should go. He does not command the confidence of the country. His lack of credibility is yet another obstacle to our sustainable economic growth. But the voters in the shire counties and the voters in Newbury who gave their verdict on Thursday were protesting not only at the economic policies of the Chancellor, but at the economic policies of the Prime Minister.

Photo of Michael Connarty Michael Connarty , Falkirk East 4:15 pm, 10th May 1993

Does my hon. Friend agree that, if the people of Scotland had been given an opportunity to give their verdict on the Government's policy on VAT on Thursday, they would equally have given a resounding thumbs down? In Aberdeen, temperatures can be 4 deg lower than in the south of England in the winter. Is it not appropriate that the letter sent by the diocese of Edinburgh from the Scottish Episcopal Church speaks for people north and south of the border when it asks me and my colleagues in Scotland to register with the Government our concern at the way in which the proposed increase in heating costs by the addition of VAT will be felt most by people with low incomes"? As the Church of England in Scotland is voicing those concerns, is it not appropriate that Tory Members who represent English constituencies take heed?

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

One can understand why the Conservatives have no support in Scotland. But Conservative Members should ask why people in Scotland should suffer from the cold as a result of fuel poverty when people in areas with far lower temperatures in Norway, Sweden and Switzerland do not have to suffer the cold because they do not suffer fuel poverty.

On Sunday, the Chief Secretary rallied to the Chancellor's support. He said that the Chancellor was doing a magnificent job. He said that he was a magnificent Chancellor. He said that the Chancellor has been, is and will carry on doing a magnificent job. The Secretary of State for Social Security thinks that the Chancellor's magnificence is proved by the county council election results and the Newbury vote on Thursday.

The problem is that, for the Government, hypocrisy has become a way of life. The Government promised not to put VAT on gas and electricity, but they did. They say that they will not extend it to children's clothes or newspapers, but they secretly plan to do just that. They say that they will listen to the voters and respect their views. In private, they insult the electorate by calling them contemptuously "a lagging indicator".

Yesterday, the Home Secretary told us that the Government were in a dreadful hole. Tonight, Tory Members of Parliament have a chance to decide whether they will dig themselves and the Government deeper into that hole. Tonight, with their votes on VAT, on gas and electricity and on charities, Ministers will have a chance to show the people of Britain whether they are capable of change.

Tory Back Benchers will have the chance to show the people who elected them that, even if their Government cannot listen, perhaps they can. Even if their Government cannot be trusted, is it too much to hope for that Tory Back Benchers can? Back Benchers owe it to their constituents not to follow discredited Ministers like sheep through the Division Lobby.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

Following your ruling, Mr. Morris, that we may consider all the amendments together, I hope to address all the arguments that were raised by the hon. Member for Peckham (Ms Harman).

I wish to cover the question of Government finances, which provides the essential background to why the Government are proposing an extension of VAT. I wish also to discuss why the Government have chosen an extension of VAT as the means of raising part of the money that we need to raise. I certainly want to cover help for families and pensioners on low incomes, the question of standing charges, the question of charities and the environmental arguments. On my way through, I shall allude to some policies of other parties.

I begin by discussing the question of our public borrowing position, a serious matter which requires to be addressed. This year, we have a public sector borrowing requirement which we are estimating at about £50 billion, which is 8 per cent. of GDP. At that level, it is the highest primary PSBR in the European Community. It is obviously extremely important that the Government should have policies—[Interruption.)—for tackling that level of borrowing.

I hear Opposition Members yelling, "Whose fault is it?" The PSBR has come about partly due to discretionary increases in spending by the Government, such as spending on the health service. At one time we were increasing spending on the health service by 4 and 5 per cent. in real terms every year, not a policy with which the Opposition disagreed. Indeed, I recall the hon. Member for Peckham, the present shadow Chief Secretary, urging us to spend more on health, education and all sorts of things.

Much of the PSBR has also been due to spending more on the unemployed, and I do not think the Labour party would want us to do other than that. A lot of it has been do do with the fall in revenue due to the recession, which has gone on for longer than anybody realised. The interest burden—

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

I shall give way in due course.

The interest burden that is accruing on those borrowings is also an important matter. Our interest burden is rising by about 9 per cent. in real terms every year. Over the next three or four years, the extra amount of interest alone that we must pay is likely to add about 1 per cent. to the ratio of public spending to GDP.

Over the next five years, assuming the tax increases proposed in the Finance Bill, assuming that we stick to our ceilings for public spending and assuming that we return to a rate of growth in the later years of 2·75 per cent., we still envisage in 1996–97 a PSBR of £35 billion or 4·5 per cent. of GDP. All the figures are in the Red Book published with the Budget.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

I shall give way in due course.

The point I am making is that it is absolutely essential for the Government to tackle the PSBR, and the Chancellor has mad& clear in the Budget and in the Finance Bill the means by which he intends to do that. It requires next year £6·5 billion of revenue and, the following year, £10·5 billion of revenue. I believe that we are the only party which is prepared to take seriously the matter of public sector borrowing—[Interruption.] We still hear from the other parties a refusal to take such matters seriously.

The hon. Member for Dunfermline, East (Mr. Brown) said on BBC radio in January: I am not talking about increasing current borrowing. I am not talking about raising income tax or national insurance or VAT'. So what on earth is he talking about, since he and his hon. Friends continue to talk about more public spending? The Liberal Democrats have suddenly discovered an interest in the PSBR. The right hon. Member for Yeovil (Mr. Ashdown) took the matter up with my right hon. Friend the Prime Minister recently. It is a new-found interest of the Liberal Democrats—[Interruption.] I think I hear the right hon. Member for Berwick-upon-Tweed (Mr. Beith) yelling "Nonsense." He was not yelling that in November when he said: What matters to Britain is not so much the level of borrowing. National debt is at an historic low. It did not matter to him in March either, because in a publication entitled "The Budget Britain Needs", his party referred to a public investment programme funded by extra borrowing. and said: We have argued quite deliberately that it is necessary for the Government to borrow money. The interest of the Liberal Democrats in public borrowing is apparently very new-found.

For all those reasons, I claim that the Government are unique—[Interruption]—in being interested in tackling the PSBR.

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North

I am more than grateful to my right hon. Friend for giving way. He said that with good luck, a following wind and the help of the good fairy, by 1996–97 our deficit will be 4·5 per cent. of GDP. When does he expect us to meet the convergence critieria of the Maastricht treaty?

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

As my hon. Friend can see from the figures published in the Red Book, they would not be met in the period covered by the Red Book. That is the only answer that I can give my hon. Friend.

I have already dealt with the question of how the PSBR has got to where it is, but many of the Opposition arguments relate to the fact that the Government did not say at the time of the general election that they intended to raise VAT. The Opposition have suggested that the Government were in some way dishonest in not recognising that the recession would go on longer than anticipated. I remind the Committee that the Government were by no means alone in predicting that, throughout 1992, we would see growth in the economy of 1 per cent. Our forecast was very much in the middle of the range of those made by outsiders. We forecast 1 per cent. growth, the Confederation of British Industry forecast 1·7 per cent., the OECD forecast 2·2 per cent., James Capel forecast 1·7 per cent. and Credit Lyonnais forecast 1·7 per cent.

We forecast a PSBR of £28 billion It has turned out to be higher than that—but the CBI forecast £18 billion, the European Commission forecast £19 billion, Goldman Sachs forecast £25 billion and James Capel forecast £24 billion. There were many other such forecasts. In other words, there is no basis for the Opposition to say that the Government could know, any more than anybody else, that the recession would last longer than we predicted at the time.

The important point is that the Government stand for sound public finances—that is what we have always put before the people of the country—and, because the recession has gone on for so long, we have an obligation to come to the House and propose measures for dealing with it.

Photo of Angela Eagle Angela Eagle , Wallasey

If the Government are so concerned about the size of the deficit, why on earth did they squander at least £5 billion in an afternoon just to save the Chancellor's face?

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

The hon. Lady, I fear, has no understanding of these things. That money does not appear as public spending—it does not appear on the PSBR either—and has no effect on the figure in question.

Why are the Government proposing to raise money from an extension of VAT? First, it is because VAT is an effective way in which to raise revenue and, by comparison with the rest of the European Community, this country has low rates and a very low range of coverage of VAT. In France, for example, the ratio of VAT to consumer spending is 13·4 per cent., in Germany it is 11·9 per cent., in Ireland 13·8 per cent., and in the United Kingdom it is only 9·6 per cent. We have one of the lowest ratios of VAT to consumer spending of any country in the EC.

The hon. Member for Peckham, a few moments ago, was citing the practice in Norway and Sweden as an example of what we ought to do. In Norway, the ratio of VAT to consumer spending is 16·6 per cent., and in Sweden it is 14·3 per cent. Both are vastly higher than the ratio of VAT to consumer spending in the United Kingdom, so the hon. Lady is well wide of the mark. She is right to say that those are colder countries—they also have more extensive VAT.

It is illogical for VAT to apply to commercial supplies and not to domestic supplies. We were extremely concerned in the Budget—at a time when we were anxious to make sure that the recovery could proceed and not be choked off by our measures—that we should not take measures that would hit incentives. Even in a Budget in which we had to raise taxes, we found the means to provide special help to business and raise taxes that did not hit businesses. We also found ways of raising more revenue that were consistent with our principle that we should broaden the base of our taxes rather than increase the rate. We should look to indirect taxes, rather than direct taxes which hit incentives in our economy. We saw VAT on fuel and power as an opportunity, not least because fuel prices in this country under privatisation have fallen by 8 per cent. in real terms since 1986.

We have also said—I want to make this very clear—that VAT has two effects. It will also help us to achieve our environmental commitments, which is different from saying that we have decided to raise VAT as a means, first and foremost, of achieving our environmental objectives. Of course VAT is intended to raise revenue to tackle public borrowing. However, what the hon. Member for Peckham and the Labour party seem incapable of understanding is that a single measure can achieve two objectives. VAT will both help the public sector borrowing requirement and help us to meet our environmental commitments, to which I shall return.

Photo of Harriet Harman Harriet Harman Shadow Chief Secretary to the Treasury 4:30 pm, 10th May 1993

Are we to understand from the right hon. Gentleman's comments about Norway that he does not accept that we have a higher rate of death from hypothermia in the winter than Norway, Sweden and Switzerland? Is the right hon. Gentleman saying that he does not recognise that the higher death rate here is directly attributable to fuel poverty? Does he understand and accept that point?

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

The hon. Lady mistakenly thinks that such conditions are linked to VAT rates, but I have proved beyond doubt that they are not. As I said in my opening words, I shall deal later with fuel poverty.

Several hon. Members:

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Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

No, I shall not give way as I want to make progress.

The Government need to raise £6·5 billion and £10·5 billion over two years. We have considered how best to raise that money and have spread the load across all sectors of society. In 1995–96 we are looking to raise £10·5 billion, of which only £2·3 billion will come from the extension of VAT. The rest of that money will come from other measures such as tax changes on dividends, company cars and married couples' allowances—changes which will impact particularly on higher rate tax payers. It has been independently estimated by the Institute for Fiscal Studies that the Budget will spread the inevitable need for an increase in revenue across all sectors of society and not, as the Opposition would have hon. Members believe, to pile it on the poorest.

Extending VAT certainly has an effect on the poorest, and I shall deal with that issue in two sections as I know that there is much concern about it in the Committee—first, in relation to the poorest and, secondly, in relation to pensioners. Those are two different groups, although they overlap.

Photo of Mr Patrick Nicholls Mr Patrick Nicholls , Teignbridge

When my right hon. Friend deals with those two points in that order, will he bear in mind the fact that merely helping the neediest—the pensioners—through income support will not necessarily help those pensioners who need special help? If we are to broaden the bases, we must understand that the elderly may well need help. Merely saying, as we so often do, that income support will help those in need, and the other pensioners will not need it, will not for one moment satisfy the needs in this case.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

If my hon. Friend will bear with me, I shall make it clear that I want to talk about that very issue.

Photo of Geoff Hoon Geoff Hoon , Ashfield

Will the right hon. Gentleman give way for a general question on that before he moves on to another topic?

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

No.

I want to talk about our record on helping the poor. Last October the Government raised the income support rates for pensioners by £2 for a single person and £3 for a couple. That was one piece of direct help to people who are the poorest and who are pensioners. The Committee will be aware that from April this year, no one on income support is any longer required to contribute to local taxation. The amounts that have been included wihin income support for the contribution to local taxation were £1·60 for a single person and £2·80 for a couple.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

No.

Those amounts are greater than the amounts being speculated that people on income support will have to pay extra on their fuel bills as a result of the extension of VAT, even at the full rate of 17·5 per cent. which will not take effect for two years. Those are important changes and I shall tell the Committee how they work out.

A single unemployed person over 25 on income support has had his average disposable weekly income increased by £3·15 a week, and the disposable income of an 80-year-old couple on income support is now £9·35 more on average than it was last April. That means that, for the first time, the income support for those people has now moved over £100 a week. It may be that the increases that the Government have made in their help to the poorest people have been so numerous and so large that the Committee is out of touch.

Let me remind the Committee that the higher pensioner premium for those on income support now stands at £23·55 for a single person and £33·70 for a couple who are over 80 or disabled. Those are additional benefits given to those people to take care of their special needs and it is worth bearing them in mind.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

Despite all that I have said, we undertook to give extra help to the poorer pensioners and to those people on income-related benefits and to increase the cold weather payments. Contrary to what the hon. Member for Peckham said, it was included in the Budget statement and stated by my right hon. Friend the Chancellor on Budget day.

We made it clear that extra help would be available before the first fuel and power bills with VAT arrive next April and that the exact nature of what we intended to do would be included in the autumn uprating statement by my right hon. Friend the Secretary of State for Social Security who is obliged by statute to take everything into account in deciding what the appropriate uprating should be.

I now turn to the point raised by my hon. Friend the Member for Teignbridge (Mr. Nicholls). I know that he is concerned about pensioners who are not on income support as well as those who are.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

Perhaps I could remind him of some of the Budget arithmetic. We need to bear in mind the fact that it is necessary to raise revenue to deal with the public sector borrowing requirement, and that VAT on fuel and power will raise £2·3 billion in 1995–96. Out of that, automatically through the effect on the retail prices index, and the effect of that on the uprating of benefits, there will be £300 million spent in 1995–96 and £600 million in 1996–97. That is absolutely without reference to the extra help that I referred to previously.

Photo of Angela Browning Angela Browning , Tiverton

Will my right hon. Friend give way?

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

In a moment.

Our record on pensioners is also a good one. Pensioners' average income has risen by 30 per cent. in real terms since 1979. Following an amendment, or an innovation brought in by the Labour Government, we now offer all people during their working life times the opportunity to be in SERPS or to be contracted out of the state earnings-related pension scheme into an occupational or personal pension scheme.

In April, thanks to our success in reducing inflation, the uprating of pensions was 3·6 per cent. whereas the retail prices index figure for April was 1·9 per cent. The effect of that on a pensioner couple's income is compensation of £1·60 over and above the retail prices index. Opposition Members may sneer, but that is very close to the amount which it is speculated the extra cost of VAT on fuel and power will come to when the full 17·5 per cent. rate comes into effect in two years' time.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

I have promised to give way to some other hon. Friends, and I have already given way to my hon. Friend once.

We have a problem, in that we have scarce resources which we therefore need to be able to target. Wherever we draw the line between those who are defined as in special need, because they are in poverty, and others, there will always be people just above that line whom my hon. Friends will believe to be especially deserving.

Photo of Mr William Powell Mr William Powell , Corby

Will my right hon. Friend give way?

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

We must also recognise that there are benefits, such as housing benefit and council tax benefit, which are payable to people who are not on income support. One and a half million pensioners will benefit from what we have already announced, and we intend to go on giving extra help to the poorest people. One and a half million pensioners who are not on income support will benefit through council tax benefit and housing benefit —2·25 million households in all will benefit, including the 1·5 million pensioners.

It is necessary to draw lines somewhere. I believe that it would be unrealistic to give extra help to all pensioners over and above the RPI effect. I remind my hon. Friends that pensioners will benefit from that effect. If we were to take extra measures to try to identify the impact of fuel bills over and above the RPI effect felt by pensioners and all others, we might be talking about another £1 billion on benefits. My hon. Friends will recognise that that would wash away a great deal of the revenue being raised in this way—

Photo of Alex Salmond Alex Salmond Leader, Scottish National Party

On a point of order, Mr. Morris. Is it in order for the Chief Secretary to address the House with this posture? He seems to be arranged in such a way that he can see all who want to intervene and are sitting behind him but none of those in front of him. Would it be possible to ask you to ask the Chief Secretary to adjust his crooked posture?

Photo of Mr Michael Morris Mr Michael Morris , Northampton South

I am grateful that, for once, an hon. Member is addressing the Chair.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

I give way again to my hon. Friend the Member for Teignbridge.

Photo of Mr Patrick Nicholls Mr Patrick Nicholls , Teignbridge

I am grateful to my right hon. Friend for dealing specifically with this point. I hope that he can clarify another point for me. He has referred to the fact that rebates on council tax can take account of the circumstances of a pensioner who, although not on income support, clearly needs help. Am I right in thinking that the amount of rebate available through that mechanism was set without reference to the impact that VAT on fuel bills will have? Surely, if that is the mechanism to be used to help these pensioners, there should be some flexibility for building into the calculation the fact that they now face extra bills at a time when many of them are already having their incomes cut by depreciating interest rates.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

All pensioners, whether on income support or not, will be compensated for the impact on the retail prices index of extending VAT to fuel and power. In addition, those on income-related benefits will be compensated, especially and in advance. Whereas it is generally believed that there are people above the income support line who might also require some help, it is perhaps not always realised that 1·5 million pensioners who are not on income support will receive compensation through the uprating of benefits due to the RPI, and extra help because their council tax benefit and their housing benefit will be adjusted, by means of the special help that we are discussing.

Photo of Mr Michael Stern Mr Michael Stern , Bristol North West

I wonder whether my right hon. Friend will allow me to pursue the point a little. Many people, not necessarily pensioners, live in hard-to-heat homes and are trapped in those houses either because they are council tenants or because they suffer from negative equity. Their council tax benefit or housing benefit, if any, bears no relation to the fact that their fuel costs are much higher than average. In the scheme of compensation that my right hon. Friend is planning, will he take those facts into account so that people will not inadvertently lose out because, for instance, they moved into a Parkinson house, from which the heat leaks away through the walls?

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate 4:45 pm, 10th May 1993

My hon. Friend draws attention to a well-known difficulty. When we moved from supplementary benefit to income support, we did not think it right to continue the whole range of special payments made to people in various circumstances—the so-called single payments. Since then, we have relied heavily on identifying the people who have the greatest need to heat their homes: the elderly and the very elderly, who attract premiums under income support, the disabled who do the same, and those with children who also attract them. That is how we have dealt with the problem on the basis of many years of experience.

Photo of Roger Berry Roger Berry , Kingswood

Will the Chief Secretary recognise that the reason why pensioners and many other people are angry about what is happening is that on 27 March last year the Prime Minister clearly said: We have no plans and no need to extend the scope of VAT"? Was that statement based on ignorance, dishonesty or both?

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

The hon. Gentleman's question was clearly based on ignorance, as I dealt with it in the first part of my speech.

Photo of Angela Browning Angela Browning , Tiverton

I must draw my right hon. Friend's attention back to the point made by my hon. Friend the Member for Teignbridge (Mr. Nicholls) about pensioners and people who are not on income-related benefits. My right hon. Friend has said that it would be impossible to make any alteration in the RPI calculation, but that calculation will be a national average which does not take into account the disproportionate amount of money spent on fuel by retired people and people with disabilities. In the west country, the additional benefits that he has mentioned—from council tax benefit, for instance—have been sopped up by the additional charges that people have had to pay for water, so this will hit them particularly hard.

If my right hon. Friend, within the RPI formula, were to take account of those much higher charges and the money were paid to pensioners on higher incomes, he would at least recoup the money through the tax system, because pensioners with higher incomes pay tax like everyone else. That would at least ensure that pensioners who do not have income-related benefits but who are not exactly well off have their fuel charges covered.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

It is well understood that what most concerns us is that we should compensate pensioners through the RPI; but the amount that many of them spend on fuel and power may figure disproportionately in what they spend. There is a great danger, however, in seeking to compensate people for particular items of expenditure. We have always sought to raise benefits by the retail prices index, or by the Rossi index, according to what was right. If, since 1979, we had looked at the things that pensioners spend most money on, we would have excluded from their index mortgage interest payments, because pensioners do not spend much on them. The result would have been, as the Secretary of State for Social Security has pointed out several times, that today's pension would be £6·65 less than it is. That would have been the result of picking and choosing our way through the index, trying to find out what pensioners spend their money on.

Photo of Mr Terry Dicks Mr Terry Dicks , Hayes and Harlington

This leaves us in an odd position. I will still have to tell pensioners in my constituency, "I am sorry that you will not get any help —but if you went to the Royal Opera House, you would get help, because the Government subsidise it to the tune of £30 per seat per show." Why do we subsidise people's pleasure to the tune of £700 million while punishing pensioners at the other end of the scale? If my right hon. Friend cut out overseas aid and subsidies for the arts tomorrow, there would be no need to be doing any of this.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

My hon. Friend certainly anticipates some of the arguments that will arise during a very difficult public spending round indeed. He talked about penalising people for saving. It is a very difficult problem: how to devise a benefit system which, on the one hand, provides a safety net for people—which means that we have to have an income-related system and to be aware of their means and capital—and, on the other hand, avoids excessively penalising people who have shown thrift throughout their lives. Those are serious problems which cannot be solved easily.

We are, of course, now committed to embarking on a review of social security and to looking at the balance between targeting and universal benefit. These are genuinely difficult problems, and the questions that my hon. Friends are raising about the people who are just above the income support level are obviously questions which we shall have to think about very carefully indeed.

Photo of Mr Peter Fry Mr Peter Fry , Wellingborough

Does my right hon. Friend not appreciate that, despite all his talk about second pensions, about 1·5 million to 2 million people, many of them living in their own homes, so that they do not get any housing benefit, do not have a second pension and very often have no extra income at all? Is he aware that, on the night when the original Budget resolutions were put, I asked our right hon. Friend the Chancellor of the Exchequer whether there would be recognition of the plight of that sector of the community, and he said that of course there would. Does my right hon. Friend accept that what he explained this afternoon falls a long way short of reassuring me about the fate of those people who do not have that extra income? Would he like to comment on that?

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

If my hon. Friend reads what I have said, he will not reach that conclusion. I have pointed out that the retail prices index will be adjusted, and that will be of general help to pensioners. I have pointed out that we will give special help to people on income-related benefits; that 1·5 million pensioners and 2·25 million households altogether, above the income support level will benefit; and that 8 million households altogether will benefit from special measures that we are taking.

The people to whom my hon. Friend refers as living on their own may none the less be in receipt of council tax benefit. If they have only their state pension, and no occupational pension, they will certainly be on income-related benefit. That is where I believe the help should be concentrated, because we have a system that identifies the people who are most in need and brings help to them.

Several hon. Members:

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Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

I really do want to get on. We are in Committee and there will be time for hon. Members to make their points.

Turning to the question of standing charges, VAT is normally chargeable on the whole of a charge—

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

No, I have already given way to my hon. Friend.

VAT is normally chargeable on the whole of a charge for supply, both the fixed and the variable element. If we were to exclude standing charges from VAT that would mean a substantial reduction in the revenue and we would then have to seek that revenue elsewhere. It would be administratively extremely inefficient to exclude standing charges, and it would certainly mean that in the long term the industries would be given the opportunity to restructure the way in which they charged people in order to avoid VAT falling on their supplies.

However, most important of all, perhaps, is that the effect of what the Opposition are proposing would be no help to the people in most need —that is, the people who pay for their electricity and gas supplies through slot meters. They are often the poorest people, and many have smaller standing charges than other people. Therefore, paradoxically and perversely, what the Opposition are proposing would, I believe, leave those people in the worst position of all.

The general approach of the Government to charities is that we should give tax relief for all those who wish to give to charity, rather than seek to give relief to charities on the items that they purchase. The advantage of that is that the charities that are best able to attract public support are the ones which get the subsidy from the taxpayer. It is extremely difficult to sort out the purchases that are made by charities from those that are made by other taxpayers.

The hon. Member for Peckham said that the extension of VAT to charities would affect them by £25 million. I should like to put that in some sort of context by pointing out to the Committee that tax relief on charitable giving is now running at over £900 million a year.

The Government have a magnificent record of introducing reforms that have been of particular help to charities. In 1980, for example, we introduced a reduction in the length of time that a covenant to a charity had to run from seven to four years. In 1987, we introduced payroll giving, and we introduced gift aid in 1990. According to the latest figures, £307 million has now been contributed through gift aid. We are now spending £2·68 billion on the voluntary sector. All these figures absolutely dwarf the one that the hon. Member for Peckham mentioned.

None the less, we were well aware that, under this Budget, charities would have to pay more in VAT, and we therefore sought a reform within the Finance Bill that would be of benefit to charities. We have extended payroll giving and gift aid, and the benefit of that is about £30 million, which broadly matches the impact of VAT on charities through fuel and power.[Interruption.] The hon. Member for Newcastle upon Tyne, East (Mr. Brown) says from a sedentary position that it is different charities, but the Opposition are proposing the maintenance of an exemption for charities that would mean that Eton college, for example, would continue to benefit from VAT relief. Indeed, for all I know, Eton college might benefit more than Help the Aged from VAT relief. The Labour party is proposing that we should set up arbitrary distinctions between, for instance, care homes that are run in the private sector and those that are run by charities.

I therefore believe that the Committee will agree that the Government have set out in the Finance Bill to provide an equivalent measure of compensation for charities to enable them to cope with the extra imposition of VAT.

Photo of Mr David Nicholson Mr David Nicholson , Taunton

My right hon. Friend rightly makes the point that there are different kinds of charities. It might be sensible to consult the charities on how they would like their tax relief. Is he aware that there is a particular kind of charity, particularly in rural and semi-rural constituencies—village halls? Many of us have had a large number of letters from village halls about the concern that is felt regarding what they may have to pay next year or the year after because of VAT on fuel. I appreciate that we are dealing with a hypothetical situation, because nobody knows what will happen to the prices of electricity and gas over the next two or three years. Will my right hon. Friend undertake to listen very sympathetically to representations from Conservative Members—and, no doubt, Opposition Members—on behalf of village halls, if they get into difficulty as a result of VAT on fuel?

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

My hon. Friend makes a most interesting point. As he says, time will tell and perhaps we can learn from experience. He may have had in his mind, when he asked the question, a point that I had already made—that fuel prices have been falling recently and we are looking at phasing in this increase over two years. But we will, of course, look very carefully at the impact of the change on village halls.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

Yes, I have been on my feet a long time, and I will give way.

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

Will the Chief Secretary recognise that, even leaving on one side the drop in donations to charities by individuals and companies, the effect of the Budget is to cut income to charities? Although, as he has mentioned, they will get additional relief from payroll giving and gift aid, they will lose out on VAT on their gas and electricity, and they will also see a drop in their income from dividends because of the reduction in relief for advance corporation tax? While the Government estimate that that will be about £50 million, the charities estimate that it will cost them about £100 million.

5 pm

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

The dividends come under a separate clause, but the hon. Lady needs to bear in mind that what we are talking about in that clause is a reduced rate of compensation for a tax liability that does not arise for charities. Charities are exempt from taxes on their income and at the moment they are getting a credit on their dividends, which they can cash in. Obviously, reducing the rate of credit reduces their income. That is why the hon. Lady will discover within those provisions, when we reach them, special transitional arrangements for charities to help them with that.

Environmental questions have been raised. As I have said previously, the Bill is intended to raise revenue; there are no two ways about that. It also helps significantly to achieve our environmental commitments. The 150 countries that were signatories to the Rio convention signed up to reduce carbon dioxide emissions to their 1990 level by the year 2000. We predict that we need to reduce our carbon emissions by 10 million tonnes by the year 2000 or by about 6 per cent.

We have taken a range of measures to bring that about, some of which are directed to better fuel efficiency. They include the setting up of the Energy Savings Trust, which is to bring together the Government, British Gas and the electricity supply industry under the chairmanship of my noble Friend, Lord Moore, to find schemes that will enhance energy efficiency and make grants for those schemes. We are putting our trust in that body to achieve carbon reductions of 2·5 million tonnes on that programme alone.

The VAT increase that we are talking about and the increase in petrol prices that my right hon. Friend the Chancellor mentioned in the Budget will each achieve carbon reductions of 1·5 million tonnes. That will leave a gap of 3 million tonnes of carbon for the Government to be able to meet the commitments that they made at the Rio convention. I know that it has been suggested that the gap should be filled by way of a carbon tax. I think that my right hon. Friend the Paymaster General may wish to say something about that when he winds up. I would simply say that there are considerable doubts about the efficacy or appropriateness of a carbon tax. We will have to consider such factors extremely carefully as discussions progress within the EC.

I commend the VAT proposals to the Committee. I have been astonished by the way in which Opposition parties have criticised the Government on this when, in the past, they wished to extend VAT and made their wishes clear. The right hon. Member for Berwick-upon-Tweed, for example, always wriggles when this quote is mentioned to him, but he knows perfectly well that a Liberal party document called "Costing the Earth" said: The Liberal Democrats advocate as a first priority the imposition of a tax on energy … The UK is unusual amongst EC members in not applying even standard rates of VAT on domestic fuels … if it proved completely impossible to persuade our international partners to adopt energy taxes, we would nevertheless press forward …by ending the anomalous zero rate of VAT on fuel. That really could not be clearer.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

If the right hon. Gentleman wishes to say that it was only a Green Paper and not Liberal party policy, he may say so and we shall treat that comment with our customary derision.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

Will the right hon. Gentleman recognise that that document was not party policy and did not become so? If he would like to have the Conservative party election manifesto compared with ours and see which party is sticking to its manifesto, that would do for us.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

My predictions about what the right hon. Gentleman would say were absolutely correct.

Photo of Mr Ian Bruce Mr Ian Bruce , South Dorset

Has my right hon. Friend read a little further into Liberal party documents? Not only does "Costing the Earth" contain the quotations that he used, but "Policy Briefing 22", which came out in October 1991, gave the same commitment. "Changing Britain for good", which was the manifesto on which the party fought the election, says: Our new Energy Tax is this manifesto's key proposal in this area.

Photo of Mr Michael Portillo Mr Michael Portillo , Enfield, Southgate

My hon. Friend makes his point supremely well. He has set the right hon. Member for Berwick-upon-Tweed gibbering with fury that he has been discovered.

The Labour party has been just the same, from top to bottom. The Leader of the Opposition said in his election address when he was seeking to be elected leader of the party: We should consider the increased use of the fiscal system to promote environmental protection and conservation." What did he mean by that if he did not mean taxes on fuel? The hon. Member for Islington, South and Finsbury (Mr. Smith) said in Green Magazine in February that he believed in increasing VAT on environmentally unfriendly products. He went further and said: If I was Secretary of State now I would twist the Chancellor's arm right up his back to see these measures implemented. We know that the Labour party spokesman in the House of Lords, Lord Desai, who has now been fired, said in Tribune on 6 May: I would remove zero rating for VAT on all items. What was so extraordinary, as the House saw on Thursday, was that my right hon. Friend the Chancellor, in Treasury Question Time, used that quote and made it clear that it came from Tribune that day. A moment later, my right hon. Friend the Prime Minister mentioned the quote and the Leader of the Opposition said that it came from the days when Lord Desai was not an Opposition spokesman. I have never seen anyone fall more clearly into a trap. Sitting next to him were the hon. Members for Peckham and for Dunfermline, East, both of whom knew that the quote came from Tribune that day. However, neither of them cared to warn the Leader of the Opposition about the trap into which he was walking.

It is extraordinary that Tribune is never read. It has reached the position that television reached for Noel Coward, who said that television was a thing for appearing on, not a thing for watching. Now it appears that.Tribune is a thing for writing in but not something for Labour party members to read.

The hon. Members for Peckham and for Dunfermline, East led their general straight into a disaster and sent him charging off between the trenches. They knew that that quote was current and of the day, but they let the Leader of the Opposition fall into that trap. With a general misled by his brigadiers, the Labour party's response was to fire the corporal. Poor Lord Desai has now been sacked as a spokesman in the House of Lords. On behalf of all my right hon. and hon. Friends, let me say that we shall miss him greatly.

The humiliation that the Leader of the Opposition suffered on Thursday, the rout that he endured in the House of Commons, led him, over the weekend, suddenly to stir up a campaign on VAT on fuel and power. That from a Labour party which has never once addressed the question of public borrowing or committed itself to controlling public spending. The Government are prepared to face up to those serious issues. We understand that, in order to control public borrowing and to pursue a responsible fiscal policy, we have to take unpopular decisions. Only a natural party of opposition—the Labour party—could believe that one can govern without any pain and that it is possible to get control of public borrowing without taking unpopular decisions.

The Conservative party is committed to responsible government and sound public finances. It is willing to take the decisions necessary. Therefore, I urge my right hon. and hon. Friends to resist the amendments.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

I do not know how the Government have the face to go ahead with their proposals after Thursday's result in Newbury. My hon. Friend the Member for Newbury (Mr. Rendel), who is sitting beside me, received the votes of more than 37,000 electors, who expressed their anger about this and other aspects of Government policy so clearly and decisively that a Government who were listening and learning would have asked the House today for time to reconsider the fuel tax proposal and to come up with a better way of dealing with the hole that they have created in the public finances.

The Government go on at us about the state of those finances, but it was they who secured the prolonging of the recession and they who said that it would not last so long. According to their manifesto and their election campaign, recovery would come as soon as the ballot boxes had closed on polling day and it was clear that they would remain in power. It was they who insisted that they did not and would not need new taxes. We made no such claim; we evinced no such bravado about the ability of Government to survive without new taxes, or tax increases, in any circumstances.

All the Chief Secretary's talk this afternoon about how only a natural party of government like the Conservative party ever considers unpopular measures such as raising taxes is absolute nonsense. There was not a word about that during the general election campaign, which was all about lowering taxes. It was we who said that, in some circumstances, we would be prepared to raise them, if there was a strong and legitimate case for doing so.

We heard none of that from the Government; but, during the Newbury by-election campaign, we heard plenty on the doorsteps about the imposition of VAT on domestic fuel and power. We collected thousands of signatures from people who objected strongly to the proposal, and those of us who were canvassing the local elections around the country heard the same message time and again.

If the Government are listening and learning, to what and to whom are they listening and what have they learnt? They do not appear to be listening to their own Back Benchers, who have expressed doubt and concern about aspects of their proposals. Some pertinent questions have been raised this afternoon.

Photo of Mr Patrick Nicholls Mr Patrick Nicholls , Teignbridge

Will the right hon. Gentleman give way?

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

I am almost reluctant to give way to the hon. Gentleman, because he has got in twice already. However, I shall do so.

Photo of Mr Patrick Nicholls Mr Patrick Nicholls , Teignbridge

In that spirit of friendship, I wanted to give the right hon. Gentleman an opportunity to disown what was said in his own party's Green Paper and election manifesto—that the Liberal Democrats were in favour of putting a tax on energy. Will he take that opportunity and disown the pledges that were given then?

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

On the contrary, I shall take the opportunity to read the proposal which another hon. Member misquoted so ludicrously. We said in our manifesto that we would support a Community-wide energy tax on all energy sources … related to levels of carbon dioxide emitted". We said that that would provide a strong incentive for saving energy and investing in cleaner sources. Extra revenue raised through the tax will be fed back into the economy reducing other taxes such as VAT". That is the part that the hon. Member for Dorset, South (Mr. Bruce) did not quote—the proposal to reduce VAT.

Photo of Mr Ian Bruce Mr Ian Bruce , South Dorset

Will the right hon. Gentleman give way?

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

No. If the hon. Gentleman ever quotes me accurately, I shall be prepared to listen to his interventions. Moreover, I have not finished the quotation; apparently, the hon. Gentleman does not wish to hear the rest of it.

We said that we would act by reducing other taxes such as VAT and by protecting those least able to adapt to the higher price of energy. Not only our manifesto, but even the "Costing the Earth" document—which did not become party policy—contained a string of proposals to invest in energy efficiency: to invest resources in the communities that found it most difficult to cope with high energy costs. It is ludicrous to quote a proposal to reduce VAT as if it were a proposal to increase VAT.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

I shall give way later, when it is less difficult to choose which Conservative intervention to take. The Chief Secretary argued—[Interruption.] Perhaps I will give way after all, to the hon. Member for Southend, East (Sir T. Taylor).

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

To maintain the high standard of honesty claimed by the Liberal Democrats, will the right hon. Gentleman make it abundantly clear—not only to the voters of Newbury—that, no matter how much money the Liberal Democrats might gain through a new energy tax, that money could not be used to cut VAT? If the Government's proposals are accepted, a future Labour or Liberal Democrat Government will be able to do nothing about it.

Will the right hon. Gentleman at least make it clear that VAT cannnot be reduced, because of EC obligations which I thought his party supported? I am not attacking him; I am merely asking him to tell the people the truth. Then his party might get on even better.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

I do not agree. It is possible for any member country to have different VAT rates from the rest of the Community. A number of member countries have far lower rates than our existing 17·5 per cent. and it is open to us to apply lower rates to various of the commodities on which that rate is now levied.

However—as the hon. Gentleman well knows—it appears that, under Community law, if we surrender the zero rate on fuel tonight, we shall never be able to restore it. I hope that the hon. Gentleman will continue to remind Ministers that their proposal appears to constitute an irrevocable removal of the zero rate—one that they cannot go back on. That is another argument for not surrendering the zero rate to raise more money and for devising a more effective form of energy taxation.

This is not, and was not intended to be, a genuine energy tax. The Chancellor made it clear to the Treasury Select Committee that the primary motive for the proposal was to raise revenue, and the Chief Secretary devoted much of his speech to explaining the reasons why that was necessary. No money from this tax will increase energy efficiency. It is not a device to transfer money from energy users to measures that will lead to less use of energy. It is indiscriminate: it draws no distinction between energy raised by coal burning and that raised by oil burning, wind power or tidal forces. All are treated in exactly the same way. This is not a serious energy measure.

5.15 pm

The tax will be applied not only to energy used, but to the fixed standing charge, which bears no relation to the amount of energy that a person uses. How can it be an euergy tax designed to encourage people to use less energy, when it applies to an amount over which their use of energy exercises no control? Moreover, by and large, it is not targeted at people who have much choice about how much energy they use.

Many who will be hardest hit by the tax do not have control over the energy efficiency of their homes, because they do not own them—or, as a Conservative Member pointed out, because they are victims of negative equity, stuck in their houses without the resources to make them more energy-efficient. Often, they have not the means to do so either: they cannot afford to take out an extra mortgage and put some capital into real energy efficiency improvements.

No new resources will come from this measure to be directed at some of the valuable schemes that exist, such as the neighbourhood energy action schemes—schemes that are making a limited but extremely valuable contribution to improve energy efficiency. Many more resources would be needed to offset the effects of the tax on vulnerable groups.

We know that poorer households spend a larger proportion of their income on fuel. A study by the university of York suggested that the tax will lead to single pensioner households spending over 20 per cent. of their budget on fuel following the introduction of the 17·5 per cent. rate. The 1991 family expenditure survey showed that, even then, the poorest 20 per cent. spent 11 per cent. of their total income on fuel; the average was 5 per cent. and for the richest it was only 3 per cent.

Poorer people are more likely to live in rented accommodation and to be unable to improve insulation very much. They are less likely to have central heating and more likely to use pre-payment meters, which generally mean higher standing charges. I have yet to find out precisely how the VAT system will affect those who have to buy tokens for such meters, but it will almost certainly disadvantage them.

Winter Action on Cold Homes estimates that, of the 7 million households that rely on social security for most of their income, only 13 per cent. have energy-efficient homes, nearly 50 per cent. have no central heating and only a third have adequate loft insulation. All the organisations that know most about the matter have spoken out vigorously. The citizens advice bureaux have expressed concern about the potential increase in the number of people disconnecting themselves from their electricity supply. The Child Poverty Action Group has opposed the measure and pensioner's organisations such as Age Concern—along with organisations representing the disabled—have spoken of the likely impact on those whom they know best.

Families with children, on average, have higher fuel bills as a proportion of income, especially single parents and those with young babies. The unemployed are likely to spend more time at home and hence will have higher fuel bills. Those with chronic sickness and disability spend more time indoors and so have higher fuel costs. They often need extra heating in any case—and extra hot water, if they need to bath or wash clothes more often as a result of a number of health conditions.

Photo of Ms Liz Lynne Ms Liz Lynne , Rochdale

My right hon. Friend has mentioned health conditions. Does he agree that, if people cannot heat their homes to keep warm, problems will be caused for hospitals, which will have to take on even more cases than they have at present? I met members of the Rochdale pensioners association this morning and I know that many of my constituents are desperately worried. They fear that, if they cannot keep warm, they will eventually have to go into hospital.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

My hon. Friend makes an important point. Many ill-thought-out measures which bear hard on one group show up in the public expenditure requirements somewhere else, sooner or later. They lead to precisely what my hon. Friend has said, and in the end lead to higher costs for the national health service in another area. That is only part of the argument. What is much worse is that it involves a deterioration in pensioners' health. We do not want them in hospital in the first place, but it turns out to be a false economy if the result is higher costs for the NHS.

My hon. Friend speaks for a constituency in the north of England. My constituency is even further north than hers. Those of us who represent colder parts of the country —Scotland, Wales and the north of England, exposed parts of the country and remote communities—know how much our constituents will be affected by this proposal.

Photo of Mr Phil Gallie Mr Phil Gallie , Ayr

I, too, have a constituency in the north of the country. If all those people are going to suffer, as the right hon. Gentleman suggests, why does he still push his carbon tax? Did the right hon. Gentleman and his hon. Friends support the coal industry recently? Would not a carbon tax hit all the people to whom he referred? Would it not amount to a great penalty on the coal industry?

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

As the hon. Gentleman knows, because he knows the electricity industry particularly well, that industry is expecting and will have to face higher taxation of energy, but to make any sense it has to be directed at the environmental objectives which the Government have accepted. It must not be indiscriminate. It has to be managed in such a way that it is not visited most heavily upon those who can least afford it. That is our double objection to the VAT proposals.

The hon. Gentleman is not facing reality if he assumes —I am sure that he does not, because he is involved with the industry—that there will be no increase in energy taxation. He should face that reality and encourage his hon. Friends to accept only a European energy tax which is directed at the saving of energy, where we can save it, and which at the same time is accompanied by measures to ensure that those who can least afford the impact to be hard on them are properly protected and helped. None of those objectives is satisfied, as the previous exchanges demonstrated.

Photo of Kim Howells Kim Howells , Pontypridd

Does the right hon. Gentleman believe that a better way to tackle the problem is to encourage—perhaps by tax breaks of a different sort —incentives that are aimed at introducing greater efficiency in the use of energy? Sometimes that involves large tax breaks for people who are prepared to invest large amounts of money in efficiency-saving technology and devices rather than the imposition of a carbon tax.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

I agree with the hon. Gentleman that we should give tax incentives for energy efficiency measures. We have argued that case in debates on successive Budgets. He must see the inherent absurdity of putting VAT on domestic fuel and still charging it on the various means by which pensioners could reduce their fuel bills.

The implication of the hon. Gentleman's question is also right: there are areas—industry, for example, which already has to pay VAT on fuel—where significant energy savings could be made if there were sufficient economic incentive to make them. They would result in far greater energy savings than can be made by pensioners in their homes, certainly under a system that provides them with so little help to make savings.

To complete the list of those who will be particularly badly affected by VAT on fuel and power, some people cannot claim income-related benefit; many pensioners are above income support level; students usually live in rented accommodation and have minimal control over its energy efficiency. Those of us who have lived in student accommodation can remember stuffing silver paper in the cracks, of the doors to keep out the draught, and the various other simple energy efficiency measures that we had to adopt. Any group of people who are not entitled to income-related benefit and who are likely to be living in energy-inefficient accommodation will suffer particularly badly from this proposal.

What was also noticeable in the local elections was the resentment of many people on low incomes and of pensioners who have a small additional income, who find that they will have to bear the full cost of VAT on fuel and power. They will not be compensated in any way. A great many of those people voted for us in the local elections.

Photo of Mr Ian Bruce Mr Ian Bruce , South Dorset

When did the Liberal Democrat party decide to ditch its intellectually honest document "Costing the Earth", which specifically stated that exceptions could not be made, even in the case of people on low incomes, and that their cases would have to be dealt with through the social security system? I will give the right hon. Gentleman the quotation later. Clearly, he has not read his own document. Does he acknowledge that the Government, by means of the non-fossil fuel levy for electricity, have dealt with non-fossil fuel subsidy? As the right hon. Gentleman wants to deny that policy, what does he expect his energy tax percentage to be when it is first levied?

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

Our policy was made clear in our general election manifesto—as, we presumed, was the policy of the hon. Gentleman's party. The Conservative party's policy was that there was no need for any additional taxation of energy, or for additional taxation of any kind whatsoever. Although the hon. Gentleman, and others, attacked us for proposing modest increases in the taxation of petrol, even though our proposals contained many compensation elements for those who would be affected by them, we stated honestly that we thought that an increase would be necessary. However, the Government have put up the price of petrol by more than we proposed. The hon. Gentleman says nothing about that and makes no complaint about it. Comparisons should be made on the basis of what we put before the electorate at the general election.

Photo of Mr Stephen Milligan Mr Stephen Milligan , Eastleigh

Will the right hon. Gentleman give way?

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

No, I must get on with my speech.

Other groups will be particularly badly affected by this proposal. They, too, will not be adequately compensated. Compensation, for example, that is determined by the basket of items that form the means of assessing the retail prices index will not compensate a family or pensioners for the cost of the tax on fuel. There are further problems with income-related benefits. Many people who qualify for them do not take them up. That is another reason why income-related benefits will not lead to adequate compensation.

I mentioned earlier another reason why the Government are unwise to proceed in this way. It is fairly clear that European law does not provide for the zero rating on fuel and power that we have enjoyed until now. Our ability to enjoy a zero rating rests upon the fact that we already have it. The Government are willingly and deliberately surrendering this exemption at a stroke, with no prospect of reintroducing it. They must therefore intend to keep VAT at this level on fuel and power. They obviously have no doubts about it.

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North

Will the right hon. Gentleman give way?

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

No, I must get on.

We have offered a number of amendments that would enable us to retain VAT exemption. We have tabled fallback amendments, by means of which we invite Conservative Members who insist upon going down this road at least to limit VAT on fuel and power to a smaller amount—for example, to 5 per cent.—or at least not to go from 8 to 17·5 per cent. However, that is only a second best. It would be far better not to lose the exemption.

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North

The right hon. Gentleman says that under European law we are constrained with regard to taxes on energy. Can he tell us which instrument was passed by the House of Commons which gave the Europeans that authority and whether he was aware of that fact at the time?

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

I would not presume to offer an answer to that question without checking, first, the sources and references, but I do not think that the hon. Gentleman disagrees with me—unusually, because we normally disagree—on the point that the surrender of this zero exemption is likely to be irreversible and that that is presumably what the Government intend. Therefore I invite Conservative Members not to let the Government do it tonight. During these proceedings, a number of Conservative Members have expressed anxieties and doubts, for their concerns have not been met. As they know that it will be irrevocable, they must not go into the Division Lobby in support of the provision. There are far too many doubts and far too many anxieties.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

No, I must continue my speech.

I have read again the Chancellor's reasoning before the Treasury Select Committee for the imposition of VAT on domestic fuel and power. I should mention in passing that VAT is to be imposed on domestic fuel and power. The hon. Member for Peckham (Ms Harman), perhaps by a slip of the tongue, implied repeatedly in her speech that VAT will be imposed on just gas and electricity, but that is not so. It will be imposed on gas, electricity, oil, logs, peat, ducted air—anything that we care to name.

Mr. Noon:

And coal.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

Yes, coal as well.

People who live in rural areas have little choice about fuel. For example, they do not have the gas option. They have keen and strong feelings about that. My hon. Friend the Member for Newbury pointed out to me earlier that that point was made on the doorstep in many villages. Many people in rural communities are worried about the effect on oil prices, for they do not have the same choice of fuel as others do.

When the Chancellor gave evidence to the Treasury Select Committee, he said: I could have extended VAT to other items and, indeed, I am strongly tempted to at times. There we have it. We have a Chancellor who spends rarely a week without thinking of the possibility of extending VAT to other items. This man is dangerous. He is subject to many temptations and when he succumbs to them he has no regrets. That is why he is a walking invitation to people to vote Liberal Democrat. For the narrowest of party reasons, we should like to keep him, but for the broader reasons of national interest, the economy and this proposal we think that it is time he went.

The Chancellor is tempted to extend VAT not only to domestic fuel but to many other items as well. This tax does not make sense, it is not a well-directed tax, it is not an environmental tax, and the Committee should reject it tonight.

Photo of Mr William Powell Mr William Powell , Corby 5:30 pm, 10th May 1993

Tonight, I shall vote with the Opposition. It will be only the second time in 10 years that I have been unable to support my party in the Lobby. The previous time was when the Tory party made a preposterous proposal to extend proportional representation to elections in Northern Ireland. I am delighted to see my hon. Friend the Member for Southend, East (Sir T. Taylor) in his place, because he and I joined the Ulster Unionists in opposing the appalling idea that proportional representation is a relevant means of deciding any election. That is how strongly I feel about this matter. In making this proposal, my right hon. Friend the Chancellor has made a serious error of judgment. Indeed, I would take it one step further: I feel ashamed that my party could make such a proposal. I know that my constituents would feel ashamed of me if I were to vote for it. That is how important the issue is.

My right hon. Friend the Member for Worthing (Sir T. Higgins), who 20 years ago piloted through the House the original VAT law, has repeatedly told the House that the structure of VAT has stood the test of time. Under different Governments and five different Prime Ministers, the basic structure of VAT, as established about 20 years ago, has been accepted on both sides of the Chamber. This is the first substantial breach of those rules. Of course, there have been fringe extensions, which can be important in themselves, but this is not a fringe extension, because it extends VAT into a different area from any that the House contemplated. I shall be interested to see how my right hon. Friend the Member for Worthing votes, because he has repeatedly commended to the House the basic structure that was laid down in 1972.

Opposition spokesmen referred to election promises that were made only a year ago. When my right hon. Friend the Prime Minister made those statements, and when they were supported by other leaders of my party, I believed that they meant them. I made them to my constituents and when I did so I meant them, and I mean them today. I have no intention of saying to any of my constituents, "When I said that to you a year ago, it was only a conditional promise against the possibility that things might change."

My right hon. Friend the Chancellor of the Exchequer justifies this substantial change in policy on the ground that circumstances today are very different from what they were a year ago and that therefore we must approach the new circumstances in a different light. Of course the recession has been longer and deeper than my right hon. Friend thought at the time. However, if it were necessary for him to raise taxes—and he judged that it was—he could have chosen many other taxes to raise, rather than extend VAT and so raise tax in this way.

Circumstances have not changed so much that this extension to the law is essential. It is, I suppose, just possible to envisage certain circumstances—if the country were involved in a world war, for example—in which one would be justified in saying to one's constituents that, as the situation was now totally different, fiscal policy must be approached on a different basis than that which had hitherto been assumed. Although the Government's requirement for tax may be greater than was supposed a year ago, I cannot accept that there were not other ways that they could have chosen of raising similar or greater sums of tax.

Frankly, my position and my criticism of the Government is that I cannot accept the fiscal and economic argument that they have advanced to justify the tax. If taxes had to be raised, there were other taxes that could have been chosen. I must say to my right hon. Friend the Chief Secretary that the tax that is under-performing at the moment—and the take from which needs to be substantially increased—is income tax. Getting more people back to work and having an economy that is running more effectively than ours has been in the recent past would result in a greater income tax yield than at present.

Environmental arguments have been advanced by Treasury Ministers and have been challenged and denied by the hon. Member for Peckham (Ms Harman) and the right hon. Member for Berwick-upon-Tweed (Mr. Beith). I agree with both of them that, if the case is to be advanced on environmental grounds, the people who will be least able to afford the environmental improvements that my right hon. Friend the Chancellor is trying to achieve by the imposition of the tax are those whose incomes will be most adversely affected by its imposition. Those people, whether they are recipients of the social security system or are just beyond its thresholds, will have the least spare cash to buy the double glazing or whatever is required to achieve the necessary environmental improvements.

Photo of Sir Nicholas Fairbairn Sir Nicholas Fairbairn , Perth and Kinross

I declare an interest as the chairman of the Historic Buildings Council for Scotland. The right hon. Member for Berwick-upon-Tweed (Mr. Beith) did not include historic buildings and heritage in his list of those who will be punished by this proposal, but there will be costs for the Government and the heritage of Scotland. The difficulties that we have in trying to stretch a strawberry a mile to try to maintain the heritage of Scotland will be increased.

Photo of Mr William Powell Mr William Powell , Corby

I thank my hon. and learned Friend for that information, of which I was otherwise unaware.

I challenge the extension of VAT on social and political grounds. The people who will find the imposition of the tax to be the greatest burden are those who least deserve to be punished by this Parliament and, above all else, will be those who stand just above the threshold for social security and income support. I have no doubt that, in an odd, funny sort of way, the social security system will provide some compensation—not, of course, total compensation —for the extra costs that will be incurred.

People outside the social security system who have saved throughout their lives, as my hon. Friends the Members for Hayes and Harlington (Mr. Dicks) and for Teignbridge (Mr. Nicholls) said, will incur an extra penalty because they have saved. Every hon. Member knows that the most angry of our constituents are always those whose incomes are just above the threshold, but I should like to add a further point of considerable significance: those people have seen their incomes from savings come right down in the past few months.

Lower interest rates are bad for savers. Those savers now draw substantially less investment income because the Government have pursued policies that have enabled them to bring interest rates closer to, but not quite reaching, realistic levels. As well as suffering from that fall in investment income, those people will be further penalised when the VAT charge on fuel is imposed next year and levied at double the rate in 1995. I have to speak up for those thousands and thousands of my constituents who are just above the threshold levels.

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North

Would my hon. Friend's constituents react in the same way as my constituents would—I expect that they would because they are not far removed—to the point made by our right hon. Friend the Chief Secretary to the Treasury? He is a brilliant and excellent Minister, but he was wholly beneath himself when he said that people on pensions or income support would receive an extra £1·60 a week each because pensions were rising higher than the retail prices index. He knows that their cost of living is not related to the RPI at all, as they do not have mortgages. In fact, their savings will have gone down; instead of being better off by £1·60 a week, they will be worse off. Insult has been added to injury by his remarks today.

Photo of Mr William Powell Mr William Powell , Corby

I am not prepared to go quite as far as my hon. Friend in his style of criticising our right hon. Friend the Chief Secretary. However, I must confess that I was somewhat puzzled to hear my right hon. Friend phrase his argument in the way he did. Although it will not be enough to change my mind, I very much hope that our right hon. Friends in the Treasury will think far more deeply about the impact of the policy on those who could claim social security but do not and on those who are just above the threshold. Both those groups will have to bear the full impact, which will have a serious effect on their standard of living. It is a social policy that I am not prepared to support and that is why I cannot go along with my right hon. and hon. Friends this evening.

Photo of Mr Terry Dicks Mr Terry Dicks , Hayes and Harlington

I apologise for not being present for the start of my hon. Friend's speech. I want to ask for his view on two issues. First, if economic growth is faster than the Government expect, there may be an opportunity to have a rethink before the proposal's full impact is felt. Secondly, most hon. Members would have been prepared to pay more tax to ensure that pensions were at a far more realistic level than at present and to cover this situation.

Photo of Mr William Powell Mr William Powell , Corby

I hope that economic growth is much faster that the Government currently predict, because I fear for the consequences otherwise. I believe that my hon. Friend the Member for Southend, East was correct to say that once VAT was imposed, it would not be possible to think again about it. Once it is imposed, it will remain imposed. That is one of the inevitable facts of life which go with the VAT regime under the directive to which the Government are a signatory.

Photo of Mr William Powell Mr William Powell , Corby

I hope that my hon. Friend will allow me to make some more progress. On second thoughts, I give way.

Photo of Mr Patrick Nicholls Mr Patrick Nicholls , Teignbridge

I have tempted my hon. Friend. I shall have to ensure that that temptation comes up to the mark. I do not intend to get involved in the debate about whether one can go back on VAT rates once they have been increased—

Photo of Mr Patrick Nicholls Mr Patrick Nicholls , Teignbridge

My hon. Friend always says that on these occasions.

Does my hon. Friend the Member for Corby (Mr. Powell) agree that, during the next year, there may be at least the opportunity for the Government to work out proper compensation mechanisms to ensure that those whom he identifies as being just above the income support level can be helped in some way? To that extent, matters may not be quite as hopeless as my hon. Friend understandably points out.

Photo of Mr William Powell Mr William Powell , Corby

I hope that my hon. Friend is right, but I fear that he is not. I fear that our present structure of social security would make it virtually impossible for the Government to be able to identify compensation for individual amounts, such as VAT on fuel and power. If they attempted to do so, they would be caught up in an administrative nightmare.

There is a better way in which to deal with the problem which my hon. Friend the Member for Teignbridge has outlined and which I wish that my right hon. Friend the Chief Secretary would be prepared to concede. The best way is to withdraw the clause altogether so that we do not face the difficulties that are implicit in it. The best thing to do would he to withdraw it and to think again. If my right hon. Friend the Chancellor still believed that he must raise taxes by £2·3 billion, he could then come forward with alternative tax-increasing proposals which did not involve that nightmare.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East 5:45 pm, 10th May 1993

If my hon. Friend's suggestion is not possible, could we not solve everyone's difficulties by pursuing the policy of having a British-built aeroplane flying above my hon. Friend's constituency and dropping £10 notes? That would deal with all the problems raised by my hon. Friend and would solve all the political problems. If our hon. Friend the Member for Teignbridge (Mr. Nicholls) does not want the money that way, how does he think that he will get it?

Photo of Mr William Powell Mr William Powell , Corby

My hon. Friend is a most beguiling advocate. In the past, he has offered cash sums to the many farmers in Northamptonshire and he is now offering £10 notes. I assure him that if he came to eastern Northamptonshire, he would find himself a very popular man.

I shall now draw together the political and social strands of the argument. All our constituencies are different. I represent few people who are wealthy and not many people who could be described as affluent. Many people who vote for me are far less well off than many of those who vote for my opponents. I do not want to betray the trust that they have shown in me over a decade and in three elections. To be candid, few people expected me to win any of the three elections, so I have a particular obligation to those who have supported me. Those on modest incomes who have saved and those who find life a real struggle expect and deserve more of me than to support the clause.

While people are drawing political conclusions, I shall spell out something that needs to be spelt out loudly and clearly by Conservative Members this evening. Those of us who were involved in last week's elections for the county councils know perfectly well that it was virtually impossible to get Conservative voters to go to the polls. Turnouts were extraordinarily low. People who would not dream of ever voting for the Labour party or for the Liberal Democrats registered their protest by staying at home.

There are always many issues, but one issue had to be top of the list. As the right hon. Member for Berwick-upon-Tweed said had been discovered in the Newbury by-election, Conservative voters in Northamptonshire said again and again, "We are completely opposed to the imposition of VAT on fuel and power." That is why I say that my right hon. Friend the Chancellor has made a considerable error of judgment in introducing the proposal in the Budget.

I have tabled amendment No. 36, on village halls, which has been selected for debate in the group of amendments relating to VAT and charities. I was glad to hear my hon. Friend the Member for Taunton (Mr. Nicholson) raise the subject. For several years, especially in Committees considering the Finance Bill, I have raised the question of village halls. I have been rather proud and rather pleased to try to do what I can to ensure that the village hall movement and those who work voluntarily so hard for and in village halls receive the just attention of the House.

Some years ago, accompanied by a team from the Village Halls Forum, I visited my right hon. Friend the Secretary of State for Employment, who was then Minister of State, Treasury. We were concerned about VAT as it affects village halls. I had received letters from all over the country and had the enthusiastic support of a great many of my right hon. and hon. Friends. We were discussing fuel in particular. As the right hon. Member for Berwick-upon-Tweed said, we are talking not just about gas and electricity but about oil. My right hon. Friend the Chief Secretary may be right to say that gas and electricity prices are falling at present but oil prices are not.

My right hon. Friend the then Minister of State, Treasury told us that one way of mitigating the potential disaster facing village halls as a result of the imposition of VAT was for them to have oil tanks of less than 500 gallons capacity—because at the time, one only paid VAT above 500 gallons. Many would argue that that was an arbitrary cut-off point; indeed, my right hon. Friend the Chief Secretary argued that himself. I am prepared to concede that there are illogicalities in the British tax system, and so there should be. The fact that something is illogical does not mean that it lacks common sense or public support. Village hall representatives were given to understand that, if they had fuel tanks of less than 500 gallons, they would be able to avoid the imposition of VAT. Now that advice has turned sour on them.

Many of my right hon. and hon. Friends represent rural areas with a robust village hall movement. I do, and I am proud of the developments that have been taking place throughout my constituency—the new village halls that have been appearing, and so on. I am conscious, however, of the fact that the Government have made life more difficult for the village halls in a number of ways. The food regulations have imposed an enormous extra burden on the movement. The uniform business rate has imposed a staggering extra burden on many village halls. The 17·5 per cent. VAT rate in itself imposes a substantial burden, which the village halls have found it difficult, if not impossible, to meet. The extension of VAT to fuel and power represents one more blow. I am against it and shall oppose it. I owe my constituents more than to support the clause and I shall, with enthusiasm, vote against it.

Photo of Kevin Barron Kevin Barron Shadow Spokesperson (Work and Pensions)

In his Budget statement on 16 March, the Chancellor disguised his decision to impose VAT on domestic fuel as a measure intended to encourage the efficient use of energy. He told the House that the measure would encourage greater energy efficiency in every household in the country. That strikes me as one of the more fantastic claims that the Chancellor has made, belonging with classic statements such as that about the green shoots of recovery. At least the Chancellor was more honest—and to some extent, the Chief Secretary was more honest today—when he went on to explain that the measure was also intended to raise a considerable amount of revenue for the Exchequer.

The green claims that have been made for a tax on domestic fuel are flawed. If this is a green tax, the House should be told how the Government will judge its success in improving energy efficiency. Will it be according to the amount of fuel saved and not used or according to a decrease in pollution? The Chief Secretary told us today that he believed that the imposition of VAT on domestic fuel would save about 1·5 million tonnes of carbon emissions by the end of the decade, which would go some way towards the estimated 10 million tonne saving that will have to be made on the basis of what was agreed at the Rio convention.

At this stage, that estimate is only an estimate. The figure could be much higher, although some estimate that it could be much lower. If that was the case for the defence in respect of the decision to place VAT on domestic fuel, it should have been spelt out more fully.

The Energy Savings Trust—a body that has literally just been put together—is supposed to be saving some 2·5 million tonnes of carbon emissions by the end of the decade. No one can see at this stage how that can be achieved; I wait with interest to see how it will be done. A note from the Treasury to the Treasury and Civil Service Committee in April estimated that the imposition of VAT of 17·5 per cent. on domestic fuel and power would reduce domestic energy consumption by 3·5 per cent. by the end of the decade. A price elasticity of 0·2 per cent. was used. But as the domestic sector accounts for around one quarter of energy consumption, overall use would fall by just over 1 per cent. That means that the extension of VAT will fall far short of its stated aim of reducing domestic fuel consumption.

The Chancellor will have seen the letter sent to him on 30 March by 90 voluntary organisations representing a variety of consumer interests, in which grave concern was expressed about the decision. The letter said: Your proposal to compensate low income householders will bring little comfort to the seven million who live in cold, damp homes which they cannot afford to heat now, because of inadequate heating systems and poor thermal efficiency. Low income householders are beyond the reach of market forces— that is presumably what the imposition of VAT is about— and cannot respond to your price signal except by turning off their heating and going without. That statement is backed up by everyone working in the field of energy in homes. People on low incomes cannot respond to market forces. Before there was any thought of imposing VAT on domestic fuel, there should have been a proper public debate. The Government should have given figures showing how they believed people on low incomes would respond.

Opposition Members, and no doubt one or two Conservative Members, want to know what the Government propose to do to extend the scope of the home energy efficiency scheme, which is at present limited to loft insulation and draught-proofing and in respect of which payment can be claimed only by people on income support.

Millions of people who are not on income support live in homes that are badly in need of energy efficiency measures. Nothing has been said about what will happen in that connection. Will Ministers hand over some of the £950 million that they will raise next year, the £2·3 billion that they will raise the following year and the £3 billion that they will raise the year after that as a result of the VAT measure, and increase the funding of the home energy efficiency scheme so that people in poorly insulated homes can benefit?

In 1991, the Department of Energy stated: The Government starts from the position that consumers do not need subsidy, regulation or financial incentives or penalty (through the taxation system) to get them to act to improve their energy efficiency. What has changed? Why must we now have VAT on domestic fuel? What evidence was produced to get the Government to change their mind? What has happened since 1991?

The policy does not appear in the Government's discussion paper "Climate Change", published only last December. I believe that the reason why the policy does not appear in that paper is that it has nothing to do with reducing emissions of pollutants.

All the evidence that we have received suggests that people will use less fuel so that their bills do not increase and that people on low incomes will go without adequate heating. Let me quote from the findings of the Joseph Rowntree Foundation, which, for many years, has done great work in social policy matters. In its "Social Policy Research Findings No. 25", published in January 1992, the foundation said that fear of debt, and the certainty that "doing without" saves money, means that low-income households limit their use of electricity by heating their homes inadequately rather than reducing their energy demand by efficiency measures.

There is no evidence that increasing the amount that people will have to pay will send them out to improve the insulation of their homes. If the Government thought that there was an anomaly because energy efficiency improvements incurred VAT whereas fuel did not, they should have taken VAT off energy efficiency improvements so that people could make their homes more energy-efficient. Instead, the Government have imposed VAT on the fuel that people will use and on standing charges.

The measure has nothing to do with the environment. It is clearly nothing more than a tax-raising measure. It is typical of the Conservative Government. It will hurt the unemployed and low-paid more than anyone else. The Government have tried to defend the measure by saying that it is an environmental measure. They have missed.

They tried to say that it was a fiscal measure to increase the money which goes into the Treasury because public finances are in a bad state. They have missed on that too.

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It must be the case that people who depend entirely or partly on state benefits will receive an average increase at some stage. Some people within that category will be losers and others will be gainers, because people have different ways of heating their homes. There must be losers and winners. If we do not defeat the measure and it is passed, I hope that regional averages will be established, so that people who live in colder climates in the United Kingdom receive more compensation than others. But even if with regional averages, there would be losers and winners.

People will lose because the Government's policy is misplaced. It is misplaced in both environmental and fiscal terms. We should reject it tonight to save face for everyone, including the Ministers who are promoting the measure.

Photo of Mr Stephen Milligan Mr Stephen Milligan , Eastleigh

This is an unpopular measure. I know from talking to people in my constituency in the county elections that there is a great deal of resentment about it. It is easy for Opposition politicians to cash in on that resentment. To increase taxation and please is not given to many politicians. However, in government we have a duty to do not merely that which is popular but that which is right. We also have a duty to tell the truth.

The truth is that the public sector borrowing requirement is equivalent to £1,000 for every man, woman and child in Britain. The Opposition say that they would not have allowed the PSBR to rise so high. If they had followed that policy, unemployment would have been even higher. It was right to increase the PSBR to deal with the exceptional problem of the recession.

The hon. Member for Peckham (Ms. Harman) sometimes seems to confuse cause and effect. She said that one of the ways in which she would cut the PSBR was by cutting unemployment. I am surprised that, when she was spokesman on health, she did not suggest that she would reduce the common cold by reducing sneezing. If we are to reduce unemployment, we must have a recovery. That in turn will reduce the PSBR. She seems to have got those issues the wrong way round.

The hon. Member for Peckham accused the Government of hypocrisy. But what could be more hypocritical than to tell people that there is no need to increase taxation, and to refuse to answer questions on what a future Labour Government would do? Every time that the hon. Lady was challenged on that matter, she refused to give an answer.

Photo of Bob Ainsworth Bob Ainsworth , Coventry North East

Did the hon. Gentleman give that advice to the Prime Minister before his statement on 27 March last year, just 13 days before the election, when he gave the most unequivocal statement that there would be no extension of the scope of VAT? The hon. Gentleman talks about the need to be honest. Where on earth are we, and what on earth is the hon. Gentleman talking about?

Photo of Mr Stephen Milligan Mr Stephen Milligan , Eastleigh

I would be flattered if the Prime Minister listened to my views, especially as I was not a Member of Parliament at that time. My right hon. Friend the Chief Secretary gave the answer to the hon. Gentleman's question. At that stage, there were no plans to extend the scope of VAT. But Governments have to react to events. The recession was far longer than we expected. We made additional pledges at Rio, which the Opposition strongly supported. But they do not expect us ever to have to pay the bill for the pledges that were made.

So we have a completely dishonest Labour Front-Bench team, who give the impression that there is some easy way out of the problem, and that taxation does not have to be increased. The Opposition have never answered questions about what they would do in government or whether they would repeal the measure.

Photo of Kevin Barron Kevin Barron Shadow Spokesperson (Work and Pensions)

Does the hon. Gentleman think it right that, in the past five years, the top 5 per cent. of British income tax payers have received cash discounts from the Government running into billions of pounds, yet we ask people, many on low income or benefit, to pay VAT on standing charges and domestic fuel?

Photo of Mr Stephen Milligan Mr Stephen Milligan , Eastleigh

I am glad that the hon. Gentleman has raised that point. I rang the Institute for Fiscal Studies this morning—I think that the hon. Gentleman will agree that it is an independent body—and asked for its estimate of the overall effect on income distribution of the set of measures that were announced in the Budget. It said that, provided that means-tested benefits were increased in the way that my right hon. Friend the Chief Secretary has made it clear they will be, the effect was "broadly proportional". It is not a regressive set of measures.

Photo of Mr Stephen Milligan Mr Stephen Milligan , Eastleigh

I am answering the hon. Gentleman's question.

If one takes it in isolation, the imposition of VAT on fuel is regressive, but one must look at the balance of measures that were announced.

When we have a PSBR worth £1,000 for every man, woman and child, everyone in the country has to make a contribution to putting it right. My hon. Friend the Member for Corby (Mr. Powell) said that it was unfair that the charge would fall on people with modest incomes. I agree with him, but the problem is that most people in Britain are on modest incomes. If we are to balance the books, everyone has to make a contribution. It is important that those measures are seen to be fair, and are fairly distributed. The balance of measures announced in the Budget is fair.

The Liberal Democrats have a different approach from the Labour party. They accept that there should be taxation on energy. They support a carbon tax, but they have an original approach. They would compensate everyone for the extra taxation. That would do nothing about the PSBR and nothing to discourage excessive energy use. That is the second purpose of the measure. It is intended to reduce carbon dioxide emissions.

The economic knowledge of the hon. Member for Peckham appeared to be rather limited. She appeared to have even less scientific knowledge when she suggested that the measure was intended to deal with the hole in the ozone layer. It has nothing to do with the hole in the ozone layer. It is to reduce global warming. At Rio, we gave a promise to reduce carbon output by the equivalent of 10 million tonnes to deal with global warming.

The Opposition and the Liberal party are enthusiastic about environmental measures, but as soon as it comes to paying the bill for them, they say that no bills should be imposed and no one should have to pay extra. We need to reduce excessive energy consumption. The House of Commons, in which the right hon. Member for Berwick-upon-Tweed (Mr. Beith) has some role, might set a lead by reducing its excessive central heating. If we are to reduce excessive fuel consumption, we must take action.

It is significant that the hon. Member for Peckham, who was wearing a fetching green outfit, paid little attention to the green aspects of the measure. I wish to quote what Friends of the Earth, which is widely accepted as an independent environmental group, has had to say about the measures which my right hon. Friend the Chancellor introduced. It issued a press release entitled "Budget Briefing … Why Friends of the Earth welcomes the Chancellor's energy price hikes." It says: Friends of the Earth therefore welcomes the Chancellor's commitment to increasing domestic fuel and power prices over the next two years through the gradual imposition of VAT. So this is a difficult and unpopular measure, but I believe that it is a correct one.

I welcome the newly elected hon. Member for Newbury (Mr. Rendel) to the House. I know that he had a good education at a good Oxford college, but he seems to have gone politically astray since then. I hope that he enjoys his brief stay in the House. But those who win by-elections should remember that those who win general elections are those who have the honesty to tell the truth to the electorate, to do what is right and not to seek short-term popularity. For that reason I shall support the Government tonight.

Photo of Bob Ainsworth Bob Ainsworth , Coventry North East

Despite the comments of the hon. Member for Eastleigh (Mr. Milligan), one thing has become clear over time. It was even acknowledged by the Chief Secretary in his speech today. This is not a green measure and it was never intended as such. It is a revenue-raising measure. Another thing which is clear and which the Government have tried to disguise is that, of all the promises that were broken in what was probably the most dishonest election campaign in recent times, the broken promise on VAT on fuel was the most appalling breach of faith.

On 27 March, 13 days before the election, the Prime Minister gave an unequivocal promise to the nation that he had no intention or need to raise the level or scope of VAT. In his Budget Speech, the Chancellor gave the same commitment. Remember, we are not talking about a small measure. This is not an additional small sum added on the side to balance the books. It is the Government's biggest single revenue-raising proposal this year. It represents the biggest detraction from every commitment that the Conservatives gave before the last election. About £2·3 billion will be raised by the extension of VAT to domestic fuel. It is a scandal.

The need to extend VAT to domestic fuel did not creep up on the Government. After all, the Conservatives have been in charge of the nation's monetary policy for nearly 14 years. Before the general election, they announced what they alleged were the Labour party's proposals and told the people what their tax proposals were. They deliberately lied and deceived people about that.

Photo of Mr Terry Dicks Mr Terry Dicks , Hayes and Harlington

Without wishing to defend the amendment, I remind the hon. Gentleman that the Government had to change course because of changed circumstances. The leader of the Labour party, when asked recently why he was opposed to tax increases and was in favour of tax reductions, replied that circumstances had changed in the last year. If it is good enough for that right hon. and learned Gentleman to change his mind because of changed circumstances, why is not it good enough for the Government?

Photo of Bob Ainsworth Bob Ainsworth , Coventry North East

I do not believe that circumstances have changed to such a degree that the introduction of VAT on domestic fuel is warranted. In any event, if circumstances have changed, the Government have been responsible for those changes. They decided to push the pound into the ERM and they then spectacularly withdrew it in September.

As the Conservatives had complete control of the economy in the last year, they should have known—I believe that they did know—about the impending imposition of VAT on domestic fuel. As I say, they deliberately lied about it and pushed it to the other side of the election campaign. The result is that, in the most cynical way, they are retreating from the clear commitments that they gave before the election.

Not only is the VAT imposition massive, but, as hon. Members have pointed out, it will be permanent. The Chief Secretary said that perhaps we would learn by experience. That cannot happen with the VAT proposal. Under EC regulations, once we have given up the right to zero-rate fuel, it will be given up for ever. Once approved, that will be the end of it, which is why I welcome the commitment of some Conservative Members to vote against the VAT proposal.

It has been suggested that the VAT imposition is not regressive. In fact, it is among the most regressive of taxes being introduced this year. Figures show that the poorest decile of the population spend 13 per cent. of their income on fuel. The imposition of VAT will result in an extra 3 per cent. of their disposable income being removed from them. That will come on top of the problems they face as a result of our present appallingly regressive tax system.

In the 14 years during which the Conservatives have been in office, the tax burden on the poor has increased from 40 per cent. To—including the measures in this Finance Bill—50 per cent. In other words, the poorest people in Britain will be paying 50 per cent. of their income in taxes in one form or another.

Government policy to move the tax burden from direct to indirect taxation is designed to hide the sort of sins that they are committing in the Finance Bill. Who on earth would accept an income tax regime that meant the poorest paying more than the richest? Such a policy would be clearly unfair and unacceptable. Yet the present basket of taxation proposed by the Government will mean the poor paying massively more than the rich. The top decile in the nation pay a third of their income in tax while the poorest pay half. That represents an appalling state of affairs.

Photo of David Winnick David Winnick , Walsall North 6:15 pm, 10th May 1993

My hon. Friend will agree that it is not surprising that many members of the public are beginning to compare the imposition of VAT on domestic fuel with the poll tax. In this case, the poorest will be hit the hardest, as happened with the poll tax. No wonder the public are linking the two in their minds. I hope that the Tory party will deeply regret, in electoral terms, what they are doing in punishing those who are in the greatest need of help.

Photo of Bob Ainsworth Bob Ainsworth , Coventry North East

My hon. Friend makes a valid point, although the analogy is even closer. The Chief Secretary said, in justifying the change, that people would be able to cope with the increases because of changes in the rebate system with the introduction of the council tax regime. Under the poll tax regime, the lowest earners had to pay at least 20 per cent. A great deal of fighting took place before the Government finally accepted that 100 per cent. allowances were necessary under the council tax system. The Chief Secretary is discounting that in the imposition of VAT on domestic fuel.

I was astonished to hear the right hon. Gentleman say, in attempting to justify the introduction of VAT on domestic fuel and the offsetting arrangements, "The measures that we have taken are so numerous and large that I do not think that hon. Members appreciate everything that we have done for these people." I assure him that among "these people" he claims to be helping, the pensioners and those living on income support will not appreciate his efforts. I do not know what sort of world the right hon. Gentleman is living in. It is not the same world as that inhabited by my constituents.

In endeavouring to secure better offset arrangements from the Government, some Conservative Members have asked for the social security system to be carefully examined. I remind them that the review of Departments, including the DSS, announced by the Treasury some months ago, was not designed to extend aid to cover the imposition of VAT on domestic fuel. That review is designed to save millions of pounds to help close the massive gap in our public finances. Anybody who believes that the Conservatives are sincere in wishing to offset the effects of the new charge through the social security system are deluding themselves.

The hon. Member for Corby (Mr. Powell) talked about the anger that the people who had voted for him felt about the imposition of VAT and how he could not possibly support it as a result. My constituents do not feel similar anger because, unlike that hon. Member's constituents, few of them voted for the Government. My constituents knew, when the election result came in, the sort of thing that would happen. They were not stupid about it and therefore they are not angry because they knew jolly well what was going to happen.

Their anger is directed at the people who were stupid enough to vote the Conservative party into power for a fourth term. The anger will be felt by the people who feel betrayed, by the people who were conned, by the people who believed what they were told by the Tory party before the election. The anger felt by the people who did not vote for the Conservatives is directed towards those who did.

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North

As a result of ERM membership and being in the ERM much longer than we should have been, which imposed economic policies on the United Kingdom that may or may not have been appropriate for the German Federal Republic, this country has found itself, having already had a recession, in a much worse recession, which has gone on much longer than it should have done and caused much more damage to many of our constituents' hopes and aspirations and also a great deal of damage to the Government's finances than it should have done. As supporters of the Government, we all understand the predicament in which they find themselves.

When we came out of the ERM on white Wednesday, I understand that my right hon. Friend the Chancellor of the Exchequer was caught singing in the bath. Apparently, that is a drowning offence. If I can use another metaphor, when the scrum is being pushed backwards at ever-increasing speed, one does not sack the hooker but one looks to the leader of the pack to redouble his efforts. When we look at the measures before us today, and when we look at what happened to the Government in the local elections and at Newbury last week, we must be frank, direct and straightforward with the people. When we look at this particular matter, we have to be a little more honest than we have so far been.

I support VAT on domestic fuel and power, because, as my right hon. Friend the Chancellor put it to the House in his Budget speech on 16 March, it was done in order to meet the commitment that we entered into at Rio. That was a proper commitment to enter into and it is quite proper that we should seek to meet it. We need the right incentives to encourage people to consume less energy and conserve more energy. That is what VAT on domestic fuel and power will do, right and proper.

My right hon. Friend also said: Against this background, I have one further measure to propose that will not only encourage greater energy efficiency in every household … but will also raise money for the Exchequer. We need to raise money for the Exchequer—I agree with That—and that is why my right hon. Friend the Chancellor wished to introduce VAT on fuel and power. That decision is green, it is good, it is correct, it is right, but, "It's not what you do, but how you do it".

We must take two problems into account—

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

Yes, Lamont and Major. [Laughter.]

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North

In a very good speech, my right hon. Friend the Chief Secretary to the Treasury addressed those problems, but he did not go far enough. Some silly points have been made during the debate, including those made, if I may say so, by some of my hon. Friends who quoted from 1976. There will be people voting in the next general election who were not even conceived in 1976. Let us get on with today's agenda and not concentrate on some of the silly things that happened years ago.

Before the Opposition are too agreeable to my speech, I must draw attention to the fact that, time and time again, they refer to the fact that the Government make promises and break promises, and so on and so forth. All the time the Opposition say to Ministers, "Deny you are going to do that; say you won't do that with VAT; Say you won't do this or that." Every time the stock answer comes now, as it came 10, 20, 30 and 40 years ago, "We have no plans to do anything about it." That is what the Government said at the general election and at that time it was right, honest and correct to say that.

But circumstances have changed. If the Opposition, heaven forfend, become the Government of this country, circumstances will change when they are in power, and they will say, "We have no plans." That is the stock way of doing it, the proper way of doing it, it is the way that it will continue to be done in the future. Let us not deceive the people by saying that the Government were deceiving the electorate at the election, because they were not. What they said then was a perfectly proper thing to say. Let us have that on record and let us have it correct.

When my right hon. Friend the Chancellor announced the imposition of VAT on fuel, he said: Social security benefits, will, of course, rise … but I recognise that this will cause particular problems for those on low incomes. My right hon. Friend the Secretary of State for Social Security will take this into account when the income-related benefits are uprated next year."—[Official Report, 16 March 1993; Vol. 221, c. 183.] It is right that we should look after the poorer people.

We should discourage people from using too much energy and encourage them to become energy-efficient. Such energy efficiency measures should also apply to those who are less well off, but we must take into account that they will be subject to an increased financial commitment. I understand that we will offer help to those on income support—in some cases, those who are the most unfortunate and, in others, those who have least helped themselves. We will look after them.

After the election, I made a short speech in which I expressed my concern for those pensioners with a little bit of savings, who are just above the income support level. Every time the Government introduce a new tax, which they must do and which I support, those on income support are looked after, but those who have looked after themselves are ignored. Time and time again, that group of people who have saved, strived, who fought in the war and who have done their best for the country, their families and themselves are ignored and put on one side. This VAT increase is one time too many. What Ministers have said so far about their plight has not met that problem.

Those pensioners are forgotten every time, but their time has now come. The Conservative Government must not cast them on one side. They must take into account the commitment of those people and what they have done for the country. We must support them. All right, the Government can raise the tax, but they must remember those who have marginal savings and marginal additional pensions, which place them just above the level eligible for income support. This time we must consider them when we introduce compensation later in the year.

I agree that we should tax consumption and encourage people to be effective and efficient in their use of energy. We should encourage people to look after their houses so that they do not waste energy. It is a good thing to make everyone conscious of the fact that the Government are green and that we have green policies. But why are we imposing VAT on the standing charge? That charge, which covers the cost of getting gas or electricity to the ironmongery in the street, is for providing an essential service. It is not to do with use, but with providing a facility.

Just as we provide water without taxation, food without taxation and sewage disposal without taxation, we should not tax the standing charge,—although we 'will not raise as much money in taxation. I and many Conservative Members want the Government to look after the people who have saved and looked after themselves. We do not want the Government to ignore them. The Government should not tax the standing charge, as it is an essential service.

Photo of Mr Alf Morris Mr Alf Morris , Manchester Wythenshawe 6:30 pm, 10th May 1993

Vanquished Tory candidates in last Thursday's elections said: We've been crucified by our own Government". The Prime Minister said last Friday—as we saw on our television screens—that the electorate had given him a "bloody nose". But even some of his party's surviving representatives have continued to throw punches at him since then.

Speaking to the Sunday Times last Saturday, an Essex Tory councillor said: We went into the General Election telling people not to vote Labour because they would put up taxes, and what happens? The Government put up VAT. We need a leadership that does what it says it will do and we need it badly. No close observer of last Thursday's shire elections and the Newbury by-election on the same day is in any doubt that the Government's decision to impose VAT on domestic fuel was a hugely important factor in the massive loss of Tory seats.

The morning after the party's humiliating rejection by the electorate, the Prime Minister said that the lessons of the disaster would be quickly learned. The truth of that will be tested at the conclusion of today's debate. If the Government persist in the clear breach of their undertaking at the general election, they will demonstrably not have learnt even the first lesson of the rout inflicted on them last Thursday.

The imposition of VAT on gas and electricity bills is bitterly resented by people who feel cheated by the blatant falsehood that they were told at the general election. Every household will have to pay more but, as all of us know, the elderly poor will be hit much harder than others. If they are not compensated in full—which the Government still refuse to concede—their plight will be of even greater concern to everyone who knows the facts about deprivation among the elderly poor in Britain today.

Only one quarter of pensioners pay income tax, but every pensioner pays VAT. That is why the poorest pensioners dread the extension of the tax to gas and electricity. Few people knew on Budget day that VAT on thier domestic fuel bills would apply, not only to the gas and electricity they use, but to the standing charges imposed on them by the privatised companies. The poorest pensioners pay more in standing charges than they do for the gas and electricity they use. For them now to have to pay a further 8 per cent., and then 17·5 per cent., in standing charges, is a scandal that I hope the Committee will refuse to sanction tonight.

The Government have attempted no justification of the imposition of VAT on standing charges. There is no way in which such a levy has any environmental justification. It is unrelated to actual consumption and is a gratuitous extra cost imposed on the consumer. The only way she or he can avoid VAT on standing charge is not to use gas or electricity at all, yet, in a recent parliamentary reply, the Paymaster General—who has now joined us—told me that, within two years, the Treasury expected to raise £100 million from pensioners in VAT on standing charges alone. That is surely intolerable from every viewpoint. Will the Chancellor at least accept today that VAT must not be levied on the standing charges to which pensioners are subjected?

The anxieties of pensioners about VAT on fuel bills are shared by severely disabled people, who have to spend more than most people on heating their homes. They need to do so for health reasons. We must strive to protect them, too, from the effects of the Government's broken promise. In their case, VAT on domestic fuel is a straight tax on disability. Not only disabled people themselves, but many doctors, have told me of the dangers their patients will face if they are forced to economise on heating.

If the Chancellor is hellbent on persisting with his proposals, we should be told in the debate exactly how and to what extent the Government intend to compensate the elderly poor and severely disabled people for its effects. To leave them waiting and worrying until the autumn is widely condemned as studiedly cruel by their organisations. The Disability Alliance, which speaks for more than 200 organisations of and for disabled people, says: We fear that the imposition of VAT on fuel and Standing Charges will have a devastating effect on disabled people. If the proposal goes ahead, we urge you to press for an adequate period of consultation with organisations and groups representing low-income households to ensure that proper compensation is made. Such consultation should have taken place before the Chancellor made his decision to extend VAT to fuel bills. He should also have discussed the issue in advance of any decision with the Charities Tax Reform Group. The cost to its member organisations if we fail to defeat the proposal will be £25 million a year, within two years, which will add significantly to the already large irrecoverable VAT burden borne by charities.

All that money was given by the public, not for the Billy Bunters of the Treasury, but to help children in need, cancer patients, ex-service men and women and their dependants, for whom the Royal British Legion works so hard, severely disabled people, the frail elderly and others. If the Government refuse to change their mind, it will mean that such groups and other needful people will soon lose another £25 million to the Chancellor, which will add anger to the anguish of those striving to help them at a time of Treasury-driven cuts in the provision of services by the public sector.

In a powerful letter in The Times today, Ian Bruce, the director general of the Royal National Institute for the Blind, and others said: The real and agonising choice for charities will be in deciding which projects they will be unable to fund, which improvements they will need to delay, which deserving cases they will be unable to help. Charities are constantly improving their fund-raising efforts but—as with the environment—resources are not infinite. We cannot believe that this is what the government intended when it decided to impose VAT on fuel and power. The letter was also signed by senior representatives of the Imperial Cancer Research Fund, Mencap, the Wellcombe Trust, Help the Aged and the National Children's Home.

They will know, as many hon. Members on both sides of the House know, that the effect of the Government's proposal could be to drive some charities out of existence. The signatories of the letter to The Times will have been encouraged by the highly principled speech made earlier in the debate by the hon. Member for Corby (Mr. Powell). Let us hope that other Conservative Members will join him in assisting us to defeat this perverse proposal in the Division Lobby tonight.

Photo of Mr Patrick Nicholls Mr Patrick Nicholls , Teignbridge

I shall first deal with the issue raised by the right hon. Member for Manchester, Wythenshawe (Mr. Morris) and also alluded to, in a whisper, by my hon. Friend the Member for Northampton, North (Mr. Marlow)—the accusation that the Government have broken their promise by introducing VAT now. I accept at once that that issue does not go to the heart of the argument, but it is worth stating.

The allegation that the Government have broken their promise because they must have had plans at the time of the general election is inconceivable. The idea that the Government could ensure that such plans were not leaked within a week of their conception is nonsense. It is perfectly obvious that, had any such plans been afoot, there is no way that they could have remained hidden from the light of day for an entire year. We can be absolutely certain that there were no such plans, because the Government have given their word and because of the sheer practicalities.

Interestingly, and perhaps even engagingly, there has been some banter across the Chamber about election addresses. We have been asked what was in our election addresses, and we have made some inquiries about matters which were not in past Labour election addresses, and not a great deal of light was shed.

In my own election address, and in every election speech I have made in the three elections in which I have stood for Parliament, I have always made the point that the overriding responsibility of any Conservative Government is to run a proper fiscal policy. That entails ensuring that, when the state taxes and spends money, the gap between what is raised and what is spent, which has to be financed by borrowing, does not become so great that it represents a burden that the country cannot afford.

In those halcyon days not so long ago, we achieved a positive budget, in which the books balanced, and what a wonderful thing that was. We have done it before, and there is no reason why we should not do it again, but we cannot say simply that we will never increase taxes, any more than we can say that the correct rate of tax, be it the higher rate or the basic rate, should be 35 per cent. or 40 per cent. or whatever.

We have a responsibility to the country and the people in it to make sure that the gap never becomes unbridgeable. In good times, that can be achieved with lower tax rates; in bad times, we may have to increase tax rates, but the idea that we would serve the frail, the poor and the elderly by allowing the country's finances to get so far out of control that borrowing represented a burden that the country could not sustain is cruel and dangerous nonsense.

The mere fact that, at the last election, we said that we had no plans to increase tax yet we have now had to do so, is not a broken promise. It was adhering to a promise that, whatever else happens, we have to ensure that the gap between what we spend and what we raise never becomes thoroughly unbridgeable.

My second point was raised by the right hon. Member for Berwick-upon-Tweed (Mr. Beith), who, in anticipation of my kind remarks about him, has now returned to the Chamber. He said in his usual beguiling way that the Government should look at what happened in Newbury last Thursday and announce a complete change. He floated the idea that a Treasury Minister could or should walk in here and say, "We have not had a great deal of time to think about it, but guess what? Just because a temporary Member has been elected for Newbury, we had better change the whole thing." The right hon. Gentleman put that in his usual beguiling way, but the trouble with the right hon. Gentleman, beguiling though he is, is that he always combines his suggestions with barefaced brazen cheek.

In any of their policy documents, manifestos or utterances, at any green Liberal conference where the brethren turn up drinking lentil soup and wearing kaftans and sandals—and the women are no better—at any of those conferences which the right hon. Gentleman has mounted over the years, the Liberals have been a thoroughly anti-energy party.

They have talked about tax increases on energy, yet when the Government, rightly or wrongly, decided, perhaps unwisely, to use one of those Liberal policies, the right hon. Gentleman and his colleagues have said that they did not really mean it—it was a consultation document, just a manifesto document or another little joke. The idea that the right hon. Gentleman's views are worthy of any credence strikes me as complete nonsense.

6.45 pm

In an ideal world, it would be nice to respond to the messages that the electorate are giving us so directly by rewriting a Budget speech at this stage of the Finance Bill. It is a lovely idea, but it is completely unrealistic.

It is also the answer to the point raised by my hon. Friend the Member for Corby (Mr. Powell), which was one of the better speeches I have heard recently in the House. However one might feel about the anlysis, it was a speech of great sincerity. My hon. Friend took the view that, because it was a mistake to raise revenue by imposing a tax on energy, the Government should announce tonight that they would do it in some other way.

The trouble is that one cannot simply unpick a Budget package. I always find it interesting that millions of lobby organisations write to Members of Parliament before a Budget asking us to promise that, if a particular measure is introduced, such as VAT on children's clothing or anything else, if all else fails, we will vote against it. It is very rare that one can do that with a Budget measure.

A Budget is an overall setpiece: it stands or falls on whether it works as a package. The idea that Conservative Back Benchers, no matter how profoundly upset they are about the effect of the tax is having on a great many of their supporters, can tear it up and make progress in that way is not for a moment realistic.

Having said that, we need to face up to the effect which the measure has had on a great many of our supporters. I come from an area similar to that mentioned by ray hon. Friend the Member for Northampton, North (Mr. Marlow), with a relatively large elderly population. Those people have served the country well and made a contribution in at least one world war, and sometimes two.

For the most part they have worked hard all their working lives. When they look at what they have amassed through that working life, they see a store of riches which is just above the income support level. In bad years, they feel that the product of their hard work, thrift and patriotism is that they have managed to exclude themselves from any of the free handouts that their less worthy and less thrifty neighbours receive.

In the 20th century, one cannot run a social security policy for the deserving poor and the undeserving poor. We cannot carry out a thrift audit on people, and say that, because they have not performed very well over the past 40 years, they had better starve. However, we have to address the effect on those who have been thrifty yet are just excluded from any help.

Those of us who are concerned about the effect of the measure on those people cannot pretend that we can unpick the Budget here and now, but we have to put down a marker and tell Ministers that the good intentions they have expressed in somewhat general terms to date about how they will help those people have to be built on.

The message from the west country in local government elections is that people are concerned about three things: Maastricht, water charges and VAT on energy. They are pre-eminently concerned about the last for one important reason. Imagine what it must be like in the twilight of one's years seeing one's income being cut, looking at the resources that one has saved and having to consider that the money may run out before one's life does. That is why people have been writing to us and telephoning us in the terms they have, and that is why they have been staying home in droves during the elections.

It was not meanness or their inability to say that Rio was a good idea and we should go along with it; it had nothing to do with that. It involved a word that politicians sometimes overuse—terror. It was people's terror that their money might run out, and we have to address that.

My right hon. Friend the Chief Secretary appeared to take on board my point about protecting the neediest is not automatically the same as protecting those on income support. I have to tell him and my right hon. Friend the Paymaster General who is to reply to the debate that that is encouraging as a skeletal point, but it needs more flesh on its bones. We cannot simply say that those who are getting relief through the council tax have in a sense been compensated. That is not sufficient.

I accept that trying to identify the people who fall into the category that I described a few moments ago is no easy task, but I take a minimalist view of what a Back Bencher can do, and in the same way as I do not expect to be able to rewrite the Budget tonight, I do not expect to be able to provide the detail of the solution that my right hon. Friend will need. That is why he has such an impressive range of talent among his civil servants. Ultimately, once we have given them the political direction, it is up to them to come up with a formula that will deal with the problem.

There are ways in which this can be done. My hon. Friend the Member for Tiverton (Mrs. Browning) mentioned one approach—clawing back the money by way of income tax from the better-off pensioners. Incidentally, I am sorry that I was slightly acerbic to my hon. Friend the Member for Southend, East (Sir T. Taylor)—he seems to be receiving what I am saying now quite well—

Photo of Mr Patrick Nicholls Mr Patrick Nicholls , Teignbridge

I am pleased to have been able to bounce my hon. Friend around in the way he so richly deserves. He always manages to introduce a sour, partisan, partial European dimension to debates as important as this one. Be that as it may, if agreeing tonight to remove zero rating means that we cannot go back on that at some point in the future, I will be surprised—

Photo of Mr Patrick Nicholls Mr Patrick Nicholls , Teignbridge

Largely because my working rule is that it is always a good idea to consider the opposite of whatever my hon. Friend says—that way, one comes close to common sense. But if, by some strange exception to that rule, what my hon. Friend says has a grain of accuracy, then perhaps we need to examine what rate of VAT is applicable.

Perhaps we should not go for 8 per cent. next year and 17·5 per cent. thereafter. Perhaps, if all the indicators are right and we are coming out of recession more quickly than we may have thought, and people will go back to work and generate tax revenue instead of using it up, the gap that needs to be bridged will be able to be bridged with a lower rate of VAT. Perhaps nothing more than 8 per cent. is needed. Moreover, the energy producers will be trying to reduce their costs to ensure that the savings that people make do not deprive them of revenue. This constitutes another approach.

If I have correctly identified the segment of the population that needs help, I have done my duty by my constituents. It is now up to Treasury Ministers to work out where we go from here. One way or another, they must deal with that point.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

No doubt my hon. Friend's constituents will have noticed the amendment that calls for implementation of only the first stage of the VAT increase, and will watch his comments with interest. As my hon. Friend has said that the poor will not pay anyway, and as he wants better-off pensioners not to pay, who does he think should pay—bearing in mind the fact that the Government have explained that they desperately need the money?

Photo of Mr Patrick Nicholls Mr Patrick Nicholls , Teignbridge

I apologise. I thought that I had made that clear. My point was that protecting the neediest by concentrating help exclusively on those with income support does not meet the problem. I said also that many who will feel this most grievously are those just above the income support line.

It should not be beyond the resources of Government to identify that segment of the population and then concentrate help on them, too. There will obviously be hard cases. Some people will say that they are part of the working population and that they have no more means than the pensioners next door. Any form of targeted relief is by its very nature a blunt instrument; but those in the working population always have the possibility of work benefits and of a better job in the end—they have the possibility of hope. Many of the people to whom I have referred see no hope at all.

As a humble country lawyer—[HON. MEMBERS: "Come on."]—all right, as a country lawyer, I do not pretend to have the expertise possessed by my hon. Friend the Member for Southend, East who claims that all we have to do is vote for one of the amendments. We can then go away saying that we have sorted out the problem. It is impossible to rewrite Budgets like that, but it is possible to respond to the fears, miseries and distresses of constituents. The Government have already acknowledged that income support in itself is not a sufficient mechanism; now they will have to do something about it.

Fortunately for the Government and for those, like me, who will support them in the Lobbies tonight, there is still time to get the mechanism right—but the work can start now.

Photo of Margaret Ewing Margaret Ewing , Moray

The truth is that the only way to respond on behalf of our constituents is to ensure not only that the amendments are carried out but that the clause is defeated and does not stand part of the Bill. The Government never seem to have any difficulty introducing new measures when they choose to. If they are desperate for money, I am sure that they will easily find ways of implementing the alternative ideas.

It will not surprise the Committee to learn that I want to speak about the clause in the context of Scotland and in the context of my own record on the issue of fuel poverty and the deprivation suffered by many pensioners, people on low incomes and unemployed people.

As far back as the early 1970s, I started asking the Government questions about cold-related deaths in Scotland. At the time, it was not fashionable to ask such questions. It was generally reckoned that the only cold-associated deaths were those from hypothermia, usually due to accidents happening to people out walking or climbing. Since then, however, there has been a gradual recognition of the impact of cold on people's health and welfare.

My party has introduced no fewer than six Bills to try to implement an automatic cold-climate allowance for the winter months. So we have an honourable position in the argument for improvements for those who suffer from fuel poverty.

In the weeks and months before a Budget, we try to guess what the Chancellor, in purdah as he is, is up to. The great surprise this time was his imposition of VAT on domestic fuel. We did not anticipate that in our wildest dreams. Nor did many outside organisations. Most of the lobbying that we experienced was on behalf of organisations concerned about VAT on books, magazines, newspapers or children's clothes. I do not remember receiving any pre-Budget lobbying in connection with the imposition of VAT on domestic fuel.

We have all inevitably received since then many representations from organisations representing the elderly, the disabled and those on low incomes. We have also received many letters from constituents. My constituency is probably the most northerly of any represented in the Committee this evening, and I have had more letters on this subject than on any other in relation to the Budget.

There was a time earlier this afternoon, while I was repeatedly trying to intervene on the Chief Secretary, when I felt as if I must have had a bandage around my head: I seemed to be the invisible woman to him. He read out a great litany of what he believed were social security changes that had assisted people with fuel charges. He then told us to wait and see what the Government would produce, because it would only improve matters.

7 pm

I have a simple question for the Treasury: on what analysis do Ministers base their optimism that the imposition of VAT and the changes in the social security system will protect those most at risk from the changes? The campaign for cold credit allowances in Scotland analysed the 1987 changes to supplementary benefit, which the Chief Secretary claimed had helped these people.

He said that the funding had been directed to those most in need. However, as a result of these supplementary benefit changes and because the additional heating allowances were removed, it is estimated—these are figures produced by the campaign for cold credit allowances—that between 1988 and 1991 there was an increase of 7·5 per cent. in excess winter deaths in Scotland.

I should like the Chief Secretary and his colleagues to go away and look at those statistics and tell me how they can justify the additional cost on standing charges and on fuel bills. The theory of targeting has not worked. The Government's theory of raising funds in this way will put life at risk. It is as simple and brutal as that, and the Chief Secretary must accept it.

I speak very much from a Scottish dimension. We are the only oil-exporting country in Europe. We have our own natural gas. We have resources of high calorific value coal. We have an established hydroelectric industry. We have the best wind and wave potential sites in Europe. Yet we have that increase in deaths in Scotland.

The Chief Secretary also referred to the comparison with Scandinavian countries. He was happy to draw the comparison on the taxation side, but he did not point out that in January, potentially the coldest month in the year, excess death rates go up in Germany by 4 per cent., in Scandinavia by 7 per cent., and in Scotland by 16 per cent. That is an appalling record. It is no wonder that pensioner organisations in Scotland are so angry that they are wondering whether the Government care about them at all.

I shared a platform organised by the Scottish Trades Union Congress in Glasgow some few weeks ago, where Marion Robertson, speaking on behalf of the Elderly Forum—a woman representing the thousands of pensioners who have contributed so much to our society and our present welfare system—said that she had been brought up to believe that the campaign for a welfare state really meant care from the cradle to the grave. She added that she believed that for this Government pensioners do not go to their graves fast enough.

If the imposition of VAT on domestic fuel goes ahead, there will be pensioners pushed to their graves faster than ever before, because of the climatic conditions that we suffer.

We hear that there are to be changes in the system. Let us look at some of the changes in the welfare system dealing with the issue of heating that have occurred over the past few years under this Government.

Severe weather payments were essentially forgotten about until it started to snow in London some two years ago. People got excited about them and the Prime Minister came in and contradicted every second day what his Minister for Social Security was saying in terms of triggering severe weather payments. Small adjustments were made as a result of that. It did not have to be below a certain temperature from Monday to Sunday; it could be any seven consecutive days. It was said that that would be a lot better.

Then the system of measurement was to be changed.

Photo of David Winnick David Winnick , Walsall North

Is the hon. Lady aware that, with regard to cold weather payments, the information that I received from the Library during March, when the cold weather was coming to an end, was that only one out of the 61 weather stations was triggered, so that the cold weather payments could be made? And, of course, as the hon. Lady will know, there were times in February when it was very cold indeed, but it did not reach freezing for the seven consecutive days before the trigger mechanism is used.

Photo of Margaret Ewing Margaret Ewing , Moray

The hon. Gentleman is perfectly correct, because there have to be these seven consecutive days, whereas for many people two consecutive days of severe cold can be enough to reduce their welfare to the point where they may have to be hospitalised.

The stations that are used often bear no relation to the geographical areas. For example, in Keith, in my constituency, during one of these periods, no one received a severe weather payment, but 10 miles along the road, in Huntly, cold weather payments were made, because it was based on a postal code system, and the postal code in my constituency was different from that of the Gordon constituency.

Since the right hon. Member for Berwick-upon-Tweed (Mr. Beith) is here, he may be interested to know that in the Borders, for example, there seems to be an even more difficult position. In the eastern Borders, for instance, in 1991–92, more than 2,000 needy families were denied cold weather payments because they were connected to Boulmer weather station, location 60 miles south of the border. But sub-zero readings from the Eskdalemuir station, which is just along the road, allowed residents in the western Borders to receive payments on four occasions. The whole of Berwickshire district, Kelso and Earlston received no money, because temperatures at the Boulmer station did not trigger the mechanism.

The reality is that the severe weather payments system has no clout in dealing with the problem. Nor does it take account of the differences in climate. It takes 50 per cent. more to heat a house in Aberdeen, or in my constituency, than it does to heat a house in Bristol. If the Chancellor of the Exchequer were here, he might be interested to know that in his home islands of the Shetlands it takes 60 per cent. more.

We have a United Kingdom which may seem to be a small country, but, in terms of latitude is not. It is almost as far from Shetland to Southampton as it is from Southampton to Madrid, and no one would deny that there is a climatic difference between the latter two. One does not need to watch "Eldorado" to be aware of that difference in climate.

Our contention is that whatever changes are made by the Government in terms of social security, they must take account of the climatic differences within the country. That is what the Bills that we in the Scottish National party have introduced have been about. We have taken account of the various climatic changes, but we want this to be done in addition to severe weather payments. Such allowances should be paid automatically during the 17 weeks of the winter months, between December and March, so that those on low incomes, pensioners, those who are afraid to switch on the fire or turn on the gas, need not fear to do so, because they know that they will have that safety net provided automatically.

Before the Budget statement, a great deal of briefing went on behind the scenes on this issue. One of the insults that were added to the injury done to those in Scotland who are concerned with this issue was that apparently—this is recorded in the Scottish press— a Downing Street press officer, when questioned about the fuel rises, jokingly asked if it was any colder in Scotland. He cited benefits that Scotland had received from the budget such as the decision not to raise the duty on whisky and the North Sea measures. The result was that he jokingly advised the Scots who felt the cold to take a dram. That is a real insult added to injury. I hope that we can have a total denial that that is the attitude. Marie Antoinette went down in history as saying:"Let them eat cake." We may well have a Downing street statement recorded in history as "Let the cold and the needy drink whisky." I certainly could not endorse that.

The key is to stop this whole idea progressing. I welcome the fact that we have seen some honesty and decency on the Conservative Benches, where hon. Members have spoken with vehemence and passion about the fact that they will rebel tonight in the Lobbies. But I reiterate that if we are unsuccessful in defeating the Government tonight, we need more than tinkering with the social security system. There must be that automatic allowance.

That view was endorsed by Professor Malcolm Johnson, director of the department of health and social welfare at the Open university, in January 1991. He said: There ought to be extra help available automatically in the winter months for all of those at risk.In mild winters, like the last four years, the Goverment might argue that would risk wasting public funds. In my view, that is better than risking people's lives. I endorse that view.

Finally, the Government claim that the imposition of VAT on domestic fuel will fulfil the Rio agreement and encourage energy conservation. Far too many people have been conserving energy for far too long at the expense of their health. All of us as Members of Parliament see in our constituencies young families suffering from bronchitis and asthmatic conditions, and the dampness in their houses. Part of the reason for that is that they have conserved energy because they are on low incomes. We see the same impact on the elderly and disabled, whose plight has been eloquently described.

Conservation of energy can come in many ways. My suggestion to the Government is an all-out programme on conserving energy. We could renovate our houses, ensure adequate insulation and ensure that houses were brought up to the highest standards. That would both give people decent homes and reduce the dole queues. As has been said, one of the reasons why the Exchequer does not receive much from income tax is that so many people are on the dole. Let us use the talents and skills that exist to start a programme of energy conservation by improving our housing stock.

The Government have taken a mean-spirited approach that is short-sighted and ham-fisted, and is designed not to improve conservation but to line the Exchequer's coffers. It does so at the risk of increasing the number of deaths from hypothermia—deaths to which, in 1991, Scotland contributed one sixth of the United Kingdom total.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

In this rather disappointing and gloomy debate, the one joy for me was the speech made by the Chief Secretary to the Treasury. He spoke of the situation with great honesty and integrity, not hiding anything, telling us some rather alarming financial statistics that have never before been revealed. If we are looking for what some people have asked for—the answer to Newbury—it must lie, as we can see from the Chief Secretary's speech, in telling the truth. I must emphasise that in Southend, East we do not have a Newbury problem. I am glad to tell the Committee that every Conservative seat was held with a good majority, there were no losses to Labour and the Liberal vote hardly existed. However, that is not the relevant factor.

The relevant factor is what on earth we do. Although we fully appreciate that to put VAT on gas, electricity and other fuels will undoubtedly cause hardship, distress and misery and might cause special problems in the north of Scotland where, without doubt, people suffer more from cold weather over a continuous period, colleagues must ask themselves what they would do. The Chief Secretary explained that Britain's debts were getting out of control. That is probably the wrong phrase to use, because the Treasury never admits that anything is out of control. However, it accepts that, after a period under the previous Prime Minister when we were paying back debt, we now have a horrible situation in which we are borrowing more than £1,000 million a week and it is difficult to carry on with that.

More frightening was the Chief Secretary's explanation that that was not likely to be a temporary problem and that by 1996 we would still have horrendous problems in raising funds simply to make ends meet. We are all aware —there is no point in hiding it—that taxation as a whole, as a share of our gross national income, has been rising consistently, as it has been in most other countries. As the burdens of the welfare system increase, as the Government engage in more and more daft spending schemes, the amount of money that we have to spend increases. Here again, we must ask colleagues what on earth they would do in that situation.

It was also splendid of the Chief Secretary to accept that not only is the situation serious, it is getting worse. There is a perfect example of that in tonight's Evening Standard, which always has jewels of wisdom about spending. It has an article about this wonderful thing called the Eurojet, which is a remarkable attempt by four European countries to build a plane in pieces, and thereby do it more quickly. The article explained that we have been suddenly told that it will cost 50 per cent. more than was estimated.

7.15 pm

The Ministry of Defence, which is not well informed by the Treasury, has said that the rise in the estimated cost from £21 billion to £32 billion, which it does not deny, is not a 50 per cent. rise in costs, because 40 per cent. is due to inflation. It must be anticipating a sharp rise in inflation. It may be wrong—Ministries often are, and the Foreign Office and the Ministry of Defence do not have the best record for accuracy—but, whatever the reason for it, someone will have to pay for that sudden huge sharp increase. We have to ask colleagues who will pay and how it will be paid.

We also know, sadly, that there will be a huge increase in the amount of spending on agriculture, both at home and abroad. We shall be spending far more on farmers. Spending on the common agricultural policy is at an all-time record and it is going up to £31 billion. We all know that the CAP is crazy, socially divisive and damaging to the poor and to the third world, but there is nothing that we can do about it. Someone will have to pay for all the extra cost and we have to ask who will pay it and how it will be paid.

The Treasury has only two options. It can either impose this nasty VAT charge, which will cause so much damage, or sharply increase income tax, either through a special extra tax on high-income earners or a general increase. Normally, one would think that it would be less socially divisive, and less damaging to the poor and the pensioners, if we went for an increase in income tax, but the last thing that we want to do when we are recovering from an appalling recession is to put up income tax. Nothing could be more damaging to a recovery.

Therefore, we have to make the horrible decision to impose VAT on gas and electricity. I hope that colleagues will face up to the matter honestly and directly, as the Chief Secretary did in his splendid speech. The worst thing that we could do is to follow the suggestion of my hon. Friend the Member for Teignbridge (Mr. Nicholls)—unfortunately, he has left the Chamber—that the answer is to put VAT on gas and electricity but to exclude as many people as possible. We know that those on pensions and income support will be excluded to some extent. My hon. Friend suggested that those above the level should be excluded in some nice way. If we excluded all the nice pensioners above the level by giving them Government grants, we would then have to deal with those with big mortgages, those with big families, those with good war records, those who have a big deficit in their accounts with Lloyds bank or other City banks. The more people we exclude, the more the remaining few people will have to pay.

I have always taken the view, particularly after my limited experience as an unsuccessful Scottish Member of Parliament when I saw so much money poured into rather silly schemes, that it would be much better if we adopted my suggestion that we should simply send aeroplanes to drop £10 notes, or perhaps £50 notes. in constituencies where there are farmers, because that would ensure that it was better directed, and the money was more closely targeted, than it is when we attempt to target certain sectors and people.

Nothing is worse than people saying that they will do something nasty, but finding a clever way to exclude all those whom they think are rather important, particularly at a difficult political time. We should not ignore, or deny, the fact that the tax will be horrible and nasty. However, we have to ask people how on earth the money can be raised without it.

The Chancellor explained that, of the £10 billion extra that the Budget will bring, that measure will account for £2·5 billion. That is a huge sum of money. It is almost as much as the EC spends in three weeks dumping and destroying food. We cannot ignore that much money. It is almost as much as Britain will pay as its contribution to the EC next year. If we cannot get that extra money through the imposition of VAT, what shall we do?

Apart from the options that I have mentioned, there is only the option of borrowing more. If the Government decide to borrow more, someone will have to pay for that borrowing eventually—even the constituents of my hon. Friend the Member for Teignbridge, whether they are pensioners with good war records or pensioners who could not fight because of disabilities. We should encourage the Government to provide some exemptions.

We must face up to the fact that the economy is in a horrible mess and borrowing is alarmingly high. We simply must secure more money. I hope that, at the same time, we shall concentrate on finding a real solution to the problem—and the only real solution is returning people to work. I hope, Mr. Cormack, that it is not out of order for me to say that those who, like me, hate the VAT increase —who think it horrible, and accept that it will be damaging—hope that the Government will think carefully about a five-minute plan which, in my view, would do more than anything else to retore confidence.

We know that it was the grand work of the Foreign Office—I note that Ministers always run out of the Chamber when the Foreign Office is mentioned—that took us into the exchange rate mechanism. I urge the Minister to make the following statement: "We are imposing the VAT rate, but we want to make it abundantly clear that, because we lost so much money and had to charge so much extra tax following the nightmare of the ERM, we will not return to a fixed exchange rate." That would remove a great deal of uncertainty and would restore a great deal of faith to everyone except the Confederation of British Industry, which receives plenty of EC grants for all the important work that it does for the Community. Everyone except the CBI—and, of course, the National Farmers Union—would be very happy. Given such policy stability, people would know where they were going.

Let us say in all sincerity that the Chief Secretary's speech provided the Government with an answer to the Newbury problem. The answer is to describe things as they are—to tell people the truth. I believe that, if the Government adopted such an approach, many of our current problems simply would not arise. It might remove all the political uncertainties if the Minister told the Committee clearly and precisely—I know that he is always clear and precise—whether, once the 17·5 per cent. rate has been introduced in two years' time, it will be possible for a Conservative, Labour, Liberal Democrat or even Scottish nationalist Government to do anything about it.

According to advice that I have received from the Library and from my friends, once the rate has been imposed, we shall find that we cannot reverse it, because of the sixth EC directive, as amended. Perhaps the Government will act further to remove political uncertainties by telling us whether it is true that, subject to a minor technical adjustment—as a result of the Economic and Finance Council meeting that took place in September last year—all the zero rates and other nice things will have to go by the end of 1996.

I learned that from a House of Commons Library paper. Its authors may have been misguided as a result of information from the Ministry of Defence and others, but this is something that we must know. I admired the Chief Secretary's speech: he is a good chap, and he spoke fairly, honestly and sincerely. His was one of the best ministerial speeches that I have heard for a long time—very fair, very reasonable and very precise. None the less, I hope that the Paymaster General will remove the two minor doubts that I have mentioned.

We may have been misinformed. Perhaps the House of Commons Library does not know what it is talking about, although it is staffed by sincere, hard-working people. Perhaps the paper that it produced on the 1996 issue was not clear. The public, however, understandably want to know the facts in the current serious economic circumstances. They are entitled to those facts, and I hope that the Paymaster General will clarify the position.

Photo of Mr John Wilkinson Mr John Wilkinson , Ruislip - Northwood

Will my hon. Friend clarify the position for me? He has spoken eloquently—and, I think, rightly—about the pernicious European dimension to the proposed application of VAT to domestic fuel. Does he agree that, were Her Majesty's Government to get a grip on public spending and to slash social security spending—which has been spiralling out of control—by the time of the combined autumn statement and Budget, they could reconsider this pernicious impost, thus easing the worries of many old and sick people?

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

I am sure that the Government could do many things; however, despite my admiration for what my hon. Friend has said, we cannot discuss the issue on clause 42. I have suggested some steps that the Government could take to improve their policies—some may be bad, while others may be more sensible. Basically, however, I believe that we must find out whether we have the power to change the position once it has been put in place, and whether we are committed to dispensing with all the zero ratings by 1996.

I hope that hon. Members will have the courage and determination to face up to the fact that we are in a bit of a mess, that we need a good deal more money and that there is no readily available way of obtaining that money without holding back recovery. If the Government persist with the honesty, integrity and straightforwardness demonstrated by the Chief Secretary's speech, many of our current problems with the business and, indeed, the general community will probably disappear. I believe that, if we tell the truth—no matter how harsh the message may be—we shall receive the support that we deserve.

Photo of Peter Hain Peter Hain , Neath

The speech of the hon. Member for Southend, East (Sir T. Taylor)—especially his description of the Chief Secretary—sounded suspiciously like a vote for the Chief Secretary to take the Chancellor's job when the Chancellor is sacked in July.

Anyone who was canvassing in the Newbury by-election or the county council elections in recent weeks will know that the proposal to impose VAT on fuel was deeply unpopular among voters. Indeed, it was one of the principal reasons for the Government's defeat in Newbury, and the bad results that it achieved in the council elections throughout the country. If, as the Prime Minister has promised, the Government are to learn the lessons of those dreadful defeats, they must recognise the force of one of those lessons and refuse to implement the Budget proposals for increases in VAT on fuel and power.

The Government should also apologise to the electorate for lying about the increases before the general election. They refused to admit that, all along, they were likely to increase the tax burden, because the sums did not add up —the public sector finance strategy put them in line for such a move—or, perhaps, because of the incompetence with which they pursued their economic policies.

The Government's own publication, "Social Trends", shows that the most vulnerable members of the community will be hardest hit by VAT increases. According to the latest edition, Generally speaking, the lower down the socio-economic scale a household is, a larger proportion of their total spending goes on the necessities of … fuel, light and power. Table 6·3 shows that the professional classes spend just 3·2 per cent. of overall household expenditure on fuel, light and power, while unskilled manual workers and retired people spend 6·1 and 7·1 per cent. Respectively—double the amount spent by the professional classes. According to the Government's own statistics, the most vulnerable in our community will be hardest hit—the old, the poor and the disabled.

The Chief Secretary—who is himself extremely wealthy —does not begin to understand how dreadfully the VAT increase will hit ordinary families and individuals, including pensioners and others on low incomes. The increase will average about £5 a week, perhaps reaching as much as £10 in the case of some families.

Those increases are attributable to the imposition of VAT. They amount to a great deal of money for someone who is on supplementary benefit, or for low-income families in my Neath constituency. It is diabolical that they should have to bear this burden, on top of the already exorbitant fuel charges that they have cope with.

It is essential that the Government back down and refuse to apply VAT to standing charges. Standing charges should be abolished for the poorest people in our society, especially for elderly citizens on income support. Many of them pay more in standing charges than they do for their gas or electricity, where gas or electricity, are subsidiary to their main fuel and power needs. The imposition of VAT could result in their standing charges increasing by nearly a fifth. That is completely unacceptable. It is a burden which they will find intolerable.

7.30 pm

The Government claim that they will compensate those on benefit for the imposition of VAT on fuel and power, but they have never said that they will compensate them fully. All that the Government have said is that they will compensate them in some yet to be described fashion. I invite the Minister—I shall be happy to allow him to intervene during my speech, if he wishes to respond—to say what the position will be if the fuel bill of a pensioner in my constituency goes up by £5 a week. If that pensioner is on income support, will he or she get £5 a week extra in income support, benefit, or some other entitlement? Will that £5 increase in fuel charges be compensated for directly by a £5 increase in benefit?

I invite the Minister to intervene and confirm whether that will be the case. I see that he does not intend to do so. Therefore, I can only assume that that will not happen, that a one-for-one matching compensation will not occur and that some of the worst off in our constituencies will consequently suffer the most.

The point has already been by some Conservative Members that the worst affected will not be just those on benefits. In some ways, those who will be worst affected will be people who are just above income support level —people who receive no income support, or housing benefit, or benefit of any kind. Many of my constituents have told me that they have a small miner's pension, or a miner's widow's pension, which takes them just above, painfully above, the benefit threshold. Nevertheless, it is a trivial amount, when set against their living costs. They are the ones who will be the worst hit by this VAT increase, for they will receive no compensation.

The result, not just for those people but for ordinary families who are at their wits' end over trying to cope with their fuel bills, will be that they switch off the gas and electricity and freeze. Some of them will therefore die of hypothermia and other consequences of extremely cold weather.

To the many anomalies that were drawn to the Committee's attention by the hon. Member for Moray (Mrs. Ewing) concerning the trigger mechanisms for cold weather payments, I wish to add another. In my constituency, the village of Seven Sisters, which is up one of the valleys, is about 20 miles away from the weather station at the Mumbles. In bitter weather, it can be 3 or 4 deg warmer at the Mumbles than at Seven Sisters. Cold weather payments at Seven Sisters, however, are triggered by the weather station at the Mumbles. Consequently, although the people of Seven Sisters may literally be freezing, the fact that the cold weather payment is triggered by a weather station some miles away—where the temperature is much higher because it is on the coast —means that they are not entitled to it. That anomaly will be made even worse by the exorbitant additional charges that will arise from the imposition of VAT.

Another aspect of this sorry story affects Wales directly. I understand that British Gas in Wales has irrecoverable debts—money that it cannot get back from some of the poorest in our communities or from businesses that have gone bankrupt. That irrecoverable amount totals £6 million a year. The imposition of VAT on fuel and power will lead to that sum rising by another £1 million a year.

Who will pay for that, in the end? Those who pay for it will be ordinary gas customers in Wales, including pensioners who are the least able to afford it. They will be hit both directly and indirectly. That will be the consequence of the Government's short-sighted and punitive policy. It is a consequence which, so far, seems to have been overlooked.

The Home Secretary admitted yesterday on radio that the Government are in a hole. They certainly are. That is partly because there is a massive hole in the Government's public finances. The Chief Secretary referred to i t in his speech. I shall comment on some of the points that he made.

This VAT imposition is intended to plug the hole in the Government's public finances. They claim that there is some sort of economic recovery. It would be astonishing if there were not an upturn, after the interest rate reduction from 15 to 6 per cent. and the devaluation of the pound by nearly 18 per cent.—at least, until a few months ago. The laws of economic gravity would be defied if there were not an upturn of some sort. That upturn, however, if it is happening, has happened despite the Government, not because of their policies and objectives, and it will be short lived. It is very shallow. That is why the Government are having desperately to cast around for remedies, such as the additional revenue that they will get from imposing VAT on fuel and power.

Another factor in the equation to which the Chief Secretary referred is the massive public sector borrowing level of £50 billion, or 8 per cent. of GDP. I do not share his optimism. I do not believe that it will decrease significantly over the next few years. It will remain high and will almost reach that level. All the economic indicators for the Government point in an extremely negative direction. For instance, the massive balance of payments gap is running at £1 billion a month. That will increase the Government's difficulties and put a strain on public finances. The balance of payments gap will increase still further, if there is any upturn in consumption.

Unemployment will similarly increase. The unemployed will suffer, along with everybody else. Indeed, they will suffer more from the imposition of VAT on fuel and power, for they, too, are among the poorest in the community. More people will join the dole queues in the coming months and the coming year, despite the somewhat massaged turnaround over the past few months in the official unemployment figures.

The imposition of VAT on electricity, gas, coal, oil and other fuels has to be seen against the background of personal debt having doubled since the Government came to power in 1979. Families are now more and more stretched and more and more unable to pay the expected fuel increases. In 1981, for example, for every £100 of disposable income, household debt was £57. By 1990, that figure had doubled to £114. Since then, household debt has increased still further. These are difficult times for many families. For many people, the imposition of VAT on fuel and power will be the last straw.

The upturn that is coming—if, indeed, it manages to stutter along—is consumption-driven. We know, however, that consumption, as a proportion of gross domestic product, is far too high in Britain, that it increased to record levels in 1990 and that it has increased still further since then.

That helps to paint in the background of the economic difficulties that are facing the Government. The economy will not grow. We shall not be able to generate sufficient revenue to plug the hole in the Government's finances and facilitate the withdrawal of the proposed VAT increases. The economy is burdened by too much debt and by a life style among ordinary families that is based too much on a level of consumption that is far outstripping the economy's capacity to produce the wealth that we need.

We needed from the Budget not a consumption-driven economy but an investment-driven economy. It should have addressed the structural weaknesses in the economy, not the short-termism that the Chancellor has pursued throughout his tenure of office and which is reflected in the clause.

Many hon. Members will have received a submission from the Royal National Lifeboat Institution, which points out: the Budget will have a serious impact on charities' finances. The measures to encourage giving to charities are far outweighed by the imposition of VAT on fuel and power and the reduction in the value of tax credits on dividends. In other words, what the Budget gave to charities with one hand is more than taken by the other with the VAT increases on fuel and power.

VAT on fuel and power will add about £50,000 a year to the RNLI's heating and lighting bills, of which £16,000 will arise in boat house crew rooms, which are so important to safety at sea. The RNLI points out that it is true that, with the reduction in gift aid thresholds, gift aid tax payments will increase. A good part of that arises from the switch from covenant income, on which tax repayments will fall. The gift aid improvement, although it is welcome, goes little way to compensate for the new impositions of the Budget, one of the most pernicious of which is the VAT increase on fuel light and power.

The Government have claimed, rather dishonestly, that this is a green measure. If they wanted to introduce a green measure, they would adopt the clear and carefully costed proposals that have been made by my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith). His programme for home insulation is entirely self-financing and would reduce the cost of electricity, gas and other fuel bills and would not impose a burden on the Exchequer.

Britain's home insulation standards are the worst in Europe. The Budget could have tackled that problem by implementing the programme that has been proposed by the Labour party. Instead, the Government went for the option that has nothing to do with environmental safeguards but is intended to get in the billions of pounds that they need to plug the hole in their public finances.

The proposed increase will be highly inflationary not only for the worst off members of our community but for the whole economy. The retail price index is already going up. The Government's target of increasing the RPI within a range of 1 to 4 per cent. is already under strain and the warning signals are flashing. All the signs are that we shall reach a target of above 4 per cent.—perhaps 5 per cent. or more—by next year.

The Government are mistakenly allowing the pound to creep up because they think that it will choke off the increase in import prices and in other respects reduce the pressure on inflation. They are so concerned about inflation that they are allowing the pound to float up, but they should be reducing interest rates and not worrying too much about whether the pound floats up or down.

Photo of Patrick Cormack Patrick Cormack , South Staffordshire

Order. The hon. Gentleman is going a little wide of the subject and many of his colleagues wish to take part in the debate.

Photo of Peter Hain Peter Hain , Neath

I am grateful, Mr. Cormack; I shall bring my remarks to a close.

The inflationary pressure that will result from this VAT increase will have a serious effect on the economy generally and will catch the Government up in terms of the impact of their other fiscal and monetary policies. Why should poor, old and disabled people pay for the Government's incompetence? This is a vindictive measure by a vindictive Chancellor who will lose his job soon. The only saving grace of the measure is its incompetence. Its effect will be felt at such at time in the electoral cycle that it will bite off the Government's hopes and end their prospects of being re-elected.

Photo of Mr Terry Dicks Mr Terry Dicks , Hayes and Harlington 7:45 pm, 10th May 1993

I had not intended to take part in the debate, but I was concerned by not so much what the Chief Secretary said as, to some extent, the tone in which he said it. Some Back Benchers who have doubts were hoping for some words that would help us to support the Government tonight. Those words were not forthcoming, but I hope that by the end of the evening something will be said that will offer us some encouragement.

Politics is about perception. Something may be a fact, but if it is perceived differently we must act on the perception. On this issue, the perception is that the imposition of VAT is bad. That may or may not be so, but that is the perception and hon. Members who have marginal seats must act on that.

The Government must be seen to be listening. The perception is that they are not, and this proposal is another example where there is some doubt about whether the Government realise what is going on in the real world outside the Palace of Westminster. I have said elsewhere and say again that if Ministers left their cars behind and left their contact with the field marshals, generals and people whom they meet at Buck house or Clarence house and instead spent their time knocking on doors, perhaps they would have a different view of what is going on.

Pensioners on and above income support must be heard. I have maintained for years publicly, locally and in here that pensioners are not getting a good enough deal—they never have. I have advocated for several years that between November and February pensioners should get £5 a week irrespective of the weather. If the weather is good, it is a bonus; and if it is not, the money is in their hand, ready to use if the cold weather comes. I fail to see why we cannot adopt that natural commonsense approach rather than wait until somebody on Air Ministry roof puts his finder in the air to decide what the temperature is and which way the wind is blowing. That is a nonsensical approach and should have been reconsidered a long time ago.

Several colleagues, especially my hon. Friend the Member for Southend, East (Sir T. Taylor), have said that it is no good moaning unless alternatives can be suggested. I have some alternatives that will not be popular on either side of the Chamber, but I will give them anyway. First, we could reduce or do away with overseas aid, which would lead to a saving of £1·6 billion. The vast majority of that aid does not go where the people whose taxes fund it expect it to go. Much of it goes into the back pocket of the bureaucrats and tyrants who run Africa and elsewhere—

The Tempory Chairman:

Order. The hon. Gentleman may refer briefly to other potential destinations, but he should not expound and expand on what he said.

Photo of Mr Terry Dicks Mr Terry Dicks , Hayes and Harlington

I take your rebuke, Mr. Cormack.

The alternative savings should come from the doing away with of overseas aid, saving £1·6 billion, and completely abolishing the arts budget, saving some £700 million. We should also consider the way in which we pay people who come here from abroad—immigrants, regardless of their colour or creed—and get payments immediately, having made no contribution to our society. We should also consider the gross waste of money on AIDS. About £886 million has been spent, but the real figure is probably more than £1 billion. We have done nothing about that. Money is still being wasted on it this year.

Those alternatives would lead to a saving of £2.5 billion to £3 billion. I have said before that that is how savings can be made. These are the issues that the chattering classes love. That is why the Government, who, unfortunately, react to the chattering classes, prefer to bang and hit the poor and pensioners, who cannot fight back and who the Government know they can take on and beat.

I accept the point that was made by my hon Friend the Member for Teignbridge (Mr. Nicholls). In a sense, it is too late to make any real adjustments, although I hope, as I said earlier, that we will be told that some further consideration will be given to ensure that those who are just above the threshold get some help.

An old-age pensioner has written to me saying that she has some savings as a result of her and her husband's care and concern for 40 years. Her husband is now dead. She asks me why she should have to pay more when she has not been feckless and when she has done everything that a good Conservative should. The Government now tell people to think about their pensions early to ensure that they are not a drain on the economy later. That lady and her husband did all that, yet now, because she has saved money and has not wasted it, she is being punished. I cannot believe that Ministers want that to happen.

I beg for some reassurance at 10 pm and for the Government to show that they have realised what is going on, that after last Thursday they are prepared to listen and that they are aware of people's perceptions. I ask Ministers to forget the advice that they get from the Treasury. The people there are the most incompetent crew. They have been wrong for years and they still get it wrong. The Treasury has the highest-paid permanent secretary for the smallest group of people. If we are to get anything right in the economy and if we are to ensure that our pensioners and our poor are not punished, the first thing to do is almost to close down the Treasury, because its advice is useless.

My many poor constituents—immigrants, Asians and the ordinary white poor—ask what on earth is going on if they have to be punished when people can be given—

Photo of Dr John Marek Dr John Marek , Wrexham

Will the hon. Gentleman give way?

Photo of Mr Terry Dicks Mr Terry Dicks , Hayes and Harlington

No.

Those constituents ask what on earth is going on when people can get a £30 gift from the Government to watch an opera as a leisure pursuit. We say that we can afford to do that, but that we cannot afford to help the poor. and we say that we must put VAT on their fuel. I have taken heed of your rebuke, Mr. Cormack. I could have said a lot more. I simply say to the Government, "For God's sake listen, for God's sake understand and for God's sake give us some hope at 10 pm so that we can support the Government and not the Opposition."

Photo of David Winnick David Winnick , Walsall North

If the hon. Member for Hayes and Harlington (Mr. Dicks) is really concerned about pensioners, he knows what to do at 10 pm. He will go into the Lobby and vote against the imposition of VAT on domestic fuel. If, despite the hon. Gentleman's populist or pseudo-populist remarks, he is really committed to the cause of pensioners, he has a duty and responsibility. We shall watch carefully to see what he does at 10 pm

Fuel poverty is undoubtedly one of the worst aspects of the winter months for pensioners and for others on low incomes. The Government propose to add to the misery suffered by so many people whose only crime is to be old, to have retired or to be on a low income. Those people will be punished. The Chief Secretary gave some explanation and some rationale for the proposal, and he spoke about the financial problems facing the Government.

They are financial and economic problems of the Government's own making. Unfortunately for our country, the Government have been in office for 14 years; they are not a Government who have just been elected. The Government say that they face formidable problems. The people who will suffer are those who are least able to bear the burden.

The report published recently by the social policy research unit at the university of York shows that it is precisely the low-income households that spend a far higher proportion of their income on fuel. The report shows that the proportion of a single pensioner's weekly budget spent on fuel now is just over 18 per cent. By 1995, as a result of the Government's imposition of VAT on domestic fuel, the proportion spent on fuel will be more than 20 per cent.—one fifth of a single pensioner's income. We know only too well the low incomes that so many pensioners have.

The Sunday Express, which is not a newspaper usually associated with the Labour party, wrote about the misery faced by so many pensioners on low incomes during the cold weather two years ago. The newspaper wrote about one widow, whom it named, who lived in Worthing, and described her low income at the time. I do not suppose that, if that good lady is alive and well—we all hope she is —her income has increased except as a result of the pension increase in line with inflation.

The article says: She has no money left for heating during a big freeze. At night she wears thick pyjamas, three pullovers and woollen socks—and covers herself with three blankets.Most of the day she sits in front of the television wearing all these—and a blue scarf and check blanket. The article says that she enjoyed watching television. It continues: Of the freezing weather she says"— I hope that the Committee bears this point in mind, because it relates very much to what we are discussing now and to the further afflictions being imposed on people such as this lady— 'I hate it. My body keeps shivering but it's my hands that feel it most. They are so cold I can't close my fingers or grip anything. I rub my hands to keep them warm, but after a while they get cold again. And I get too tired to keep rubbing them together.' That is one pensioner. There are many like her. In my constituency and in constituencies throughout the country, there are the people about whom I have been speaking—the poor and the old who are frightened and terrified of the winter weather because they simply do not have enough money to keep their accommodation adequately heated.

I make no apology for the fact that, time after time during very cold spells, I have referred to the fact that the cold weather payments have not been triggered. During the speech by the hon. Member for Moray (Mrs. Ewing), I made the point that, according to information I have received from the Library, during this year only one out of 61 weather stations has triggered the cold weather payment. The reason is that, at the 60 other stations, it has not been freezing for seven consecutive days.

What a farce. Even if it is not freezing, it can be bad enough, as we all know. If the temperature reaches freezing point for one or two days, it is of no use: the money will not be paid. The temperature has to be at freezing point for seven consecutive days, at the end of which the grand sum of £6 a week is paid.

The problem is important for many of our fellow citizens. We know that so many of the elderly try to spend much of the day during the winter months out of their homes. They go to libraries or to other communal buildings to find warmth and to save on fuel expenses at home. When they put on, as they must do, some form of heating, they often heat only one room. They heat only one room for the same reason as we would in such circumstances. They are no different from us; they are our fellow citizens, and they are not living on another planet or on another continent. Facing the same problems, we should do the same.

In the main, it is not the elderly who face fuel debt. The reason is that they are so worried about using fuel for which they cannot pay. That is why they put their health at risk, and that is why they are so terrified of the winter.

That is also why the Committee should be deeply concerned that so many of our retired people are in such terror during the winter months and that is why we should do our utmost to help them.

One Conservative Member, the hon. Member for Corby (Mr. Powell), has told us that he will vote against the Government. He has courage, and he knows his duty and his responsibility to his constituents. He will vote with us at 10 pm. What about other Conservative Members? We have heard some of them, such as the hon. Member for Hayes and Harlington, express their concern. What help will they give their constituents if they give their loyalty to the Government? Will they not be in the position they were in when they voted for the poll tax and later deeply regretted it?

If they feel concern, however reluctant they may be to vote against their own Government and however reluctant they may be to go into the Lobby with Labour Members, they should know their duty when the Division is called. They should understand their duty to their constituents who are in the plight that I have described.

8 pm

For pensioners, the position was made worse by what happened in 1980, when the Government decided—the Chief Secretary said nothing of this today—that pensions should increase in line with inflation and not in line with earnings. The latest information is that, as a result of that decision 13 years ago, married couples have lost £26 and single pensioners around £15 every week. That decision was unfair and unjust and has made it that much more difficult for pensioners to cope.

There is much talk about the improved living standards of some pensioners. It is true that the position of some pensioners who have retired since 1980 and who have occupational pensions is not as acute as that which I have described. In many cases, however, the occupational pension is small—and what about all the other pensioners who retired when there were no ocupational schemes and who have to rely purely and simply, as so many do, on the state pension scheme.

The plight of pensioners has been affected not only by the decision made in 1980 but by subsequent changes in housing benefit. Many people come to my surgery or write to me asking why they have to find so much in rent and poll tax—or, as it now is, council tax—out of their very limited income. I write to the local authority and ask for an explanation, and I know what explanation I will get: since 1988, local authorities have had no discretion in housing benefit matters. Housing benefit decisions are made by central Government.

My hon. Friends may be interested to hear that I always send the local authorities' replies to the Minister concerned, and the Minister's reply to my constituent. My constituent may not be happy with the position, but at least he then knows that it is the result of a decision taken not by his local authority but by the Government. The policy decision made in 1988, as a result of which many on small incomes paid more in rent and rates, then poll tax and now council tax, has done much to undermine the living standards of many of our constituents.

An essential requirement in a developed society is the right to have one's home adequately heated.

Unfortunately, owing to poverty, many cannot exercise that right in Britain. The Government intend to punish those who are most vulnerable to increased fuel costs.

The headline in today's edition of The Times refers to the Prime Minister's advice to his colleagues that the Government—and certainly Cabinet Ministers—should not appear to be so arrogant. It seems to me to be the height of arrogance to push through a proposal such as this. There is not a single Minister, in the Cabinet or outside it, who is ignorant of the hardship that the decision is likely to inflict. What is the use of the Prime Minister saying that the Government should show less arrrogance while pushing through schemes that are so wrong and so unpopular?

Much has been said about last Thursday's decisions, both in the by-election and in the county council elections. People may vote differently on different occasions, and I would be out of order were I to try to speculate on what future general election results might be; but there is no doubt whatever coat the Government are deeply unpopular.

They are unpopular not simply because of the recession and high unemployment, although they are bad enough, but because of proposals such as this. Similar considerations applied in respect of the poll tax. Many people who could afford to pay and who paid the poll tax knew that it was wrong and unjust that other people earning so much less than them should be paying the same poll tax. They punished the Government on the appropriate occasion.

Many people on reasonable incomes who can afford to pay VAT on domestic fuel and power know and understand that it is wrong for the Government in office to punish the old and those on low incomes, who have a tremendous struggle to survive during the winter months.

My hon. Friend the shadow Chief Secretary referred to the fact that proportionately more elderly people die during the winter months in this country than in other western European countries. Does any Conservative Member believe that there is no link between the large number of deaths we have here, as compared with other European countries, and the poverty that prevents people from keeping their accommodation adequately heated?

The arrogance of the Government is clear. What is being done is wrong. I only hope that, if there are enough Conservative Back Benchers who agree with us that it is wrong, they will have the courage to do their duty to their constituents when it comes to the vote at 10 pm.

Photo of Mr John Hannam Mr John Hannam , Exeter

Several hon. Members have spoken about the effect on charities of the imposition of VAT on fuel and power. All hon. Members are united in their admiration and support for the work that charities do. I know that the Government share that feeling. One has only to remember the large cash support that has been given to voluntary organisations to appreciate that fact.

I am concerned, however—I know that I speak on behalf of the all-party disablement group—that the removal of zero rating from fuel and power used by charities in the provision of residential care and in the form of grants paid to those on low incomes will have a far-reaching effect on those charities' ability to provide services for the elderly, the sick and the disabled and care for the dying. Unlike local government or businesses engaged in similar activities, those charities will be unable to recover VAT paid on their fuel bills.

Over the past decade or so, as the level of VAT has risen in stages, I have been involved in and have supported the campaign by the Charities Tax Reform Group, which represents some 300 leading charities and which was once chaired by my hon. Friend the Member for Suffolk, South (Mr. Yeo), the Parliamentary Under-Secretary of State for Health.

That group has campaigned for a system of relief on or repayment of VAT paid by charities. We hoped that such a system would be granted in the current Budget. Strong representations were made to my right hon. Friend the Financial Secretary in the run-up to it, and my right hon. Friend is fully aware of the implications for our leading charities of the change in the VAT regime.

In successive Budgets, the Government have responded to the pressure exerted on them with all sorts of increases in tax relief for donations. Those measures signal the importance that the Government attach to charities. They have tried to reimburse charities in different ways through different sorts of reliefs. In the present Budget, charitable giving has been encouraged through measures on payroll giving and gift aid, and I warmly welcome them. On the other side of the coin, charities face greater difficulties on their expenditure side, and the proposed fuel and heating tax will bear down extremely heavily on these already hard-pressed organisations.

It is an inescapable medical fact that elderly, ill and disabled people tend to require higher temperatures than the population in general. The hon. Member for Walsall, North (Mr. Winnick) spoke of the needs of the elderly, but the sick and the disabled are also known to require special help with the temperature of their accommodation. For example, cancer manifests itself in a need for extra warmth, even in the summer months. Cancer sufferers require extra help with heating.

The direct needs of people who are cared for by charities produce intensive use of energy. Residential homes have a duty of care to their residents which limits their ability to reduce their heating on either cost or energy efficiency grounds. It is not that simple a choice. Indeed, there is no choice if they are serious about fulfilling caring responsibilities.

Wearing one of my other hats in parliamentary affairs, I have spoken often in the House about the need for energy efficiency. Extending VAT to fuel and power goes some part of the way to help Britain meet its environmental objectives and international obligations on CO2 emissions that were agreed at the Rio Summit. On that, the Government must be congratulated.

However, the laudable aims of environmental protection cannot and must not take absolute priority over the needs of the weakest members of our society. For that reason, I ask the Government to give further consideration to the special and limited concerns of charities. We all know that charities which provide residential care cannot simply turn down the heating to compensate for increased fuel costs.

The hon. Member for Peckham (Ms Harman) mentioned disability aids. Those aids enable people to live as independent a life as possible. Grant-making charities, which provide money to those in need of help with their heating demands will also have to cope with increased requirements on their resources, whatever assistance is given in the autumn to people on low incomes. For example, the Cancer Relief Macmillan Fund expects a large increase in requests for help with fuel bills. In 1992, the fund disbursed more than £3 million in grants to patients, of which £850,000—by far the largest category —was in specific grants for fuel.

The Abbeyfield society will face an extra VAT cost of more than half a million pounds. Mencap will face an extra burden of £200,000 per year. There is a list of all the charities and the amounts that they will require. The cost to the charities will be about £27 million a year.

There is a continuing discussion about the introduction of VAT on fuel and heating. It is likely that, because the focus of the debate has been on the general issue, the specific anxieties of charities have had little chance of being aired before today. Therefore, the Government have had little opportunity to respond to those specific anxieties.

Photo of Mr David Jamieson Mr David Jamieson , Plymouth, Devonport

I have listened with great interest to the hon. Gentleman's comments, and I have agreed with many of them. If he is sincere in his concern for charities, will it be reflected in his vote tonight?

Photo of Mr John Hannam Mr John Hannam , Exeter

If the hon. Gentleman will restrain himself until I reach the conclusion of my speech, he will hear the answer to that question. The answer is related to the points that I am making.

Photo of Patrick Cormack Patrick Cormack , South Staffordshire

Order. The hon. Member for Plymouth, Devonport (Mr. Jamieson) has just entered the Chamber. By intervening, he may prevent some of his colleagues, some of whom have been here for a long time, from making a speech.

Photo of Mr John Hannam Mr John Hannam , Exeter

It is easy for Opposition Members to taunt Conservative Members and try to persuade them to declare how they intend to vote. That is an understandable ploy, but it does not relate to the facts of the debate.

My hon. Friend the Member for Teignbridge (Mr. Nicholls) said that, in a debate on the Finance Bill, it was impractical to attempt to change the centre core of a Budget proposal to a large extent. If one takes out part of the core, one destroys the whole Budget. Of course, it is possible to change parts of the Finance Bill. That is why amendments have been tabled. I support that.

To answer the question of the hon. Member for Plymouth, Devonport, I am working towards attempting to change the Government's attitude to a part of their proposal. I support the overall proposal in principle on environmental grounds, as I have explained, but I am worried about the part of it which affects charities.

8.15 pm

In the representations which I and other hon. Members and representatives of the various charities made to my right hon. Friend the Chancellor of the Exchequer and Treasury Ministers during the run-up to the budget, the point was pursued that, because there had been successive impositions of VAT on charities, some attempt should be made to allow charities to benefit from a VAT refund system or zero rating.

In his Budget speech, my right hon. Friend the Chancellor acknowledged the need to compensate people in receipt of benefits. This debate is the time to put that into practice and for the Government to find a way of minimising the impact of such a change on charities. I hope that my hon. Friend the Financial Secretary will give an assurance at the end of the debate that, between now and Report stage, further discussions will be held so that we know that the impact of the VAT change on charities will be carefully considered.

It is a fact that charities which provide residential care and grants do not have the chance to recover VAT, as local authorities or others who operate residential homes do. Charities are in a unique position.

My hon. Friend the Member for Southend, East (Sir T. Taylor) said that, if zero rating was removed from fuel, it could not be reapplied at a future date. That worries charities deeply. The campaign for zero rating for charities and specifically disablement charities has been maintained for several years. If zero rating cannot be reintroduced once it has gone, that is of great significance to charities.

I argue strongly that, between now and Report stage, the Government should carry forward the discussions held with the charities and the Charities Tax Reform group to a point at which some way of alleviating the impact of the VAT charge can be found. If we do not find a way, I and others who have been involved in the campaign will consider carefully how best we can exert our influence to obtain help for the charities.

Several hon. Members:

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Photo of Patrick Cormack Patrick Cormack , South Staffordshire

Order. It may help the House to know that the Chair has neither the power nor the desire to limit speeches, but that seven hon. Members who have said that they wish to speak. If they limit their speeches to 10 minutes or thereabouts, they should all get in. If they do not, they will not.

Photo of Diane Abbott Diane Abbott , Hackney North and Stoke Newington

It is fascinating for Opposition Members to watch Conservative Members wriggle around about the proposal to impose VAT on fuel and heating. They know that it is unfair. They know that it is a vote loser. Moreover, they know that it will hit them in the run-up to the next general election. But many of them lack the guts to follow the logic of their arguments and vote against the measure tonight. That is precisely the craven attitude on the part of Tory Members, who voted for the poll tax although they knew it was a disaster, which thrust us into that long saga that wasted billions of pounds of taxpayers' money.

The proposal to impose VAT on fuel illustrates one of the recurring themes of the 14 years of Tory Government. Tories simply do not know the meaning of the word fair. The poll tax was killed despite all the protestations of the Treasury Bench and all the boasts that it would be the flagship of the Thatcher era. It was killed, as my hon. Friend the Member for Walsall, North (Mr. Winnick) said, because it was widely felt, even by people who could afford to pay it, that it was simply unfair.

The reason why the imposition of VAT on fuel has angered the electorate so catastrophically for the Government is precisely the same. The Chief Secretary, that glamour boy of the Tory right, put the point better than I could have done myself. He said that putting VAT on fuel was for the Government a way of raising revenue which was consistent with their principles. Precisely. Throughout the Tory Administration we have seen them pursue policies which penalise the poorest and help the richest in their society.

It is worth while pointing out that, in the past decade —the Tory decade—for the first time in the history of modern capitalism, the established trend towards greater equality of income and wealth has come to a shuddering halt.

During the Thatcher era, those in the bottom 10 per cent. income group saw their incomes rise by a mere 12 per cent. while those in the top 10 per cent. saw their incomes rise by 38 per cent. Those in the top 1 per cent. income band, presumably including Mr. Asil Nadir, saw their incomes rise by a whacking 60 per cent. That was the hallmark of Thatcherism and Toryism in the 1980s. They took from the poor and gave to the wealthy.

I shall not waste time discussing the so-called environmental justification for the VAT proposals, because they are wholly fraudulent and cynical. I need cite only the findings of my Treasury and Civil Service Select Committee which, having taken evidence, including listening to the Chancellor, said that the proposals were designed primarily for revenue reasons.

But even if that Committee had not said that, the fact that VAT is to be imposed not simply on fuel consumption but on standing charges gives the game away, since standing charges do not relate to greater fuel savings. I agree with those who have said that standing charges for gas and electricity should be abolished because they bear most heavily on pensioners and the poor.

Opposition Members have opposed consistently—and will oppose them honourably in the Lobby tonight—the VAT proposals for three main reasons: their effect on the elderly and poor; the fact that they are not reversible; and because they pave the way for other economic attacks on the most vulnerable in society.

In Hackney there are over 25,000 retired people. I will not repeat the arguments that have been adduced about the effects of what the Government propose on the retired. The Chief Secretary entirely fails to understand, let alone meet, the arguments that bear on the special case of the elderly. The right hon. Gentleman harks on about the RPI. He must accept that that index is an average. The elderly often spend twice as much proportionately of their incomes on fuel. I refer not simply to the rich elderly but to all elderly, and that makes them a special case.

The elderly are a special case also because of the hypothermia issue. Turning down or doing without heating is not a question of choice or luxury for the majority of the elderly. For many of them, during the coming winter and winters to come, whether or not to have the heating on will be a matter of life or death.

Anyone who deals with the elderly, as most of us do —whether they are our relatives or constituents attending our surgeries—knows that those above retirement age have a morbid fear of debt. People of my age and the ages of most hon. Members do not have that fear. Whatever the Government may tell them about the RPI, compensation for this or that and council tax changes, many elderly people will be so frightened by the prospect of rising bills that they will resort to self-rationing. They will sit in the cold at risk to their health because of the fear of falling into debt. I cannot believe that Treasury Ministers conduct surgeries or meet the elderly. If they did, they would not be advocating such callous proposals.

We are told that people on income support and income support-related benefits will have those benefits uprated in line with the RPI. I have pointed out the deficiency of that approach, since the RPI is an average and the people for whom we are most concerned, the elderly and the poor, pay disproportionate amounts of their income on fuel. Uprating their benefit by the average will not meet their problem.

We must consider those who are just above the income support level. Tory Members, and particularly Ministers, love to expound on social security scroungers and make out that millions of people are living on income support through choice. Nobody can seriously believe that. People do not live on that degree of benefit by choice. Focusing help solely on people on income support and income support-related benefits simply increases the poverty trap.

Many people are now dependent on housing benefit to pay their housing association or private sector rents. They dare not return to work because they could not afford to pay their rent if they came out of the income support category. We shall add to those millions the millions of people who will not dare return to work because they will be unable to pay their fuel bills, since they will no longer be in receipt of income support-related help. It represents a bitter poverty trap for the majority of people involved, who would prefer the dignity and freedom of working for a living, rather than being dependent on means-tested benefits.

Many Tory Members are trying to ease their consciences by talking about the Government's compensation package. They should, in the few hours remaining before we vote tonight, examine statements made by Ministers about that compensation package. I have noticed since the Budget speech that every Minister who opens his or her mouth about that package changes the nature of the compensation. Conservative Members are salving their consciences on the basis of an unseen compensation package, the contents of which vary from one speech to another. They are buying a pig in a poke and our constituents will make them pay for that.

We oppose the proposed changes because of their effect on the old and the poor. Also, contrary to what many Conservative Members claim, under EC law they are not reversible. In any event, they are just a curtain-raiser for imposing VAT on children's clothes and cuts in welfare spending. If we do not draw the line here in defending the old and the poor, the most vulnerable in society will pay the price for the Government's economic mismanagement.

It is incredible to note the way in which Ministers have wrung their hands about the public sector borrowing requirement. To hear them agonise over that is similar to listening to them agonise over law and order and the state of the schools. Who has been in power for the past 14 years? Whatever they say about the PSBR, my hon. Friends and I did not borrow the money. Whatever Opposition Back Benchers may have liked a Labour Government to do, under the tutelage of the canny Scotsmen on our Front Bench, we would not have run up the sort of PSBR that the present Government face.

The Tories are trying to claim that what they propose has been made necessary by unforeseen circumstances. They say that nobody knew that the recession would last so long. That is nonsense. The Treasury and Civil Service Select Committee, among other bodies, said some years ago that the recession would be longer and deeper than the Government were anticipating.

Let us be blunt about whether the Prime Minister and others lied to the electorate before the last election. The answer is that they did. Many commentators and economists have said that the public sector borrowing figures released by the Government before the election were deliberately massaged downwards, since to have revealed the true figures would have been to reveal the need, soon after the election, to do precisely what the Government are doing, which is to put up direct and indirect taxes. If I am asked whether the Conservatives lied, the answer is that they did and one need only read the specialist press at the time to see that informed people could not understand how they produced such low PSBR figures.

At the last election, the Conservatives practised a fraud on the electorate. The first instalment of the price that they are having to pay for that occurred last Thursday. On behalf of the old and cold of Hackney, I hope that, in the coming general election, the Conservatives will pay the full price for their wholly fraudulent claim at the last election to be the party of low taxation.

Photo of Mr Alan Howarth Mr Alan Howarth , Stratford-on-Avon

I hope that the Government will give further thought to the impact of the extension of VAT on charities, particularly charities whose objects are the relief of poverty and support of the frail and needy. I hope that they will also think carefully about the predicament in which disabled people could find themselves in consequence of the extension of VAT to domestic fuel and power.

Having said that, I wish at the outset to make plain my belief that the Chancellor is right, in all the circumstances, to extend the VAT base and, in particular, to address the question of domestic fuel and power.

The fact is that we must pay more taxes. The Government's borrowing has grown beyond what almost anyone, even the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) with her crystal ball, foresaw a year ago, due to the continuation of exceptionally difficult economic conditions. If we were to allow that situation to continue, true hardship would result. Such borrowing would inevitably lead to high interest rates and high inflation and that would cause serious hardship not least to pensioners, who suffer most from high inflation.

8.30 pm

At its present level, the PSBR represents a real threat to sustained economic recovery. Our aspirations to provide public goods—education, health care and help to the needy—have been outrunning our willingness to pay for them. There should be no sacred cows in public expenditure and my right hon. Friends at the Treasury are right to look radically at the spending pattern that they have inherited and to search for unjustified items of public expenditure. Where the case for public provision is clear cut, however, my constituents and I would rather pay for it through taxes than stack up a dangerous burden of debt.

I congratulate my right hon. Friend the Chancellor on his courage. There are no tax increases that would be popular. Some hon. Members who acknowledge the importance of reducing the PSBR have blithely suggested that alternative remedies might have been found. It is an illusion to suppose that any alternative tax increase would not have been vehemently attacked just as irresponsibly and opportunistically by the Opposition.

My right hon. Friend the Chancellor is right in his judgment about how to set about increasing taxation. After all, it is vital that we do not increase business taxes and knock the recovery on the head. It is sensible to avoid the disincentive of higher income tax.

My right hon. Friend is also right to adopt a long-range measure to protect the environment. His policy addresses two problems simultaneously and with equal validity—the problem of the PSBR and the need, in the interests of the environment, to reduce energy consumption. [Interruption.] Whatever their huffings and puffings, it is a certainty that, if the Labour party had had the opportunity, it would have extended VAT to domestic fuel and power. It would have been right to do so because that policy will make a significant impact on carbon dioxide emissions. It is right and necessary that we should introduce such a policy in accordance with the pledges that we made at the Earth summit in Rio.

The Government's policies have brought energy costs to consumers down, which has benefited households, but, at the same time, has tended to encourage additional consumption. My right hon. Friend was therefore right to bring households into line with businesses and, at the same time, bring United Kingdom taxation into line with that in other countries. Unlike the carbon tax, which the Liberal Democrats espouse—not a single member of that party is in the Chamber now—VAT on domestic fuel and power will have no damagiang impact on businesses.

I also congratulate my right hon. friend on his immediate acceptance of the need to help people on low incomes, who would be particularly affected by the change in VAT. He made that point immediately during his Budget statement and reiterated it when he wound up the Budget debate. There are two indispensable and intertwined strands in the Conservative tradition: the commitment to sound finance and the commitment to provide care for people in need.

My right hon. Friend has recognised that families on low incomes spend a larger proportion of their household budget on fuel and power than other families. He is well aware of the findings of the 1991 family expenditure survey, which revealed that the poorest 20 per cent. of households spent 11 per cent. of their weekly budget on fuel, whereas better-off households spent 5 per cent. and the wealthiest spent 3 per cent. My right hon. Friend has therefore promised to help people on low incomes by increasing income-related benefits and to do so by next April, before the new bills are due. That pledge is additional to the help that has been given in recent times to pensioners on income support.

I should like to ask my right hon. Friend to extend that sympathetic and practical approach to the charities that support the frail and the vulnerable. That would be in keeping with his pledge to help the poor and needy directly with their fuel costs and with the Government's admirable record of extending tax concessions to charities.

The Government, in their negotiations in the European Community on our behalf on the completion of the single market, have resolutely defended the fiscal reliefs that they have provided to charities in the United Kingdom. It would be a pity to abnegate, unilaterally, such an important relief as zero rating, particularly because, as I understand it, once removed, it cannot be restored other than by a new agreement of the Council of Ministers.

The impact of VAT on domestic fuel and power will be significant on charities whose object are to help the poor, the sick and the disabled. As has already been mentioned, in 1992 the Cancer Relief Macmillan Fund gave £800,000 in grants for fuel. Sense, the National Deaf-Blind and Rubella Association, estimates that the extension of VAT will increase its costs of running residential homes and centres by £32,000. Methodist Homes for the Aged, which runs Cedar Lawn in my constituency, reckons that the overall cost to the charity of the 17·5 per cent. VAT will be £143,000 in a full year.

The Home Farm Trust—which is also important in my constituency: it runs homes in Cherington and Bidford —calculates that its costs of VAT on fuel and power will be £60,000, which will mean an increase of £2·30 in its weekly charges. It has made the important point that that increase will have to flow straight back in charges to local authorities. As my hon. Friend the Member for Exeter (Sir J. Hannam) said, the Abbeyfield Society has calculated that the VAT extension will cost it no less than an extra £500,000.

The Government are looking to such charities to play an increasingly important role in the delivery of their social policy. It is timely, with the introduction of care in the community, to review the VAT regime for charities. I understand, of course, that the present fiscal constraints on the Government may make it difficult to make a substantial, immediate concession. I believe, however, that my right hon. Friends should pause before requiring charities to pay additional VAT on fuel and power.

As I have already suggested, charities are being brought more formally and extensively into the panoply of social provision. They are being asked by the Government to provide residential homes, day centres, respite care and many other services. They are being asked to demonstrate their cost-effectiveness, to tender alongside commercial organisations and to compete in effectiveness with local authority providers.

Commercial organisations and local authorities, however, are able to recover VAT, whereas charities cannot recover it on the greater part of their spending. That irrecoverable VAT is already costing charities about £300 million a year. The extension of VAT to domestic fuel and power will place charities at a further disadvantage. In the interests of policy coherence and of achieving fair competition in that particular market, the Government should reconsider.

The net benefit to public funds of requiring charities to pay VAT on domestic fuel and power would, in any event, be small. The Government estimate, that when the system is fully operational, charities may pay £25 million a year. It is quite reasonable to suppose that some three quarters of that money would come back in the cost of contracts to local government. Moreover, if charities have to pay the additional VAT, they will be less able to pursue their role when it is not contractual, but complementary to that of local and central Government in the relief of poverty. Apart from the humanitarian consideration, in the end that would save the Government money, too.

I hope therefore that my right hon. Friends will extend compensation to charities that are helping those in need, whether through grants or the provision of services. I also hope that my right hon. Friends at the Treasury and my right hon. Friend the Secretary of State for Social Security will listen carefully to what charities are well placed to tell them about the detailed impact of VAT on fuel and power among vulnerable people.

It is clear that income-related benefits will not be a sufficient means of compensation. We must also look to the needs of the long-term sick and disabled who receive non-means-tested benefit, such as invalidity benefit, and are just above the income support level. Many disabled people do, unavoidably, incur additional costs due to their disability.

People with limited mobility or poor circulation do not maintain their body temperature as well as the rest of us, and have to spend more on heating. The disabled have a range of needs which mean that they use more energy at home. Incontinent people have to pay for the cost of extra laundry; people with special diets have to use electric blenders; severely disabled people need lifts, which are expensive in energy terms, but crucial to independent living. The Office of Population Censuses and Surveys has found that 51 per cent. of disabled people spend more on fuel and power than they would if they were not disabled, while Department of Social Security research has concluded that disabled people spend an average of £1.44 per week more than the rest of us.

When I asked my hon. Friend the Economic Secretary to the Treasury a question on 4 March about VAT and charities, he said: The Government always listen sympathetically on such matters."—[Official Report, 4 March 1993; Vol. 220, c. 447.] I believe that my right hon. and hon. Friends will listen sympathetically today and during the passage of the legislation and, again, in the autumn. If they find themselves unable to exempt charities from VAT on their non-business activities altogether, I hope that they will at least pause before imposing an additional VAT burden on charities.

If they conclude that it is impossible to relieve charities of VAT, either because of the administrative complexity or for the reason suggested by my right hon. Friend the Chief Secretary earlier—because they are loth to provide a tax concession that would benefit Eton college at the same time as Help the Aged—I hope that they will look for a remedy along the lines of other European countries and offer grant in aid. That would enable the Government to target charities whose business is to help those in need.

In the meantime, I hope that amendment No. 5 is not pressed to a Division. I believe that it will be possible to find common ground on the subject. I am confident that my right hon. Friends will wish to think further on the problem.

Photo of Malcolm Chisholm Malcolm Chisholm , Edinburgh Leith

Conservative speakers have today made much of the public sector borrowing requirement, but have omitted to say who ran it up, why they did so and how different methods can be used to reduce it. Some Conservative Members also discovered the usefulness of seeming green. They forget that the Secretary of State for the Environment did not even mention VAT on fuel as a green option in his recent consultation paper on climate change.

The demand for heating is notoriously inelastic. If anyone cuts back on heating, it will be those on low incomes. Those people should be at the heart of our debate as it is they who face the cruel choice between becoming colder or cutting other essential items. I say "colder" as there is already overwhelming evidence that large numbers of people cannot afford to keep warm.

Two recent Scottish studies show that 70 per cent. of respondents in deprived areas said that their houses were too cold. The report "Cold Comfort" from Age Concern focuses on the elderly and contains many revealing and alarming facts. I urge all Conservative Members to read it. It says that the morning room temperatures of 81 per cent. of elderly people are below the guidelines of the World Health Organisation and that the main reason for low temperatures is lack of money. It states that two thirds of those asked in the survey would spend any extra money that they received from pensions or other sources on heating. It also states that 30,000 to 40,000 more people die in this country in the winter than in other European countries and that there are more than twice as many cold-related diseases in this country than in any other European country. It found that a staggering 750,000 elderly people were at risk of hypothermia in the winter months.

8.45 pm

How dare the Government put those already at risk even more at risk? Those people need help with their heating, not the opposite. Today we should be discussing the means by which pensioners and other low-income groups should receive such help. The Government like us to believe that no one on a low income will be worse off as a result of the measure. Earlier, we saw the Chief Secretary weaving and evading the subject.

It is clear that there will not be full compensation, even for those on income-related benefits. There are thousands of poor people who are not on income-related benefits; for example, 700,000 pensioners—one in three—who could claim income support do not do so. About 2·35 million pensioners get between 1 and 39 per cent. above income support levels. We are talking about at least 3 million poor pensioners who will receive no help.

The measure will affect not just pensioners, but millions of other people on low incomes. A recent report of the Policy Studies Institute called "Credit and Debt" revealed that, of those earning £100 a week, 5 per cent. had problems with electricity debts and 6·4 per cent. with gas debts. The percentages of unemployed people with similar problems were even higher. One young mother came to my surgery only two or three weeks ago and said that, although she was on a low income, she had to spend £25 a week on electricity because her house was appallingly damp. She is not alone—a recent survey on the condition of Scottish homes revealed that 423,000 houses in Scotland suffered from damp, serious condensation or mould. A recent Shelter report revealed that 120,000 children in Scotland faced severe health problems because of living in damp homes.

What right has the Conservative party to tell people living in such homes to reduce their heating in the interests of our planet or to spend more on heating in the interests of the Exchequer? If the Government cared about those people or were even faintly green, they would spearhead a massive home insulation drive, which is what Edinburgh district council is trying to implement through policies of insulation, window replacement and central heating for elderly people.

Edinburgh district council was promised £30 million in its capital allocation for housing, but because the Government got their sums wrong—they said that £15 million had to come from council house sales, when the figure was only £10 million—Edinburgh district council has a shortfall of £5 million. Therefore, it cannot pursue its desired policies on home insulation—[Interruption.] If the hon. Member for Harrow, West (Mr. Hughes) is saying that that is not relevant, I must tell him that it is extremely relevant. If the Government claim to be green, they should be implementing such policies, not producing spurious green measures such as those proposed in the Budget.

As well as claiming that the proposals are green, the Government claim that they will help the public sector borrowing requirement. There are PSBR problems, but as my hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) asked: who caused the problems in the first place? If the Government were more confident of the prospects for the economy, they could afford to be more relaxed about the PSBR. The fundamental solution to the problem is to gain economic growth, followed by a policy of progressive taxation and possibly taxes on luxury items. VAT on heating is the most regressive taxation imaginable. As York university's social policy research unit report, issued over the weekend, said, the top fifth of income earners spend an average of £13 a week on heating and the bottom fifth spend £11. The difference is small and the figure is a high percentage of a single pensioner's income.

VAT on heating is almost a second poll tax and will do as little good for the Conservative party as the poll tax. The result will be more poverty and more ill health, with all the public expenditure implications inherent in that—or, more probably, a combination of the two. It is a totally unacceptable, but typical, Government measure. It punishes the poor for the mistakes made by the Government and should be thrown out tonight.

Photo of Angela Browning Angela Browning , Tiverton

I shall not detain the Committee long as I was fortunate enough to make a long speech on Second Reading and my right hon. Friend the Chief Secretary accepted an intervention from me this afternoon. However, I must put on record in Committee my continuing concern that pensioners, the disabled, the frail, the elderly and people of whatever age who very much rely on heating should be granted proper compensation in the announcements made by my right hon. Friend the Secretary of State for Social Security in the autumn.

I have had discussions with my right hon. Friend on the subject and I understand the need to raise through taxation sufficient money to reduce the PSBR. I would say to Opposition Members, although no Liberal Members are present, that had the Government addressed the PSBR in the Budget, the cries from the Opposition Benches would have been accusing the Government of irresponsibility and profligacy and all the other arguments that would have been levelled at us.

It is a matter of on-going concern. Perhaps one of the disadvantages of announcing a tax a year in advance and, for the 17·5 per cent. rate, two years in advance, is that it gives Opposition Members a chance to make hay with the policy. On the plus side, it gives my right hon. Friends the opportunity to listen carefully to the concerns of Conservative Members.

I am sure that those who depend on income-related benefits will have proper compensation, but I reiterate my concern, particularly for pensioners who are just above the level at which they could claim income-related benefits. One would not classify them as wealthy; as hon. Members have said, they have been frugal during their working lives and they may have small occupational pensions and some money in the building society. While the fall in interest rates is welcome in the business sector and from the point of view of mortgage payers, people on fixed incomes rely on the interest from building societies on their life savings.

I urge my right hon. Friends to spend the months between now and the announcement in the autumn listening carefully, particularly to what Conservative Members are saying about that group of people.

I also ask my right hon. Friend to address a technical point. I am not sure whether I have interpreted it correctly, but I should be grateful if he would address it tonight. We have been assured that when the announcements are made in the autumn, the increases will come into effect in April before VAT is levied on fuel bills. I am aware that VAT involves a tax point in that VAT becomes payable from the date of the bill.

Will my right hon. Friend confirm that people who have their electricity or gas meters read in the last two weeks of March and who receive a bill during the first two weeks of April, when VAT becomes applicable, will not have to pay VAT on bills which are received in the VAT period but relate to fuel consumption in the previous three months? I should be grateful if my right hon. Friend could provide some clarification as I have received one or two letters on that specific point.

I shall not detain the Committee any longer, as other hon. Members wish to speak, except to say that I hope that my right hon. Friend has listened to my intervention earlier in the debate and to the representations made particularly by my hon. Friend the Member for Teignbridge (Mr. Nicholls), who represents a neighbouring constituency in Devon.

Devon has a high retirement population. We are pleased when people from other constituencies decide to retire there, but we are only too well aware that it is not a wealthy part of the country. We have high water charges and the prospect of high fuel bills in addition is causing great concern to my constituents.

Photo of John Hutton John Hutton , Barrow and Furness

Opposition Members have rightly drawn attention to the inequities of the Government's proposals in clause 42 to impose VAT on domestic fuel and power. To their credit, some Conservative Members, including the hon. Member for Tiverton (Mrs. Browning), have also drawn the Government's attention to their unease about the proposals.

In stark contrast to Opposition Members, Conservative Members have been divided into those who wish to delude themselves that the Government have not broken their election promises by bringing clause 42 to the House, which of course they have, and others, such as the hon. Member for Corby (Mr. Powell), who have made it clear that they have no intention of supporting the Government in the Division Lobby tonight.

I speak for many of my hon. Friends when I say that it has not been an edifying spectacle to see Government Back Benchers in such complete disarray. I suspect that those on the bottom line tonight, as in other debates, is that the Government Front Bench are dragging Back Benchers by the nose through the Division Lobby, and I hope that some Conservative Members will do what they have said tonight and withhold their support from the Government.

In addition to exposing the inequities behind clause 42 and its impact on those struggling to make ends meet on income support, my hon. Friends have also drawn attention to the bogus environmental and green arguments that the Government have used in a tawdry attempt to justify clause 42.

Later in my speech I shall say something about the environmental case for clause 42, if there is one. However, I remind Conservative Members who might be considering supporting the Government tonight to look carefully at the timing that the Government propose for the implementation of clause 42 and draw their attention to how close that would be to the likely date of the next general election. If there is one thing that should be tattooed across the forehead of every Conservative Member it is the poll tax and how its prominence in the run-up to the last general election caused the Government considerable discomfort. I suspect that the same will happen over the implementation of clause 42.

Some of my hon. Friends, particularly my hon. Friend the Member for Neath (Mr. Hain), drew attention to the Government's PSBR problems and the fact that clause 42 owes its origins not to any green concern stemming from Rio but to the Government's desire to balance the books, which are seriously out of kilter. In that context, we need to be clear that the imposition of VAT will be extremely regressive and will hit those on low incomes particularly badly. Some of my hon. Friends have already drawn attention to the precise implications of clause 42 on those on income support. Those with incomes of more than £800 a week spend only 3 per cent. of their weekly expenditure on fuel and power, whereas those on incomes of below £60 a week spend 13 per cent.—the impact on those on low incomes is nearly four and a half times greater. That is disgraceful.

In my constituency, more than 10,000 men and women currently claim income support, and of those more than 3,000 people draw the state retirement pension. Crude arithmetic would lead me to conclude that if we assume that, at the lowest point, clause 42 would increase weekly fuel bills by £1·50, we are talking about between £750,000 and £1 million being withdrawn from the local economy. That is in addition to the acute economic difficulties stemming from the severe redundancies at Vickers Shipbuilding and Engineering in the past two years. Those considerable sums of money will have a regressive deflationary impact on the local economy of Barrow and Furness. It is disgraceful that those on desperately low incomes are being forced to pay the price of the Government's gross economic incompetence, yet that is precisely what clause 42 envisages.

It has also been clear from today's debate, particularly from the comments by the Chief Secretary, that the Government propose no specific measures to ease the impact of this dramatic hike in fuel bills which most of our constituents will be required to pay. The Government's promise that RPI indexation will reflect increases in fuel bills is clearly untruthful. There is no way such indexation will compensate those on low incomes for the extra £1·50 or £2 a week that they will be asked to pay once the clause reaches the statute book. We are talking about an attempt to balance the books, which are in their current disastrous state because of the Government's incompetence.

As my hon. Friend the Member for Edinburgh, Leith (Mr. Chisholm) has said, there is a long list of precedents for this move—whenever the Government are in economic difficulties, it is always those on low incomes who are asked to fork out the necessary funds.

9 pm

As for the environmental arguments for the clause, it is worth bringing to the Committee's attention the Department of Trade and Industry's assessment of the likely increase in fuel prices. It is estimated, for instance, that carbon dioxide emissions are projected to remain constant, at about 22 million tonnes a year, until the year 2020, even taking into account the high prices that will go with additional VAT on fuel bills. That was the estimate given in the Department's energy paper No. 59, published in October 1992.

The Treasury's best assessment is a modest drop of 1·5 million tonnes in carbon dioxide by the year 2000 as a result of this measure. It is worth speculating about whether other measures, such as promoting home insulation and draught proofing, might have produced a faster, fairer way of reducing carbon dioxide emissions.

While we are on the subject of the Government's record of promoting energy and fuel efficiency—green measures —it is worth pointing out that the Government's green house programme, designed to assist local authorities with energy efficiency, was worth £45 million in 1992–93 but is due to be cut to only £5 million in the next fiscal year. That is the true measure of the Government's commitment to environmental measures.

It is clear to my hon. Friends and to me—and, I suspect, to Conservative Members—that the Government's case is bogus and tawdry. I am afraid that it is yet another naked attempt to punish those who are least able to defend themselves. That is why, tonight as on other occasions, my right hon. and hon. Friends and I will resist the Government's proposals.

Photo of Dr John Marek Dr John Marek , Wrexham

A succession of Conservative Members have this evening said, "I fully support the Government, but … " I suspect that many of them are rather new and do not understand how Ministers operate. The plain fact is that the Treasury wants the money, and it will get it if Back Benchers vote to get it. Treasury Ministers will make as few concessions as they think they can possibly get away with. That is why they have arranged matters so that no details are to be given out on whether charities will be compensated or on the rate of indexation—at any rate, not until the autumn statement some time in November. If Conservative Back Benchers want to believe Ministers—who say that they will look a little more carefully at the problem—it is obvious that they have not been here long, or, if they have, they have not been listening hard.

One of the problems is that Treasury Ministers do not live in the real world. Their houses are not draughty and do not cost much to keep warm. Those who work in the Treasury building giving advice to Ministers do not live in the real world either. They all live in London, in the south-east of England, where it is generally warmer than elsewhere. They therefore have no experience of paying a lot for electricity or gas; they lack the experience of many other citizens, especially those who live in the northern-most parts of the country.

Another Conservative fallacy, heard this evening, was based on the idea that it is difficult to unpick a Budget. I do not see why we cannot unpick this little bit of Tory political dogma and get rid of it. It is not due to come into effect until 1994, and not fully into effect until 1995, so there is plenty of time. The sob stories delivered by one or two Conservative Members simply will not wash.

On 27 March 1992, the Prime Minister said: We have no plans and no need to extend the scope of VAT. That was a few days before the election. People throughout the country—I know this because I have been campaigning in the local elections, as have many Labour Members—have asked whether the Government were lying when they said that, whether they were bare-faced liars. I believe that there is no other explanation. They were either bare-faced liars or they were incompetent.

I suspect that the Government wanted to win the election, and they were worried because the opinion polls showed that the Labour party was ahead. Anything would do, and did, so long as the hon. Gentlemen sitting on the Conservative Benches by fraud tonight were enabled to win that election. It is clear that the country has recognised what they were up to; it has rumbled them as cheats and liars. It will not forgive them easily.

The Government have lied about value added tax, national insurance contributions and mortgage tax relief. Worse than that, they are now introducing a measure that cannot be removed by a succeeding Labour Government and that will hurt the worst-off in society most and the best-off least. Even worse, they are putting VAT on standing charges.

Standing charges are not very much to us as Members of Parliament with the salaries that we get. I can manage to pay standing charges; Conservative Members can manage to pay standing charges. Treasury Ministers—they do not live in the real world; they all live in London and the south-east—can afford to pay standing charges. I know that thousands of my constituents find it difficult to pay standing charges.

My hon. Friends have admirably made the case—I will not repeat it because time is getting short—that many people dare not spend a lot of money on electricity. They would rather go cold and hungry, because they do not want to fall into energy debt by spending too much on heating. They save on their heating, but they have to spend money on standing charges. Now the Government, without any sign of remorse—they regret nothing, to translate a famous phrase—are prepared to put VAT on standing charges.

I agree that the public sector borrowing requirement is in a mess. It is in a mess because the Government do not have, and never have had, an economic policy. They were forced out of the exchange rate mechanism, which they went into at too high a level. [Interruption.] I do not know what the hon. Member for Tiverton (Mrs. Browning) is saying, but if it is that the Opposition did not criticise it at the time, that is true. That was for the very good reason that we did not want to run the country down.

Conservative Members may laugh, but I always thought that DM2·95 was far too high a rate. However, Mr. Morris, you will not find in Hansard one statement in which I said that it was too high, although I believed it. I did not say it, because I believed that it was our duty to pull together to see if we could get the economy right. We could not do it, and the Government found out at the end of the day that DM2·95 was too high. They had no economic policy then; they have no economic policy now.

The Government have run up a PSBR. They have a balance of payments problem of about £14 billion a year in the middle of a recession. Taxation, as a percentage of gross domestic product, is near the 40 per cent. Mark—7 or 8 per cent. higher than when Labour was last in office, in the 1970s. We are much more highly taxed than we were before.

In spite of all that, the Chief Secretary says that the Government need to do something about the PSBR of more than £50 billion projected for this year and have decided to hit the poorest in society by putting VAT on electricity and gas bills. I want to know why they do not increase the highest rate of income tax from 40 per cent. to the higher levels seen elsewhere in Europe. The Committee will remember that, in the Budget for the year 1988–89, the 60 per cent. top rate of income tax was reduced to 40 per cent.

Why do not the Government think first about taxing those who can pay? For example, in The Guardian today, an article headed "30 per cent. rise for Asda chief states: The chairman of Asda Property Holdings took a pay increase of almost 30 per cent. last year. The company's annual report shows that Emanual Davidson received £232,000 against £179,000 in 1991. An increase in the top rate of tax on those incomes would go a certain way towards cutting back on the £50 billion PSBR.

That is not the only example. The papers are full of details of indecent rises in incomes. Last Friday, an article in the Evening Standard, headed "The TV millionaires", said: Bonanza payout will make moguls seriously rich men. Greg Dyke, the man who saved TV-am with Roland Rat, is set to collect a £5 million-plus jackpot for staying with London Weekend Television. That article went on to mention another dozen people who would receive such payouts.

Why do not the Government tackle the problem and tax such people properly? They are the people who can pay. Old-age pensioners cannot afford to pay. We all know why. The Government do not care a fig about old-age pensioners. Back-Bench Tories complain consistently about the measure, but did any of them say that they would not support the Government? I have been in the Chamber for nearly all the debate, and so far only one Conservative Member—all credit to him—has said that he will not support the Government.

The Government have got it all wrong. I can see my Deputy Chief Whip glaring at me, so I had better finish what I am saying. However, I have a warning for the Government. This measure is like the poll tax. It will not come into operation until 1994 and even then it will only be at half cock. It will come fully into operation in 1995. If the Tories have any sense, those on the Front Bench will have organised a dozen Back Benchers to vote against the measure, to make sure that it never reaches the statute book. They would then be able to wring their hands in horror, but they would have saved the Tory party from ignominious defeat at the next general election.

This is like a running poll tax and when it comes into operation, in 1994–95, the Conservative party may be thinking of another general election. That is great for the Labour party, but I am speaking for the country and, for the country, I want the measure to be defeated. If any Tory Members have any guts, it will be defeated.

Photo of Mrs Barbara Roche Mrs Barbara Roche , Hornsey and Wood Green

The formal wording of the Finance Bill—that domestic fuel shall cease to be zero-rated for the purposes of charging value added tax on any supply, acquisition or importation —belies the very practical effect that the measure will have on those whom it will hit the hardest. Hon. Members on both sides of the House, but particularly Labour Members, have spoken eloquently about the effect that it will have on their constituents. My postbag bears witness to the many representations that I have received from constituents in Hornsey and Wood Green, particularly pensioners, who do not know how they will afford the extra fuel costs, and who anticipate having to choose between heating their homes or paying for other necessities such as food.

It is axiomatic that an increase in fuel costs will result in colder homes for poorer families, who spend more of their budgets on fuel than others. Other hon. Members have quoted the estimate of the Institute for Fiscal Studies that families in the poorest 10 per cent. of the population spend 13·25 per cent. of their budgets on fuel, compared to those in the richest decile, who spend only 3·46 per cent. of their budgets on fuel. In the face of those figures, the Government's vague promises of compensation for poorer families are meaningless.

Photo of Nigel Evans Nigel Evans , Ribble Valley

What advice did the hon. Lady give the Chancellor of the Exchequer when Labour was last in power? Electricity prices rose by 30 per cent., but no assistance was given to the less well-off.

Photo of Mrs Barbara Roche Mrs Barbara Roche , Hornsey and Wood Green 9:15 pm, 10th May 1993

I welcome the hon. Gentleman to the Chamber: I am glad that he has taken the time to visit us. However, I should be rather more interested to learn what he put in his election address to his constituents.

According to Winter Action on Cold Homes, only 13 per cent. of the 7 million households who rely on social security benefits for most of their income have energy-efficient homes. Nearly 50 per cent. have no central heating, fewer than 50 per cent. have any draught proofing and only one third have adequate loft insulation. Young people will constitute one of the prime targets of the legislation. All the medical evidence suggests that cold rooms—especially cold bedrooms—increase the risk of lower respiratory tract illness in children; and, as we all know now, that is particularly dangerous during the first year of a child's life.

As Margaret and Arthur Wynn say in their book "Prevention of Handicap and the Health of Women", Every year infant mortality in Britain goes down in the summer and up in the winter … Britain suffers from what has been described as a winter massacre of the innocents … If a baby's body temperature is lowered resistance to disease is reduced. Lowered body temperature, or hypothermia, is a major cause of infant death particularly of low birthweight babies during their first days or weeks of life. What if there is a massacre of the innocents now? Every year, more children die in the winter; 200 more infants under one-year-old died during the winter quarter of 1991 than during the summer quarter of the same year. In those circumstances, where will the poorest families in our country find themselves? The only way in which they will be able to reduce their budgets will be to turn off the heating.

Although there has been a significant decrease in the number of gas and electricity disconnections over the past few years, that trend has been accompanied by a substantial increase in the number of pre-payment meters, which allow customers effectively to disconnect themselves if they are short of money. That has been confirmed by a recent report by the Joseph Rowntree Foundation, which found that indebted families were having to reduce their fuel comsumption … in order to buy other essentials or to avoid further debt. How much harder and starker will be the choice presented to families if this measure is passed?

It is not inevitable that more children will die in winter. In Finland, the Netherlands and Sweden, there is now no seasonal swing in the number of infant deaths, despite the more severe and longer-lasting winters. All the evidence shows that what happens in the first year of life is important, affecting respiratory and other diseases in later years. Any visit to a local hospital will show that treatment of such illnesses in middle and old age places a grave burden on our national health service.

The Chancellor of the Exchequer did the country a great disservice in proposing this measure. I hope that if Conservative Members do not have their consciences to guide them, they will at least be guided by Thursday's ballot boxes and vote against the Government's proposals.

Photo of Tommy Graham Tommy Graham , Renfrew West and Inverclyde

I never thought that we would see the day when, once again, the Government would put the boot into our elderly people.

Does the Minister know the cost of a bag of coal, a gallon of paraffin or a bottle of Calor gas? I do, because I have lived in such circumstances, and my constituents still do. It is abysmal for the Government to propose a 17·5 per cent. VAT rate on fuel: they do not know what our people are suffering. Unemployment is at 3 million, and more than 9 million elderly, sick and disabled people have had their incomes savagely reduced by a pitiless Government. We have suffered for 14 years under a cold-hearted and cruel Government. This provision will cause great harm to the elderly. The Government are inflicting euthanasia upon them. That is how the Government intend to cut the bills: kill the elderly behind their front doors by making sure that they cannot afford to heat and eat.

For 14 years, the Government have mismanaged the economy. They have plundered our resources and sold the family silver. Now they expect elderly people to burn their furniture to give them a bit of heat. That is the level to which the Government have sunk.

I have worked with charitable organisations for years and years. The Government are putting more and more pressure on voluntary organisations to do what the Government ought to do: look after the elderly and the disabled and ensure that the unemployed can afford to heat and eat. Conservative Members ought to put an end to this savage, retrograde step by voting with us in the Lobby. I hope that Tory Members will have the guts to come into the Lobby with us and stop this imposition of 17·5 per cent. VAT on fuel and power now. I hope that they will show that they care for our elderly people.

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

There spoke the authentic voice of the British people. [Laughter.] There is no cause for Conservative Members to laugh at the hardship they are forcing on the British people through this provision, about which my hon. Friend the Member for Renfrew, West and Inverclyde (Mr. Graham) spoke from the heart, on behalf of the people he represents.

We have heard argument after argument against the imposition of VAT on fuel and power. Hon. Members know that it is cynical, that it is a betrayal of promises to the electorate, that it is unfair and that it is especially damaging to the most vulnerable. Most powerful in their persuasiveness have been the speeches of my hon. Friends who spelt out how VAT on fuel and power will hit the poorest, the elderly, charities and families on average incomes who are worried about their living costs. My right hon. Friend the Member for Manchester, Wythenshawe (Mr. Morris) said that it will hit people with disabilities.

We have also heard persuasive arguments for voting against VAT on fuel and power from Conservative Members, led by the courageous speech of the hon. Member for Corby (Mr. Powell). Remember what he said about the Chancellor's Budget imposition of VAT on fuel and power. He said that it was a very serious error of judgment. How right he was.

Concern was also expressed by the hon. Members for Teignbridge (Mr. Nicholls), for Bristol North-West (Mr. Stern) for Tiverton (Mrs. Browning) for Wellingborough (Mr. Fry), for Taunton (Mr. Nicholson) and for Southend, East (Sir T. Taylor), who said that it would cause huge distress. Those hon. Members who are sitting on the Bench behind the Treasury Bench know, too, that this provision is not right because, day in, day out, the electorate have told them that it is not right.

Another persuasive argument against the imposition of VAT relates to the difficulties that the Government have had in cajoling enough people to speak in the debate—it is significant that they ran out of speakers before the allotted time—and the feebleness of the arguments of those who spoke in favour of this provision.

Only one Conservative Member spoke unequivocally in favour of it—the hon. Member for Eastleigh (Mr. Milligan). I hope that he will be suitably rewarded by the Government and that he will be given responsibility in his future career for implementing this provision, of which he is so much in favour. No other Conservative Member was unequivocally in favour of it, because, like the proverbial turkeys, it must be bad enough being expected to vote for Christmas without being asked to sharpen the knife as well. That is what the Conservative Members who spoke in favour of this provision were being asked to do.

It must also be difficult for those who sit on the Treasury Bench. They know that their colleagues behind them grow more impatient by the hour for a Government reshuffle. They must be on the horns of a dilemma. It must be difficult for them to decide whether preferment will follow loyal defence of a provision that they know to be politically disastrous or whether it would be preferable to paddle some distance away from the Chancellor, lest he drag them down as well.

I listened to the Chief Secretary with care for any sign that he had taken the "bloody nose" message from the electorate or even from the Prime Minister. His eye-rolling ebullience makes him a less than plausible candidate for a role as someone who is listening to anybody, least of all the electorate. His inability to listen and learn was confirmed, as the hon. Member for Hayes and Harlington (Mr. Dicks) said, by his speech, in which he trotted out the stock advocacy of this punitive proposal to extend VAT.

The Government claim that the proposal is necessary for the country because it will bring in lots of money—never mind the people who will have to pay it—and will benefit the environment because it will cut consumption and therefore will not bring in quite so much extra money after all.

The Chief Secretary argues that the proposal does not break Government promises because, when they said in the general election: We have no plans and no need to extend the scope of VAT", they meant it, but now they have the alibi that they have made a bigger mess of the economy and public finances than even they anticipated, so that is all right now, isn't it? That was the gist of the Chief Secretary's argument.

How shabbily that stood in comparison with the courageous words of the hon. Member for Corby, who had the integrity to say that he would keep his election promises by voting against extending VAT to fuel.

The message of last Thursday from people up and down the country as well as in Newbury was that, contrary to what the Chief Secretary claimed, the proposal is not all right at all—it is all wrong.

The Chief Secretary failed to understand, as the Government fail to understand, that the electorate were driven to bloody-nosed fury last Thursday not only by the VAT proposals, although they are bad enough, but by the shameless arrogance with which, time and again, the Government break promises, shift direction and always shuffle responsibility off on to somebody else, and never apologise or accept the blame for anything. They treat the British people with utter contempt, and the message of Newbury and of the county council elections is that people have had enough and want the Conservatives out.

People are not fooled into believing that the Government are doing all this for the sake of the environment. My hon. Friends the Members for Rotherham (Mr. Barron) and for Barrow and Furness (Mr. Hutton) did a comprehensive demolition job on that claim. People know that, if the Government were interested in conserving energy, they would, as my hon. Friend the Member for Edinburgh, Leith (Mr. Chisholm) said, spend money on insulating pensioners' homes rather than inflating their fuel bills.

Photo of Nigel Evans Nigel Evans , Ribble Valley

In its policy document "Looking to the Future", Labour states that a future Labour Government would use the taxation system to protect the environment. What taxes would the hon. Gentleman introduce to protect the environment?

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

We favour, for example, incentives to industry to act in the environmentally responsible way. We would not load a burden on the poorest, the elderly and the most disabled people in this country and claim that it had something to do with the environment when really it is just a means of closing the hole in the public sector finances, for which the Government, because of their economic failures, are responsible.

If the Government really cared about the environment, they would take practical measures to generate jobs, as well as save energy. Labour's proposed home energy efficiency scheme would reduce carbon dioxide by three times as much as the Government claim it will be reduced by the imposition of VAT on fuel.

If the purpose of the proposal really was to reduce energy consumption, the Government would not be extending VAT to standing charges, to rental charges for meters or to charges for connections, none of which has anything to do with consumption. The Government's policy has nothing to do with saving energy and everything to do with the desperate drive for money to narrow the yawning deficit in Government finances—the excess debt to which my hon. Friend the Member for Neath (Mr. Hain) referred—and they do not care who they hit in the process.

Many hon. Members have referred to the effects on charities. The Charities Tax Reform Group, representing more than 300 charities, has stated the position with stark clarity. In a letter to me on 18 March, Adrian Randall, the chairman of the group, said: The imposition of VAT on fuel and power will cost CTRG'S members £27 million per annum and charities which provide residential care for elderly or disabled people will be hit the hardest. Unlike ordinary households, these charities are unable to reduce their heating in order to compensate for the increase in fuel prices … Charities again find themselves in a uniquely disadvantaged position because unlike local authorities and commercial organisations, they are unable to recover VAT. The hon. Member for Exeter (Sir. J. Hannam) made similar points.

9.30 pm

The Conservative party is fond of proclaiming its support for charities and their important work. This evening provides the opportunity for Conservative Members to demonstrate that support in the only way that really matters here—by voting for amendment No. 5, which would exempt charities from the charge. After all, when farmers were disadvantaged by the VAT regime, the Government introduced the flat rate VAT scheme which enabled farmers to make a claim against their input VAT. If the Government can make exceptions for farmers, they can do so for charities. If Conservative Members do not vote for amendment No. 5, they will simply confirm the belief that Conservatives stand only for vested interests.

Another important matter, which has received less attention in our debate, is the effect on small businesses, especially the smallest and newest businesses. The effect will be dire. On the basis of Department of Employment figures, more than 1 million businesses are below the VAT threshold. Many of those are run from home when starting off and do not pay VAT on their fuel at present if the supplies are less than 40 per cent. of the household total.

For such businesses, the VAT increase will bang up costs and will either be passed on to customers or will come straight out of profits. For many, it will mean the difference between staying afloat and joining the more than 1,200 a week who are going bankrupt under this Government. So much for the Conservatives as the friends of small business. Those businesses will have every reason to conclude that today's Tory party cares only for those who donate millions to Conservative party funds or those who bolster the personal incomes of ex-Cabinet Ministers on their boards.

What also worries the country is the danger that the misuse of VAT to bail out the Government's bad housekeeping will set a precedent for other extensions of VAT. After all, if the Conservatives could not be believed when they said at the general election that they would not increase or extend VAT, how can people believe them when they say that again now? They did not break only one promise when they introduced this proposal; they broke their whole credibility as a Government. People know, as they showed last Thursday, that they can never ever trust the Conservatives again.

In practice, the extension of VAT puts at risk the very principle of Britain's right to levy a zero rate of VAT on essentials. As the hon. Member for Southend, East (Sir T. Taylor) and others pointed out, apart from the fact that, under the European Community VAT agreement, it would be impossible for Britain to restore fuel to zero rating, if the Government get their way tonight and surrender the present position, what sort of credibility could they have in the negotiations to keep the zero rate when it comes up for review at the end of 1996?

Through the unilateral abandonment of a key zero rate on essentials, Ministers are sending themselves naked into the negotiating chamber as regards the continuation of zero rating. This is a precedent that will be used against them. I know, not least from the extensive debates on Maastricht, that many Conservative Members genuinely care about the maintenance of zero rating. I can only say to them, "If you really want to keep it, join us in the Division Lobby tonight."

The worst thing of all is that VAT on gas, electricity, coal and central heating oil would hit hardest those on the lowest incomes. As my right hon. Friend the Member for Ashton-under-Lyme (Mr. Sheldon) has explained to the House on many occasions, VAT in general is a potentially highly regressive tax. When it was introduced, a measure of progressivity was retained by the zero rating of food, children's clothing, fuel and other necessities.

If zero rating is abandoned, as the Government now propose, VAT will be made more regressive overall and more unfair to those on the lowest incomes. As my hon. Friend the Member for Coventry, North-East (Mr. Ainsworth) pointed out, those are the very people who have seen the whole tax system skewed against them during 14 years of Conservative government, while the Nadirs of this world are pampered by the Government's organisation of their tax affairs. There can be no clearer demonstration that, when it comes to taxation, the Government operate one rule for the rich and a completely different rule for the majority of the country and for the poorest people of all.

As my hon. Friends the Members for Walsall, North (Mr. Winnick) and for Coventry, North-East pointed out to good effect, academic studies by the social policy unit at York have shown just how unfair the proposal is. Similarly, the department of applied economics at Cambridge has calculated that the average impact on the poorest tenth of the population will be no less than seven times greater in relation to income than it is on the richest tenth.

Talk of averages and statistics, damning though they are, comes nowhere near capturing the despair of the poorest families and pensioners who will be hit by the measure. My hon. Friends—and, I am sure, some Conservative Members—will be familiar with the pensioner who comes to their advice surgery clutching the lined piece of writing paper with meagre outgoings down one side and even more meagre income down the other, and who says, "What am I to do? I cannot make ends meet. I cannot afford to feed myself properly."

Those are people whose days are spent worrying about how to pay for their heating and how on earth to pay their water rates. They are people who can never afford to buy a new coat. As my hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) said, they are people who find that the small increase in their pension never covers the increases in the costs they face.

We are talking about men and women who have worked, scrimped, saved and struggled all their lives for a future better than this. What do the Government do to them? They put up their heating bills—in a country where winter deaths among the elderly already exceed deaths in the summer months by 40,000 a year, and where hundreds of pensioners' deaths are directly attributable to hypothermia.

As my hon. Friend the Member for Hornsey and Wood Green (Mrs. Roche) said, there is also a massacre of the innocents, in the number of babies dying of the cold in this country. Against the background of the social conditions in Britain today for which the Government have been responsible, this measure is nothing short of obscene.

The Government say—we have heard it again today —that they will compensate poor people for the effect of the increases. No one believes that they will compensate them adequately or in full because, when challenged by Opposition Members, Ministers have repeatedly refused point blank to give any assurance that there will be full compensation.

So even the poorest, even the most elderly, even the most disabled, will not be compensated in full. But the Government say that they will give those people something. Does it not occur to Ministers that, if they expected the people to be persuaded, reassured even, by that, they should have spelt out at the Dispatch Box before asking us to vote on the measure precisely how the compensation is to work? Do they not understand that their intentions will not, and after all that they have done simply cannot, be taken on trust?

The debate tonight could not be more timely. Time and time again in the past few days, we have heard Cabinet Ministers repeat the Prime Minister's claim that somehow the Conservatives will now start listening to what the electorate has been telling them. All that I can say is that they will be judged by their actions, not their words. It is no good Back Benchers voicing all the anxiety in the world tonight unless they are in the Lobby to vote against the measures which they rightly protest are doing so much damage.

Conservative Members have the chance this evening in the Lobby to show how far they have heard and understood what the British people have been saying. They have the chance to show whether they will act on it. If the Government will not listen to us, they must surely listen to their own poor bloodied infantry, the ones who got the bloody noses on the doorsteps of the no longer Tory shires.

They must surely listen to Essex Conservative Councillor Kevin Blake, who was quoted by my right hon. Friend the Member for Wythenshawe: We went into the last election telling people not to vote Labour because they would put up taxes and what happens —the government put up Vat. We need a leadership which does what it says and we need it badly. Otherwise what happened last week will just be the start. Of course it will just be the start. It will be the start of further political disaster and betrayal of the British people as the first instalment of the increase comes into effect next year, and the full double whammy of 17·5 per cent. comes in the year after.

Conservative Members know from their party members, their hon. Friends and the hon. Member for Corby exactly what is going on. They should remember his words in the debate this evening. He said: I personally feel ashamed that my party could bring such a proposal as this to the House. What a damning indictment from one of their own colleagues.

Conservative Members know, as we know, that the electorate reject this punitive imposition of VAT. The measure is desperately unfair, has nothing to do with the environment, and is a betrayal of Conservative general election promises. I invite Conservative Members to keep faith with those who elected them, and join us tonight in voting down this despicable measure.

Photo of Sir John Cope Sir John Cope , Northavon

This has been an important and, indeed, a real debate. I shall do my best to respond to those who have taken the trouble to speak in the debate from my party as well as from other parties.

I say at the start, because it has not always been apparent from speeches by Opposition Members, that no one, either on the Government side of the House or on the Opposition side, likes increasing taxes. One of my most distinguished predecessors as Paymaster General, Edmund Burke, was quoted earlier by my hon. Friend the Member for Eastleigh (Mr. Milligan) as saying that to tax and to please is given to no man. His successor today certainly understands the force of that. Nobody likes the necessity—and it is a necessity—of raising more revenue. But it is a necessity, which we as the Government must face —[Interruption.] Labour Members can dismiss it if they like and can sail over it, but we must face up to it in the interests of sound finance.

As the Committee knows and as the Chancellor spelled out at the start, the clause has two purposes, to raise—

Photo of Sir John Cope Sir John Cope , Northavon

I will not give way at this stage.

Photo of Tommy Graham Tommy Graham , Renfrew West and Inverclyde

The right hon. Gentleman is scared.

Photo of Sir John Cope Sir John Cope , Northavon 9:45 pm, 10th May 1993

No, not of the hon. Gentleman.

As I was saying, it has two purposes—the raising of revenue and the reduction of the use of fuel. The clause helps us to achieve our objectives in both those areas.

Photo of Sir John Cope Sir John Cope , Northavon

No, I will not give way at the moment.

Anyone who wishes to oppose the clause—clearly, some do—must explain whether they disagree with the objectives; few have done that, although some have skated over it. If they agree with the objectives, they must say how else they would achieve them.

Photo of Sir John Cope Sir John Cope , Northavon

No, I will not give way just now.

Photo of Sir John Cope Sir John Cope , Northavon

I am about to refer to my hon. Friend's speech. My hon. Friend the Member for Corby (Mr. Powell) recognised the dilemma and said that he would increase income tax. He is, of course, entitled to his opinion, but I must tell him that I do not agree with it. Nor does my hon. Friend the Member for Southend, East (Sir T. Taylor), and nor do the majority of my hon. Friends.

Photo of Mr William Powell Mr William Powell , Corby

Does my right hon. Friend understand that the issue in the debate is not whether taxes have to be raised—that is clear in the light of the PSBR requirement—but why the Government have chosen this particular tax, instead of all the other options, as the most appropriate one? Frankly, a convincing answer has not been given to that question.

Photo of Sir John Cope Sir John Cope , Northavon

I was pointing out that my hon. Friend's alternative is income tax, and I do not agree with him, for the reasons to which I shall come.

Several hon. Members:

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Photo of Sir John Cope Sir John Cope , Northavon

I will not give way at this stage, because I want to make progress with my speech. I shall not do that if I keep giving way.

Photo of Sir John Cope Sir John Cope , Northavon

I shall come shortly to the remarks of my hon. Friend the Member for Hayes and Harlington (Mr. Dicks).

It is important that, in raising this revenue, we do so without damaging—

Photo of Sir John Cope Sir John Cope , Northavon

No, I told the hon. Gentleman a moment ago that I would not give way.

It is important that we do so without damaging incentives, and that is why I disagree with my hon. Friend the Member for Corby. It is also important that we do it without damaging the prospects for recovery—that is, without damaging industry and industrial competitiveness. That is not only important to industry—and, of course, it is important to industry—and it is not only important to the Government's finances, which it clearly is. It is also important to people because it is about employment, recovery and jobs. That is why we had to choose a way of raising revenue which did not damage industry and industrial competitiveness. To have done otherwise would have given away all those objectives.

Photo of Mr Terry Dicks Mr Terry Dicks , Hayes and Harlington

My right hon. Friend keeps saying that the only alternative would have been to have put up taxes. I gave an alternative in my speech. I said remove the subsidy to the arts, which is worth about £600 million, and stop overseas aid, which is running at £1·6 billion. That works out to exactly the figure that my right hon. Friend is trying to save by this silly move.

Photo of Sir John Cope Sir John Cope , Northavon

We shall certainly have to restrain spending as well as raise taxes. I would not agree with the aspects of public expenditure to which my hon. Friend drew attention in his speech and in that intervention. It would be difficult to detect any party in the House that disagrees with the Rio objectives, which are part of the reason for the introduction of clause 42.

At the time of the Rio summit, the then Labour spokesman on the environment, the hon. Member for Dewsbury (Mrs. Taylor) said: more could have been achieved and British Ministers could have played a more positive role, particularly in respect of global warming"—[Official Report, 25 June 1992; Vol. 210, c. 409.] I must tell the hon. Member for Peckham (Ms Harman) that that relates to greenhouse gases rather than the hole in the ozone layer.

The main Labour document, "Agenda for Change", published since the election, contains the claim: The Conservatives dragged their feet in every way they could at the Rio summit. The Opposition wanted us to go further on Rio and yet they oppose the extension of VAT, which will help to achieve one of the Rio targets. They should face up to those targets and accept the measures that are necessary to achieve them, if that is what they want.

Photo of Sir John Cope Sir John Cope , Northavon

Not for the moment.

In February, the hon. Member for Islington, South and Finsbury (Mr. Smith) told the House that Labour should consider increasing VAT on "environmentally unfriendly products". What on earth he meant by that, if not the type of measure that we have put before the House, I am not sure. The Liberal party is also keen on the Rio objectives.

Photo of Margaret Ewing Margaret Ewing , Moray

Will the right hon. Gentleman give way?

Photo of Sir John Cope Sir John Cope , Northavon

Not at the moment. I shall come to the hon. Lady's speech later.

We are not suggesting that taxation should be the only weapon for the achievement of the Rio objectives. There are a range of such weapons, but, in common with the hon. Member for Islington, South and Finsbury, we believe that taxation is one part of the right strategy. If we are to avoid damaging industrial competitiveness, we must look to the domestic sector to conserve energy. There is no doubt that that is why Friends of the Earth, among others, welcomed our decision. It recognised that that decision represents a valid, green objective.

Photo of Sir John Cope Sir John Cope , Northavon

If my hon. Friend will forgive me, I must make more progress.

Hon. Members will be aware of the discussions in the European Community about the possibility of imposing a carbon/energy tax. The United Kingdom is not yet convinced that such a tax is either necessary or appropriate. I know that the right hon. Member for Berwick-upon-Tweed (Mr. Beith) believes that we should agree only to a European tax—presumably he had the carbon/energy tax or some version of it in mind. A large part of the burden of that tax would fall on industry and, unless a great deal of care was taken, it would have an adverse effect on competitiveness, which is something we wish to avoid.

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

With all due respect to the right hon. Gentleman, I suspect that his hon. Friends, in common with mine, have heard all this before. If the Conservative party has listened to what the people said last Thursday, the Committee and the country want to know what has changed in terms of what the Government proposed in the Budget and what they are proposing today.

Photo of Sir John Cope Sir John Cope , Northavon

If the hon. Gentleman wants to hear more of what I have to say, he should not interrupt me with such a useless intervention.

We all understand that, when we introduce the tax, we must protect the most vulnerable. That was acknowledged by my right hon. Friend the Chancellor in his Budget speech and, since, by me and umpteen colleagues. That commitment was given from the start and has been mentioned many times in the debate.

Several hon. Members:

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Photo of Sir John Cope Sir John Cope , Northavon

No, I shall not give way as I am about to turn to a subject about which I have been asked: the way in which we are to protect the most vulnerable. My right hon. Friend the Chancellor made it clear in his Budget speech—and the point has been repeated and expanded since—that extra help will be given to those on income-related benefits, including poorer pensioners. That extra help will be provided before April 1994 when we come to the first stage of the tax.

Photo of Sir John Cope Sir John Cope , Northavon

My hon. Friend the Member for Littleborough and Saddleworth (Mr. Dickens) did not speak in the debate, so I shall proceed with my remarks, and return to the issue raised by my hon. Friend the Member for Bristol, North-West (Mr. Stern) in a moment.

The help will be given to 8 million households on income support, family credit, housing benefit and council tax benefit. Of course, we include in that list the cold weather payments.

Photo of Margaret Ewing Margaret Ewing , Moray

Does the Paymaster General accept that, on the Department of Social Security's own figures, in 1989, 25 per cent. of people entitled to income support did not take it up and 43 per cent. of people entitled to other benefits did not take them up? The critical factor is ensuring that—in the Government's own words—we target the people who most need it. My next question is of paramount importance: what action are the Government taking to ensure that the people on the margins of poverty can be given assistance to deal with higher fuel bills which include VAT on standing charges?

Photo of Sir John Cope Sir John Cope , Northavon

I shall return later to cold weather payments and standing charges. The hon. Lady is right to say that many pensioners and others who are entitled to benefits do not take them up. However, the vast majority of benefits are received by the people who require them. It is extremely important that all of us encourage people to take up the benefits to which they are entitled—otherwise, how can we help them? If we make benefits available but people do not take them up, with the best will in the world, it is difficult to help those people.

Photo of Sir John Cope Sir John Cope , Northavon

I shall not give way, as I have reached a point in my speech about which many hon. Members have expressed opinions and I wish to be precise and careful. I have been asked: what about pensioners whose income is just above the income support levels? The hon. Member for Moray (Mrs. Ewing) asked me about that. I wish to make several points, particularly to my hon. Friends the Members for Hayes and Harlington, for Bristol, North-West and for Teignbridge (Mr. Nicholls).

The increases in income support rates that we have promised from April 1994 will also knock on to housing benefit, council tax benefits and other benefits available to people who are on low incomes, but live above the income support level. Increased benefit rates will bring more people into entitlement to income-related benefits. That fact, in itself, increases the numbers involved and is part of the reason why I could refer to as many households as I did. In addition, the normal annual increases in benefits will, as we made clear, reflect the impact of fuel bills on the retail prices index. Even those who are not involved with any of the income-related benefits will be affected by that part of the increase. Therefore, all pensioners will get RPI-related increases, and special help will also go, and earlier, to those on income support, housing benefit, council tax benefit and so on. Altogether, 1·5 million pensioners who are above the income support level will be helped by those means and that is extremely important.

Photo of Sir John Cope Sir John Cope , Northavon

Of course it is true that we have to, and we will, work on those problems between now and when the benefit ratings are announced in the usual way in the autumn.

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Photo of Mr Michael Stern Mr Michael Stern , Bristol North West

Does my right hon. Friend agree that all his comments have been based on income levels and that he has said nothing about those people who are forced to live in houses that are hard to heat and who will have increased difficulties as a result of the measures, whatever their level of income?

Photo of Sir John Cope Sir John Cope , Northavon

As my hon. Friend said, the benefits are devoted to people. They are devoted to those who receive benefit now and in future and to whom the increases will be available. Perhaps my hon. Friend can suggest a method of helping people who do not collect the benefit to which they are entitled as that is very difficult. We shall pay extra benefit and extend it to a further 1·5 million pensioner households.

We shall continue to take account of those matters as we work towards the announcements on the benefit increases in the autumn.

I was also asked about charities.

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North

Many people support and understand the logic of taxing fuel consumption, but what about the standing charge, which is purely about making available to people an essential service?

Photo of Sir John Cope Sir John Cope , Northavon

If my hon. Friend will forgive me, I shall deal with the standing charge. It has been suggested that we should not apply VAT to the standing charge, as that would somehow offer help to the most needy. Some of the least well-off gas consumers pay by token meters. Their standing charge is lower and their unit charge is higher. As a result, that suggestion would not help the most needy. They would benefit less than other consumers from zero-rated standing charges. In any case, it is difficult to see how one could divide up a fuel bill and avoid problems.

On charities, we believe that it is a better principle—as the Budget demonstrates—to give relief on what people give to charities rather than to give relief to charities on the basis of particular patterns of expenditure at home, overseas and on particular goods. However, we have given a large number of VAT reliefs, as hon. Members know, and we shall deal with gift aid and payroll giving improvements later in the Committee.

The hon. Member for Peckham urged the House to vote for amendment No. 5. Many charities run residential institutions which are businesses in VAT terms and currently benefit from the zero rating of fuel and power because they are domestic concerns and not because they are charities. The hon. Lady should notice that residential homes of that character would not benefit from amendment No. 5.

Photo of Mr Geoffrey Dickens Mr Geoffrey Dickens , Littleborough and Saddleworth

I have freely to confess that I am one of those wavering on my vote this evening. What will the Minister do about the great in-betweens—those who are considered too rich to receive any benefit yet who are too poor to pay ever-increasing costs?

Photo of Sir John Cope Sir John Cope , Northavon

I did my best to explain to my hon. Friend and to the Committee that, in arranging the benefits, which we must consider in the autumn, we are already committed to extending them to 1·5 million pensioners in addition to those getting income support. We will do that by means of the improvements in income support and by means of the council tax and other benefits, thereby extending the amount of benefits on offer. I am afraid that those who do not claim benefits or are not prepared to claim them are difficult to help. If my hon. Friend can think of a way of helping them, he will have to tell us about it, but he did not do so in the debate. It is extremely difficult to know how to arrive at a solution to this.

No one likes the necessity for this tax, but it is a necessity. We have to face up to the problems of increasing revenue and reducing energy use. The Liberals did not face up to that. They want a European tax: nothing else. The Labour party does not face up to it either: it has never faced up to the public sector borrowing requirement. Opposition Members have not even realised that their problem at the general election was their spending plans, from which they have not since resiled. That is why we said that they would need much higher taxes than we would. We were right. What is more, we were believed, because of Labour's spending plans.

We all know that our warnings would have been doubly fulfilled since the election, given the way in which the world and European economies have gone. The Conservatives stand above all for taking difficult decisions and protecting the weak from them. That is what we are doing tonight—the ladder and the safety net. Above all, Conservatives stand for sound finance. It is essential, and the clause will help to achieve it.