Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 6:58 pm on 1st December 1993.

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Photo of Richard Spring Richard Spring , Bury St Edmunds 6:58 pm, 1st December 1993

I see that my hon. Friend agrees with me.

Sometimes, those who are practitioners of economics or politics can lose sight of what economic policy is all about. It is, of course, to provide a framework in which sustained economic growth can lead to decent living standards and secure employment prospects for our people.

As always, every Budget is a balancing act, but this historic Budget has succeeded very well in bringing together all the disparate elements which make up a coherent budgetary package. The result yesterday, for the whole House to see, was the floundering performance of the Leader of the Opposition. I have to say that the hon. Member for Dunfermline, East (Mr. Brown) did not even reach the beach.

The hon. Member for Dagenham (Mr. Gould) summed up the predicament of both the Leader of the Opposition and the Labour party in a press release some months ago: We have nothing to say across the whole range of macro-economic policy, on exchange rates, on interest rates, fiscal policy, demand management and public spending". As one looks back at the long history of the House, there can be no time in history when the Government have been faced with an Opposition more ineffective and economically illiterate. Yesterday and today, they had nothing to say. They know it, and we know it too.

During the summer, I visited Japan and Taiwan with the Employment Select Committee. Japan may have its difficulties, but Taiwan regards itself as in recession with a growth rate of some 6 per cent. Our much-improved export performance is due to the substantial increase in exports to the Pacific rim countries. All that is good for jobs and economic growth.

We have been the major beneficiary of Japanese and other foreign investments in Europe. The effect has been profound. Rover now outsells Mercedes Benz in Europe; Toyota is moving its local content in the United Kingdom from 60 to 80 per cent.; the productivity of the work force in Britain is identical to that of Japan; the days of Friday afternoon cars and Monday morning cars are clearly in the past.

When we visited the Ex-Im bank in Tokyo, which monitors investment flows, it was disappointing to hear that investments from Japan into Europe are very small compared with those to other parts of the globe. Why is that so? Time and again, we heard about the adverse cost structures in Europe and of employment costs that are simply pricing Europe's goods and services out of the world's markets.

There is no point in talking about education, NHS, transport or defence spending if we cannot produce what the world wants. The consequence is that Europe is paying a bitter price. There are 17 million people unemployed in the European Union, potentially rising further in the years to come.

In that gloomy European picture, Britain stands out, with falling unemployment, low inflation and low interest rates. Each and every other EU country has a minimum wage policy— either statutory or collective—and it is no coincidence that, where there is a statutory wage provision in the larger EU countries, there is chronic unemployment, among young people in particular. In France, it is 23 per cent. and rising; in Spain, it is 33 per cent. and also rising. The inflexibility of their labour markets has caused real economic destruction and personal misery.

Britain, like other industrialised countries, has to grapple with a sizeable budget deficit. I am glad that my right hon. and learned Friend has not shied away from it, and I applaud him for tackling it with his characteristic panache. I believe that the unified Budget will be seen to be as important as the Budget of 1979 which brought down confiscatory taxation and abolished foreign exchange controls; and the tough 1981 Budget, which set the scene for a sustained period of economic growth unparalleled since the war.

One reason why the Budget is so important is that it addresses important aspects of welfare spending. It is not a party political issue—nor, indeed, is it confined only to this country. Some 25 million Britons out of 55 million are in receipt of benefit. In each of my surgeries, I try to help people, often with limited resources, because, all too frequently, the system benefits those who do not need it.

The Budget is especially important because it has put down markers for dealing with these problems, while retaining the essential integrity of the welfare state. My right hon. Friend the Secretary of State for Social Security took the matter up so well this afternoon.

I was in my twenties in 1976, when the country went bankrupt. I remember feeling anger that I was going to be bequeathed a country which had become a byword for industrial anarchy, and the laughing stock of the world. Today, I have children of my own. It would be fundamentally wrong to bequeath them an economy laden down with a debt which would be difficult for them to service and pay off, and we should never be forgiven if we did not rise to the challenge.

The key element of the Budget is the disappearance of the budget deficit by the end of the decade. It is the most critical component of macro-economic policy.

During the boom years of the late 1980s, the vast majority of new jobs came from small businesses. It is important to remember that 96 per cent. of our enterprises in Britain employ 20 people or fewer. I therefore greatly welcome my right hon. and learned Friend's measures to help small businesses.

In rural communities such as my constituency, dozens of businesses exist which are the lifeblood of the west Suffolk economy. Many have been hard hit during the recession, but there are now clear signs of recovery. My right hon. and learned Friend's announcements will be a considerable boost to them. Only yesterday, I was talking to a number of my constituents involved in small businesses, and how pleased they were that they would now no longer have to register for VAT due to the increase in the threshold.

Businesses in that category will no longer suffer the costs and irritation of a statutory audit. Many of my constituents will benefit from a welcome measure for which the Small Business Bureau has been campaigning for many years. We should look carefully at what the attempts will be to cut red tape and help small business.

The audit requirement for small businesses has been significantly relaxed. The requirement will be abolished for most companies with a turnover of below £90,000. For companies with a turnover of between that figure and £350,000, the audit will be replaced with a simplified process which will help some 500,000 businesses, all potentially involved in job creation.

I greatly welcome the immediate lifting of the VAT registration threshold to £45,000. Some 70,000 traders will be able to opt out of VAT—greatly to their benefit. The Budget is of great help to the small business community and therefore to job creation.

There are many reasons why we seem since the war to have been bedevilled by a rollercoaster ride of interest rates. One has been the distortions flowing from our national propensity to put money into bricks and mortar rather than other economic activities. The restriction in mortgage tax relief is welcome, and I personaly hope that, over a period, my right hon. and learned Friend will consider phasing out altogether that distorting relief.

In particular, I applaud my right hon. and learned Friend for initiating the new enterprise investment scheme and a new venture capital trust, and I am personally gratified that any investments potentially will not be property-related. In looking at measures for enterprise, and therefore job creation, the enterprise investment scheme will provide income tax for individual investors of 20 per cent. on up to £100,000 of qualifying investment per year.

Companies will be able to raise up to £1 million per year under the scheme. That is greatly to the advantage of entrepreneurial activity in our country.

The new venture capital trusts will pool savings for investment. That means that investors will receive dividends and capital gains free of tax. That is a useful way of spreading risk and encouraging entrepreneurial revival and activity, and therefore further job creation. In that context, I greatly welcome my right hon. and learned Friend's efforts to reduce red tape and bureaucracy.

As our public finances get into better balance, I hope that my right hon. and learned Friend will begin to re-examine certain income tax cuts. I hope that in due course he will take more people out of taxation altogether and continue to broaden the 20p tax band. We have seen the fruits of low corporation and income taxes being good for growth and inward investment. However, too many people in Britain are still paying tax too soon—there are too many people in the grey area that overlaps with welfare payments. I urge my right hon. and learned Friend never to lose sight of the benefits of a 20p basic tax rate.

I am glad that my right hon. Friend the Paymaster General is on the Front Bench this evening. In the drama of a Budget, the avalanche of figures and their enormity, the impact of it on distinct groups can be overlooked. Ten days ago, my right hon. Friend the Secretary of State for Employment visited my constituency, notably Newmarket, the racing capital of the world.

The racing industry generates considerable employment in my constituency. The industry had been in catastrophic decline. However, as a result of the spring Budget, the number of owners coming back to the industry has started substantially to increase, and the number of horses in training has increased as well.

There has been a quantum leap in confidence in Newmarket in the western part of my constituency. We are now seeking to upgrade the quality of training for young people in the industry. With the benefit of hindsight, nine months on I express the gratitude of my constituents to my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) and my right hon. Friend the Paymaster General for effecting those changes, which have dramatically changed the fortunes of many of my constituents.

Yesterday's Budget will put the seal on the recovery that is now in place—a recovery that will ensure in due course that we will win the next general election. The winter of recession is now over—or, to use an expression that I learned at an early age: If winter comes, can spring be far behind?