Orders of the Day — Finance Bill

– in the House of Commons at 3:43 pm on 14th January 1997.

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[Relevant document: The Third Report from the Treasury Committee of Session 1996–97 on The 1996 Budget (HC 129-I & II).]
Order for Second Reading read.

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West 3:45 pm, 14th January 1997

I beg to move, That the Bill be now read a Second time.

In his four Budgets, my right hon. and learned Friend the Chancellor of the Exchequer has put Britain firmly on course for a sustained period of rising prosperity and falling unemployment. The United Kingdom's economy is in far better shape both in absolute terms and in relation to our neighbours than it has been for many years. We are enjoying a more favourable combination of strong growth, low inflation, falling unemployment, strong export performance and low mortgage rates than we have seen for a generation. The Budget and the Finance Bill will maintain that performance. I should like to remind the House of what has been achieved.

The economy has been growing continuously since 1992 and has grown more strongly overall than in any other major European country—outpacing France and Germany for the past four years. We are set to outpace those two countries again, I am glad to say, for the next two years, which will bring the gap in gross domestic product per head that opened up in the 1960s and 1970s between France and the UK down from 8.5 per cent. to 6 per cent., and between Germany and the UK down from 11.5 per cent. to 8.5 per cent. If we can continue that performance, the gap will be closed once and for all. Incidentally, if such performance comes about, as most forecasters think it will, it will be the first time since the second world war that we shall have outpaced those two countries for six consecutive years.

Claimant unemployment has fallen from a peak of 10.6 per cent. of the work force at the end of 1992 to 6.9 per cent., and is at its lowest for almost six years. That reminds us of the forecasting skill of the right hon. Member for Dunfermline, East (Mr. Brown), who famously said in 1993: unemployment will rise this month, next month and for many months afterwards."—[Official Report, 17 March 1993; Vol. 221, c. 289.] It went down from that day onwards.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

It is about time that we put the unemployment figures in the correct perspective. Is the right hon. Gentleman aware that, on 17 November, the Murdoch Tory newspaper, the News of the World, said that the Government's figure for unemployment, which then stood at 2 million, was totally bogus and that the real figure was at least 4.1 million? That was said in the editorial of a Tory paper and has been proved time and again in almost every constituency where surveys have taken place, including mine, where a house-to-house survey of the number of people out of work as opposed to the number claiming unemployment benefit revealed unemployment of about 50 per cent. in three Bolsover wards. The reason why the Government are able to produce bogus figures is that they do not count people on jobseeker's allowance; they keep them out of the figures, yet such people are genuinely trying to get work. The 31-time fiddled figures represent what the Government stand for. They will fiddle anything in order to try to get re-elected.

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

The weakness of the hon. Gentleman's argument is that whichever measure one takes—the labour force survey or the work force in employment survey—all the internationally agreed surveys show that Britain's performance has been better than in other comparable countries. I do not accept that we have fiddled the figures, but if all the countries in western Europe have fiddled the figures, our performance is still better than theirs. I doubt that if the Labour party by any misfortune came to power, it would change the figures and add on 2 million or 3 million, or whatever the hon. Gentleman claims has been knocked off. I suspect that that would not happen.

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

No, I have dealt with the point and I shall proceed.

Inflation has been below 4 per cent. now for four years and we are set to meet our underlying target of 2.5 per cent. or lower. Those figures represent the achievement of the British people, given the right framework of stable and responsible policies. They show that Britain continues to win more jobs and has higher living standards and, if we stick to the policies that we have, we shall continue to do so.

Photo of David Winnick David Winnick , Walsall North

If all is so rosy in the garden and if everything is as fine as the Chief Secretary is painting it, why are the Government the most unpopular since the end of the war and why is it that the Government are so terrified of moving the writ for the Wirral, South by-election? Why are the people not appreciative of what the Chief Secretary has told us?

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

The hon. Gentleman must await the day and he will find that the British people will respond to the facts. I am not saying that everything in the garden is perfect. It would be foolish of any Minister to stand here and say that, but the policies followed by the Government are leading us in the right direction in the crucial sectors of long-term growth, low inflation and jobs. Governments on the continent of Europe who respond to the same arguments as the Labour party about minimum wages and social contracts and chapters have systematically higher unemployment. The issue is one of comparisons between real policies in the real world, and the hon. Gentleman's party is on the wrong side of the argument.

It is not only members of the Government who say what I am saying. It is also the view of the Organisation for Economic Co-operation and Development, which I know the hon. Member for Walsall, North (Mr. Winnick) respects. In the OECD's Economic Outlook, published last month, it said: The prospects for achieving sustained output growth and low inflation are the best in 30 years. That is also the view of the International Monetary Fund, which has described Britain's economic performance as "enviable".

Our success derives from the supply-side reforms of which British firms and employers have taken advantage, but which were opposed by the Opposition in every critical respect. The Leader of the Opposition may now campaign up and down the country by saying that the greatest achievement—of modern times, as far as I can make out—was Lady Thatcher's trade union reforms and that he wishes to imitate her success in other areas, but he and all his hon. Friends opposed those reforms root and branch. The House discussed one of the Leader of the Opposition's damascene conversions on defence earlier and that is yet another one.

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

The Chief Secretary will be aware that the trade-weighted exchange rate has risen from 83 to 96—an increase of about 15 per cent. Clearly, that has had a great effect on import prices and has helped to keep inflation much lower than it would otherwise be. The ordinary method of computing the effect is to apply the four to one rule—for every 4 per cent. increase in import prices, inflation increases by 1 per cent. and the reverse is true when import prices fall. What is the Chief Secretary's estimate of what inflation would have been if the exchange rate had not increased? Does he agree that the retail prices index would have been somewhere between 2.5 per cent. and 4 per cent. had not the Government had the advantage of the rise in the exchange rate?

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

The right hon. Gentleman's question is complex and has a lot of conditionals. Inflation was down before the exchange rate rose, and the policies of my right hon. and learned Friend the Chancellor had inflation under control before then. There are some, such as the right hon. Gentleman, who say that the proportion is about four to one, but there are others who doubt that. Those matters are part of the equation that my right hon. and learned Friend must take into account when he considers the overall balance of the economy and interest rates.

It is because of our determination to counter the threat of inflation and the resolute approach to the public finances that we have adopted in this and previous Budgets that we have such a satisfactory set of background conditions. In fact, Britain's strong economic performance is obvious to everyone—except, allegedly, to Opposition Members. As a matter of fact, I suspect that it is pretty obvious to them as well. The proof of that is that they do not have an alternative set of economic analyses or policies to offer, which makes me suspect that, in their heart of hearts, they recognise that the underlying basis of policy is about right. I doubt that a single Opposition Member believes in his or her heart of hearts that if Mr. Kinnock had been elected in 1992, unemployment would now be below 7 per cent. and falling, inflation would be on target for 2.5 per cent. and Britain would be in the fifth year of non-inflationary growth.

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

The hon. Gentleman always says, "on that matter", and then goes off in quite another direction, but I cannot do other than give way to his charm.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

I wish to ask about the 1992 election and the prospectus that the Government put before the British people. I was reading an interesting document this morning—the supplement to the Red Book for that period. It shows that the Government were projecting for this financial year a public sector borrowing requirement of £7 billion, when in fact the PSBR for this year will be £26.7 billion. In other words, they are £20 billion adrift from the prospectus that they put before the British people at the previous general election. How can they possibly have any credibility next time, when their figures have been so blatantly wrong?

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

It is no secret that there was a recession of far greater depth than was predicted by the Government or by the Opposition. The hon. Gentleman's credibility problem is that he went into the previous election loyally fighting for an economic programme that was put forward by the present Transport Commissioner in Europe and the late John Smith. It was a completely clear policy and, as far as we know, was different from what is now being proposed by Labour. Labour put forward a coherent policy, and the hon. Gentleman supported it. There is no coherent policy now, so he is unable to say exactly what he supports—as are his Front-Bench colleagues.

The Budget that my right hon. and learned Friend the Chancellor proposed on 26 November and which the Finance Bill accompanies was a Budget not just for the next few months, but for the next five years. It was a Budget for lasting prosperity, combining sustained economic growth with low inflation, so that living standards go on rising year after year. The measures announced by the Chancellor address several objectives. They enable people to keep more of what they earn. They finance high-quality public services—spending more on the services that people care most about, including the health service. At Prime Minister's Question Time, we heard again Labour's technique, which is to raise anxieties about health. But Labour has not even matched our spending pledge on health, let alone committed any more money. That is the technique that it uses right across the board, day in, day out, and it is fundamentally disreputable.

Photo of Denis MacShane Denis MacShane , Rotherham

Does the Chief Secretary recognise the real anxiety of every exporting company in Britain about the astronomic growth in the value of the pound sterling? In my constituency, that growth has led to British Steel—a successful company—laying off people and to Guest and Chrimes laying off 70 only last week. In addition, every manufacturing and exporting company in my constituency is reporting a loss of orders. Is there a single policy that will stabilise sterling, or are we on a permanent Tory yo-yo?

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

I think that it was the hon. Gentleman who intervened at an early stage in my speech in this very debate last year—it may have been the economic debate just before Christmas—to criticise the Government because the pound was then going down. If Labour has an exchange rate target or policy, it will be the first that it has had. The hon. Gentleman is at least an honest believer in joining a single European currency. He has a policy, but his right hon. and hon. Friends on the Front Bench do not necessarily agree with it—or rather, on Tuesdays and Thursdays they do, but on Wednesdays and Fridays they do not.

Photo of Mr Michael Stephen Mr Michael Stephen , Shoreham

Day after day, we hear Opposition Members demanding more and more spending on public services and complaining about increased taxes, but if one does not borrow and one does not increase taxes for all the public expenditure, how does one fund it? Would the Labour party have done it by printing money, and what would the consequences have been?

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

As Aneurin Bevan said, we do not need to look in the crystal ball when we can read the book. The Labour party taxed higher, borrowed more and ended up with a combination of higher taxes, broken pledges, higher borrowing and chaos in the country. That is what happens under Labour Governments.

The Bill will protect the ordinary taxpayer by taking further significant steps in the fight against social security fraud, tax evasion, smuggling and other fraud. It also closes some further tax loopholes. In a different direction, it levels the playing field for ordinary taxpayers by phasing out some special reliefs and allowances. They may be convenient and popular for those who enjoy them, but they are often unfair to those who do not, and in our view it is better to have low tax rates, as we do for business and personal taxes in this country, and to diminish special allowances.

Photo of John Greenway John Greenway , Ryedale

My right hon. Friend mentioned measures to close loopholes. Will he confirm that the proposal for a 17.5 per cent. rate of insurance premium tax is directed only at abuse and that it is not intended to apply to policies that are genuinely arranged and transacted by insurance companies?

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

As my hon. Friend may know, the abuse that is targeted is that of the profit margin being put on the insurance policy, which had a lower rate of tax, and, allegedly, lower prices being offered for the associated goods; that seemed to be merely a way of avoiding tax. There is no intention of getting into the territory about which my hon. Friend warns. Those matters will no doubt be discussed in detail in Committee.

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

On that point, can the Chief Secretary give us an assurance that he intends to serve on the Committee? As I understand it, all Chief Secretaries have done so for many years. Will he be with us this time?

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

That will depend on the Committee of Selection. The hon. Gentleman must wait and see. I am deeply touched that he thinks that no Committee can proceed properly without me. That is a flattering judgment and, as always, I am most grateful to the hon. Gentleman for his support.

The Bill maintains a responsible fiscal position by keeping firm control of public spending and reinforcing the downward path of borrowing. It tightens fiscal policy, reducing the public sector borrowing requirement by nearly £2 billion in 1997–98 and by considerably more in later years. Compared with previous plans, the Budget measures take £750 million off tax and £2 billion off spending, and the measures to reduce tax leakage, blocking loopholes and boosting the fight against fraud, should contribute another £500 million.

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

No, I must proceed.

By 1999–2000, the Budget measures are expected to reduce the PSBR by more than £5 billion. Under this Government, the national debt has been lower as a share of national income than in any year under the previous Labour Government. The Leader of the Opposition has a particularly silly argument that my right hon. Friend the Prime Minister has doubled the national debt since 1990. Why 1990–91? Because that was the year when the national debt was lower than at any time since the second world war.

The United Kingdom has one of the lowest overall debt burdens of the big countries in the European Union, whereas in 1979 it had one of the highest. If Labour had stayed in power and continued to borrow, as it is reasonable to assume would have been the case, at the same average annual rate, the national debt would be almost exactly twice what it is, at about 90 per cent. of gross domestic product.

Part of the Labour party's current campaign is to try to argue that the public finances are in a dire state. We know perfectly well why that is so. It is not because the finances are genuinely in a dire state, and the figures that I have given prove that. Even without appealing to our extremely strong position in relation to funded pensions, thanks to action taken by the Government over the years, we know why Labour Members make that argument: if they came to power, they would want an alibi for the tax rises that followed. They would say, "The books have shown all sorts of mysterious things and we have to put taxes up." That is what the Opposition are preparing the ground for, but we intend not to give them the opportunity to use that alibi, by keeping them firmly on the Benches on which they now sit.

The Finance Bill, which implements the Budget tax measures, is central to its aims. It starts with a clause that will, I think, receive support from both sides. I see no members of the Scottish National party with us temporarily, but I am sure that even they would welcome the clause. Last year, my right hon. and learned Friend the Chancellor cut whisky duty for the first time for 100 years. He has not waited 100 years to do it again, but has cut it again this year. That measure is important for two reasons. The industry is huge at home, but the measure is also a clear signal to overseas tax authorities not to discriminate against Scotch whisky, which is one of the problems that that industry has had to face. For the second year, we have also been able to freeze the duties on wine and beer. Those changes will help to alleviate the legitimate concerns of the drinks industry over cross-border shopping and smuggling.

The Bill contains a number of significant measures to protect the tax base. It is important that people pay the amount of tax that Parliament intended them to pay, that reliefs are not subverted and that people do not find over-ingenious ways of reducing their tax liabilities. The Government have long held that a successful tax system is one with low rates and a broad base, so we can cut tax rates only if that base is sound. Part III of the Bill introduces a further package of powerful measures to block value added tax loopholes.

I expect that Labour will claim, with its usual Morton's fork argument, that, first, all those measures are its idea—I see that the hon. Member for Edinburgh, Central (Mr. Darling) nods—and, secondly, they are all new Tory taxes. Labour sticks up silly posters saying that all these loophole closures are new taxes, but also claims that they were Labour's idea in the first place.

The complete, formidable package of VAT anti-avoidance measures will yield more than £700 million in the first year and protect a further £1.6 billion from attack by avoidance schemes.

Photo of Mr Peter Brooke Mr Peter Brooke , City of London and Westminster South

Since the publication of the Bill, has there been adequate opportunity for the Treasury to meet representatives of the property industry who, while sharing the Government's views about wishing to stamp out abuse, feel that perhaps they are not going about it as effectively as they could?

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

I am grateful to my right hon. Friend and am aware of the issues raised by a number of property developers. I think that the Financial Secretary to the Treasury has already met some groups—I take this opportunity to congratulate him on his Privy councillorship. It was one or other of my colleagues. I am led to understand that the Exchequer Secretary has met groups to talk about the matter. We shall certainly listen closely to the points raised.

The Bill also contains measures to protect the income tax and corporation tax base. Schedule 11 makes a number of changes to the tax treatment of finance leasing arrangements. Leasing can be a sensible way for people to employ the assets that they need in their businesses—this is relevant to the point made by my right hon. Friend the Member for City of London and Westminster, South (Mr. Brooke)—but in some cases finance lessors have found a way of turning rental incomes into a capital payment for tax purposes and the Bill will prevent that.

In other arrangements, the rental payments are concentrated towards the end of the lease period, thus reducing the tax take. In both cases, the Finance Bill will bring the tax treatment of leasing more closely into line with the treatment in commercial accounts. The Bill will bring in the new rules that apply where companies buy back their own shares, or pay certain special dividends. Where companies found a way of routing such payments into the hands of tax-exempt institutions, the Exchequer was adding a sizeable subsidy in the form of payable tax credits. Schedule 7 puts a stop to those payments from the Exchequer.

As my right hon. and learned Friend the Chancellor said in his Budget statement, the Government will not tolerate tax abuse. These measures and a number of others like them, which together will yield more than £1 billion a year, are ample proof that we are serious in the battle against tax avoidance. In addition, we are making extra resources available to the revenue departments to counter tax evasion and avoidance and to ensure that everyone pays the proper amount of tax.

As I said, a successful tax system is one that operates across a broad base. The Finance Bill therefore removes or reduces certain reliefs and I shall pick out two. First, clause 62 provides for the phasing out of the tax relief for profit-related pay. The relief was introduced by my right hon.—now noble—Friend Lord Lawson in 1987 explicitly, as he said at the time, as a temporary measure designed to encourage firms to set up PRP schemes. It has been an outstanding success. Around a quarter of private sector employees are now in PRP schemes. PRP has become successfully established as part of the United Kingdom's business pay policy.

The time to phase out the tax relief over a period of years has therefore arrived, but it is important to remember that we are simply removing the tax relief. Firms can and should still relate pay to profits and can therefore continue to reap the rewards, including greater pay flexibility, increased employee involvement and higher productivity. I hope that many firms will continue to do so.

Secondly, schedule 13 reduces the rate of writing down allowances on long-life assets from 25 per cent. to 6 per cent. a year. The tax system treats investment generously, but 25 per cent. a year is too generous for assets with lives over 25 years. The new regime is a logical extension of the 1984 corporation tax reforms brought in by Lord Lawson. By bringing the tax treatment more closely into line with accounting treatment, we are ensuring that tax considerations enter as little as possible into companies' investment decisions.

Photo of John Butterfill John Butterfill , Bournemouth West

Does my right hon. Friend think that it is reasonable and appropriate for the regime that applies to aircraft to be different from that which applies to trains and ships? Are they not all now in fairly open competition for transport purposes, and is there not, therefore, an element of discrimination against the aircraft industry in my right hon. Friend's proposal?

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

I am aware of the representations that have been made by many in the aircraft industry. Once again, we shall take careful note of the legitimate point that my hon. Friend raises. It will doubtless be discussed further, and we shall listen to the arguments.

All the proposed measures will significantly expand the tax base and allow us to continue to reduce tax rates. The Bill takes another significant step towards our goal of a 20p basic rate of income tax. We believe that low direct taxes are the most effective way to encourage enterprise and hard work. Under the previous Labour Government, as we know, the basic rate of income tax was 33 per cent., and the higher rates rose to 83 per cent. on earnings and 98 per cent. on what Labour was pleased to call unearned income. Those were the punitive marginal tax rates that people suffered under Labour. Labour's taxes hit those who worked and those who took entrepreneurial risk.

Since we came to power, we have repeatedly cut the basic rate of tax towards our 20 per cent. goal. In 1979, the rate was 33 per cent. From 6 April, clause 55 ensures that it will be fully 10p lower, at 23 per cent., the lowest basic standard rate of tax for almost 60 years. For more than a quarter of taxpayers—more than 7 million people—the rate of tax is already 20 per cent.

Once again, the Opposition's attitude is something of an enigma. They seek to defeat the Bill, so presumably they seek to defeat those income tax cuts. If, having listened to our arguments, the House carries the Bill, the Opposition will abstain, as they did last year, on the income tax cuts. It is all muddle and confusion. I suspect that the Opposition hope that they will not win the main argument, because they do not want to vote against income tax cuts, but they are not brave enough to say so, nor are they brave enough to criticise the tax cuts in the amendment that they have tabled. It is a muddle, as usual.

As my right hon. and learned Friend said in his Budget statement, we could have reduced the basic rate of income tax by 2p, thanks to the tough stance that we have taken on spending in the measures that I described to protect and expand the tax base. However, it is also important to maintain the real value of allowances. Clause 56 goes further than that. It increases the lower rate band by twice and the personal allowances by three and a half times more than required by statutory indexation. As a result, all income tax payers will pay less income tax—on average, £150 a year less. We do not know whether the Opposition are in favour of that or against it. Again, their attitude is a mystery wrapped in an enigma.

It is not just individuals and families who benefit from the measures in the Bill. Unincorporated businesses and small companies will also feel the benefit of lower income tax and corporation tax. The Government recognise that small businesses are crucial to the success of the economy. That is why clause 74 and schedule 8 help small companies to raise finance through relaxations to the venture capital trust and enterprise investment schemes. It is also why we are freezing business rates for small properties this year.

We may have found an area where Labour agrees with us—or has a policy—as there are two differences between its rather platitudinous amendment this year and last year's amendment. This year, the amendment contains a split infinitive and omits criticism of the Government regarding small businesses. Therefore, the Opposition presumably acknowledge that we have taken the right steps on small business. They would be wise to do so, as the Forum of Private Business called this Budget The best of the decade. We have also made another significant down payment on our commitment to abolishing inheritance tax. Clause 91 raises the threshold by £15,000—£10,000 more than is required by statutory indexation. Combined with the big increase in the threshold last year, it amounts to a rise of almost 40 per cent. in two years.

The Finance Bill crowns five years of economic achievement. Since our re-election in 1992, we have seen nearly five years of uninterrupted growth with unprecedented low rates of inflation. Under this Budget, a family on average earnings will have more than £20 a week extra to spend next year after tax and inflation than before the previous election. The last Labour Government could manage only a puny £1 a week.

The Finance Bill takes forward an unquestionably coherent and successful strategy for the British economy. That is in marked contrast with the Opposition, who still refuse to come clean about the central issues of economic policy. The Opposition do not have the courage to criticise tax cuts in their amendment, but they will vote against them. If the Bill is carried, they will abstain.

Opposition Members complain about so-called tax loopholes, but they refuse to say what they are. Will they continue to support pension funds, reinvestment relief or exemption from inheritance tax for family businesses or art of national importance? The Opposition continually hint that closing loopholes will bring huge tax savings, but they will not specify what those loopholes are. Meanwhile, we have shown that we are tough on real avoidance and evasion. When we take steps to modernise the tax system by closing loopholes or ending relief, Labour erects feeble posters calling them Tory tax rises.

Photo of Ms Jean Corston Ms Jean Corston , Bristol East

The Minister said that an average family will be better off by £20 a week. We both attended a conference at the council house in Bristol last week, when we heard that an average family in Bristol will see four or five times that sum swallowed by council tax increases imposed by the Government.

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

We see the same technique in action. Last week, the Leader of the Opposition addressed the issue of local government grants and said: You may have heard Frank Dobson say a couple of nights ago to local government, 'You have to work within the existing spending limits.' We could not be clearer about this". The hon. Lady and her hon. Friend on the Front Bench, the Member for Bristol, South (Ms Primarolo), went to Bristol council to talk about the "dreadful" grant settlement, but in the same week the Leader of the Opposition said that there would be no more money for local government. That illustrates the basic incoherence and dishonesty of that line of argument.

The fact is that, on such matters, Her Majesty's loyal Opposition should be called "Her Majesty's loyal abstainers". They have no view on all the big issues. When it comes to tax, they sit on their hands and abstain. They are terrified of saying anything that might be construed as an acceptance that they would have to raise taxes to pay for the £30 billion in spending pledges that they have scattered around the Lobbies. However, they do not withdraw those pledges.

The only tax measure to which Labour is prepared to admit is a punitive tax on successful companies owned by millions of private shareholders, pension funds and employees: the so-called windfall tax. If Labour could make it work, it would hit consumers, shareholders and employees. It would produce only a one-off payment and could not be used to meet the huge continuing spending commitments that Labour has attached to it.

Last week, the Leader of the Opposition claimed that Labour's plans would mean no tax increases. However, at the same time, he promised that Labour would do more for education, health, welfare, local government—you name it. It was vintage new Labour. On Wednesday, the Leader of the Opposition told local government: You have to work within the existing spending limits but on Monday he was nodding and winking to the education lobby about higher spending.

As always, the right hon. Gentleman is trying to be all things to all men and women. It is the usual nod towards the media and the City; the usual wink to the spending lobby. He promises more computers, more literacy summer schools and smaller class sizes, but no new money. The problem is that that simply is not credible. Either Labour's education policy—the same goes for all its other policies—is just another series of empty Acts of Parliament with no money, or it is a hidden agenda for more spend. Labour hopes that one audience, in the Bristol council house, will believe one version, and the other audience, in the Daily Mail, another.

The fact is that the Government have been able to make substantial increases in spending on education and health because we have been prepared to make difficult decisions, making cuts in lower-priority programmes. Labour has shown no capacity to make such decisions, except for one. The only genuine cut that it has announced is the mean-minded decision to axe the assisted places scheme, which will not even pay for the reduction in class sizes, which will threaten many ancient schools, for example in Bristol, and which will widen the divide between public and private provision in education. That is typical of its approach.

Photo of Mr Wyn Roberts Mr Wyn Roberts , Conwy

Would my right hon. Friend care to remind the House that the last time there was a real cut in health service spending was when Labour was in government, and after the International Monetary Fund had intervened?

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

My right hon. Friend is right. There has been only one year in which real spending in the health service has been cut, and that was under the previous Labour Government, in the year to which my right hon. Friend refers.

The Labour party is caught in a trap of its own making. On the one hand it promises all manner of vaguely specified changes for this country; on the other it claims that there will be no tax increases and no losers, except for a few fat cats. If the Labour party were to come to power, it would have no mandate for anything, and the ensuing drift and confusion would put at risk all that the British people have achieved in the 1980s and 1990s.

The choice before the House and the country is pretty simple. Labour has no policies beyond the cosmetic, no views on economic management beyond the platitudinous and ungrammatical verbiage of its amendment, no sense of direction and no sense of priorities. There is, of course, nothing wrong with wanting office in a democratic system. That is an honourable ambition. But to want only office, with no philosophy or ideas about what to do with it, is not enough.

Conservatives know what we want for Britain. We want to continue our battle to make Britain a competitive, low-spending economy and thereby get unemployment down. We want to continue the clear and responsible economic policy that my right hon. and learned Friend the Chancellor has carried through with such success. We want to continue the real growth in living standards for our people. The Bill, as part of our outstandingly successful economic policy, will continue to deliver those things.

Once again Labour stands for muddle and abstention, for soundbites, not real policy. We stand for steady and responsible economic management. I have no hesitation in commending the Bill to the House.

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury 4:23 pm, 14th January 1997

I beg to move, To leave out from "That" to the end of the Question, and to add instead thereof: this House declines to give a Second Reading to the Finance Bill because it fails to adequately address the needs of the country, namely high levels of investment and employment, providing opportunities for all, economic stability and a long-term commitment to low inflation; in particular it does not provide for a new welfare to work strategy which will tackle the scandal of youth and long-term unemployment, nor new measures to improve the skills level of the country; and further fails to provide for effective action to close tax loopholes, to adequately reform the Private Finance Initiative or address the causes of the increasing tax burden and as a consequence fails to equip the country for the future. The only interesting thing that we have heard this afternoon is the fact that the Chief Secretary will probably not serve on the Finance Bill Committee. I understand that he may be the first victim of the Government's loss of their majority. He does not want to be on the Committee. He would rather be somewhere else, perhaps in the Wirral or perhaps nursing his constituency of Bristol, West. It would seem very strange if the Chief Secretary to the Treasury were not in the Committee to take his Bill through the House. One might have thought that he would have sufficient confidence and commitment to turn up to take his Bill through the House.

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

This is the Second Reading of the Finance Bill. Will the hon. Gentleman say why his right hon. Friend the Member for Dunfermline, East (Mr. Brown) is unable to attend?

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

I was speaking to my right hon. Friend only half an hour ago. He is at this moment watching our performance on the television in his office. He is quite happy that we should deal with these matters. If the Chief Secretary wants to hear more, why does not he agree to sit on the Finance Bill Committee for the next few weeks?

In his speech this afternoon, the Chief Secretary has invited us to forget the fact—[Interruption.] My right hon. Friend the shadow Chancellor has arrived. That is yet another example of how a new Labour promise will be delivered.

The Chief Secretary has invited us to believe that, somehow, we should judge the Government on a snapshot of what is happening in the country, to forget the past, to forget the ominous signs of the future. He is inviting us to forget the fact that the Conservatives have been in power since 1979. The Finance Bill gives us the opportunity to judge the Government's record over the past 18 years and since the last election. The coming election, as with all elections, will turn on the questions of trust and credibility. That is how the Government will be judged. People remember full well—

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

I shall certainly give way to the hon. Gentleman on matters of trust. He will remember that at the last election he, along with other Conservative Members, promised that a Conservative Government would cut taxes year on year and would not increase value added tax. Yet the incoming Conservative Government deliberately broke those promises. The Bill reflects the continuing saga of broken promises. We have had 22 tax rises since 1992. We have had VAT imposed on gas and electricity. National insurance contributions have increased. These increases are why the Conservative party is in so much difficulty.

No one trusts the Conservatives on tax or on the economy. Indeed, the Bill introduces seven further tax rises. Despite what the Chief Secretary had to say, and despite what he says generally about cutting taxes, the Bill, when enacted, will lead to the implementation of more new taxes. The penny off income tax and other such measures are more than offset by increases in indirect taxes. The Red Book shows that in the next financial year about £350 million more will be raised in taxation.

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

I shall give way to the hon. Gentleman if he tells us why he stood on a manifesto at the last election that promised to reduce tax year on year and not to increase VAT, and when returned to the House voted to increase taxes. Will he tell us why he did that?

Photo of Mr Rod Richards Mr Rod Richards , Clwyd North West

The hon. Gentleman would have a windfall tax. The right hon. Member for Sedgefield (Mr. Blair) said at the weekend that he had taken legal advice on the propriety of introducing such a tax. That suggests that the Leader of the Opposition must have given counsel specific details of the proposed tax. Will the hon. Gentleman tell the House when he and his right hon. Friend will make those details known in public?

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

As the hon. Gentleman will not answer questions about his broken promises on tax, he might be better advised asking Aims of Industry and the right hon. Member for Peterborough (Dr. Mawhinney), the Chairman of the Conservative party, to publish the legal advice that they were spreading about in newspapers over the weekend.

It is interesting that one of the lawyers who apparently wrote that legal opinion telephoned the Daily Mail to express his concern that his and his fellow lawyers' opinions were being distorted by Aims of Industry and the Conservative party. If the Conservative party is to rely on such a bogus opinion, it is no wonder that people do not trust it. What we saw at the weekend was not a legal challenge but a political challenge. I understand why the Conservatives are taking that course. Their paymasters—some of the fat cats whom they have been protecting for many years—are increasingly fed up and frustrated at the inability of the Tory party to make any impact on the proposed windfall tax. It is no wonder that they summoned the chairman of the Tory party, gave him a dressing down and asked him why he was not doing more to try to advance his cause. The Conservative party will not be able to advance its cause if—

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

I shall not give way. The point has been adequately and completely answered.

Conservative Members might do well to sit in a period of quiet humility and to listen, given the record of the hon. Member for Clwyd, North-West (Mr. Richards). Let them reflect on what the Finance Bill will do. It contains seven further tax rises. Council tax is due to increase by £4 billion. Insurance premium tax will be increased from 2.5 to 4 per cent. Air transport tax will be doubled. Tax relief on profit-related pay will be abolished. All that is equivalent to 8p on the basic rate of income tax for someone on average earnings. Prescription charges will be increased, as will fuel duties and tobacco duties.

Since the last election, despite what the Conservative party promised, taxes have increased. The typical family is paying £2000 more in tax than it was at the last election.

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

I shall give way to the Chief Secretary, but I want him to answer this central question: why should anyone believe what the Conservative party has to say about tax this time round when it made the same promises to reduce taxes in 1992 and then broke them? Why should anyone believe the Conservative party? Let the Chief Secretary answer that question.

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

The hon. Gentleman is doing what Labour Members always do. He is parading a list of proposals that it is popular with certain groups to oppose. He said that it is a disgrace that we are abolishing profit-related pay, and that that is a new tax. If he were sitting on this side of the House and were introducing a Finance Bill, would he reintroduce the old system of PRP? Or is he saying to people who are lobbying for the maintenance of the allowance that he is on their side, but is not giving them a pledge to do anything about it? I suspect that the latter is his position.

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

The right hon. Gentleman must realise that anything said in the House is recorded in Hansard and is widely available throughout the world. The idea that anyone would say something in this House and hope that it would not be picked up somewhere else is nonsense. My right hon. Friends and I have no hesitation in making it clear that we are not promising that if we are returned to power after the next election we will restore everything that the Conservatives have abolished in the past 18 years.

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

I shall give way in a moment.

We have different priorities: we believe that there is much that the Government should be doing—for example, in education and in encouraging people at work—that they are not doing. It has never been our position that we will undo everything that the Conservative Government have done and rectify every broken promise.

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

I shall give way in a moment, if the right hon. Gentleman can contain himself. If he sits and contents himself for a few moments, I shall make it clear that the state of the public finances and the Government's conduct of economic affairs are such that people know that the damage that they have done in many areas cannot immediately be remedied. It is not as if any Government who come into office discover that there are no difficulties and no obstacles to putting right the matters that they would like to address. The right hon. Gentleman's point is nonsense, and he still has not answered the central charge.

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

I promise the right hon. Gentleman that I shall give way in a moment. I enjoy a good debate, and we have several hours to discuss these issues. He still has not dealt with the central point. At the last election he and his colleagues promised that they would reduce taxes year on year. They said that they had no plans to extend the rate or scope of VAT and no plans to increase national insurance. They broke those promises, so why should people believe them again?

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

We are making some headway. The hon. Gentleman said clearly that he will go on attacking us for abolishing PRP, but he will not restore it. That is an exact summary of Labour's methods in general.

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

I shall carry on exposing the fact that the Conservative party broke the promises that it made at the last election. It broke its pledge on profit-related pay, and as a result 3 million people will be worse off. We are entitled to attack the Conservative party on that, just as the right hon. Gentleman and his right hon. and hon. Friends are entitled to criticise our policies.

Photo of Michael Jack Michael Jack , Fylde

What is the hon. Gentleman's view on profit-related pay?

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

I am happy to refer the hon. Gentleman to the numerous remarks that I have made on PRP. We have always supported the principle of ensuring that people working in any organisation or any factory have a stake in the enterprise that employs them. That is why we support the extension of employee share ownership and the principle behind the profit-related pay scheme.

Two years ago, when I first spoke about this matter, I expressed concern about the fact that the scheme was being abused and that the cost was rising uncontrollably. At that time, Conservative Members ridiculed our concern and suggested that we were irresponsible to express it. Conservative Members cannot get away from the fact that they tolerated abuses of the system for far too long, which is why they were eventually forced to scrap the scheme. It was not scrapped because it was a temporary scheme, as the right hon. Gentleman said, but because the Conservative party had so operated it that it could no longer afford to continue it in its present form. The Government have not told us whether they still believe in the principle or will come up with an alternative proposal. We shall wait and see.

There is one piece of good news—we should all be thankful that the Bill is shorter than last year's: it contains only 111 clauses. Much detail will have to be attended to in Committee. It is worth noting, however, that since 1979 there have been 4,596 pages of new legislation in Finance Bills, more than half of which have been produced during the current Parliament. Taxpayers, particularly business taxpayers, want stability; they do not want constant change.

Let me place it on record that I welcome the news that the work of the tax law review committee—of which I was a member, although I have now resigned—will be continued by a committee chaired by Lord Howe, but containing a widespread membership. I hope that that committee will be able to further the process of simplifying tax legislation; I think that hon. Members on both sides of the House would welcome that.

Every Second Reading of a Finance Bill must take place against a background of the performance of the economy. Today, the Chief Secretary gave us a familiar litany of claims that the Tories make. Let us examine them, for they do not bear close examination.

The right hon. Gentleman said that his was the party that was delivering lower taxes. Well, his sense of humour has certainly not deserted him. Although one particular rate of one particular tax fell by one penny, what the Government gave with one hand they took away with the other. As we see in paragraph 16 of the Treasury Committee report, published last night, Mr. Andrew Dilnot of the Institute for Fiscal Studies said: There is very little difference between the direct impact in this year's Budget and last year's Budget … the gains rise with income". It is interesting to note in the same paragraph that Professor Tim Congdon, who is no great friend of the Labour party, raised a "wider issue", saying that the main problem with the tax system was to be found at the low end of the income scale where people could face 100 per cent. marginal tax rates because of the interaction of the social security system and the tax system. That problem, he said, could not be tackled by simply "tinkering at the margins".

So there we have it. The Chief Secretary tells us that this is a tax-cutting Budget, but the people and the House know that that is not the case. According to the Government's own Red Book, in 1979 the proportion of gross domestic product that went on tax was 35.5 per cent.; in the coming financial year, it will be 36.25 per cent. The Government's claims about tax, just like their claims about everything else, simply do not stand up.

The Chief Secretary tells us that we have the best prospects for a generation. What is the Conservatives' time scale? Is it today, this month or this year? What sort of generation have they in mind? When we examine their record over the past 18 years, we find that Britain has fallen from 13th to 18th in the world prosperity league, and there are already signs of cracks in the recovery: there is the threat of higher inflation.

Paragraphs 13 and 14 of the Treasury Committee's report say that the Government's claims in that regard lack credibility. It is worth noting that the report of the Committee, which still contains a Tory majority, is the most grudging "MOT" that I have ever seen in respect of a Finance Bill. The doubts felt by that majority, and indeed by the whole party, are spread throughout the report. It will be interesting to hear whether what is said by the hon. Member for Carshalton and Wallington (Mr. Forman)—who usually takes a refreshingly honest view of these matters—will bear that out. Tory Members do have doubts about the whole credibility and basis of the stance that the Government are taking on the Finance Bill.

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

The hon. Gentleman is right to say that we paid attention to inflation in the Select Committee report, but the amendment that stands in his name also refers to a long-term commitment to low inflation". What does that mean to the Labour party, in precise terms?

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

It means precisely what it says. We believe that it is essential for the country to maintain low inflation, something that has not been possible over the past 20, 30 or 40 years. If there is a political consensus on that, I think that it will be welcomed by most people outside carrying on their day-to-day business, such as pensioners and those on low incomes. But the point that I am making—one of the points that comes across from the Select Committee report—is that there is some doubt about whether that is likely to happen under the present Government's policy. We have seen higher interest rates, and there is the threat of more to come. Despite what the Chief Secretary said, there have been higher mortgage rates: they have already been announced, at the end of last year and the beginning of this year. People want stability.

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

No, I must make some progress. I will certainly give way to the hon. Gentleman later.

The idea that this is the only country in Europe with low inflation is simply not true. We are 11th out of 15 in the European inflation league. Only Greece, Italy, Portugal and Spain are behind us. It is a perfectly legitimate point to make because we are always being told that Britain is the enterprise centre of Europe. Indeed, in its report presented last night, the Select Committee expressed concern about the output gap.

The Chancellor forecasts that inflation will fall from 3 per cent. to 2.5 per cent. Is that credible when, in each of the past few years, the Government's forecast has not been met? The Bank of England is still expressing doubts and concerns, yet we are asked to believe the Chancellor. His whole strategy depends on inflation being down to 2.5 per cent. or less. His costings depend on it. Having regard to his record, can we believe him on that?

As I said, if we consider long-term interest rates, which are a good indicator of international expectations, we find that UK long-term interest rates are higher than those of any other OECD country. Surely that should tell the Government something. It tells us that not only in Britain and in the Labour party, but in the markets, people do not believe the Government or trust them on inflation because they know that the Government have delivered two of the worst recessions since the war, which has hit home owners, businesses and all taxpayers alike. It is essential that we deal with that fundamental weakness in our economy and the causes of the long-term inflation, and that the long-term culture and long-term outlook is achieved not just in business—which all of us keep calling for—but by politicians and Chancellors.

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

The hon. Gentleman talks about the need for stability in interest rates, so will he explain whether the Labour party is against any increase in interest rates between now and, say, 1 May?

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

We have always made it clear that the appropriate action must be taken to ensure stability. The hon. Gentleman might want to direct that question to the Chancellor to find out what he has to say on the matter.

The Chief Secretary told us that unemployment was coming down and of course the number of people entitled to claim benefit is falling. We certainly welcome people leaving benefit and going into work. People know of course that there have been 32 changes to the way in which the Government calculate unemployment. We know that one in three people who disappear from the register disappear completely. There are 1 million fewer jobs since the Prime Minister took office in 1990. It is no wonder that people do not feel good about the economy. Nor do they believe his claim that living standards are up.

There have been tax rises. In 1994 and 1995–96, living standards fell, as the Chief Secretary had to admit last year. Of course, when living standards fall, it is always someone else's fault, yet when people's circumstances begin to improve, through their own hard work and efforts, the Tories try to claim credit for it. The fact is that in Britain we have an overlay of job insecurity, which is causing immense social and economic problems. The Secretary of State for Trade and Industry may say that job insecurity is "a state of mind", but it is a reality for millions of people and a problem for all of us.

The Chief Secretary says that we have a fast growth rate. The average growth rate since 1979 has been the slowest of the G7 countries and slower than that of any other major European country. Over that period, the annual growth rate was only 1.9 per cent. Under the last Labour Government, it was just over 2 per cent. Far from being the enterprise capital of Europe, Britain is ninth in the European prosperity league.

There is an interesting statistic on inward investment. In 1995, 60 per cent. of inward investment was in the form of takeovers of UK companies and, in the same year, a fifth of the total was accounted for by the fact that two privatised utilities had been taken over by American companies, so when the Government tell us that this is the capital of inward investment, we must consider those figures closely. In doing so, we realise that, to a large extent, they are due to the fact that there has been much takeover activity because the Government sold off the assets at knockdown prices.

Like other Tory tax Bills, this Bill is about tax raising. The Government's credibility depends on the central promise that they broke. It is worth reflecting—because those promises will be made again and again—what the Prime Minister told the Los Angeles Times about a year after he won the election. He said: I said the day after we won the election, with a number of people around me, 'within the next 12 months the Government will be the most unpopular we have seen for a long time'". Why did he say that on that Friday, the day after the election? The same Government had told the rest of Britain that, if people voted Conservative in 1992, the recovery would begin on the Friday. On the same day as the Conservatives were telling the people that the recovery would begin, the Prime Minister in private was telling his Conservative party cronies that they would be the most unpopular Government in a long time. That is an example of a Prime Minister who is condemned by his own words. Why should we believe him this time when he said that in 1992?

In 1992, the Prime Minister told us: The signs are already there: better retail sales figures; encouraging signs for the motor industry; and positive evidence from the CBI … All that is needed is the confidence which will come with the re-election of a strong Conservative government. Britain's economy is now poised to bounce back. That is what he is saying in 1997, but we know the truth of what happened in 1992: he said one thing in public and another in private, which is exactly what will happen this time.

Photo of Mr Den Dover Mr Den Dover , Chorley

Will the hon. Gentleman give way?

Photo of Mr Den Dover Mr Den Dover , Chorley

Does the hon. Gentleman accept the official statistics, which show that growth in the economy started in the third quarter of 1992, showing that the Prime Minister was absolutely right? The recovery started almost immediately after the general election.

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

The reason why the Prime Minister said that the Government were going to be unpopular was that he knew full well that they had made promises that they could not have kept. Here are some of them. On 22 March 1992, he said: The difference between the parties on tax is clear, the Conservative Party would cut direct taxes. The proportion of people paying indirect taxes has gone up. He said the next day: We do not see any need to increase the tax burden. The tax burden has gone up. The Chief Secretary had to admit to me in a parliamentary answer that since 1992–93 direct tax had gone up. He has also had to admit that indirect tax—taxes on spending—has gone up, so there we have it: under the Tories, there is more tax on income, more tax on spending and more tax in total. There have been 22 Tory tax rises. No wonder no one believes them at all.

It is the same with VAT. The Chancellor may say that he has no recollection of having made a promise, but the Prime Minister did. He said that he had no plans to increase value added tax."—[Official Report, 28 January 1992; Vol. 202, c. 808.] He said that there would be no VAT increase and that the Conservatives had no plans and no need to extend the scope of VAT", yet he broke that promise. That has also happened with insurance premium tax, airport tax and other taxes. They have gone up under the Conservative party.

There is a clear pattern as we approach the Tory party's bid to win a fifth term. Not only is tax going up on income, but it is shifting to more and more taxes on spending—they are both going up. There is a clear strategy to pay for reductions of one particular tax—the basic rate of income tax. Indirect and hidden taxes will go up.

Lord Howe said in his first Budget in 1979, when he doubled VAT—despite having promised not to do so—that that was his strategy. The present Chancellor said: The Government's clear policy has always been to shift the burden of taxation, over time, from income to spending."—[Official Report, 30 November 1993; Vol. 233, c. 938.] The Chief Secretary said in his interview with Mr. Dimbleby on 1 December last year: what we're saying, and it's true"— so it must be— is that our first priority, as we can return overall to … a position where we can begin to look again at tax cuts, is to relieve the pressure on income tax. There's no secret that the Conservatives, right back to 1979, have always said, 'We prefer to take tax off, direct taxation off income tax and to put it—if you have to have it—on indirect … all other taxes'". There we have it. The Conservative strategy is to increase taxes such as VAT. We are entitled to ask: where are they going next? What will they do to win a fifth term? Is VAT going to go on food or clothes? They said last time that VAT would not go on gas and electricity, yet they broke that promise.

It is the same with national insurance. The Prime Minister said: National Insurance is a tax on talent so he put it up. The former Tory party chairman, Chris Patten, perhaps the next leader of the Tory party, said: Raising National Insurance contributions would be a back-door stealth tax. The Leader of the House said that national insurance is, in fact, simply a disguised tax. Perhaps that was an expression of hope, but whatever the Conservatives say on tax, people do not believe them. Nor do they believe their promises on spending, whether on the health service, on education or on borrowing. In each case, the Conservatives break their promises.

On borrowing, the Chief Secretary asked why we pick 1990. He may like to forget this, but that was when the Prime Minister was elected to office by the Conservative party. Despite what the Chief Secretary said, the national debt has doubled.

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

No.

It is no wonder that the Select Committee and others have expressed so much concern about the foundations that the Government invite us to believe are sound. Investment is growing more slowly in this recovery than in any recovery this century. People lack the education and skills that they need and we are 42nd in the world skills league. One in five families are without work, a higher proportion than in Germany, France or the United States, and our national and individual wealth continues to fall.

We need a platform of stability that is based on tough rules on spending and borrowing. We need a programme that will help to get the young unemployed and the long-term unemployed back to work. We must increase our education standards and opportunities, encourage longer-term business investment and reduce the barriers that face people who leave benefit and enter work.

Our amendment and our published policy set out our approach, which is economic stability, a commitment to low inflation and sound public finances. People want stability and they look to the Government whom they elect to act on their behalf to ensure the right conditions for high investment. People want the Government to provide an education service that will benefit everyone and not just the few. They want people to be equipped with the new skills and training that they will need in future because in a world in which capital is increasingly mobile, our skills and training will mark Britain as a place to invest.

People want a Government who are prepared to overhaul and modernise the welfare state and bring about conditions that will increase investment in our infrastructure and end the scandal and waste of long-term unemployment. They want a Government who will prepare the country for the future and end the economic and political drift of the past few years. They want a Government with strong leadership and a clear sense of purpose and direction who will deliver on their promises. That is what people will get with a new Labour Government.

Photo of David Willetts David Willetts , Havant 4:51 pm, 14th January 1997

I welcome this opportunity to support the Bill from the Back Benches. I congratulate my right hon. and learned Friend the Chancellor and the Treasury team on their overall Budget judgment. The Budget has delivered not just the fifth year of a growth rate that exceeds that of Germany and France, but the prospect of continuing to improve on that performance. We can carry on beating the over-regulated, over-taxed and over-subsidised economies of the continent.

Despite what the Opposition say, our sound control of public finances has enabled us to hold down taxation. The figures in the Red Book are clear: the proportion of GDP paid in taxes in 1991–92 was 36.25 per cent. and it will be the same in 1997–98. The proportion of family income in tax and national insurance contributions was 20.7 per cent. in 1991–92 and it will be the same in 1997–98. Meanwhile, we have lowered the basic tax rate, reduced tax on savings and taken many families out of tax altogether.

Photo of Denis MacShane Denis MacShane , Rotherham

The hon. Gentleman is in want of a little information. Is he aware that in France a family with two children has to earn about £15,000 a year before it starts to pay tax? That is why family stability in that country is stronger than in our family-unfriendly country. On what income does a United Kingdom family with two children start to pay tax?

Photo of David Willetts David Willetts , Havant

I shall return to the subject of family taxation if time permits. I should like to deal with the underlying control of public expenditure which enables us to hold down taxation and deliver the economic conditions that are described in the Red Book. Low taxes and continuing growth can be achieved only by holding down public expenditure.

During my brief period as Paymaster General, I discovered that one of the responsibilities of the post is signing the cheques. Such responsibilities for actually disbursing public expenditure still fall by statute on the Paymaster General. I understand that his signature appears on about 17 million cheques a year. People used to come to me in my constituency or at parties and say, "Thank you for the cheque." The average Opposition Front-Bench Member imagines that that is what being a Minister is all about, or at least it is what he or she thinks it should be about—signing cheques and handing them over in the hope that they will be warmly welcomed. In reality, a Government can deliver the low taxation that we now enjoy and our current rate of growth only by prudent public expenditure control.

At Prime Minister's Question Time today, we saw how Labour approaches the issue of public expenditure control. In the health service and in education, Labour assumes that the solution to every problem is more public expenditure. We have costed Labour's public expenditure pledges at more than £30 billion. When we published that figure, Labour immediately produced what it called a rapid rebuttal and denied the 89 public expenditure pledges that we had identified, not from dog-eared Labour documents but from specific statements by the Leader of the Opposition and the shadow Chancellor.

In its rapid rebuttal, Labour said most of the time that its public expenditure pledges would be met from existing resources. That may be rapid, but it is not a rebuttal. People cannot say that they will give sabbaticals to teachers for a term every 10 years but that there is no need to worry because it will be financed from existing resources. That is not a responsible approach to the control of public finances and, without such an approach, there will be no prospect of continuing to deliver low taxation and sustained economic growth.

Photo of Alistair Darling Alistair Darling Shadow Chief Secretary to the Treasury

People follow our proceedings, and it must be put on the record that the document produced by the Conservative party about alleged spending commitments was utter rubbish. Each of the allegations made against us was refuted. The hon. Gentleman is an honourable man. He and I have had many conversations and we disagree on some issues. I do not want to be rude to him, but I caution him against repeating things that he must know to be untrue.

Photo of David Willetts David Willetts , Havant

The hon. Gentleman knows that many of these so-called rebuttals by the Labour party consisted of assuring us that the expensive spending pledges—I gave a specific example—could be met from existing resources. I invite the hon. Gentleman and his fellow Opposition Treasury team members to explain how they seriously imagine that the expenditure pledges that they have put before the electorate in the past few years could be met from existing resources.

Photo of Mrs Elaine Kellett Mrs Elaine Kellett , Lancaster

Does my hon. Friend recall that Labour spelled out precisely how it would pay for one pledge? It said that school classes of 30 would be paid for by abolishing assisted places. That would give one teacher per seven schools.

Photo of David Willetts David Willetts , Havant

My hon. Friend is correct.

I should like to deal with some of the specific measures in the Bill which I welcome. The first of those is the approach to environmental taxes. In an earlier Budget, there was an imaginative approach to the problem of landfill sites which, as we all know, are often the bane of neighbourhoods because of the pollution they generate. In this Budget, the imaginative measures on vehicle excise duty and the taxation of hydrocarbons will mean that the particulates which are emitted, especially from diesel engines, will be reduced by a further 10 per cent. That is a good example of exactly how we can use the power of the tax system to deliver policy objectives that I am sure are shared throughout the House.

The second welcome measure in the Bill is an apparently obscure item on the depreciation of long-life assets. The philosophy on which the proposal rests is that, whenever possible, we should try to align the rules of the tax system with the accounting rules under which companies describe their financial affairs. As we all know, the 25 per cent. capital allowance in corporation tax for some investment is much more generous than the rate of depreciation that accountants, in preparing companies' accounts, would regard as appropriate for some particularly long-lived assets. I therefore welcome the proposal to reduce capital allowances on long-life assets from 25 to 6 per cent.

The measure has one interesting side effect. Some of the companies that will be paying the higher rate of corporation tax, because they have a particularly large number of such long-life assets, are utilities. In the past, some of the utilities have benefited from a clear distortion in the corporation tax regime, because they were allowed to depreciate their assets for corporation tax purposes at a much better rate than any sensible accountant would have expected them to depreciate in the accounts.

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

The hon. Gentleman is right: an argument can be made for ensuring that tax rates follow true rates of depreciation. I believe that there should be some incentive to invest. However, even on the basis of tax rates following the true rates of depreciation, does he not understand that the 25 per cent. rate on many items of machinery and, particularly, of plant does not provide such an incentive? Few articles of plant and machinery are worth 75 per cent. of the price after the first year and, in some cases, 25 per cent. represents the commission that a salesman might receive. Therefore, true depreciation is much greater than the depreciation allowed by tax.

Photo of David Willetts David Willetts , Havant

That is a very interesting point. However, in his initial remarks, the right hon. Gentleman seemed to accept that, on his argument, although a 25 per cent. rate sometimes was too low, on other occasions it might be too high. I hope that I may interpret his remarks as a guarded welcome for the proposal to reduce the rate from 25 to 6 per cent., although I accept that he believes that there are arguments for increasing the 25 per cent. rate.

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

I must apologise, as I did not get my point across. I believe that there should be an investment incentive on certain types of plant and machinery, and that the tax depreciation should be greater than the actual depreciation.

Photo of David Willetts David Willetts , Havant

The right hon. Gentleman and I will have to agree to differ on that point, because I think the 1984 corporation tax reforms, which attempted to introduce a set of capital allowances in corporation tax that were closer to normal accounting conventions, made a lot of sense. The old regime of providing very generous allowances and then a very high rate of corporation tax was much inferior to our current regime of a lower rate of corporation tax and more sensible allowances.

The proposal to move down to 6 per cent. for long-life assets makes a lot of sense, and will ensure that some of the utilities that benefited in the past from a distortion in the corporation tax regime will in future pay more corporation tax. That approach to taxation of the utilities is in striking contrast to the Labour party's proposals for a windfall tax, which lacks any such logic.

I should briefly review some of the arguments that Labour has made in favour of a windfall tax and contrast them with the proposals in our Finance Bill. One of the arguments made in favour of the tax is that, whatever problems there may be with retrospective legislation, Conservative Members must still take responsibility for the retrospective measures in the 1981 Budget—the so-called "bank tax". I served in the Treasury in 1981 when that tax was formulated and was involved in many of the fraught meetings with representatives of the banking industry, who came along vigorously to complain about that tax. I still have scars on the back which were inflicted at some of those meetings, when those representatives vehemently expressed their opposition to our proposals in that Budget.

The 1981 bank tax is very different from the Labour party's proposals for a windfall tax. The first difference is that we were clear on the basis on which a tax should be levied. It was a tax on the non-interest-bearing sterling deposits held by all banks in the United Kingdom, and there was no attempt to discriminate between banks on the basis of their status—whether they were foreign or domestic—their circumstances, or their history. The measure was based on agreed and published banking statistics showing the non-interest-bearing deposits held by the banks.

There was a genuine windfall element in that tax because interest rates had risen so high—at one point, they reached 17 per cent. Banks were taking in deposits on which they were paying no interest and were earning interest, sometimes of more than 20 per cent., on the loans that those deposits financed. We formulated a clear, simple measure specifying that the tax on banks should collect 2.5 per cent. of the value of those sterling deposits. The measure was clear and precise, it was introduced at the same time as the banks were making excess profits, and it was based on agreed statistics that had long been prepared and published before by the Bank of England.

I can do no better than quote from the Institute for Fiscal Studies, which has examined the possible analogies between our bank tax and Labour's proposed windfall tax. It states: The special tax on bank deposits had the merits of being applied to a well-defined set of firms and of being charged on a tax base that was coherently related to the reasons given for introducing the tax. It also had the advantage of being introduced at around the same time as the banks were earning these windfall profits, and not several years later.In contrast, it is not at all clear which privatised firm will be liable to the windfall levy, or what basis would be used to decide how much each firm would be charged. There is a clear difference between the approach in our 1981 Budget, although many Conservative Members regretted the element of retrospection, and Labour's extraordinary proposals, many years after the event, for a windfall tax on the utilities.

Labour needs to answer some pertinent and essential questions about the tax, such as how much it is supposed to raise. Will it be £3 billion, £5 billion or £10 billion? Which companies will pay it? Will it be, as the Leader of the Opposition said, "privatised monopoly utilities"? That is what Alastair Campbell—who is presumably the most authoritative spokesman available on Labour policy on these matters—said in his notorious letter to The Independent. Or will it be, as the shadow Chancellor said, "privatised utilities"—deleting the "monopoly" word? British Telecom, BAA or the electricity generators would find themselves taxed under the proposals that the shadow Chancellor wants to introduce, but apparently would not be taxed under the proposals supported by Labour's chief spin doctor and the leader of the Opposition.

Photo of Denis MacShane Denis MacShane , Rotherham

I am grateful to the hon. Gentleman for giving way once again. He is making incredibly heavy weather of this matter. I have no doubt that when, in a few weeks or months, my hon. Friends are sitting on the Government Benches, they will provide answers to the detailed questions he has asked. May I ask him whether he is against the principle of a windfall tax?

Photo of David Willetts David Willetts , Havant

I am certainly against the principle of a windfall tax on the utilities, and I have explained why that case is very different from the windfall tax on banks which we introduced in 1981.

Those are important questions to which leading firms in our country are entitled to know the answers, and they are questions that any serious political party about to put its prospectus before the electorate should be expected to answer. The windfall tax is the core of Labour's tax strategy, and it is the pot of gold that Labour says will enable it to finance all the public expenditure pledges that it has made to the electorate. Will corporation tax be taken into account in calculating liability for the windfall tax on the utilities? When we introduced the bank tax, we deliberately decided to set it completely independently of corporation tax. No corporation tax payments were relevant to the liability for bank tax. Will the same apply with this tax? That question is particularly relevant to British Telecom.

How would Labour handle the question of state aid? What about those firms in the same business that were never nationalised—

Photo of David Willetts David Willetts , Havant

I am sorry; I shall make a bit more progress.

What about those firms that were nationalised and, therefore, never privatised, such as some private water companies, for example, which presumably would not pay the tax? Under agreed European Commission rules, they would be regarded as beneficiaries of a negative state aid. A discretionary tax would be borne by some of their competitors in their industry but not by them. What has Labour done about the response to that problem from the European Commission? We know that, because French companies own some of those utilities, the French Government are extremely unhappy about the proposal.

We have been told how close the Labour party is to President Clinton's Democrats. When talking to its friends in President Clinton's Administration, does Labour just swap notes on what its focus groups say or does its friends raise the worries about the proposal felt by American businesses that have bought into the British utilities? We know that in America they are particularly unhappy with anything to do with retrospectivity. There are rumours that the first thing that would happen in the event of a trade war, which the tax would unleash, is that the American authorities would block the British Telecom merger with MCI to form the new firm, Concert. Does the Labour party believe that that would happen? How would it be handled?

We have heard from the leader of the Labour party that it believes that it is important for all of us to do our homework. If that is so important, will Labour's Treasury team do its homework on this proposal? We are all entitled to know the answers to those practical questions.

Photo of Andrew Miller Andrew Miller , Ellesmere Port and Neston

If the hon. Gentleman wants to make so much about Labour's tax on the utilities and is drawing a comparison with the 1981 tax on the banks, perhaps he would be kind enough to tell the House where a reference to that tax appears in the 1979 Conservative manifesto—which clause and which paragraph?

Photo of David Willetts David Willetts , Havant

Although there was no reference in the 1979 manifesto, there was a clear reference in the 1980 Budget. The then Chancellor, now Lord Howe, made it clear in his 1980 Budget that he was considering the possibility before it was introduced in 1981; so the possibility of a bank tax was publicly ventilated and the pros and cons were set out in the 1980 Budget speech.

We know what the Labour party says when pressed on these practical questions about tax. I have the Labour party's briefing document, which says: We have made no public comment on the nature of the levy, its expected yield or the distribution of the levy and have no plans to do so until we have consulted the regulators in government. The Labour party's defence is that these are difficult issues which have to be discussed with the regulators. If that is the Labour party's line, how can it explain what appears on the following page of that same briefing document? When confronting the question about legal obstacles to the tax in the European Court of Justice and the European Court of Human Rights, the document says: Our investigations have confirmed that there are no financial, technical or legal obstacles to the introduction of the tax. How can the Labour party know so much about the tax that it can assure us that it will not encounter any legal obstacles, yet, at the same time, know so little that it needs to consult the regulators and will not answer any of our questions until then?

Photo of John Butterfill John Butterfill , Bournemouth West

Does my hon. Friend agree that the principle of the proposed tax undermines the position of the regulators in their judgment about the policies that will need to be pursued in the future? The regulators must make economic judgments about the profitability of the companies concerned and the public interest, but the tax would undermine those judgments.

Photo of David Willetts David Willetts , Havant

My hon. Friend is right. The tax involves a fundamental transformation of the way in which we have regulated the utilities. Our deliberate decision when we set up the regulatory regime was not to make the mistake that had been made in America, where they have rate of return regulation. We wanted to regulate prices; if a company could do well and improve its performance, it could make better profits as a result. The proposed tax is about shifting to rate of return regulation. In the long run, that will bring back all the old inefficiencies, the gold plating, the unjustified expenditure and the excessive expenses that the American regime has inflicted on America. Sadly, if the Labour party took office, it would be the end of the basis on which the utilities have been regulated so far. There would be a reversal of our fundamental decision not to go down the American line. I do not want to detain the House for too long. The one thing that has been noticeable during my remarks about the windfall tax is that there has been no attempt by Opposition Members to answer any of the practical questions about how the tax would work.

Labour Members say that they need to raise this unspecified sum to finance an ambitious training programme to get the long-term unemployed back to work. That brings us to another element of the Budget, because it raises some important questions about how we think that we can bring down unemployment in this country. Since there are more than 4 million unemployed in Germany, more than 3 million unemployed in France and less than 2 million unemployed in this country, one might think that this Conservative Government know something about the right policies for bringing down unemployment.

I must tell Opposition Members that training for the unemployed is much exaggerated as a way of getting people back to work. Of course training is a good thing, and we need training so that people can earn high incomes on the basis of their skills. However, the best training is done in-house by an employer for a known employee so that that employee can increase his contribution to the firm's output.

Sadly, training schemes aimed at the unemployed can have the opposite result to the one intended. Unfortunately, there is evidence to show that, when training is oversold and unemployed people are told that it will transform their job prospects, they end up expecting higher pay than they will be able to command in the labour market. In an experiment in America, one group of unemployed people was offered no training and a second group was offered training. Subsequently, the group that did not receive the training did better at finding work. The training had, to use the language of economics, increased the reserve wage of the unemployed people by more than it had increased their value.

We need a flexible labour market that helps people into work and provides on-the-job training. If we have succeeded in creating such an economy, we should see that, once people find work, they will enjoy significant increases in their living standards and their pay.

Photo of Mr Ralph Howell Mr Ralph Howell , North Norfolk

I am interested in my hon. Friend's argument. Will he explain why the Government's excellent scheme on workstart, which is in line with what my hon. Friend is suggesting, has not been introduced nationally? That is crying out to be done.

Photo of David Willetts David Willetts , Havant

My hon. Friend has a distinguished record of proposals in this area. Project work, which is very much modelled on my hon. Friend's thinking, is being expanded this year to cover 100,000 people. However, in this aspect of policy we have learnt that it is better to experiment and run pilot schemes to find out what works rather than rush too soon to a national scheme.

A labour market that works—ours does work and that is why we have such low unemployment levels—would be one in which we would expect people to find their jobs and then, as a result of training in work, to boost their income.

An OECD study on income mobility found that, across the whole of the OECD, upward mobility among young people was greatest in Britain, where 62 per cent. of under-25s moved up at least one income band—during the period of the study, which was 1986 to 1991. In America—we are often told how terrible things are there—54 per cent. managed to increase their incomes and in Sweden, the type of country which the Labour party likes to copy, only 39 per cent. of young Swedes managed to move to a higher income band in that period. In other words, our policies help people into work and enable them to enjoy higher incomes once they are in work.

Alongside the measures on environmental taxation, long-life assets and the elimination over time of the tax distortion of profit-related pay schemes, there are other tax measures not in the Budget to which I hope that we can look forward in future Budgets delivered by the current Treasury team. I particularly hope for further reform of capital taxation.

Capital gains tax is a classic bad tax. It is imposed at a high rate on a narrow base. Many people have complained about the effect of the 40 per cent. capital gains tax rate on incentives for investors. Following that pressure, over the past few years ingenious new allowances and exemptions have been created. I do not like a tax levied at 40 per cent. with so many allowances and exemptions that only those who have planned their affairs badly pay that rate. That is not a good tax; it is exactly how a tax should not be structured.

Even if Treasury prudence means that it will be some time before capital gains tax can finally be abolished, I hope that, in the interim, we can have a more broadly based tax levied at a lower rate. There are some useful proposals in the Budget on the reform of capital taxation. I hope that we can make further progress on that in our fifth term.

Photo of Mr Robert Sheldon Mr Robert Sheldon Chair, Public Accounts Committee 5:21 pm, 14th January 1997

The hon. Member for Havant (Mr. Willetts) spent more time on the Finance Bill that my right hon. Friends will introduce than on that before us today. He made heavy weather of the windfall levy on the utilities. I accept the need for the kind of consultation that he had with the banking community when the banking levy was introduced, but that is a matter for a Government. No Opposition, however much advantage they may have in experience or understanding, can copy the work that is essential for a Government. The necessary consultation with the utilities and other interested parties will obviously be an essential part of the work of my hon. Friends when they form the Government. I look forward to the Finance Bill and the debates that will follow, when we shall find out how successful my hon. Friends have been in meeting some of the obvious comments that are bound to be made as a result of their initiative.

My first thought on receiving the Finance Bill was that it was in one volume only. It is still too large, but it is more manageable than those that we have received in the past. There has been an inflation of expectation with Finance Bills and I am grateful for this year's reduction.

In Somerset House, there was-there may still be—a room in which all the Finance Bills and related regulations are set out on shelves. Until the middle years of the last century, one volume covered several years. The pace of change increased to annual volumes, then to several volumes for a year, then to whole shelves for each year. I fear to think how much space they now take.

Hand in hand with the inflation of the tax system has gone the army of accountants, tax advisers and all those who service that mighty engine of Government revenue. At some time the expansion will have to level out, but I fear that we may have to wait some time. Meanwhile, we are awaiting with great expectation, but some uncertainty, the simplification that this Government—like all others—talk about but fail to deliver.

When the combined tax and revenue Budget was introduced, the argument was that we would be able to relate taxes to expenditures and decide on the priorities. However, the Government overlooked the fact that to do that one would need to assess the priorities between taxes and spending and make decisions accordingly. More expenditure would mean more tax and less tax would mean less expenditure. Ideally, one might even have envisaged reducing a certain item of expenditure to provide a specific tax reduction, or increasing an item of expenditure and accepting a specific tax increase.

One can, of course, argue that all that is impracticable outside the Treasury, which alone has the means of producing the large range of options. Without the ability to trade certain items of expenditure against tax, we have a combination of little value. In fact, the new system is a disadvantage. It is not working. It jams up the legislative process and distorts what was a sensible division of the parliamentary year. We are not getting that trade-off between expenditure and taxation. We are making similar speeches to those that we used to make. In the old Budget debates it was always possible to urge certain expenditure decisions. The root of the matter is that, given the inability to increase taxes—only the Government can undertake that—the position does not make for greater parliamentary control of the decision-making process.

We could well consider returning to a spring Budget, with the Finance Bill reaching the statute book by July. One certain advantage is that debates on the economy could be spread over a wider period. It is unacceptable that, after speaking in the debate on the Queen's Speech in October and the Budget debate in November, the Chancellor makes no further speech until July, six or seven months later.

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

I am following the right hon. Gentleman's argument. I remember similar points being made by my right hon. Friend the Member for Worthing (Sir T. Higgins), with whom the right hon. Gentleman agrees on this issue. However, he should remember that it is always open to Opposition parties to use one of their supply days to debate the economy. It has been noticeable in recent years, when the economy has been doing well under the management of my right hon. and learned Friend the Chancellor, that Opposition parties have not taken the opportunities available to them to debate the economy. They know how strong our position is.

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

I am talking about the formal arrangements for managing such matters. That is the essential issue. Of course Opposition days can fill in the gaps, but there is no formal arrangement for a debate between those in October, November and December and those in July. I believe that there should be. I hope that that will be considered in due course.

Several commentators have argued that my right hon. Friend the Member for Dunfermline, East (Mr. Brown) will receive a splendid inheritance. That assumption is behind the speeches that we have heard and are yet to hear. The argument is that there will be low inflation, reasonable growth, a reducing budget deficit and low taxation. The reality is that those commentators have got it all wrong. We have an artificially low level of inflation because of the rising value of the pound. I know that Governments facing an election have a partiality for an over-valued exchange rate. That has always been so, because a high exchange rate makes for a lower retail prices index. Cheaper imports feed into the RPI. The standard rule of thumb that I used in my days at the Treasury was that each 1 per cent. change in the exchange rate resulted in a 0.25 per cent. change in the RPI. I was encouraged to hear that that calculation is still roughly correct.

Photo of Mr Barry Legg Mr Barry Legg , Milton Keynes South West

I am interested in the right hon. Gentleman's argument. Why did that relationship not work when we left the exchange rate mechanism? The pound then floated downwards. Imports rose in value, but inflation fell.

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

There are long-term effects of such matters. It sometimes takes a long time for import prices to feed in. There is no question but that if the value of the pound is increased, imports become cheaper. Given equal conditions, such cheaper import prices will eventually feed into the RPI. There may of course be other short-term considerations, and the pressures of competition are one among them, but the general rule still applies. One can argue about the precise nature, but that is the broad direction of movement.

In the past 12 months, the trade-weighted exchange rate has risen from 83.5 per cent. on 2 January last year to 96.1 per cent. today—an increase of about 15 per cent. On the basis of the calculation by Goldman Sachs International Ltd., inflation has been dampened by about 2 per cent. So, the 2.5 per cent. target for inflation has been met only by endangering our manufacturing industry. If we accept the Goldman Sachs argument, the level of inflation today would be about 4.5 per cent. Nobody can doubt that the increase in the value of the pound has meant that the level of inflation today is much less than it would otherwise have been.

Photo of John Butterfill John Butterfill , Bournemouth West

The right hon. Gentleman suggests that damage to export industries is an inevitable consequence of a rising exchange rate, yet that is not borne out by the examples of many other countries. If that were ultimately true, how does the right hon. Gentleman explain the success of the Japanese and German economies and their exports? Do not successful economies throughout the world generally tend to have appreciating exchange rates? They are successful and remain so because they hold down their cost base, are innovative and have flexible labour markets.

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

If the hon. Gentleman will forgive me, he has got it a little wrong. The strength of such countries' industries brings about an increase in the level of currency. Here, the increase in the value of the pound is motivated not by the strength of industry but by the level of interest rates, to which I shall refer.

The target on which the Government have prided themselves above all others has been obtained purely temporarily and is having serious economic consequences. It is damaging our exporters and, of course, our home industry, because it is easier for people to bring in goods from abroad and compete with our industrial manufacturers to their disadvantage. There were enormous such difficulties in the 1960s when so many goods were brought in from outside this country, damaging especially manufacturers' white goods and affecting them for the whole of the 1970s and 1980s, and even now. The question is what would the RPI have been if sterling had remained at the level of 12 months ago? One can take one's choice, but Goldman Sachs' projection is probably about right.

The current overvaluation of sterling has serious dangers for our manufacturing industry, because its exports may be priced out of the market and competition in home markets may be increased. After all, manufacturing industry was saved only because of black Wednesday, which cost us billions of pounds but produced a realistic exchange rate. It was that which enabled the economy to emerge from the savage recession.

The Government are storing up trouble for the future. The only way in which our economy can really improve in the long term is through our manufacturing industry. Meanwhile, there is the benefit of the "J"-curve effect. The initial effects of devaluing are disadvantageous, as the exporter is committed to a lower value of sterling for his goods and services. With an upward movement of sterling, the invoice value to the exporter for current deliveries will be increased—but at the expense of future orders. So, for a very short time, the Chancellor of the Exchequer will find the balance of trade beneficial, but in that way he is bequeathing to my right hon. Friend the Member for Dunfermline, East an unwelcome legacy. Unfortunately, that is not all.

My right hon. Friend the Member for Dunfermline, East may find that the level of the economy is unsustainable. Apart from the increase in house prices, which is always reflected inadequately in the RPI—the level of house prices and its effect on inflationary expectation is much greater than anything that shows up in the RPI—I do not believe that we are seeing anything like a boom. We are however seeing a recovery that may not be sustained. After all, that is the reason why the Governor of the Bank of England will want a greater increase in interest rates than the Chancellor of the Exchequer is likely to find acceptable.

Even all that does not complete the problems that my right hon. Friend the Member for Dunfermline, East will inherit. There are the problems of public sector pay, too. It has held down for so long that the pressure is likely to continue to mount. My right hon. Friend will also lose the financial benefits of further privatisation. Several billions of pounds a year of family silver sales are not easily replaced. In all 18 years of office, the Government have missed the opportunity to get from industry the investment and the exports that could have produced lasting economic success. Ian Gilmour put it extremely well when he pointed out that we once had such a great opportunity, but failed to make use of it. Indeed, the opportunity was forgone to the disadvantage to the country as a whole.

It is the credit of my right hon. and hon. Friends that they have seized on the only lasting solution to our problems: investment and education—investment in industry and investment in people. The Government's 18 years might have been regarded as a little less than disastrous if they had undertaken such measures. After all, they had more than £100 million of North sea oil revenue, let alone the balance of payments advantages that flowed from it, as well as privatisation receipts. They had a unique, once-and-for-all opportunity to invest in education and industry, but threw it away. Now, in much poorer circumstances, we have to find the means to undertake the task of rebuilding this country's real wealth, our industry and the skills of our people.

I see that once again the question of company taxation is being examined. I believe that it was a fundamental mistake to change from the classical to the imputation system of taxation. The encouragement to pay dividends means that that main source of investment—the retention of earnings—is not available in the same way as the classical system allowed. Reluctantly, some years ago I came to the view that such fundamental changes in company taxation would have to be forgone. One cannot keep changing the system year after year or even decade after decade. We have lived with the present system for more than 20 years and witnessed the disadvantages of it, especially for investment. If we are to look at the matter again, it might be worth considering the arguments that were put forward at the time that the system was introduced. In any event, the level of capital allowances in the Bill does not provide the incentives to invest that we should be offering.

The increase in the rate of insurance premium tax came as no surprise. I always expected that the Chancellor of the Exchequer would follow the sound principle of first getting the structure right. I have seen the introduction of a number of taxes where revenue was the first consideration and sacrifices of structure were made. Much the best way of proceeding is to get the structure right first and the revenue later. I would be interested to hear the views of the Chancellor's predecessor but two, Lord Lawson, on the matter. He prided himself again and again on the abolition of taxes. Any comments that he makes on the insurance premium tax as well as the air passenger duty will be worth reading.

I cannot be as sanguine about self-assessment as the Government. I must confess that I have not had many inquiries from constituents on the matter, but those that I have received show a lack of comprehension about what it all means. I know that the Inland Revenue has provided much information and advertisements. I must however warn the Government that, despite all their efforts, they must be prepared for a certain level of confusion that might surprise them. I know that, as in the United States, there will be much work for tax accountants and advisers, but such a system of help will take some time to come into effect and the cost to individual taxpayers will be considerable—in fact, much larger than many taxpayers will expect. Payment by September in each year may be subject to some slippage and I hope that the Inland Revenue will use its discretion in applying any penalties, especially in the first year. It should not be too heavy at the beginning, but give people time to adjust so that eventually they come to understand the problems involved in self-assessment.

In the words of the amendment tabled by my right hon. and hon. Friends, the Finance Bill fails to equip the country for the future. That is the real indictment of the Government that I hope to see put right in the first years of a Labour Administration.

Photo of Quentin Davies Quentin Davies , Stamford and Spalding 5:39 pm, 14th January 1997

It is a great pleasure to follow the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who is a distinguished Member of the House and who has a long record of taking an interest in financial matters. His speeches are always thoughtful and considered, but I did not expect such a remarkable and revealing speech as we heard today. After the classic attempt, which is now typical of new Labour, by the hon. Member for Edinburgh, Central (Mr. Darling) to try to evade every question that was put to him and to avoid any commitment about the Labour party's policies if ever it came to power, the right hon. Gentleman let the cat out of the bag. I hope that his speech will be read thoroughly and carefully—and people should read between the lines of the speech—by everybody who will cast a vote at a general election some time in the next few months.

The right hon. Member for Ashton-under-Lyne is not only a living symbol of the continuity between the modern Labour party and that of the Wilsonian era, of inflation over 20 per cent., of the British disease and of the IMF bailing us out, but he made it clear today that exactly the same policies so disastrously practised in the 1960s and 1970s still lie at the heart of Labour thinking. We heard the same nostalgia for devaluation—in fact, the right hon. Gentleman delivered almost a panegyric to devaluation, so he has learnt nothing from the 1970s. It is clear that the Labour party's exchange rate policy would once again be one of secular devaluation to compensate for the productivity failure of the economy as a Labour Government began to run down the supply-side reforms that we have introduced in the past 15 years.

The right hon. Member for Ashton-under-Lyne also said—not subtly enough to deceive anybody in the House or outside—that public sector pay had been rather neglected in the past few years. What does that mean? That means that the Labour party when it comes to power will give a bonanza to the public sector trade unions which support it and continue to finance it. Now we know about another source of extravagance, fiscal irresponsibility and inflation if ever we have a Labour Government.

The right hon. Member for Ashton-under-Lyne also said that privatisation was a great mistake. I distinctly heard him say that the Government should have invested more, so the Labour party still believes that it is the job of Governments to invest. The Labour party still secretly believes that Governments should make resource allocation decisions and determine how savings are mobilised and where they are invested. We know now what will happen to the British economy if we have a socialist Government in power in a few months.

The right hon. Member for Ashton-under-Lyne also said that he did not like the tax imputation system and that it provided too great an incentive for companies to distribute their profits. What does that mean, en clair? It means that he and the Labour party want to place disincentives on companies to distribute their profits. The Labour party wishes to force companies to retain profits and it still opposes the whole concept of capital mobility. It does not believe that we should have efficient financial markets that channel cash from cash-generating industries and allow it to be mobilised in other sectors of the economy and by other firms. It believes not in mobility but—as socialism always does—in a rigidified economy in which capital is stored in the firms that generate the capital instead of being distributed around the economy.

I also heard the right hon. Member for Ashton-under-Lyne make a remark about capital allowances, to which the same principle applies. He wants to create incentives for companies to invest in fixed assets and that shows that the Labour party still has the traditional socialist obsession with fixed assets and capital. It cannot distinguish between investment in general and the purchase of plant and machinery in particular. That obsession goes back to the very origins of the socialist party and we have heard the same rhetoric for the whole of this century from Opposition Members. They believe that Governments should somehow distort capital flows.

We heard an interesting speech from the right hon. Member for Ashton-under-Lyne and I hope it will be not only read but kept by everybody until the moment when we have to take an electoral decision. What a contrast there is between that vision of socialism drawn from the past that was presented to us with such commendable frankness—or relative frankness, by the Labour party's present standards—and the picture of the actual British economy at the beginning of 1997. What a contrast there is also between those policies to which the Labour party is clearly still wedded and the policies reflected in the Budget and the Finance Bill before us.

The Budget is one in a series of sound, sensible and historically productive Budgets. In the past few years, we have steadily reduced Government borrowing. The Budget will go further towards reducing the public sector borrowing requirement. It will go further towards reducing the ratio of Government debt to gross domestic product and, at the same time, it will reduce direct taxes. It is a considerable achievement to hit all three objectives at the same time.

Photo of Denis MacShane Denis MacShane , Rotherham

Would the cherry on the cake that the hon. Gentleman is describing be Britain's entry into economic and monetary union as soon as possible?

Photo of Quentin Davies Quentin Davies , Stamford and Spalding

I have not yet got on to monetary policy, but I should delighted to pursue that matter in another context. My views on EMU are well known. Clearly, if there is a opportunity to create a sound and sustainable zone of monetary stability in the European single market, and if there is an chance to achieve the resulting stability gains, the lowered costs of capital and the benefits for trade, we would be crazy to pass up such an opportunity. Whether such an opportunity will present itself we have yet to see and we will take a decision in the light of circumstances at the time.

Photo of Denis MacShane Denis MacShane , Rotherham

We will take the decision.

Photo of Quentin Davies Quentin Davies , Stamford and Spalding

I can tell from the hon. Gentleman's reaction that he does not disagree with the logic of my response. I understand also why the hon. Gentleman wanted to deflect me from the original course of my speech. I was making some irrefutable remarks about the qualities of the Budget before us. If we reduce Government borrowing, we reduce the pressure on interest rates and inflationary expectations in the economy. If we reduce the ratio of public debt to GDP, we reduce the pre-emption of resources in the economy by the Government sector and allow a greater proportion of national wealth to be allocated by the productive sector of the economy. Moreover, reducing direct taxes increases the incentives for people to return to work, to train, to take overtime opportunities, to invest, to take risks and to build up businesses. Doing all that year after year creates a sound basis for a modern economy, and that is exactly what has happened.

At no time during the lifetime of any hon. Member in the Chamber—or during the entire century—have we enjoyed, as we have now enjoyed, nearly five years of continuous growth. Growth started again after the recession in the spring of 1992, so within a month or two there will have been five years of continuous growth, falling unemployment and increasing numbers of hours worked in the economy. At the same time, we have falling inflation and no balance of payments crisis. When Labour has been in power, we have scarcely enjoyed a couple of years of continued growth. Labour Governments did not achieve that very often, but they then ran straight into the bumpers of inflationary pressures and a major balance of payments crisis.

Why have we not had a balance of payments crisis during the past few years? Is that not the rather revealing dog that has not barked in the night? Why has increasing demand been satisfied from domestic sources, or—to the extent that we have increased imports in a world that is rightly becoming increasingly commercially interdependent—why have we been able to increase our exports by an equivalent or even greater rate? It can only be explained by a simple phenomenon—one which the Labour party does not want to recognise. There has been a genuine supply-side revolution in this country.

We have improved productivity and become more innovative. Management has become more professional and the work force has become more realistic, and has got away from the terrible influence of trade unionism, which was systematically opposed—and remains opposed, so far as it retains any influence—to productivity increases and to innovation. The supply-side revolution has been a direct result of the Government's policies of sound money. We have not subsidised firms—either directly through subsidies of the kind advocated by the right hon. Member for Ashton-under-Lyne or indirectly through devaluation—and we have carried through our complementary policies of privatisation and tax reforms.

Does this extremely encouraging picture mean that I will simply sit down without saying that there are any problems or challenges on the horizon? No, it does not. Anybody who looks carefully at the Red Book can see that there are one or two challenges. I believe that they can and will be met by the Government in the next Parliament. One of the challenges—or disappointments, if you like—that is perhaps most striking to any reader of the Red Book is the fact that after five years of continuous growth, social security spending continues to rise. That is clearly worrying. The rate of acceleration of social security expenditure has been modulated, but one might have supposed that after the creation of so much prosperity, the dependency ratio would fall and social security expenditure would reflect that. That has not happened.

I fear that it will be necessary sooner or later—I hope that it will be sooner—to take a radical look at the whole social security system. I very much believe that my hon. Friend the Member for North Norfolk (Sir R. Howell) is right and that there are a number of moves that need to be made and decisions that cannot be postponed indefinitely. The social security system is, sadly, full of anomalies and unfairness of all kinds, but above all it is filled with perversities. The greatest perversity is that it contributes to the problems with which it is designed to deal—unemployment, poverty and dependency. That is not good enough, and we cannot and should not continue to accept it; not only because a lot of public money is involved—although that is, of course, an important factor—but because of the profound social implications of increasing and allowing to increase the dependency ratio in our society.

We must look at how the social security system might he altered so as to reduce the disincentive to work and the incentive to become a dependant that is inherent in any social security system. One proposal that has been often promoted is to merge the benefits and taxation systems. That is superficially appealing, because it would mean that we would be withdrawing benefits as people went back to work at the marginal rate of taxation—20 per cent. or 23 per cent. at present—rather than at rates which are penally high. These effective rates of taxation approach 100 per cent. in many cases and—in some particularly anomalous cases—more than 100 per cent. However, that solution would be expensive and extremely complicated, not least because the benefits system is based on weekly assessments and the taxation system is based on annual assessments of income.

A much better way is that indicated by my hon. Friend the Member for North Norfolk: to introduce a greater element of what is popularly known as workfare. One of the great problems at present is that if one receives income support one is expected to do nothing other than possibly take work or training that occupy a very small proportion of the hours in the week. In other words, one finds oneself condemned to compulsory leisure, and that makes no sense at all. It would be far more desirable if someone who becomes unemployed—it is always a disaster in a person's life, although one hopes it is only temporary—used that leisure to take a full-time training or education course. Or he could try to find his way back into employment, perhaps by offering himself to an employer for free for a while to see whether or not he can work his way into a job. However, those options are excluded by the availability to work rule.

It is an obvious anomaly that when there is socially useful work to do people are being paid to do nothing, and if a person has the prospect of returning to work full time for an amount of money which, on a net basis, is not much greater than his benefit, the rewards of returning to work can be derisively small. An unskilled person may have the prospect of receiving a relatively low income if he goes back to work. Those living on benefit—including housing benefit—of between £100 and £150 a week might have the prospect of receiving £200 a week from full-time work. With deductions, we may be asking them to give up their leisure for £20 or £30 a week. Quite reasonably and rationally, many people will say that their leisure is worth more than £20 or £30 a week. Which of us in the Chamber would not say that our leisure was worth more than that? Therefore, quite rationally, people will decide to remain on benefit if they can. Such anomalies must be removed. Workfare experiments—which have shown some interesting results in a number of states in the United States and elsewhere—should be looked at urgently with a view to introducing them in this country.

The other great challenge to which I want to draw attention—and which again stares out of the Red Book—relates to health and education, and particularly health. Health and education, as I think we all know, are positive goods and demand for them tends to increase with income. If people's incomes rise, they tend to wish, naturally, to spend a greater proportion of those incomes on education and health—as well as on other positive services such as tourism and financial services, and they spend a lesser proportion of their rising incomes on goods such as bread.

There is an additional problem with health because of the rapid innovations in technology, which are extremely expensive, so the cost of providing health care at the current level of technology rises much faster than the rate of general inflation—far faster, I would submit, than the gross domestic product deflator that is used in the Red Book to convert nominal spending projections into real ones.

There is a fundamental contradiction, over time, between the Government's correct and laudable desire to bring down public spending as a proportion of gross domestic product—of national income—and the fact that we are committed to providing, within public expenditure, services the cost of which as a proportion of national income is almost certain to rise. That anomaly will need to be addressed in the next Parliament, and I have no doubt that a Conservative Government will do that.

It is absolutely clear that such challenges can be satisfactorily faced only by an economy with a sound basis, which is competitive in the modern world and offers the prospect of rising national income—an economy in the hands of a political party with sane economic policies and some understanding of what it takes to provide the framework for economic progress. Nothing could be more disastrous than a return to the policies so eloquently set out by the right hon. Member for Ashton-under-Lyne.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury) 6:01 pm, 14th January 1997

As the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) said, the Bill deserves one cheer for being shorter than previous Finance Bills. That is a move in the right direction, although a Bill of 111 clauses, 17 schedules and 219 pages is hardly abridged, and from the consultations that I have had, I understand that it is pretty inaccessible in parts, even to experts.

My constituents have pointed out some of the effects that the Budget will have on them. The cut in spirits duty was welcome, although it merely reversed the damage of two years before. I represent a constituency that contains, on its current boundaries, three distilleries, two of which are closed, and on its new boundaries nine more distilleries, so the state of the Scotch whisky industry is of genuine concern to me.

The industry is a major exporter and an important employer of skilled men—it is mostly men—in rural areas where alternative employment does not exist, and it has experienced serious difficulties. Those involved welcome the fact that the Chancellor has acknowledged the serious damage that he did when he put 50p on a bottle of whisky two years ago. I hope that he will be able to go further and eliminate the anomaly whereby spirits are taxed much more heavily than wine. I have always regarded it as odd that we tax our home-produced spirits much more heavily than the predominantly imported wines, even as a matter of trading policy. That is remarkable discrimination against home production.

Education is an extremely live topic in my constituency. The Government have acknowledged that the tax changes will mean that local authorities face further squeezes. We have all had representations to that effect. In Scotland, education at school level is delivered almost entirely by local education authorities, despite the best endeavours of the Scottish Office Education and Industry Department to persuade schools to opt out.

It is no good for Ministers to say that they are in favour of nursery education and then to create a local government settlement that has made it impossible for us to continue to expand nursery education in the past year, despite the fact that under Liberal Democrat leadership we have substantially increased provision over the past 10 years.

The introduction of nursery vouchers has exacerbated the problem and actively penalises local authorities that have taken the greatest lead in expanding nursery education in the past few years. I shall certainly make representations against that discrimination against local authorities that have been pursuing a policy that the Government claim to support, while in fact they divert money to the expansion of private nurseries at the expense of nurseries that are already provided by the local authority.

The hon. Member for Stamford and Spalding (Mr. Davies) made much of the anomalies in our attempts to get people back to work and of the difficulties in the benefit system. The Liberal Democrats proposed a low-income benefit that would remove some of the anomalies and help people to get back to work by enabling them to take benefit with them and not to lose benefit if the job turned out to be only temporary. At the moment, there is a clear disincentive for people who are offered short-term jobs and are not prepared to take the risk of being off benefit altogether if the job does not last for more than a few weeks.

The Government may take the view that the general fall in unemployment is a justification for a substantial cut in funding for the administration of the various unemployment benefits and jobseeking initiatives. That would be unfair. A successful job club in my constituency, in an area where, contrary to the national trend, unemployment has increased, has now been told by the Employment Service's area manager that it will be either closed or substantially cut, in spite of its handling more people and having more success in finding them work than many comparable job clubs.

The argument is that there will be a saving, because people will be encouraged to claim money to seek jobs from their homes. As an additional service for people who are unable or unwilling to travel to a centre, that would be a welcome development, but as a substitute for the support and advice and access to telephones and newspapers that are available in a job club it is in no way an improvement; it is a cost-cutting measure that will work against the Government's true interests, because at the precise moment when jobseeker's allowance is requiring more people actively to seek work to qualify for benefit, the Government are cutting the very service that people would use in those circumstances. The Government should at least take account of local circumstances, which they clearly have not done with the job club in Huntly.

Transport and the roads budget are also matters for concern. In rural areas, public transport is limited and the potential for further development is virtually non-existent, so the ownership of private cars is a necessity rather than a luxury, yet the Government have pursued policies that have unfairly discriminated against people living in the rural parts of constituencies such as mine.

The Government have increased fuel tax without any corresponding measure to switch from a tax on use to a tax on ownership. They could, as we proposed, have reduced vehicle excise duty on high-efficiency cars—perhaps those under 1500 cc with catalytic converters—to a nominal amount of £10 or £20, which would have meant that people paid the extra tax only when they used the fuel rather than paying high tax simply for the privilege of owning a car that is essential for getting about. I continue to commend that notion to the Government.

It is nothing to do with the macro-management of the economy but a blatant matter of choice that the Government have decided to invest substantial sums in motorways in central and southern Scotland which were not justified on their own traffic criteria, and have cut the promised bypass and road improvements in my constituency, despite the fact that we have had the greatest population increase and growth in traffic of any part of the United Kingdom, and certainly of any part of Scotland.

Understandably, people are extremely angry that, a week before the Budget, the Scottish Office managed to launch a public consultation on a major road improvement on the A92 between Aberdeen and Ellon in my constituency, only to announce a week after the Budget that it would not proceed. The only consolation, although the reply that I have received from the Minister is confusing, is that it would appear that he is prepared to continue the consultation about the route, while saying that there is no firm date on which money will be made available for the upgrading that has been long promised and many times postponed. That is regrettable.

Having identified matters that affect my part of the country, although they clearly similarly affect many others, I must deal with the general thrust of Government policy. No doubt we will deal with the details of the Bill in Committee, but I give Ministers notice of one or two details that will be dealt with there and to which I hope they will give some consideration.

The first is the taxation of insurance, which has already been mentioned. I am sure that the Minister will be well aware that the proposal to tax some insurance policies at 4 per cent. and others at 17.5 per cent. is creating an anomaly that many people, particularly small travel agents, regard as unfair and discriminatory, especially as Customs and Excise accepts that there is no widespread tax avoidance by travel agents. If someone buys a holiday from a travel agent and buys an insurance policy at the same time, as would be likely because the two are related, they will pay 17.5 per cent. tax on the premium but only 4 per cent. on the policy from the insurance broker next door. If consumers are wise, they will find a way of doing that and insurance brokers will no doubt take advantage.

Many small travel agencies, which have legitimately sold insurance as part of a holiday package and have not been trying to profiteer, will be discriminated against and will lose a significant and valuable part of their business. The Government should consider whether that is fair and whether it was their firm intention.

I welcome the Government's decision to bring into line the three-year rule on back payment and collection of VAT. There is no argument on the principle, but I suggest that those areas of the public sector in which unjust enrichment does not apply be exempted. As I understand it, some public sector organisations, particularly trusts and organisations in the health service and in other sectors, have been relying on this rule and may now find their hopes of recovering tax in that way removed. Again, I ask the Government to consider that matter during the passage of the Bill.

The central issue in the debate is what the Budget and the Finance Bill do. There was an extraordinary exercise in the week after the Budget. Apparently, the Chancellor of the Exchequer and the Financial Secretary each said the opposite of the other. Indeed, in spite of repeated questioning from me in the Treasury Select Committee, the Chancellor would neither admit nor deny that the net effect of all the tax changes next year will be to increase the overall level of taxation, yet that appears in black and white in the Red Book. Page 12 makes it absolutely clear that, according to Government calculations, the Budget's tax and national insurance measures will reduce taxes by £735 million, but the previously announced excise duty increases, which take effect in the same tax year, amount to £1,085 million.

Three figures are given in the Red Book—I shall take the median—and it is recognised that the Budget will increase council taxes throughout the country by about £800 million. The net effect is that people will pay tax to the tune of £1,050 million more in the current year than they did last year, which is equivalent to £41 per taxpayer. Those facts are in the Government's own book, yet the Chancellor of the Exchequer is not prepared to admit that taxes will go up next year. It seems extraordinary that he should present the information in such clear-cut terms, but then deny that that is what his publication states.

The other issue that is worth drawing to the attention of the House, for those hon. Members who have not yet read the Select Committee report, although the issues have not merely been raised there, is that one or two measures in the Budget are effectively, as the report describes them, "a sleight of hand"—an attempt to make the figures look good without delivering any significant improvement in the budgeting.

Ministers make two contradictory speeches. Depending on the audience, they say that they are eye-wateringly tough on bringing public expenditure under control, or—to the party conference and Mr. Dimbleby—that they have increased spending on the health service, education, local authorities and anything else one cares to mention more than any previous Government. That makes the average citizen understand that there is some confusion within the Government about exactly what is happening. The Government are finding ways to massage the presentation of the figures—for example, by presenting the sale of Ministry of Defence houses as a negative spend whereas it is just a sale, a capital receipt. It is just one more tranche of the sale of the family silver. The sale of the student loan book is in exactly the same category, as is the reduction in the reserve account. We all accept that reserve accounts can reduce as one gets closer to them because the uncertainty is reduced, but the scale of the reduction is nevertheless such that it is arguable that the reserve account is not now enough to cover any unexpected contingencies that might arise.

In the circumstances, those measures amount to giving the impression of a tight spending round without applying the pain where it really matters, and evidence to the Select Committee reinforced that. It is presenting the figures in a different way.

Incidentally, the total figure is almost exactly what the French Government managed to secure by a similar mechanism from their telecommunications pensions measures. The British Government are doing exactly the same as the French Government to try to make the public sector borrowing requirement meet the Maastricht criteria.

Photo of John Butterfill John Butterfill , Bournemouth West

I was interested that the hon. Gentleman said that the Government should apply the pain where it really matters to bring public expenditure down. It is fascinating to hear a Liberal Democrat say that there are areas in which he would reduce public expenditure. Perhaps he could tell us one or two of them.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

We have already identified certain areas. On the Government's own admission, last year they spent nearly £1 billion on consultancies to achieve virtually no economic benefit. There are a number of such examples where the Government's priorities are simply different from ours. It is not fair to say that there is no room for saving—there is.

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

I want to correct a point that I may have misheard. There are plenty of good reasons for selling the student loan book—it transfers risk and is a sensible thing to do. It does not affect the general Government financial deficit, which is the criterion of concern in the Maastricht criteria, and so is of no relevance to that. In its origin, nature and motivation, it is completely different from what the French have done. It will affect the public sector borrowing requirement but does not affect the European measure, which is different.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

I can only draw the Chief Secretary's attention to the evidence in the Select Committee report, which he might wish to read, from Andrew Dilnot of the Institute for Fiscal Studies, who suggested that the sale of the student loan book was comparable to the France Telecom mechanism. Perhaps the Chief Secretary should take issue with the Institute for Fiscal Studies.

Photo of Mr Barry Legg Mr Barry Legg , Milton Keynes South West

We raised the matter with Treasury officials when we took evidence from them after Mr. Dilnot's comments. Their evidence supports what the Chief Secretary has just said.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

Treasury officials and Treasury Ministers are happily singing from the same hymn sheet, but that does not preclude others from taking a different view. The matter is open to interpretation. Whether or not the Government are applying the same mechanism as has been applied in France, they are using the sale of capital assets to justify current expenditure. That is simply living off the family silver.

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

The matter is not one of interpretation. It is a clear matter of definition, where the rights and wrongs are easily ascertainable. The student loan book does not affect the Maastricht criteria. That is not why the measure was taken, and even if it had been taken for the purposes of Maastricht, it would have failed.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

The student loan book does not affect the Maastricht criteria, but the MOD sale might. The point is incidental, but, as a number of commentators have pointed out, the Government's practice effectively presents the figures in a better light than they would otherwise appear.

The Select Committee report refers to the change in the policy of assuming a flat rate of unemployment, on which the cost of unemployment can be calculated. The Select Committee did not find that unreasonable, but commented that the timing was interesting, as it allowed the Government to relax the straitjacket slightly. It is odd that they are prepared to forecast unemployment changes, for example, but not exchange rate changes.

We need clarification of the circumstances that this year enabled the Treasury to make that change, which it has resisted every year previously. Did the Government need room to manoeuvre this year, in advance of a general election? No Government would ever put increased unemployment forecasts into their Red Book, as that would be an admission that their economic policies were failing.

The House will know that in our submission we stated that Government borrowing is a matter of concern and must be brought down. We need a disciplined approach. On the basis of the utterances, there is agreement among all parties that that is a problem. That explains why economic discipline is a term of art that financial spokesmen of all parties use.

We could do more. For several reasons we should introduce proposals to make our central bank independent.

Photo of Michael Jack Michael Jack , Fylde

Perhaps the hon. Gentleman can help me. His party, unlike the Labour party, has tried to be specific about its economic proposals. He expressed his concern about the level of borrowing and spending. In his disciplined world, what percentage of GDP would he find an acceptable level of borrowing and spending?

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

I will not answer that. The Government have got themselves into a fantasy arena. The Chancellor of the Exchequer speaks of bringing the level down below 40 per cent. and aiming to get it below 35 per cent., whereas the Red Book shows the level rising to 43, 44 and 45 per cent. The Government use a soundbite term of art, but there is no evidence of any policy, firm proposals or timetable behind it. I do not see why the Government should challenge other parties when they have no concrete proposals of their own but merely a pious, tight-lipped explanation of their aims.

There is consensus that significant variations in tax from about 40 per cent. do not carry much support. Over the cycle, however, there are occasions when taxes may have to go up, and there may be occasions when they have to go down. If we are to consider getting taxes down to 35, 33 or 32 per cent., we need far more detailed information about what that means in terms of sustainable economic growth, if that it how it is to be financed, or in terms of further privatisation of public service provision.

Does the Tory party want to ensure that people are forced to buy more private insurance for unemployment, health care and long-term care in their old age? I suspect that that is what the Government mean, so they should be more honest about it. Instead of telling us about the wonderful benefits of reducing taxes, they should explain the painful consequences of what people may have to buy. It is a legitimate subject for debate, but we need the whole story, not just an isolated focus on one percentage figure, divorced from the philosophical change in the way that services are to be provided.

We need to get borrowing under control. The time is becoming ripe for establishing an independent central bank as a means of helping to bring borrowing down, not least because it would help to reduce interest rates, which would have wider benefits.

I welcome the fact that in yesterday's Financial Times the Labour party indicated that it was moving in that direction. As a precondition, however, Labour wants the Governor of the Bank of England to insist publicly on an election-losing increase in the interest rate, which suggests that the ability to stand back and not to interfere is not built into Labour's thinking. That is not the role of an independent central bank.

On interest rates, the Government may be on the horns of a dilemma, as the national interest and the Conservative party interest clash. The market may resolve the dilemma for them if they insist on staying in office until May.

I have pressed Treasury officials and Ministers, including the Chief Secretary, on the GDP deflator. There is a lack of confidence that the Government's inflation forecasts are achievable. Most commentators regard the forecasts as optimistic. A GDP deflator of only 2 per cent. does not sit comfortably with that scenario. Treasury officials say that there is nothing to worry about because if the GDP deflator turns out to be wrong it will be offset by the consequential benefit in increased revenues above forecast.

Experience of the past two years tells us that there is no direct correlation, and developments could go in the wrong direction. That could make public commitments such as the funding of the health service difficult to achieve. The Government should put their intentions on record.

Windfall benefits of more than £11 billion will come through from the building societies and insurance companies. That will clearly have a potential effect on consumer spending and could have an inflationary effect. The Government calculation is that for various reasons, as a result of the lack of consumer confidence, much of that money will be saved, so it can be taken out of the reckoning. If they are right, that may be a good thing, but if people decide to spend the money, that could upset the inflation calculations.

The Chancellor has recognised that his room to manoeuvre is limited. He deserves credit, which I have given him on numerous occasions, for resisting the more strident calls for an expansionary or give-away Budget that might have created the climate for an election-winning boom, but would inevitably have led to an enormous crash later. The markets have made their position so clear that if the Chancellor had tried that, he would have had to cut and run quickly, before the markets caught up with him.

We need a thorough rethink of how we can bring borrowing under control, ensure that inflation is kept in the box, sustain growth without stoking up inflation again, and invest in education and public services at acceptable levels of taxation—the Financial Secretary dealt with only one aspect of that in his intervention. I have no doubt that those matters will be debated in the next Parliament.

The Government should be given credit for not having rushed off in a different direction, but they should not imply that they have the answers. Many questions remain that I suspect the main parties will not address until after the general election. In the circumstances, it is a cautious Budget from a defeated Government who know that they do not have much time left.

Photo of John Butterfill John Butterfill , Bournemouth West 6:29 pm, 14th January 1997

The hon. Member for Gordon (Mr. Bruce) made a fascinating speech setting out the Liberal Democrats' economic policies. I was particularly interested in his response to my question about the Liberal Democrats' big ideas for reducing public expenditure in the areas that "really matter"—as the hon. Gentleman put it. The only idea that I could adduce was that the Liberals would reduce the number of consultants employed by Government as they do not represent adequate value for money.

No doubt the Liberal Democrats would forgo independent advice and instead rely on their in-house advisers: the teams in the county halls who provide wonderful advice about reducing expenditure in local government. If that is the big Liberal idea for controlling the economy, the party should make more of it throughout the country. Once again, we have seen the Liberal Democrats talk tough about holding down public expenditure. The reality is that, when they are in power in town or county halls up and down the country, they are the biggest spenders of all. They must live down that reputation before anyone will take them seriously in a general election.

The Finance Bill enacts the creditable Budget proposals that the Chancellor set out a few months ago. It is a measure of the Budget's quality that it proved such a disappointment to the Opposition parties. They claimed that it would be the great giveaway Budget—a bribe to the electorate—that would demonstrate the Government's cynicism. They claimed that we would offer anything in order to be re-elected. However, as the hon. Gentleman pointed out, the Budget contains modest fiscal tightening measures—hardly an election giveaway—involving sensible reforms to public expenditure, taxation and distribution of the tax burden.

I welcome the changes to income tax. My right hon. and learned Friend the Chancellor has forgone the chance of making the headlines by announcing a massive reduction in the standard rate of income tax. He has chosen instead to widen the tax bands and raise thresholds, thereby ensuring that many poorer people are removed from the tax system and that many more are in the 20 per cent. band. That was the correct thing to do, as it provided help where it was most needed. It is often a difficult decision to take, as the benefits are not perceived by the general population until they receive their pay packets some time later. The Budget will have no real effect on people until after the next general election, so the Chancellor took a courageous—but correct—decision.

The benefits that will accrue to small businesses up and down the country have led the Forum of Private Business to describe the Budget as the best in 10 years for small business. I was particularly pleased about the business rate relief. Mr. Deputy Speaker, you will remember that my amendment to local government finance legislation provided transitional relief to small business. Further relief for those businesses, which were hard hit by the recession and revaluation, is very welcome.

I also welcome the thrust of the Bill in closing several taxation loopholes. We have progressively closed them over the years, but fertile minds continually find new ones. Therefore, it is correct that each year we ensure that people are paying appropriate rates of tax.

My right hon. Friend the Chief Secretary expressed a wish to abolish allowances and said that he preferred lower rates of tax. I seek confirmation that his attack on allowances will not affect the married person's allowance. It is extremely important for tax arrangements to recognise the importance of marriage. The tax advantages accruing to married people have been eroded over the years and I should prefer to see the differentials reinstated rather than eroded further. I am interested to hear my right hon. Friend's thoughts on the matter in the context of the next Conservative Budget.

I have some specific questions about the clampdown on avoidance procedures. The changes in value added tax in so far as they relate to property investment concern the whole industry—not just property companies. The British Property Federation, which represents many institutional investors, pension funds and insurance companies, is concerned about the impact of the proposed changes. I hope that the arrangements will be flexible, so that we do not disadvantage the whole system of investment.

I must declare an interest in the debate as an adviser to the British Insurance and Investment Brokers Association. I was rather disappointed with the Government's decision to hike up insurance premium tax so soon after declaring that they would not do so. Insurance is a valuable asset to society and, if we make it too expensive, we may expose the Government to risks. People may fail to insure and thereby become a charge on the public purse. We must strike a balance between raising revenue through IPT and ensuring that there is no claim on the benefit system when people fail to insure.

I am concerned about the attack on inclusive sales. The insurance profession may benefit if people are forced to buy insurance from a broker rather than from a travel agent—unless the broker is advising the agent. However, unless we are dealing only with insurance policies that must be bought, I am worried that we may be tilting at a windmill that does not exist. For example, with some holidays, it is compulsory to purchase the insurance policy that accompanies them. In those circumstances, we could argue that the price of the holiday is being deflated by inflating the cost of the insurance. It is perfectly legitimate to attack that practice. However, when there is no compulsory link between insurance and the product being sold—when it is purely optional—the proposal represents a shift away from the Conservative doctrine of individual freedom of choice. If people choose to buy ridiculously expensive insurance, that is their decision—so long as they are not forced to do so. I urge the Government to re-examine the issue.

I received an encouraging response from my right hon. Friend to my intervention on capital allowances. There is real concern that the airlines will be disadvantaged compared with sea and rail transport. If one couples those provisions with the proposal to double air passenger duty, the combined discrimination against the airlines—and the consequent knock-on effect on the aircraft industry and the industries that supply it—is quite worrying. I ask my right hon. Friend to consider the possibility of at least having a regime for airlines that is no worse than that for shipping and trains.

I know that my hon. Friend the Member for Havant (Mr. Willetts) made this point, but it is important. The level of capital taxes in this country is a direct disincentive to invest.

There has been a welcome increase in the threshold for inheritance tax. Some Labour Members do not think that we should do that. The problem with inheritance tax is that it is not paid by the really rich. The super-rich with their multinational empires never pay it. Some of the "luvvies" and some of the billionaires who support the Labour party today do not pay it, because their money is offshore, and no doubt they will keep it there.

The people who pay inheritance tax are the modestly well-off: the middle classes, the people who cannot afford the expensive schemes to take their money offshore, the people who have built up small businesses and want to hand them on, the people who have helped to create wealth within our society. It is to them that we need to look, because the concept of passing modest wealth from one generation to another is one to which we should all aspire and not be consumed by the politics of envy. I hope that we shall do more on that.

I was particularly disappointed that there was nothing in the Finance Bill on capital gains tax, because it seems absolutely mad that someone who has spent 10 years building up a business and who then sells it will pay the same marginal rate of tax as a speculator who makes an overnight gain on the international currency markets. That does not seem to make any sense. It does not encourage people to risk their money and to invest. [Interruption.]

I am encouraged by noises that appear to be coming from Opposition Members, saying that they may do something about that, because although it would be difficult to abolish capital gains tax without the risk of people switching income into capital gains in the way that we had in the past, there is a real case for a much lower rate of capital gains tax for people who invest for the long term in real, productive enterprise. I very much hope that before long we shall see a Budget that does that.

Photo of Jeff Ennis Jeff Ennis , Barnsley East 6:42 pm, 14th January 1997

Thank you, Mr. Deputy Speaker, for allowing me to make my maiden speech so early in the debate.

I am conscious of the traditions of the House and that when one makes a maiden speech, one usually refers to one's predecessors. On this occasion, it is a great privilege and a pleasure to refer to my very good friend, Mr. Terry Patchett.

Terry was a very honest and sincere man, a true man of the people. I know that he had the respect of hon. Members on both sides of the House. I knew Terry for a very long time. It goes without saying that he felt far more comfortable at his home in Darfield, with Glenys, his wife, and his family, and in Barnsley, East in general than he did down here in the House. However, that fact did not affect his performance as a first-class constituency Member of Parliament for Barnsley, East.

I am aware from my recent personal involvement in the by-election that Terry was held in the highest esteem and with fond affection by almost all his constituents. He will be very sadly missed, both in the House and in his constituency. I say his constituency because until recently Terry was the only Member of Parliament Barnsley, East ever had, as the constituency of Barnsley, East came into being only in the 1983 general election, the year that Terry entered the House for the first time. I am sure that all our thoughts are with Glenys and Terry's family.

As someone who has lived in the Barnsley, East constituency all my life, I feel extremely proud and honoured to be its new Member of Parliament. Despite the low turnout for the by-election, with it being so close to Christmas, the result was a resounding success for new Labour and, indeed, a ringing endorsement for the leadership of the Labour party. It certainly emphasises the fact that, in my opinion, new Labour commands solid support in Barnsley, East, a constituency that is and always will be proud to be described as a traditional Labour heartland.

Just to emphasise the success of my by-election, my majority rose from 63 per cent. of the votes cast in 1992 to a majority of 68 per cent. this time. The Tory vote disintegrated and was almost halved, from 14.2 per cent. of the votes cast in 1992 to 7.3 per cent. this time. In my opinion, that result underlines the melting away of traditional Tory voters, as a direct consequence of the failure of the present Government to implement the tax cuts that they promised in their 1992 manifesto, which have so far failed to materialise.

As I said, I am proud to say that I was born and bred in the constituency. Both my wife and I were born in Grimethorpe and we both come from traditional mining family backgrounds. Both my grandfathers and my father were miners. My grandad Ennis retired from Grimethorpe pit when he was in his early 40s, with 100 per cent. pneumoconiosis. My grandad McQueen, who was an early political role model of mine, was also a miner at Grimethorpe colliery as well as being the National Union of Mineworkers treasurer at Grimethorpe and a councillor with the old Hemsworth rural district council until his untimely death at the age of 56 from lung cancer.

My grandmother was the youngest of 22 children. My dad was the oldest of 10. My wife, Margaret, also comes from a big family, so the House will probably see why I have been elected to represent Barnsley—because I am related to almost everyone in my area. I think that hon. Members will see that it is not just the aristocracy of this country who come from large families.

I have deliberately mentioned my family background to emphasise the point that Barnsley, East has always been associated with the coal mining industry, an industry that has created communities throughout the country with a strong and powerful community spirit, with a sense of caring and sharing. The people of Barnsley, East are the salt of the earth, who deserve the best, which is something that the current Government have failed to deliver in this year's and past years' Budgets.

I am proud to say that I have represented my area on Barnsley council since 1980, and in 1980 Barnsley was awash with pits, such as Grimethorpe, Houghton Main, Hickleton, Goldthorpe, Highgate and Darfield Main, to name but a few, providing almost 30,000 jobs to the local economy.

Constituencies such as Barnsley, East have contributed significantly to the national wealth since well before the industrial revolution. Now there are no pits left at all in Barnsley, East, thanks to the Government's pit closure programme. I know that this country will rue the day that the Government—who will never be forgiven—closed down pits such as Grimethorpe, which in its last six weeks of full-time production in 1992 made more than £250,000 in profit. More than 60 million tonnes of known, workable coal deposits are entombed below Grimethorpe for ever.

A study carried out by the policy and research centre at Sheffield business school in 1992, before Grimethorpe closed, revealed that if Grimethorpe and Houghton Main collieries closed, the cost to the British economy would be £330 million over 10 years, but if they remained open, they would make a profit of £48 million in that period.

Where was the economic sense and financial prudency in allowing those profitable pits to close? No wonder one of the main themes for my election campaign, "Brassed off with the Tories", was so successful. There is no doubt that the nation is brassed off with the Tories. I strongly recommend all hon. Members to see the recently released and much acclaimed film "Brassed Off", which was filmed primarily around Grimethorpe, with the co-operation and assistance of the world-famous Grimethorpe colliery band. The film captures the spirit of the times during the pit closure programme of 1992. It is also a fitting epitaph to what the Government have done to the mining industry and mining communities.

I turn my attention briefly to the Finance Bill. Once again, we have a classic example of the Government giving a little with one hand and taking away a great deal with the other. One example of what the Government are taking away is to be seen in the form of indirect taxes such as 13p on a gallon of petrol, an increase in taxation that took effect immediately, while the 1p reduction in the standard rate of income tax will not take effect until April.

As usual with the Government, we are seeing a transfer from direct to indirect taxation, especially in the form of VAT. That has the effect of transferring the burden of taxation from the very rich to the very poor in our society. It is a pity that the Government refused to accept the Opposition's proposal to reduce VAT on fuel from 8 to 5 per cent.

The Budget will have an impact on schools. It is a subject that is close to my heart, because I spent more than 20 years in the teaching profession. The Government have claimed that 3.4 per cent. more money will be available for schools. They are, however, increasing their contribution to local authority spending by only about 1.5 per cent. At least the Government have had the decency to admit that their cuts in support for local authority services over the next three years will force council tax payers to cough up another £4 billion, which is the equivalent of £200 for each household. That will have to be paid to meet the differential.

Once again, local councils will have to increase council taxes to replace cuts in Government grants. They will be able to increase school budgets only if greater cuts are made in other key services such as social services, libraries, refuse collection and the like.

The Government continue to refuse to fund teacher pay awards when Ministers agree that they should be granted. Increased pupil numbers are not covered by extra finance. Since 1992–93, standard spending assessments per pupil, in real terms, have fallen across all age ranges, with secondary spending falling by 9 per cent. The number of primary pupils in classes of over 30 has increased by 40 per cent. in the past four years to 1.3 million.

The SSA formula is supposed to distribute Government resources on the basis of need. I have referred to the annihilation of coal mining—the main industry—in Barnsley, East. It has had a devastating effect on the socio-economic fabric of my constituency. Under the Government's SSA formula for next year, Barnsley will receive £691 per head of population while Tory-controlled Westminster will receive £1,272. That means that Westminster will receive 184 per cent. more grant per head of population than Barnsley, to provide the same level of education resource.

That cannot be right. I am sure that the good people of Westminster have not had to endure many of the economic hardships that my constituents have experienced, and certainly not to the tune of a 184 per cent. differential per head of population.

In conclusion, Barnsley, East is still coming to terms with the complete destruction of its traditional industrial base. I pledge myself to do my very best to work hard for the economic and social regeneration of the communities that make up Barnsley, East. I thank the House for giving me such a good hearing.

Photo of Mr Barry Legg Mr Barry Legg , Milton Keynes South West 6:54 pm, 14th January 1997

I congratulate the hon. Member for Barnsley, East (Mr. Ennis) on his maiden speech. Delivering a maiden speech is always a great ordeal, and I think that the hon. Gentleman coped with it admirably. I am sure that he has been much encouraged by the high turn-out of his colleagues to support him. I am sure also that hon. Members on both sides of the House fully endorse his remarks about his predecessor, Terry Patchett, a man who was held in high esteem in this place. The hon. Gentleman has told us about Terry Patchett's local reputation.

The hon. Gentleman's speech was brief and to the point. He will be well advised to remember that for the remainder of his parliamentary career. His speech displayed considerable wit, and if he speaks with the same degree of wit in subsequent speeches I am sure that he will maintain the interest of his colleagues.

This is probably the last general economic debate that we shall have in this Parliament. During our proceedings so far we have dealt with a number of general economic matters and contentions. I shall begin by welcoming some of the detailed provisions of the Bill. I am especially pleased that the amendments that I suggested in Committee last year in respect of charities are contained in clause 65. I am grateful to Treasury Ministers for taking up my suggestions and in so doing easing the tax burden on charities.

In taking evidence on the Budget and producing a report as a member of the Select Committee on the Treasury, I was conscious that we now have a much more manageable and sustainable financial position. However, the hon. Members for Edinburgh, Central (Mr. Darling) and for Gordon (Mr. Bruce) argued today that the level of national debt is too high. The hon. Member for Edinburgh, Central derided this Administration's record on the level of national debt.

There is only one sensible way to evaluate the national debt, and that is in terms of its proportion to the nation's wealth. If the hon. Gentleman had read the Red Book—especially table 4.3—he would know that net public sector debt as a percentage of gross domestic product is running at about 45.5 per cent. If he had bothered to study economic records for this century he would have learnt that no Labour Government have ever managed to reduce national debt to that level as a proportion of GDP. We have a sustainable level of debt, and one that reflects the prudent financial management that we have experienced in recent years.

The report of the Select Committee on the Treasury contained some criticisms relating only to matters of detail. The hon. Member for Gordon referred to the GDP deflator, which has been set at 2 per cent. for future years. The balance of opinion within the Select Committee was that the deflator might be on the low side. We are talking, however, about much more sustainable figures. We are considering possibly a 2 or 3 per cent. rate of inflation in future. If the projection of a 2 per cent. GDP deflator is wrong and it turns out to be 3 per cent., the magnitude of error is quite small. We would be talking about an extra £3 billion of public expenditure. Our finances are now much more manageable.

As a whole, the Select Committee agreed with the fiscal stance of the Treasury and my right hon. and learned Friend the Chancellor of the Exchequer. Most commentators have applauded that stance. As for the report of the wise men before the Budget, four out of six stated that the Chancellor should take a neutral fiscal stance, and that is what he did. There is not much scope for criticising the Chancellor on that front.

The Treasury Select Committee was concerned that present conditions may require monetary policy to be tightened. The Chancellor has told the House that he wants to stay ahead of the game on monetary policy: he has a good record of making the right judgments on monetary policy. The Chancellor will meet the Governor of the Bank of England tomorrow. Some hon. Members are concerned that he should make an upward move in interest rates.

The Chancellor may be considering an increase in interest rates in the order of magnitude of 0.25 per cent. to 0.5 per cent. That clearly shows the difference between the present economic conditions and those of the past 30 years.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

The hon. Gentleman makes a fair point, but does he accept that we should compare ourselves with our trading partners? Long-term interest rates on government bonds in the United Kingdom are higher than those in any other country in the European Union, with the sole exception of Greece. Our inflation figure is the third worst in the European Union. Although there has been a considerable improvement compared with the past, we must be more disciplined to reach even the EU average, never mind to be at the top end.

Photo of Mr Barry Legg Mr Barry Legg , Milton Keynes South West

I am grateful to the hon. Gentleman for his comments. We have the potential to achieve a much lower peak in the interest rate cycle than at any time in the past 30 years. Previous peaks in our interest rate cycle have been anything from 12 per cent. to 17 per cent. This Administration has made tremendous strides to get inflation and monetary policy well under control. The markets show that the peak of the present inflation cycle may require an interest rate of only 7 per cent. That is a considerable achievement, and it enables British business and industry to plan for the future.

There is currently a great deal of distortion in the marketplace on long-term interest rates. The reductions in long-term interest rates in some European Union countries—for example, Spain and Italy—suggest a false market in government bonds based on speculation that those countries will join the single currency and will have lower, long-term interest rates. I do not believe that those countries will be allowed to join the euro, but if they were to do so, the long-term interest rate of the euro would move up to the higher levels experienced in the Mediterranean countries. As long-term interest rates have come down in Italy and Spain, they have gone up in Germany with the prospect of monetary union between countries that do not have the same stable economic background. That is the other side of the picture.

The Government have done well on monetary policy, and the peak of the interest rate cycle looks as if it will be much lower than in recent memory. That is all to the good of the British economy.

Hon. Members may have seen The Guardian last week, which unusually listed some Conservative achievements on its front page. It pointed out that since 1992 unemployment has fallen from 2.7 million to 1.9 million, interest rates have come down from 10.5 per cent. to 6 per cent., inflation has come down from 3.7 per cent. to 2.7 per cent. and hospital waiting lists of over one year have come down from 155,000 to 15,000. There is an awful lot of good news on the economy, and that reflects the Government's achievements. Even The Guardian is prepared to put such good news on its front page.

There is a growing appreciation of the Government's soundly based economic policies. The main reason why we will not detect such a strong feel-good factor as in previous years is the changing relationships in the housing market. In 1988, the ratio of mortgage debt to the value of housing stock was 20 per cent. Today, that ratio is 34 per cent. Most people will not immediately experience the feel-good factor that they may have experienced in the late 1980s. However, the economy as a whole is now much more soundly based, and wealth in the broadest sense has extended more widely.

Photo of Andrew Miller Andrew Miller , Ellesmere Port and Neston

Given the figures that the hon. Gentleman has just cited, does he accept that there is greater pressure on housing association and local authority stock? Does he also accept that the Government have done very little—nothing, in fact—to assist that sector?

Photo of Mr Barry Legg Mr Barry Legg , Milton Keynes South West

I do not agree with the hon. Gentleman's comments.

Photo of Andrew Miller Andrew Miller , Ellesmere Port and Neston

They are the Library's figures.

Photo of Mr Barry Legg Mr Barry Legg , Milton Keynes South West

I do not agree with the comment about housing associations. Housing association development has been strong in my constituency and across the country, not only because of the public money that the Government have put into it, but because of the greater freedom that they have given housing associations to borrow on the markets. The hon. Gentleman's argument is not valid.

I shall return to the wider comments that I was making about the structure of wealth in this country. House values are tangible to individuals, but one of our problems is that wider wealth is not so tangible. Most people's pension assets—which will provide for them in their old age—have considerably increased in value in the past three or four years. Most of those assets are not transparent to the people who will benefit from them. Occupational pension schemes have done very well, and people have the prospect of much more wealth behind their pension entitlements and a much more prosperous old age. Many forms of institutional investment lack transparency, so individuals are not fully aware of the appreciation in their wealth.

My hon. Friend the Member for Havant (Mr. Willetts) advocated reforming capital gains tax. Hon. Members will probably recall that I tabled a series of amendments to last year's Finance Bill to achieve that. This is an important matter, because in the next Parliament we must extend the concept of a property-owning democracy into other asset categories. We should not only consider institutional investments and investments that are not transparent, but encourage people to build up investments in their own name and have a wide stock of wealth behind them. That will be one of the priorities for the next Parliament. I hope that the simplification of capital taxes advocated by my hon. Friends the Members for Havant and for Bournemouth, East (Mr. Atkinson) will be high on the Government's agenda.

My hon. Friend the Member for Havant made a number of interesting and important points about windfall taxes. It behoves the Opposition to spell out what they mean by a windfall tax, as the consequences are so considerable. What is the gross amount of revenue that they believe they can raise, and what will be the consequences for the businesses involved?

The Labour party is talking about windfall taxes—which will come back, one way or another, to the consumer—while most people are experiencing windfall gains. We have liberalised the financial system, one of the consequences of which is that many building societies have converted to public limited companies. I welcome that. Individuals are benefiting from that liberalisation: they are now feeling the effect of the extra wealth that has been created. There are windfall gains under the Conservatives, and windfall taxes under Labour.

Photo of Michael Clapham Michael Clapham , Barnsley West and Penistone

The hon. Gentleman talks of windfall gains. Is he aware that, in the four years since 1992, 87,740 jobs have been lost in the utilities alone? Does he consider that a gain? Does he agree that a windfall tax provides a way of creating the jobs that the utilities have neglected to create, and makes possible a process similar to that taking place in America, where utilities work with Government to create jobs?

Photo of Mr Barry Legg Mr Barry Legg , Milton Keynes South West

The hon. Gentleman has hit on an important factor. The Labour party criticises the fact that the utilities have increased their profits, but the reason why they have been able to increase their profits is that, like all the industries that were formerly in the public sector, they were chronically inefficiently run as nationalised concerns. The state runs businesses badly; the privatised companies now secure a reasonable return on their capital, because they have become efficient.

If the Labour party does want to reverse the current policy and return those companies to the public sector—if it believes that state ownership creates jobs and wealth—I shall be interested to hear the winding-up speech from the Opposition Front Bench, but I do not think that Labour will go that far. I think that Opposition Front Benchers realise that, once again, Conservative policies have been successful, and that privatisation has been a great success for this country.

In debates of this kind, we normally talk a great deal about macro-economic policies, GDP deflators and growth rates of 3.5 per cent. We hear a good deal of technical jargon. Let me give a few instances of what big numbers and macro-economic policies mean at local level. In the past two and a half years, an extra 8,737 jobs have been created in Milton Keynes. That is a net increase over that period. The number of people employed in Milton Keynes has risen from just over 90,000 to just under 99,000. Those are not low-quality jobs, as Opposition Members would sometimes try to make us believe; they are high-quality jobs in technology, computers and electronics—jobs that are providing good standards of living for people in Milton Keynes.

The Labour party also likes to try to paint a picture of industrial decline. Again, the local picture does not support that. Since the last general election, the total amount of factory and warehouse space in Milton Keynes has increased by more than 2.2 million sq ft. Our manufacturing capacity has expanded significantly, and our retail outlets are now doing the same. An investment programme in our city centre will run to £100 million. Since the last election, the private sector in Milton Keynes has invested over £1 billion.

That is what Conservative policies mean at local level. They mean more prosperity, more jobs and more choice, and people will not willingly put such a future at risk. Only one party really believes in genuine choice and quality, and that is the Conservative party. I hope that, in the coming months, my colleagues will be able to put across the message about what has been achieved—how successful the country's economy now is compared with those of many continental countries, the hard-won success that has been brought about by British people and the fact that they should not unnecessarily put that at risk.

Photo of Rt Hon David Trimble Rt Hon David Trimble Leader of the Ulster Unionist Party 7:14 pm, 14th January 1997

When the Chancellor of the Exchequer announced the Budget, my colleagues and I gave it a general welcome—basically because, in that Budget as in the Bill, the Chancellor had been restrained in his tax cuts. We were glad that he had not given in to the urgings of some of his colleagues for radical, deep cuts. Some of my own colleagues, indeed, doubted that there was a case for any tax cuts in the current economic circumstances.

Furthermore, at the time of the Budget the Chancellor boasted that he had significantly tightened the Government's fiscal stance. Subsequent examination has shown that the picture is not quite as clear cut as it appeared then, but we agreed with what appeared to be the judgment: that a tightening of the fiscal stance was necessary at that point. We still consider that necessary, in fact, because of the prospect of undesirable upward pressures on inflation. The object must be to try to restrain any such pressures.

As the hon. Member for Milton Keynes, South-West (Mr. Legg) suggested, we can choose whether to deal with that situation by means of monetary policy or by other means. The hon. Gentleman's speech foreshadowed interest rate increases, but the problem with such increases is that they penalise industry. One of the reasons why we have found the Chancellor's conduct in office in the past few years so attractive is the fact that he has resisted regular pressures for increased rates from the Bank of England. From the point of view of industry, that is very commendable. We do not want interest rate increases, because of the burden that they would place on industry.

That is not to say that we want inflationary pressures to result in inflation. The alternative to interest rate increases is a reduction in the borrowing requirement, either through expenditure cuts or through increases on the revenue side, and, on balance, that is the course that we would have favoured. It would have been much better for industry to tighten fiscal policy in order to avoid any need for interest rate increases. We applaud the Chancellor's restrained and responsible approach, but we think that, if anything, he should have taken it more wholeheartedly, to avoid that danger.

Photo of Mr Barry Legg Mr Barry Legg , Milton Keynes South West

I am interested in what the hon. Gentleman is saying. He does not want monetary policy to be tightened. Can he tell us the size of the fiscal adjustment to the public sector borrowing requirement that he thinks would be necessary to off-set any tightening of monetary policy?

Photo of Rt Hon David Trimble Rt Hon David Trimble Leader of the Ulster Unionist Party

I would be delighted if I were in a position to do so, but I frankly acknowledge that I am not. There is no point in my producing figures from the top of my head—far too much of that goes on here—so I shall not give way to the temptation with which I have been presented.

The implication behind the hon. Gentleman's question, however, is that it would be uncomfortable to follow the course that I have suggested. In some respects it would be, but I do not think that we should shy away from it for that reason. We must think of the long term. We want low inflation, and we also want our industries to be healthy, especially exporting industries.

That brings me to my next worry about the present economic situation—the steep increase in the value of sterling that has taken place in recent months. That has been mentioned during the debate, but there has been a significant increase in the value of sterling compared with other currencies. That appears already to be affecting industry. It is bound to affect it significantly. I have been told by business men in my constituency and elsewhere of the impact that the value increase is having on their businesses. Saying that they have been forced out of certain export markets is perhaps pitching it a little too high, but, even in recent months, they have faced significant difficulties with regard to some export markets.

Therefore, the economic prospects are not terribly good in terms of the likely news in the next few months. We are threatened with interest rate increases. Some of our industries will face difficulties, particularly with regard to exports. That will affect payments and so on, so the position is not encouraging, particularly because, as I have said, it appears on closer examination that the tightening of the fiscal stance is not as good as it appeared at first sight.

I notice in particular that, in paragraph 17 of its report, the Treasury Committee welcomes

the Chancellor's determination in keeping downward pressure on the PSBR … However … part of the offset to the tax cuts comes from increased revenues from measures designed to secure the tax base and the effectiveness of these is very uncertain … we reserve judgment on whether the means chosen will actually succeed. I agree with that.

In any event, as the Select Committee goes on to observe, the target year for the deficit to return to zero has been pushed forward by another year", so on closer examination it is not quite as virtuous or as rosy a picture as it first appeared. None the less, we acknowledge that the Chancellor has endeavoured to act responsibly.

Like some other hon. Members who have spoken, we regret that there will not be a further opportunity to revisit the issue of value added tax on domestic fuel and heating. As hon. Members will know, some of my colleagues supported the attempt at an earlier stage to pave the way for another vote on VAT on fuel. That has not succeeded, so we do not have the opportunity to raise the issue at present, which is a pity because we feel that that measure was ill-advised. I understand that it is not now possible to return VAT on domestic fuel to zero, but, in so far as VAT on fuel can be reduced, the opportunity should have been taken.

We feel somewhat uncertain about the provision on travel insurance, which has been referred to. Again, we should consider that matter more closely. If there is significant tax evasion, the measure may be advisable, but, on the surface, it appears to penalise travel agents.

There is some uncertainty about that measure's merits, but I have no doubt about the lack of merit in the proposal to double air passenger duty. That proposal is most ill-advised. The hon. Member for Bournemouth, West (Mr. Butterfill) talked about the need to have equality as between the tax position of airline travel and that of rail travel and so on. That is a fair point, but, from the point of view of Members representing constituencies in Northern Ireland, the obvious point is that, effectively, we have no choice with regard to travel.

Photo of John Taylor John Taylor , Strangford

There are no trains.

Photo of Rt Hon David Trimble Rt Hon David Trimble Leader of the Ulster Unionist Party

No trains run between Belfast and London. It might be a good idea if some did. It would certainly involve significant works and public expenditure, and the construction would generate much employment in certain regions in Scotland and Northern Ireland. We might learn from the lessons of other tunnels that have been constructed, but, realistically, all such travel must be by air.

Obviously, therefore, hon. Members will realise that a doubling of the air passenger tax has a significant impact on us. The Government may have thought that the tax simply creams a little off the holiday market, that people who go away on holiday will not mind paying an extra £5 or £10—or whatever it happens to be—and that they are so happy to go on holiday that they will not bother about the duty. Perhaps that lay behind the Government's thinking, but many people must travel within the United Kingdom by air and much of that travel is outside the holiday period and is connected with business. Like all taxes, it comes back to their effect on businesses.

This tax, particularly because of its discriminatory effect on Northern Ireland, should be opposed. According to the motion on the Order Paper, we will not have the opportunity, I am sorry to say, to debate that particular clause on the Floor of the House, or at least the Committee stage will not be taken on the Floor of the House. None the less, we shall see what opportunity there is to oppose the air passenger duty and we will do so. That should be done not just because of the special reasons in Northern Ireland, but for more general reasons.

Incidentally, I note that one of the amendments that was not selected—that in the name of the members of the Scottish National party—referred to the air passenger duty and to VAT on fuel, but, for some reason, went on to conclude that the Budget was particularly anti-Scottish. The argument that the Budget might be anti-Ulster is stronger than the argument that it is anti-Scottish, but we do not take such narrow nationalist views on the matter. Our objection to the air passenger duty is more general.

One other matter of local interest relates to corporation tax. It is pressed on us regularly at home by business men and people in Government agencies that are concerned with the attraction of inward investment. The matter is raised with us because the corporation tax rate in the Republic of Ireland is 10 per cent. Consequently, it has an effect, so we are told, on the attraction of inward investment to Northern Ireland.

We are told that people who are engaged in investment and in creating new businesses have, in some cases, gone to the Republic of Ireland to take advantage of the 10 per cent. corporation tax, rather than located in Northern Ireland or elsewhere. Business men and Government servants involved in the attraction of inward investment urge us to press on the Government the need for a 10 per cent. corporation tax in Northern Ireland.

I am not minded to do so because I recognise the strong arguments for maintaining uniform rates through the United Kingdom. Having uniform tax rates was the cornerstone of the argument of Sir James Craig, the Prime Minister of Northern Ireland in the 1920s, who said that, in return for paying the same tax rates as the rest of kingdom, we were entitled to the same rates of benefit and public expenditure as the rest of the kingdom—an argument which, at that time, the Treasury was reluctant and slow to accept but did accept. We recognise therefore that uniformity of tax rates is essential to maintain uniformity of public expenditure and benefit rates. Opposition Members who represent Scottish constituencies and who try to disconnect tax and benefits might like to consider that point.

We are not minded, therefore, to argue for a 10 per cent. corporation tax rate. In any event, if there were special treatment for Northern Ireland, the same arguments would apply to other objective 1 areas, such as Merseyside and the western islands, but it should be recognised that there is competition for inward investment, and that Northern Ireland and, to a lesser extent, Wales and Scotland are in competition with the Republic of Ireland, so that consideration should be given to the effect of the Republic of Ireland's competitive advantage. That could result in us considering the possibility of reducing the UK corporation tax rate generally or it may be possible to raise the issue elsewhere through Europe, in a way that would benefit us. I hope that the Treasury will consider doing that.

Some of the income tax reductions were in the main rate and some were in allowances. I agree with the comment, reported in paragraph 16 of the Treasury Committee's report, by Professor Congdon who said: the main problem with the tax system was to be found at the low end of the income scale where people could face 100 per cent. marginal tax rates because of the interaction of the social security system and the tax system. That is the so-called poverty trap. That problem is more acute in Northern Ireland than elsewhere. In percentage terms, more people in the Province are caught in the poverty trap than elsewhere. One of the reasons for that is the comparatively lower wages in the public sector where wages generally are 10 to 15 per cent. lower in Northern Ireland than in the rest of the United Kingdom. Benefits, although nominally the same, are higher for some people in Northern Ireland, especially for those with large families. That means that more people are caught in the poverty trap.

One of the ways to ease that trap is to raise allowances significantly by introducing tax at higher incomes. I appreciate that in raising basic allowances the Government have gone further than they were obliged to go, but they should have gone even further. They should not have bothered reducing the basic rate of tax but should have put the benefit towards increasing allowances. That would have helped people at that end of the tax system.

I should like to deal with two other matters from a local angle. Increased revenue is expected to accrue from measures to cut fraud, especially social security fraud. That is a necessary approach and I hope that it is successful to the extent of the Government's hopes.

One of the interesting aspects of the introduction of the jobseeker's allowance was that it resulted in a decline in the number of people claiming benefit. Interestingly, in Northern Ireland that decline was not even. Figures are available only for travel-to-work areas and while there was a general percentage reduction in the number of people claiming benefit in Northern Ireland as a whole, in some travel-to-work areas the reduction doubled. The travel-to-work areas so affected are Newry and Strabane. That is not surprising because those areas are on the border and there is an opportunity, which no doubt many people have taken over the years, to work in one jurisdiction and claim benefit in another. It is two-way traffic. One effect of the introduction of the jobseeker's allowance was a sharp reduction in the number of people claiming benefit in Newry and Strabane, and that is a clear sign of what could be done by these anti-fraud measures.

The Financial Secretary spoke about provision for rates on businesses. In his Budget speech, the Chancellor spoke specifically about the Government's recent provision to reduce the rates on village shops. That is an interesting measure but it does not apply to Northern Ireland and I hope that that will be rectified. It is quite inappropriate that a measure which gives rate relief to people in Great Britain should be deliberately withheld from the people of Northern Ireland. That is a fundamental mistake. The excuse that has been proffered is that there is a different structure of local government in Northern Ireland. The Province is already penalised through having no effective local government and it is doubly unfair, the Government having deliberately withheld from us a decent system of local government, that they should use its absence as an argument for withholding the rates benefit that has been granted elsewhere in Great Britain. The injustice—it is not an exaggeration to use that term—ought to be remedied and I hope that it will be.

The Government claim that while holding down public expenditure they have managed to find extra money for education and health. We heard much in debate on the Budget and on the Bill about that additional expenditure. Unfortunately, those who speak about that do not finish the sentence because they should refer to the extra money for education and health in England. It certainly does not apply in Northern Ireland, nor do I think that it applies in Scotland and Wales. That matter should be reconsidered.

There has not been a general increase in the money for schools in Northern Ireland, which are supposed to operate on what is called level funding. But it is not level because of discriminatory expenditure. There is increased expenditure in the maintained sector and cuts in the controlled sector. The terminology is relevant only in Northern Ireland. The controlled sector consists of state schools while those in the maintained sector are private church schools. Expenditure on state schools is reducing.

An acquaintance who is the headmaster of a primary school in my constituency told me that for this educational year he has an increase in enrolment of 20 and has been advised by the education authority that he must reduce the number of teachers by one. That is because of cuts in what is nominally level funding but in reality is not. The same general picture applies to health. There are increases in health expenditure in England but not in Northern Ireland. There is no general increase there and, given the pressures, the net effect is a reduction with consequent closures, including the recent closure of a hospital in my constituency. Such matters closely affect us.

One other inappropriate expenditure measure in Northern Ireland is the reduction in the action for community employment, or ACE programme. That scheme was targeted particularly at the long-term unemployed and reductions are particularly inappropriate and will undermine the continued existence of a range of valuable community programmes. The private finance initiative is a significant source of capital but in Northern Ireland the amount of PFI money is extremely low. The Red Book gives a projection of some £20 million for 1997–98, trebling, it is hoped, to £60 million in 1998–99. But I think that I am right in saying that so far only one PFI project has been mooted in Northern Ireland. The Select Committee report refers to the sluggishness of the programme. If it is sluggish in England it is virtually immobile in Northern Ireland.

Photo of Rt Hon David Trimble Rt Hon David Trimble Leader of the Ulster Unionist Party

The hon. Gentleman says that it is moribund, but that is not quite the right term because it implies that it once had some vigour which it has lost. The measure has not managed to move significantly in Northern Ireland but the projected public capital spending from it is £20 million in the next financial year and £60 million in the following year.

Photo of Mr Roy Beggs Mr Roy Beggs , East Antrim

Does my hon. Friend agree that the £20 million projected for the PFI represents no more than two, or at most three, small projects and is quite insignificant?

Photo of Rt Hon David Trimble Rt Hon David Trimble Leader of the Ulster Unionist Party

I take my hon. Friend's point. The Select Committee report states that conventional capital expenditure is being reduced because of plans for the PFI without the compensating PFI investment necessarily materialising. Hon. Members will appreciate that I have added a few words to that extract from the report to adapt it to the circumstances, but it shows one of the problems. PFI investment has been so sluggish in coming forward that it may not materialise, and ordinary capital expenditure plans have been curtailed because such investment is expected—resulting in what is sometimes called a "double-whammy".

As I said, the Government are proud of their economic record. We concede that, in many respects, the Chancellor has been more responsible than we had expected. However, the success of the Government's policies, certainly over the past few years, has flowed not from the Government's original chosen policies but from policies that were thrust upon them, five years ago, after they were forced to leave the exchange rate mechanism. The Government's original policies, prior to leaving the ERM, were bad. I recall that the Prime Minister, who was then Chancellor of the Exchequer, took us into the exchange rate mechanism at the wrong rate.

Although the Government have been much more sensible since 1992, many of us are concerned that some of those in the Government again want to place our economic policy within a European straitjacket. We believe that a single currency would be bad for the United Kingdom and, therefore, we hope that the United Kingdom will not join it. However, we also think that a single currency will be bad for Europe, even for the countries that join it. We will, therefore, be affected by a single currency, even if we are outside it, because of the damage that it will do to the European economy. Even if we stay out of it, our economy will suffer from it. That is why—like many hon. Members, not all of whom are Opposition Members—we wish that the Government had a clearer policy on the issue and were more effective in persuading our European partners not to take that route.

Although we have some disagreements and doubts about the Budget, which can be pursued in Committee and elsewhere, we welcome the basic approach to formulating the Budget. It would therefore not be right to vote against the Finance Bill's Second Reading.

Photo of Mr Douglas French Mr Douglas French , Gloucester 7:41 pm, 14th January 1997

I add my congratulations to those already given to the hon. Member for Barnsley, East (Mr. Ennis) on his maiden speech. Getting a laugh from the House on a maiden speech is a rare achievement, and I felt that he did extremely well.

The hon. Gentleman's speech, however, was not quite as riveting as that made earlier in the debate by the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). I have always recognised the right hon. Gentleman's long experience in the House, particularly his great experience in financial and fiscal policy. Nevertheless, like my hon. Friend the Member for Stamford and Spalding (Mr. Davies), I found his speech extremely interesting, if not somewhat alarming, because of the specific recipe that he advocated. The right hon. Gentleman, to give him credit, has for many years been consistent in those views, although it is rather surprising now to hear him advocate the merits of an apparently deliberate weakening of the exchange rate. One can only speculate whether that represents official Opposition policy or whether he is in a minority within his party.

I should like to link those comments with those made on capital taxation by my hon. Friend the Member for Milton Keynes, South-West (Mr. Legg). When my hon. Friend made the arguments—with which I very much agree—for a reduction in the burden of capital taxation, and particularly for a revision of capital gains tax, little enthusiasm was detectable on the faces of Opposition Members. I think that it is reasonable to assume that, were they to form the next Government, some modification of capital taxation and particularly of capital gains tax would not be very high on their agenda.

Earlier in this debate, my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) made a similar point on capital taxation, which elicited from Opposition Members a response best described as a jeer. Therefore, we have the combination, as two building blocks of Opposition financial policy, of a deliberate weakening of the currency and an apparently clear determination to continue a stringent capital tax regime. Those are hardly two good ingredients to sustain the very strong economic recovery achieved by the Government.

I fully support the Budget judgment made by my right hon. and learned Friend the Chancellor. It was a correct combination of measures to sustain the firm recovery that we need to keep inflation down, increase new job opportunities and reduce the percentage of gross domestic product devoted to Government expenditure. That combination of measures is highly likely to continue to deliver the good economic progress that we have been experiencing. I have no reservations about the Budget judgment itself.

A good Budget requires a good Finance Bill to go with it, and by "good" I mean one that is technically polished. This Bill will, of course, be more polished technically after it has gone through its Committee stage. As with any Finance Bill, there may be rough edges that must be smoothed over, so that we can put solid, reliable and accurate legislation on to the statute book. Just as this Bill contains proposals that refine the rough edges of previous Finance Bills, future Finance Bills will undoubtedly revisit some of the issues dealt with by this Bill. Every Finance Bill is the same: each includes revision of previous measures and attempts to tackle new matters that are thought to require introduction or change.

The common characteristic of all Finance Bills—certainly in the past 20 years—is that they have been more complex than is desirable. The complexity is often borne of a desire to achieve, particularly in fiscal measures, as much fairness as possible and to recognise special cases; a need to make a particular concession for one specific interest group; the Treasury's desire for some symmetry in proposals; or a desire to make special provision in anticipation of a theoretical situation which may arise but, in practice, often does not.

A good example of the point that I am trying to make is provided by value added tax. When VAT was introduced 25 or so years ago, it was acclaimed as a very simple tax; the principle of VAT is very simple. In reality, however, the practice has proved to be extremely complicated. I think that my hon. Friend the Member for Havant (Mr. Willetts) referred to the 1980 and 1981 Budgets. I, too, cast my mind back to those Budgets, and recall that professional advisers and politicians were wrestling with some of the early difficulties with VAT. Some of those difficulties involved very technical matters, and some were so technical that it is astonishing to think of the time devoted to them.

A classic example of the difficulties was in the application of VAT to Jaffa cakes. Today, at a distance, that may sound like a ridiculous and trite example, but at the time it exercised minds. Should a Jaffa cake be zero or standard rated? It all depended on whether it was regarded as food, which would make it zero rated, or as a chocolate, sweet confection, which would make it a snack food and standard rated. There was a similar experience with peanuts, depending on whether they were salted, roasted or plain. Their VAT treatment depended on the category to which they belonged.

For many years, we had debates on VAT demarcation lines in the construction industry. When was an alteration to be considered as new work, and when was it maintenance? We had similar problems with landing dues on small aircraft and with children's clothes. All those are very technical matters. I would argue that they are far too detailed and technical to justify the time spent on them in the past.

In more recent Finance Bills, I have seen the seeds of the same complexity. My plea is that when dealing with new Finance Bills, particularly those that introduce new fiscal measures, strenuous efforts should be made to ensure that we do not build in more complexity than is necessary to ensure a reasonable degree of fairness. There will be occasions when it would be more desirable to accept a degree of rough justice on a particular measure rather than make it so complicated that those who are required to comply with it simply cannot understand on which side of the line they fall.

I had hoped that the current Bill would show the results of the quest for simplification which I know my right hon. and learned Friend the Chancellor, my hon. Friend the Financial Secretary and the other Treasury Ministers would, in theory, all like to see. However, I fear that some measures in the Bill are much more complicated than they should be.

Early in the debate, my right hon. Friend the Member for City of London and Westminster, South (Mr. Brooke) referred to the proposals for VAT on property. I think that all hon. Members know that there has been a significant lobby in respect of the proposal to curtail what is known as the option to tax. The property industry can make a good case—it is doing so—on the adverse effects of withdrawal of that option. An equally strong case can be made on the grounds that that proposal is unnecessarily complicated and, in practice, will be extremely difficult to implement. It can also be argued that it is not well targeted.

It has to be accepted that there have been examples of exploitation of arrangements whereby a landlord of a commercial property can opt to charge VAT on a letting. However, generally, that exploitation has not been by the landlords themselves. It has tended to be by financial institutions that are not delivering VAT-subject services and goods, sometimes aided and abetted by intermediate associated property companies.

Enormous practical difficulties are posed by introducing a measure that requires an assessment to be made of whether the VAT-able supplies of a particular tenant are greater or less than 80 per cent. of his total supplies. The property company doing the developing—the development may take two, three or four years, depending on the size—cannot reasonably be expected to take a view on what is likely to be the VAT position of the tenant who eventually occupies the property. That is what will determine the method of disposal by the property company and will be the way in which the property company strikes the profit that it hopes to secure from the transaction.

I cannot think of another example where the status of the tenant determines what view the property developer should take on the likely proceeds from the development. It implies that, once a tenant has occupied the property, the landlord will have to monitor any change in the tenant's VAT position. Perhaps the Minister can tell me whether that will be necessary. If it is necessary, it presents a complexity that we could do without.

I have no doubt that within Customs and Excise there are many people working on this matter, but if such a measure goes forward, we will need to have regimes relating to the VAT position of buildings that are let to different tenants and to sub-tenants.

The solution proposed is not well targeted on those who currently exploit the loophole. It hits the wrong category. I urge Treasury Ministers to re-examine this subject. This is not intended as a plea on behalf of the property industry, which is well able to make its own pleas, but it is a plea for simplicity. We should not introduce complexities that will absorb an enormous amount of time to get it right. A company may feel that it has got it right and then find that its interpretation is not shared by Customs and Excise and is, therefore, unacceptable.

I find some common ground between that point and the proposals for the refund of overpaid VAT. I was pleased when Treasury Ministers decided to equalise to three years the capacity to go back for reclaims and to refund overpayments. Three years is a reasonable period. However, there have been many complaints from those who feel, quite legitimately, that imposing that new time limit from 18 July last year represents an element of retrospection. I know that retrospection can attach to it a large number of different interpretations and I expect that I shall be told that that is not genuine retrospection. In spite of that, I see it as retrospection, and those who complain about it have a legitimate point. I urge Treasury Ministers to look at that matter again.

Unjust enrichment is a subject that has been raised outside the House on many occasions, but I do not think that it has been mentioned in the debate other than in passing. I believe that when it is not possible for the supplier of goods or services to make a repayment to the original customer—perhaps when VAT has been charged when it should not have been—there are no grounds for the VAT to be returned. It is unjust enrichment for the supplier of the goods and services to sit on the returned money and not pass it on to the person against whom he charged it.

Also on VAT overpayment, a distinction has to be made between correcting errors when the wrong amount has been paid and a deliberate recalculation. Recalculations can often occur as a result of the different schemes relating to retailers. When it becomes obvious that an alternative retail scheme would be more beneficial, it is perfectly legitimate for retailers to recalculate over a period. That is quite different from correcting an error and we should make certain that the two are not confused.

There is another category from which I have heard a great deal—sports clubs and opticians. I have no idea why they fall into the same category, but in the representations that I have received they are grouped together. This matter also relates to an element of retrospection: those VAT payers are saying that, before last July, they had been advised by their individual customs officers—this covers a wide geographical area—that there was no time limit for putting in claims because matters had to be resolved in relation to European legislation and United Kingdom case law. They did not therefore go ahead with claims, and the now applied date of 18 July intervened, excluding them from exercising the opportunity that they might have taken, but for the advice that they were given. That is an unsatisfactory situation that I hope Treasury Ministers can address to the satisfaction of VAT payers and Customs and Excise.

I have some reservations about the VAT disaggregation proposals, dealing with what is seen to be the artificial splitting of a business to ensure that as many parts as possible do not reach the VAT threshold. As I understand the proposals, Customs and Excise will no longer have to show that the reason for the splitting of a business was to avoid the VAT registration threshold. If customs announces that that is its interpretation, there is no opportunity for appeal. That is not satisfactory and needs attention.

I agree with some of the remarks made earlier about insurance premium tax and the comments of my hon. Friend the Member for Bournemouth, West. The insurance industry will obviously dislike such a tax. It is an increase on the industry's costs and insurance companies realise that it is likely to rise. It is a thoroughly unwelcome burden.

The tax is likely to prove impractical when applied to warranties. Hon. Members have already mentioned attempts to increase artificially the cost of a warranty, which has so far attracted the 2.5 per cent. insurance premium tax, and decrease the cost of the product, which is subject to VAT at 17.5 per cent., thereby making the global figure more competitive.

My hon. Friend the Member for Bournemouth, West said that he did not think that happened very often. I take a different view—I think that it happens a great deal. It certainly happens in the sale of domestic electrical appliances and computers. The practice amounts to evasion, which ought not to go on.

The proposed solution is that the lot should be subject to 17.5 per cent. That would create an unfair distinction between those who buy a warranty in the same purchase as the equipment and those who buy it separately. That would clearly create great difficulties. There can hardly be a precedent for the level of tax on a product varying according to where it is bought.

Experts will be working on how to overcome those difficulties. I can envisage a television salesman, for example, saying, "I can't sell you the warranty, but if you go around the corner, there's a little booth in the same shop just to sell insurance. If you go there you can get it with insurance premium tax at 4 per cent. instead of paying the full amount." That cannot be practical. What about salesmen recommending that customers go to the shop next door or recommending such and such an outlet for the best deal on insurance? The proposals are thoroughly unsatisfactory and have to be rethought.

A similar argument applies to travel insurance. It cannot be right that the man who sells the travel service must apply 17.5 per cent. to the accompanying insurance while someone selling insurance separately does not have to do so. That would encourage direct selling of travel insurance, to the detriment of the industry.

That view was strongly put to me by my constituent Mr. Millard of Starline Travel, Clarence street, Gloucester. In a letter to me, he urges a reconsideration of the Government's position. He says: If the Government is not prepared to reconsider its position, it should at least allow the industry to compete fairly with the insurance sector by taxing all travel insurance at the same rate regardless of by whom it is sold. That must be a sound principle. Varying the rate of tax applied according to where the product is bought will lead to problems similar to the VAT demarcation problems which I mentioned at the outset, with the issue being debated for years and a satisfactory solution never being found. That must be resisted.

Photo of Mr Barry Jones Mr Barry Jones , Alyn and Deeside 8:05 pm, 14th January 1997

I am glad to follow the informed speech of the hon. Member for the great city of Gloucester (Mr. French), particularly in view of his generous remarks about my hon. Friend the Member for Barnsley, East (Mr. Ennis) and his maiden speech. My hon. Friend paid a nice tribute to Terry Patchett, whom we all miss. His speech was humorous. It was a strong speech, a caring speech and an informed speech. I appreciated his remarks about education and health. He brings a great deal of experience to this place and will be a member of this honourable House for many years.

I heard the Chief Secretary to the Treasury refer to the national health service. Last week I visited the district general hospital in Wrexham that serves my constituents. It is a good hospital and has received the honour of a charter mark. However, when I visited that excellent and successful hospital, I found it stretched to the limit of its human and financial resources. The dedicated staff were coping with intense pressure. During the week, that great hospital had to abandon its programme of operations to cope with the massive influx of those who had fallen prey to the epidemic of influenza, or whatever it is, in north-east Wales. I do not recognise the picture of the national health service given by the Chief Secretary.

I am more than glad to support the amendment tabled by Her Majesty's Opposition, because there is insufficient investment and employment and the Government have no strategy to tackle long-term unemployment or the scandal of widespread youth unemployment. The latter is connected to drugs-related crime. Many pensioners in my constituency are afraid of burglaries and are scandalised by vandalism and graffiti. Their fears are the consequence of widespread youth unemployment. There is certainly a connection. There is no strategy in the Bill with regard to those evils. I therefore believe that the policy of the Shadow Chancellor, my right hon. Friend the Member for Dunfermline, East (Mr. Brown), to train 250,000 young people is very good. His policies will bring some hope to Wales and the community that I represent on industrial Deeside.

I had hoped that the Finance Bill would include a reduction in fuel bills as a result of a cut in value added tax, a boost to energy conservation and the release of moneys from the sale of council houses so that funding for repairs and modernisation of houses could be made available. I make my views known following assessment of the terrible impact that the recent very severe arctic weather, especially the wind chill, had on tenants. The strong wind that blew and blew for several weeks made houses very cold.

In my constituency, far too many homes still have rotting windows, draughty doors and rooms without radiators or any form of central heating. I want to speak up for tenants in such houses for they have experienced severe conditions as a consequence of the frighteningly cold weather that gripped our country for weeks. The House should consider the consequences for young families of those freezing temperatures. It became an ordeal. It was a misery for them and pointed to unhappiness and the onset of ill health.

The severe weather impacted greatly on the domestic budgets of people who do not earn a large wage or are on benefits. One example from my constituency surgery that comes to mind is of a young mother whose four-week old baby had been born, I believe, nine weeks prematurely. The home in which she sheltered with her husband and baby during the terrifyingly cold weather had no radiators; there was but a gas fire. Consequently, that young family, with the responsibility for that young child, decided in the end to decamp, leave the house and take shelter in the young mother's mother's home five miles away. They simply locked up their house and went to a warmer one because their home had not been modernised; it did not have modern window frames or the modicum of central heating that it deserved.

The second example that I would cite is of a very old council house that is tenanted by a respectable man, aged 60, who has been an exemplary tenant for 40 years. He came to my surgery to tell me of his family's distress in the arctic weather owing to window and door frames simply failing to keep out the cold. As an unskilled council worker on a low wage, he had very little spare money to cope with the demands on his heating budget.

A number of my constituents have told me that during the very cold weather they had icicles near windows and mould grew on walls. They told me of their need for coal at £6.50 a bag and that their wages and benefits were insufficient. The consequence was that many families—tens of thousands across Wales and many hundreds in my constituency—were at a very severe disadvantage during that arctic spell. I wish that the Finance Bill had included measures pointing to some relief for such people. Pensioners who came to see me told me that they needed cold weather payments urgently and that they have to wait too long for the extra relief. They asked me to request urgent payments rather than relatively laggardly ones.

I emphasise the fact that when there is no insulation, fuel taxes are high and modernisation schemes falter due to the lack of Government policy, young families suffer. I ask the House to consider the dilemma faced by many young mothers who have asthmatic or bronchitic young children. Such youngsters cannot be put to bed in freezing cold bedrooms that have no radiators. The House should consider the predicament of such young families and the consequential effect on the health of the children who live in such homes. Many young mothers and fathers and others were at their wits end during the frighteningly cold arctic spell, and the House should consider how it can attempt to prevent such unhappiness recurring. Clearly, such arctic weather could return.

Although no Government can be blamed for arctic weather, the present Government must accept blame for the destruction of the energy conservation programme. Such destruction has been their policy; that is where they have cut. They must face the fact that they have implemented a major hike in fuel bills by imposing tax. Despite that, they still stubbornly refuse to release more receipts from council house sales. Our local authorities are anxious for the release of such receipts so that money can be made available for new building and modernisation.

If such policies were implemented and the Government were to relent, there would be an increase in the happiness and the warmth of tenants whose predicament I have described. There would also be more work, as those who are unemployed could be the very people to repair and modernise the homes in which so many families still live. We should move to end the distress of families such as those who live in my constituency.

For poorer people, the savage, continuous and brutal arctic weather made life a misery, destroyed domestic budgets and pre-empted all household expenditure. Keeping warm was a constant and expensive struggle. Not keeping warm destroyed morale and health. Children suffered, school budgets suffered, yet the Finance Bill for certain contains nothing that might prevent such miserable happenings from recurring. Deficiencies and omissions in Government policy put pressure on our vulnerable families during the terrible cold weather.

The House should realise that the arctic weather could return. I am anxious that families such as those whom I have described do not suffer such misery and indignity again. The Finance Bill is riddled with inconsistencies and is highly deficient.

Photo of Mr Nicholas Budgen Mr Nicholas Budgen , Wolverhampton South West 8:18 pm, 14th January 1997

The hon. Member for Alyn and Deeside (Mr. Jones) is, of course, entirely justified in this general debate in referring to what he believes to be a grave omission from the Finance Bill.

I wish to start by saying how much I enjoyed the maiden speech of the hon. Member for Barnsley, East (Mr. Ennis). I enjoyed his wit, his attachment to his constituency and his elegant and amusing reference to his many relatives. The House warmed to him and much enjoyed his speech, which was delivered with great self-confidence. Let us hope that we hear him many times in such good form.

We crawl over every minute detail of the Finance Bill—indeed, my hon. Friend the Member for Gloucester (Mr. French) did some minute crawling when he gave us the details of the Bill's effect on individual citizens, and it was proper for him to do so. The Finance Bill and the Budget are tremendously important to people who are affected by it, especially, as my hon. Friend pointed out, to those who are not sure whether they fall on one side or the other of a line. It is entirely right that the House of Commons should spend much time trying to ensure that the details of the legislation are, at least, no worse than usual. We recognise that most legislation does not have entirely the desired effect. It is often rough and ready and sometimes creates injustices, but we try to do something with it.

It is strange and ironic, however, that when we have finished talking about all the details, the Budget is usually fairly insignificant in its effect on the general health of the economy. Wise men argue about whether the Budget will be mildly contractionary, will put a bit more money into the economy or will be broadly neutral. We can all argue about how the figures have been fiddled and make clever points about whether the fiddling is worse this year than it was last year or whether this year the clever people in the Treasury have used words slightly differently to enable them to put favourable assumptions into the Budget. Such debates are all very clever and interesting, but the Budget does not have an enormous general effect on the economy.

That fact brings me to the only point that I wish to make in what I fear may be an embarrassingly short speech. Monetary policy is far more important in its overall effect on the economy than are the minutiae of fiscal policy. Why does the average citizen now feel more comfortable in his job and about being able to sell his house or look for another job, and why has negative equity diminished so much? It is not because we have had three or four clever Budgets in the past three or four years: it is because of the relaxation of monetary policy.

Page 47 of the Red Book shows the extraordinary way in which monetary growth slumped dramatically between 1990 and 1992, how monetary growth was minimal in the six or nine months before we came out of the exchange rate mechanism and how this country was squeezed dramatically and dreadfully in an over-tight monetary policy before we finally burst free from the exchange rate mechanism. For all the talk about how clever Budgets have been in recent years, they have nothing to do with the improvement in the economy.

What has happened—chart 3.24 in the Red Book shows this—is that, after a gross and excessive squeeze, there has been a progressive relaxation of monetary policy. That is why house prices are now going up 10 or 15 per cent.; why the ripple effect is moving from London into the outer suburbs and the shire counties; why people are able to borrow against their houses for their small businesses or whatever else they want to do; and why economic activity, employment and consumer demand are generally increasing.

It is curious that while we properly crawl over every detail of the incidence of taxation, we do not often discuss monetary policy. Monetary policy can be conducted and changed without any control by the House of Commons. It is extraordinary that there can be a cumulative rise in interest rates from, let us say, 7 per cent. up to 15 per cent. without any specific control or inquiry by the House. Therefore, when we consider the Labour party's proposals for taxation and for increased public expenditure, we are surely entitled to suggest that those proposals are weapons of relatively small effect. What is important is how the Labour party will manage monetary policy, because that will be the unknown residual.

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North

It will be controlled by Frankfurt.

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

I will come to that subject as I am nearly as preoccupied by it as my hon. Friend is. I will make the domestic point first.

The Labour party says that it will not raise taxation generally and that it will be able to stick to that. I think that will be difficult. Clever young men in Tory central office have added up the commitments made by Labour for increased expenditure and they amount to £30 billion a year. Before any Labour Member starts complaining, I may say that I do not pretend to understand what new Labour is about other than trying to be an alternative Tory Administration with different people.

I imagine that some people from old Labour have not been weeded out, even if they are now allowed only to deliver leaflets. There must be some people from the old Labour party who believed in high public expenditure on, for example, fuel conservation schemes, as suggested by the hon. Member for Alyn and Deeside, but such initiatives cost money. It is probable that the people who have fought so long and hard for the Labour victory that they hope for at the next general election would want higher public expenditure. That would mean a public sector borrowing requirement of £40 billion to £50 billion, which would have to be financed somehow. The extra financial pressure would give rise to higher interest rates than would apply if we had a lower public sector borrowing requirement. It is extraordinary, but no one from the Labour party has explained its attitude to interest rates, monetary policy and the Bank of England.

One of the best things that the Government have done—if I may, for a moment, deeply admire the Government—is to introduce a new relationship between the Governor of the Bank of England and the Chancellor of the Exchequer. It is an extremely good system by which the constructive tension between those two high functionaries is made public so that the markets may exercise their discipline if they take a view that differs from that of the Chancellor or the Governor. The ultimate responsibility remains with the Chancellor of the Exchequer, and that is important. Some of my hon. Friends say that the Chancellor has done well to resist interest rate rises, but no one can tell yet and we shall not know for a couple of years. The Chancellor may be right; the Governor of the Bank may be right. It is much too early to congratulate either side in this struggle.

Yesterday's Financial Times—with, I am sure, a good deal of guidance from the Labour party—reported that Labour is to introduce a new monetary policy committee that, it seems, will be more or less independent of the Chancellor of the Exchequer. It would be entirely wrong under our constitution to allow any monetary policy committee to have complete operational independence from politicians. We in this House of Commons have little enough control over monetary policy anyway, and we do not debate it enough. It is half-adequately discussed in the Treasury Select Committee, but it is wholly inadequately discussed in the Chamber. The most important weapon of economic management being controlled by a monetary policy committee that is not held responsible by the Chancellor and for which the Chancellor is not responsible either to the Cabinet or to the House of Commons is, I suggest, a constitutional monstrosity.

It is no good Labour saying that it wants the committee because it wants to move part of the way towards a single currency in Europe, and therefore wants to be able to say that it is in favour of an independent central bank for domestic reasons as well as for what I would call European reasons. It is the essence of the way in which we control the economy that the Chancellor takes decisions on monetary policy, and these cannot be shuffled off to a new committee.

Although the story may or may not be true, a handout from the Tory party suggests that the committee will have union leaders and stakeholders on it. Let us assume, for the sake of argument, that that is completely untrue. It does not really matter in principle who is on the monetary committee, but for it to exercise unsupervised control over interest rates in some independent role is, I repeat, a constitutional monstrosity. It is made worse by the fact that the committee will be given completely inconsistent and conflicting instructions, as it will be told to control inflation and to have growth targets. This is nonsense.

The economy is not perfect, but it is very satisfactory and that is a result of the freedom that we obtained after 16 September 1992 and of the proper and necessary relaxation of monetary policy since then. That was a result of properly exercised political decisions by successive Chancellors of the Exchequer. These decisions cannot be shuffled off to a new-style monetary committee or to an independent European central bank. If Labour thinks that it can shuffle off those important decisions over our most important weapon of economic management, it is deeply wrong and it will come to learn that it has made a terrible mistake.

Photo of Andrew Miller Andrew Miller , Ellesmere Port and Neston 8:34 pm, 14th January 1997

I want to pick up a theme that was started by my hon. Friend the Member for Barnsley, East (Mr. Ennis) in an extremely interesting and witty maiden speech. I also wish to respond to some of the critics, including the hon. Member for Wolverhampton, South-West (Mr. Budgen), who have asked about the difference between new Labour and old Labour. My hon. Friend the Member for Barnsley, East made it clear that he represents the Labour heartlands, and he reflected the views of those heartlands extremely well. He will be here representing the good folk of Barnsley, East for a long time to come.

My hon. Friend the Member for Barnsley, East introduced the theme of the buck-passing Budget, and referred to education. My hon. Friend the Member for Alyn and Deeside (Mr. Jones) then referred to housing, and that is an area on which I wish to concentrate. It is a pity that the hon. Member for Milton Keynes, South-West (Mr. Legg) has just left his place, because we had an exchange earlier in which he developed an interesting theme and then chose to ignore the facts. That seems to be prevalent among Conservative Members.

In my constituency, there are currently 4,500 families on the local authority housing waiting list, of whom I estimate that between 1,200 and 1,500 are in dire need of housing because of overcrowding or deteriorating accommodation. Ten years ago, that same local authority could on average house a couple with one child in one month. That same couple could now wait four years. A number of major factors have influenced the housing stock in that local authority, all of which are outside its control and most of which are in the control of the Government. This is a buck-passing Budget par excellence.

Library research paper 108 of 15 November 1996 contains an interesting table that shows the number of housing starts from 1975 to 1995. It is interesting that in only one year of the Government's tenure have they managed to surpass the number of total housing starts—the combination of private sector, housing association and local authority starts—achieved by Labour in 1979. In other years, the data show that the Government have come nowhere near the figures achieved by Labour. Overall starts in 1995 were 26 per cent. below the 1979 level, and the 1994 figure was 16 per cent. lower than 1979.

Local authorities started only 1,000 dwellings in 1995, which is a mere 0.6 per cent. of the total. In that year, housing association starts fell by 22 per cent. and private starts by 15 per cent. The hon. Member for Milton Keynes, South-West made it clear that housing debt had risen. That in turn put pressure on the providers of low-cost housing, which means that the Government have once again passed one of their responsibilities on to local authorities and housing associations while savaging their available capital.

The effect spins off to a wide range of other services, and pressure is put on the health service—the correlation between poor housing and poor health is well understood—on social services and, through housing benefit, on the social security budget. As a direct result of the Government's policy of passing the buck, a string of budgets is affected.

We in the Labour party have made it clear that we intend to address some of those issues. Even in some of the smaller areas of local authority responsibility, cuts knock on into youth service provision, for example, and cause problems for—

Photo of Mr Michael Morris Mr Michael Morris , Northampton South

Order. The hon. Gentleman should relate his remarks to the Finance Bill.

Photo of Andrew Miller Andrew Miller , Ellesmere Port and Neston

I am within one sentence of a point relating to several clauses in the Bill.

There is a close relationship between the burden borne by local authorities and the Government's taxation policy, which is well established in the Bill. The Government said that if we elected them on Thursday, the recovery would begin on Friday, but the Library research paper setting out the trend of public sector borrowing requirement as a percentage of gross domestic product shows that in the run-up to the 1992 election, it was on a steeply rising curve, and it is therefore my contention that they knew that their assertion was an impossibility. There has been continual manipulation of the data and we know that the Government's figures have been totally and utterly inaccurate.

The Chief Secretary was challenged about whether he would serve on the Committee and seemed to indicate dissent. I hope to see him campaigning in Wirral, South, where I shall be spending some time in the next few weeks, and telling people about the facts that I have described, especially in relation to housing in all its aspects.

We heard earlier a comparison of the tax imposed by the Government on the banking sector in 1981 and Labour's proposed windfall tax on the utilities. I said in an earlier intervention that there was nothing about that banking tax in the Conservatives' 1979 manifesto, which could virtually have been written on a postage stamp, yet the Government considered it acceptable to introduce it in a Finance Bill—in 1980, as I recall.

We have been challenged several times on the details of the proposed windfall tax. Quite properly, my right hon. and hon. Friends will introduce it in the very next Finance Bill to come before the House, and that will be sooner rather than later.

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North

The windfall tax is an interesting concept. The hon. Gentleman is probably well aware of the fact that companies were privatised and people bought shares. Some of those companies were subsequently taken over at a higher price; that is what happens with shares and share ownership. The hon. Gentleman might say that the increase in value was a windfall and that the shareholder should be taxed on it, but the reality is that those shares now belong to somebody else and were bought at the full market price. The second owner paid the full market price for the shares and there is therefore no windfall. Is it the intention of the Labour party to tax such shareholders?

Photo of Andrew Miller Andrew Miller , Ellesmere Port and Neston

The hon. Gentleman makes an interesting point. Our policy has been known for several years, so prices have been discounted to take into account that possibility—or, rather, probability or certainty. The hon. Gentleman should logically apply his theory to the tax on the banking sector that I mentioned earlier, but of course he will not do that, because he happily acquiesced in it in the early 1980s as an acceptable way for the then Chancellor to raise revenue.

The notion that changing the threshold in inheritance tax is perfectly fair and proper and is to the advantage of the vast majority of people is another example of buck passing. It is absolute hypocrisy for the Government to make that assertion while at the same time forcing elderly people in residential homes to sell their houses to pay for such a buck-passing exercise.

There is a powerful argument for periodically changing the thresholds and it is reasonable to say that, if people have received a large tax relief on the cost of a mortgage, some of the money should subsequently be returned to the state, if the state is paying for their care, but it is absolutely inhuman to take it when people are, in many cases, literally on their death beds and to put such enormous pressure on couples.

Surely it would be right to push all that nonsense out of the social security arena and to deal with the matter through inheritance tax. I appreciate that that does not give the immediate tax flow, but there is a logical relationship. The Government's attitude is once again of passing the buck in terms of budgetary responsibility.

I have a detailed and varied interest in hydrocarbon taxes—an interesting concept, developed over a number of years—which extends from my constituency responsibilities. On the one hand we have Vauxhall Motors, which is part of the General Motors Corporation and is a highly successful motor manufacturer. Ellesmere Port is the home of the Astra and the V6 engine, 95 per cent. of which are exported to continental Europe. Also, the constituency contains a large petrochemical complex that includes Associated Octel, which somewhat controversially manufactures tetraethyl lead—the anti-knock compound for petrol. Again, that company is a £200 million export earner for this country.

The combination has made me consider hydrocarbon taxes carefully. While I appreciate that the Government's move on low-sulphur diesel is well intentioned and I do not deny that a huge problem is associated with diesel particulates, which has to be dealt with, I plead with the Government and my colleagues who will be taking over responsibility in the not too distant future to undertake a serious scientific review of the changing information available to us. Before long, we shall certainly have to penalise users of high-sulphur diesels by raising duties in relative terms, perhaps bringing them closer to those on petroleum.

In years gone by, it was generally accepted on both sides of the House that, because of the additional mileages that vehicles would run on diesel, it was more logical to assist the diesel user. Without wanting to be drawn into the argument about penalising the transport industry, I believe that in terms of the purely environmental considerations it is high time that we had a wide-ranging review of the scientific evidence, some of which is highly controversial and which is still changing very fast.

I have heard a detailed presentation by one fuel manufacturer expressing one point of view in an all-party committee of the House, the major petrol companies expressing another and companies such as Associated Octel yet another. A lot of weighty scientific evidence ought to be evaluated before we commit ourselves to associating a permanent pattern with the fuels. That we should use the differential as a means of encouraging people to use the right vehicles is an area of common ground and I would encourage colleagues to consider carefully some of the more recently published evidence and to press for a wide-ranging review of it.

Finally, as colleagues want to speak, I must return to my original theme. This has been a disappointing, buck-passing Budget and I look forward to having the opportunity of talking about it, not only on the streets of Wirral, South, but during the forthcoming general election.

Photo of Stephen Timms Stephen Timms , Newham North East 8:53 pm, 14th January 1997

I begin by adding my congratulations to those that have already been expressed to my hon. Friend the Member for Barnsley, East (Mr. Ennis) on his speech. It is not long since I was in his position after a by-election. I enjoyed his speech and the film "Brassed Off".

At this late stage in the debate I will confine my remarks to three areas: first, the increase in duty on fuel contained in clause 6 of the Bill; secondly. the time limit for reclaiming overpaid value added tax, in clause 47; and, lastly, the wider impact of the Bill and Government policy on investment.

The Chancellor announced an increase of 3p a litre in fuel duty in his Budget speech, which took effect on the evening of that day and is documented in the Bill. Apparently, that is all quite straightforward, just like every other measure in the Budget—except that it is not. The Chancellor tells us that the overall effect of the Budget and the Bill on taxation—the Chief Secretary to the Treasury repeated it in his opening speech—is a reduction of £735 million. It turns out, however, that that widely quoted figure completely ignores the 3p increase in fuel duty and also the increase in tobacco duties. The 3p on fuel and the associated increases in other fuel duties alone raise an extra £850 million—a fact to which the hon. Member for Gordon (Mr. Bruce) referred—and singly more than cancel out the overall reduction claimed by the Chancellor and the Chief Secretary. If fuel and tobacco duties are taken into account, that claimed £735 million reduction becomes a £350 million increase in the level of taxation.

So, how can the Chancellor ignore those two items when making his statement? His reasoning was that it was announced a few years ago that fuel duty would increase by 5 per cent. a year in real terms and tobacco duty by 3 per cent. a year, which means that they do not count in assessing this Budget. That is preposterous—it is "Alice in Wonderland". The fact that the increase was announced a few years ago does not mean that it did not happen. In fact, it was the most visible change of all those announced in the Budget, because it appeared immediately on illuminated signs on petrol forecourts the length and breadth of the country. Petrol prices went up by 3p within a couple of hours of the Chancellor announcing it. Of course, it was part of the Budget. If the Chancellor had omitted it from the Budget speech, the 3p increase on fuel would not have been imposed. If it was not in the Bill, it would not have happened. There is no inexorable process by which, because an announcement was made a few years ago, fuel duty rises. It happened only because the Chancellor decided this year that it should. It is part of the Budget.

I am not arguing against the 3p hike in fuel duty, but merely asking that the Government tell us the truth about what they are doing. It is no wonder that the Tories are not trusted on tax. Why not tell us the truth? Why go to such trouble to hide it? Come clean. Tell us the truth that taxes are going up with the Bill, as the small print in the Red Book makes plain, and let us have no more dissembling. Dissembling along those lines does the Government no good. It may be too late for this Government to learn that honesty and frankness are in their long-term interest, but the next Government must heed that lesson. It is part of the change that the country wants in the way that the nation's economy is run.

When it was announced in 1993 that fuel duty would be increased by 5 per cent. a year, the relief on fuel duty for local bus operators was frozen. It has not increased since 1993. As a result, the price paid per litre for fuel used in local bus services has doubled since 1993. That plainly undermines the stated objective of the annual increase in fuel duty, which is to discourage people from using their own cars.

The system for applying for relief works fine. Bus operators apply for it and it is paid back, but if the relief continues to be frozen at the 1993 level, the economics of public transport by buses will be seriously undermined. As the Confederation of British Road Passenger Transport UK says, it is a new tax on bus transport and on people who travel by bus.

In its submission to the Treasury, the confederation proposed various ways in which the problem could be addressed. For example, there is red diesel, which is used in agriculture and for maritime purposes, and on which there is no duty. Alternatively, the Government could announce that they do not propose to increase the level of duty payable by local bus operators in future, and that this year's increase was the last. I urge the Minister to announce that.

On the repayment of overpaid VAT, widespread concern has been expressed about clauses 44 to 49 which deal with VAT. The provision, which sets a three-year time limit for claims for VAT refunds, has alarmed many small and large businesses. There are four principal concerns about the provision. First, it is retrospective law, which is unfair. Secondly, it greatly increases the chance of businesses being unable to claim back tax that has been overpaid through no fault of theirs. Thirdly, there is a real prospect of the new provision being successfully challenged under British and European law. Fourthly, it does nothing to tackle those who deliberately try to defraud the commissioners, but concentrates on those who co-operate honestly.

We shall discuss the matter in detail in Committee, but it is worth drawing the attention of the House to the opinion obtained by Deloitte and Touche from Professor Waelbroeck and his colleagues on the position in European law. He states: Case law has established that the limitation period must correspond to the periods normally applicable for similar claims under UK law viz. direct taxes which usually attract six year periods. In other words, introducing a different period—three years for indirect taxes, as opposed to six years for direct taxes—is challengeable. There is a growing view that it will swiftly be challenged if the Government press ahead with their proposal. The issue has been raised with me by Tate and Lyle in my area and by several small companies as well.

As the amendment tabled by my right hon. and hon. Friends points out, the most serious failure in the Bill is the failure to address the downward spiral in investment. Figures released by the Government to my hon. Friend the Member for Darlington (Mr. Milburn) on 11 December 1996 show just how low investment has fallen since 1979, and it is still falling. The figures give the average ratios of investment to GDP since 1979 for all the G7 and EU countries. Britain is in 18th position out of 18—lower than every one of our European and G7 counterparts.

Even more disturbing is what has happened over the past two years. Our position in the league has not changed: we are still 18th, but in those two years, as global economic recovery has allowed many countries to improve their ratio of investment to GDP, ours has slumped further, from 17.4 per cent to 17.1 per cent., pushing us even further behind our competitors.

That failure is the key to our long-term economic failure. The relatively large proportion of investment that we have attracted from outside Europe cannot make up for our failure to invest in ourselves. The Government are part of that failure. Table 5.4 in the Red Book shows publicly sponsored investment falling from £21 billion last year to £20.8 billion this year and £20.5 billion next year.

Those figures are bad enough, but they do not tell the whole story. They are based on estimates for the private finance initiative, which include not only signed deals and agreed deals, but every other vaguely feasible PFI project that the unit in the Treasury has been able to come up with. They are departmental wish lists. That is the basis for the PFI figures in the Red Book. If we consider the investment expected from PFI projects that have been signed, publicly sponsored investment looks set to fall every year until the turn of the century.

The Treasury Select Committee recognised that in its report on the 1996 Budget, as the hon. Member for Upper Bann (Mr. Trimble) mentioned. The report points out that sluggish growth of PFI expenditure means a reduction in conventional capital expenditure without compensating PFI investment materialising. The private finance initiative is not delivering and that failure is contributing to a wider failure in the economy on investment.

The PFI is a square peg that is being pushed into too many round holes. Despite the announcement the day before the Budget that, at long last, a major hospital contract under PFI had been signed, it turned out that the finance was not agreed. There is still no financial deal for any of the major hospitals due to be built under the private finance initiative. The National Health Service (Residual Liabilities) Act 1996, which was rushed through Parliament last summer, was supposed to solve the problem but did not. The Secretary of State has promised to write letters of guarantee for individual PFI deals on health, but that has not solved the problem either. There are serious difficulties in other areas also.

We should narrow the scope of the private finance initiative—being much clearer about its intended use—and scrap the insistence that everything must undergo PFI assessment, however inappropriate it may be. At present, public sector agencies and private sector contractors and financial sources are sent on endless wild goose chases, in many cases becoming increasingly frustrated by the amount of time that is wasted. The PFI is not delivering because the Government have not yet devised a credible account of how private finance can support public services. That must be done.

The Government must start to recognise the limits of the PFI. They are trying to use the initiative to cover up the way in which investment is being choked out of the British economy. That approach will leave a gaping hole in investment which the Bill does nothing to address and which the next Government must fill.

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North 9:06 pm, 14th January 1997

The Prime Minister has said that he has three themes for the election: first, Europe, renegotiation and how we can regain control over our affairs; secondly, devolution and how we can ensure that the United Kingdom remains united when the Opposition would split us asunder; and, thirdly, taxation, which is the subject of today's debate. The Prime Minister and the Conservative party agree that taxation levels would be higher under a Labour Government than under a Conservative Government. I shall explain why.

My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) described new Labour as the Conservative party in drag, trying to be more conservative than the Conservatives. The reality is that, first, if it is a Conservative party in drag, it is an inexperienced Conservative party in drag and it will make a hell of a lot of mistakes. Secondly, there are many unreconstituted, unreformed old socialists in the Labour party whose taxation motto is: tax until the pips squeak.

The Conservative Government have reluctantly increased taxes from time to time, but in our hearts we want low levels of taxation because we know that is how the economy works best. The money belongs to the people, not to Parliament or to the Government. According to Opposition psychology, the money belongs to the Government, who will let the people have some every so often. The instinct of a Labour Government—even under new Labour—is for higher taxation levels.

We all want to care for our elderly and infirm and to provide good standards of education. There is no argument about that and there is little argument about how it will be achieved. Under a Labour Government, there will be pressure to increase public expenditure. That pressure will be applied by Labour constituents, the paymasters and clients of the Labour party and by the trade unions which have influence with the Labour party. Whatever the intentions of the new Labour leaders, that pressure will force them to do more. We have a duty to ensure that public money is spent efficiently. That means that there have to be reforms, as there have been in the past 17 years of government. We have had privatisations. Many industries, institutions and establishments that used to be a large financial burden on the taxpayer have now been reformed, and we get more product for less payment by the taxpayer. No Labour Government could or would reform the institutions that still require to be reformed.

We heard from the Labour Front Bench a great new initiative on education: to give back all the powers to local authorities, and to do everything that the National Union of Teachers wants. More and better education is not achieved by feeding the appetites of the producer groups. It is not achieved by looking after the clients, bosses and managers of the Labour party. If there is a Labour Government, one will get less for more money. Therefore, there will be more taxation and probably even more expenditure, which means more borrowing. The sad fact is that whatever is said at the moment by Opposition Front Benchers, whatever their good intentions, they will not be able to deliver.

The Labour party has a sauce in tabling its amendment. Labour wants higher investment. If there are high levels of taxation and expenditure and high levels of Government borrowing, there will be high interest rates. Will that encourage people to invest?

The hon. Member for Newham, North-East (Mr. Timms) had some concocted figures. His sounded like a research assistant-type speech, as though he had looked it up in a book and that it had been decided this way, that he had this table and that table. He said that Britain is 18th out of 18 in terms of investment. Does anybody really believe from the results, from the strength of the British economy at the moment, that we are 18th out of 18 in terms of investment?

The vast majority of European investment outside other European countries is in the United Kingdom. The vast majority of German investment is in the United Kingdom. The vast majority of Japanese investment in Europe is in the United Kingdom. The vast majority of United States investment in Europe is in the United Kingdom.

Labour talks about investment, but it has to be effective investment. Perhaps other countries are spending more, but they are not getting the results. We are. We have the strongest economy in Europe. We have the highest growth rates in Europe. We have the best increases in productivity in Europe. Labour criticises investment, but we are getting the results. What is Labour criticising?

Then Labour Members have the gall, the audacity, the cheek, to complain about the Conservative Government's employment record, yet they are the people who would embrace the social chapter. They are the people who want the 48-hour week. They are on their knees for the 48-hour week. They are the people who talk about a minimum wage. They would hamstring our economy. What will that do to employment?

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North

I am grateful to my hon. Friend for his support.

Labour Members talk about the scandal of youth and long-term unemployment. The way to overcome that is through good education, good skills and a strong economy. For every three who went into higher education when we came into Government there are now eight. Our economy is the strongest in Europe. We are creating and generating jobs that would be destroyed and thrown away if we were to lose the election and be replaced by a Labour Government.

Then we heard the complaint about the increasing tax burden. The Labour party is complaining about the Conservative Government increasing the tax burden. Is that not the pot calling the kettle black? The Labour party lives for increasing the tax burden. What does it have in mind? It has a brand new tax worked out, or half worked out, possibly worked out—hardly thought about at all. I understand that it will not be introduced because it will be illegal. If it is not illegal, at least it will be challenged in court. It will take two years before the Labour party can discover whether it is legal, so it will not be able to raise the money.

The Labour party will not have the money to carry out all its promises, so it will have to raise the tax in other ways. Supposing Labour were allowed to introduce the windfall tax—there would be additional taxes on top of the taxes that it would have to raise because it is a Labour party rather than a Conservative party, because there would be a Labour Government rather than a Conservative Government—what would be its effect? The money has to come from somewhere. I do not know whether I have an interest to declare, but I have shares in privatised utilities, as, I expect, do many of my hon. Friends, and probably Opposition Members. Which companies will be taxed? Perhaps the water authorities will be taxed. Will British Gas be taxed? Will British Gas suddenly be subjected to an entirely different level of regulation? Will the dividends of the shareholders in British Gas be halved, or cut even further than that? Will the electricity companies be taxed which have been taken over and bought at full market price? Were not the shares sold at full market price in the first place?

Was it not the main objective of the Labour party to ensure that flotations did not succeed? Did it not do all that it could to depress share prices when utilities were sold and floated to the public? If undertakings were sold too cheaply given the uncertainty that existed at the time, which meant that prices had to be realistic to encourage people to buy, we know the guilty party. It was the Labour party which chose to put the frighteners on people who wished to buy the shares. If money has been lost to the Exchequer—money that could have been gained by the Exchequer—we know where the fault lies.

The Labour party now has the gall to talk about a windfall tax. From whom will it get the money? Will it get it from shareholders—perhaps? What else will happen? What will happen to the price of the output of the services that are provided by utilities? What will happen to those who are employed in these undertakings? Their jobs will be put on the line again. Who will the Labour party help by means of an illegal tax that it will not be allowed to introduce? Let us know more about what a Labour Government will do. Let the Labour party not tell us that we are the party that is increasing taxation when it has an illicit, bogus, inefficient and ridiculous tax up its sleeve.

The state of the Labour party worries me, and it should worry the country. If the public are ill advised, misled and duped, and if they are bored with the Conservative party and naive enough to seek to have a change, I can only say that it will all end in tears.

Photo of Dawn Primarolo Dawn Primarolo Shadow Spokesperson (Treasury) 9:16 pm, 14th January 1997

Given the speech by the hon. Member for Northampton, North (Mr. Marlow) I am not sure whether he is the secret weapon for the Government in the next general election campaign or whether he is the Labour party's secret weapon in bringing down the Government. The hon. Gentleman is fervently anti-Europe and spends his time criticising the Government. He called for the Prime Minister's resignation in the House. He has the nerve to talk about inconsistency yet he sings the praises of the very Government who he is doing so much good work to assist in bringing down.

Even when the hon. Gentleman was struggling to sing the Government's praises he had to admit that they had increased taxes. Apparently in their heart of hearts they did not want to do that, but they did. That will make interesting reading in the hon. Gentleman's election address at the next general election, whenever it is called. "In my heart of hearts", it will read: "I meant to tell you the truth but unfortunately the wicked Government of whom I hoped to be a member apparently do not seem able to tell the truth."

The Government say that they want to reduce taxes. They campaigned on that policy and then increased taxes, both indirect taxes and direct, as the wicked lies in the Red Book demonstrate and as the report of the Select Committee on the Treasury confirmed, the Committee having considered the details of the 1996 Budget. This is the world turned upside down. Perhaps we might now return to what is in the Bill and the propositions advanced by the Government.

I understand that it is in order to congratulate the Financial Secretary—it will be the only time that I do so this evening—on being appointed a Privy Councillor in the new year's honours. I am happy that he is now a right hon. Gentleman, and I hope that that means that he will tell us the truth in his reply to the debate.

The Chief Secretary to the Treasury was rather coy at the beginning of the debate when my hon. Friend the Member for Edinburgh, Central (Mr. Darling) asked him whether he will be a member of the Finance Bill Committee. You, Mr. Deputy Speaker, would have expected, as we did, that he would confirm that he will take responsibility for the Finance Bill and will be on the Committee that will enable the Government's tax-raising proposals to be enacted. Unfortunately, he could not tell us whether he will be on the Committee: he told us to wait and see. We are not sure whether he will not be on the Committee because he is defending his marginal seat in Bristol, or because he does not want to take responsibility for the Bill.

The argument that the Chief Secretary tried to advance presented a selective picture of the Government's so-called achievements. He referred to the measures in the Bill, especially the significant action to protect the tax base. He said that the Government would not tolerate tax abuse. We are pleased to hear that: hon. Members on both sides of the House unanimously agree with that and do not support tax abuse. He said that the Government will now make available extra resources to deal with tax abuse. That is a bit rich, given that they cut them in the first place.

We are entitled to judge the Government on their entire record, and not just on the selective picture that they want to paint so as to create a happier image for the electorate. They are not prepared to face the electorate, because they are terrified that people will see through the smokescreens and illusions.

We are familiar with the litany of claims that the Government always trot out. They tell us that we have low inflation, falling unemployment and stable, long-term growth. The Chief Secretary said that we have the best prospects for a generation. I wondered what generation he was talking about. Was he talking about the 14 million people—4 million of whom are children—who live in poverty? That is almost three times as many as in 1979. Perhaps he was talking about the poorest 10 per cent., whose weekly income the Government have cut since 1979, while at the same time the incomes of the richest have increased. Perhaps he was talking about the generation that would eventually benefit from the Government's so-called great theory of trickle down. Apparently, the rich will spend so much money that even the poor will benefit. That could be many generations from now.

Photo of Mr Tony Marlow Mr Tony Marlow , Northampton North

Given the hon. Lady's remarks, do I take it that it is her intention that the incomes of the bottom 10 per cent. should increase, and that a Labour Government would provide the money? Would they get the money from the people whom she referred to as the rich? If not, from where would she get the money?

Photo of Dawn Primarolo Dawn Primarolo Shadow Spokesperson (Treasury)

The Labour Government, who will be elected quite soon, will narrow the inequalities in wealth by providing people with work. One in five households have no one in work, and 62 per cent. of families have only one person working. The children of those families have lost out under this Tory Government. Those people, 9.1 million of them—the number has doubled since the present Government were elected—are the people who will benefit from the stable, sustainable growth in the economy over which the Labour Government will preside.

Photo of John Butterfill John Butterfill , Bournemouth West

I am fascinated to learn that the hon. Lady is going to prove that a Labour Government—if that ever comes to pass—will provide such people with work, but what will they be doing? Will they be working for her leader's office, along with all the others?

Photo of Dawn Primarolo Dawn Primarolo Shadow Spokesperson (Treasury)

That was unworthy of the hon. Gentleman, who has made some interesting and important points this evening, as he often does in debates on Finance Bills. I hope that we shall have his company again, but he knows full well that, by using a number of mechanisms, the Labour Government will ensure that work is created for those whom we shall represent.

The Government tell us that they have done wonders in regard to investment. Apparently, they have presided over spectacular investment in the economy. That is why so many people are unemployed: it appears that the investment has not been in them. In 1978–79, the then Labour Government's gross capital spending accounted for 3.8 per cent. of gross domestic product; this year, the Government's spending is expected to be no more than 2.5 per cent. of GDP.

As my hon. Friends have pointed out, we need to build on our best resources. We need to invest in our manufacturing, and in our people's skills. That is the way in which to establish a secure future. The Government, however, want none of that; they want to play around with fears of job insecurity, pressurising people in the workplace to fear for their jobs and forcing them to work for low wages. They tell us that that will make us the enterprise centre of Europe, but it is difficult to see how.

The hon. Member for Havant (Mr. Willetts)—but I am not sure that I can call him an honourable Member. The Member for Havant—

Photo of Mr Michael Morris Mr Michael Morris , Northampton South

Order. The hon. Lady should know that all Members elected to the House are honourable.

Photo of Dawn Primarolo Dawn Primarolo Shadow Spokesperson (Treasury)

Thank you, Mr. Deputy Speaker. I am grateful for that correction. I am sure that, when the hon. Member for Havant was telling us that the Government had not increased taxes and that we were wrong in our assertion, he was not "dissembling" in regard to the facts in the Red Book. What he said certainly was not based on an exchange of notes, and it certainly was not based on the sophistry in which the Chief Secretary apparently engages.

As always, my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) made a speech that hon. Members on both sides of the House found thoughtful and challenging. He made clear the importance of monitoring, and of a proper structure in the House to ensure that tax and expenditure plans could be properly assessed. There was no substitute for proper parliamentary scrutiny. He went on to knock down the Government's allegations that, somehow, a splendid inheritance existed, and reminded us again that the danger to our manufacturing base was acute.

The hon. Member for Stamford and Spalding (Mr. Davies) made his usual well-informed, pro-Europe speech. Unfortunately the hon. Member for Havant did not stay to hear it, probably because they had already exchanged notes.

My hon. Friend the Member for Barnsley, East (Mr. Ennis) has been widely complimented by hon. Members on both sides of the House for the good humour and ability of his maiden speech. I think in particular of his comments about Terry Patchett, a well-respected, sincere and honourable man in the House, who was not always at ease with House procedures, but who was an excellent constituency Member of Parliament, defending mining communities. I look forward to hearing my hon. Friend the Member for Barnsley, East continue that tradition in future debates, which he clearly has this evening.

The hon. Member for Upper Bann (Mr. Trimble) made some points about anti-avoidance measures, which I hope he will allow me to pick up later. The hon. Member for Gloucester (Mr. French) made some detailed scrutiny points about that section of the Bill. Other hon. Friends have ensured that we have had a thorough investigation and exposure of the Government's plans.

Treasury press statements tell us that the Treasury is to invest and to "spend to save". They say: £800 million will be spent by a number of departments over the next three years to save an estimated £6.7 billion. In particular, there will be work in Customs and Excise to pursue the continuing problems of failing VAT receipts.

On page 69 of the Red Book, there is an attempt to explain the missing VAT receipts, which will interest all hon. Members as that revenue is not reaching its true destination: the Treasury. In a debate on 3 December, at column 854, the hon. Member for Fulham (Mr. Carrington) specifically referred to the table and its unconvincing explanation, and the evidence to the Treasury Select Committee, which shows that, of the £6 billion that is missing, Customs and Excise officials can explain only why up to a maximum of £2.5 billion is missing. They still do not know where the rest is.

It seems that there is increased consumer spending, but there is a shift in the connection with the tax—the tax is not being collected quickly enough. The desire to find that money seems to be based more on shadow boxing than on a proper assessment of where the revenue has gone.

We were promised that the Treasury had undertaken a thorough review and that we would be informed where the money was going—whether it was missing because of avoidance, inefficiency, growth in the shadow economy, a fundamental problem with the tax base or, as the hon. Member for Fulham suggested, a cyclical problem. No such report is being made available.

The Government's problem is that, in pursuing anti-avoidance measures, they are in danger of creating more opportunities for avoidance to take place. The whole nature of avoidance is that we do not know where the money is because, if we did, we would have the legislation to ensure that that was not exploited.

Without a proper assessment of where that almost £3.5 billion has gone, the dangers mentioned by the hon. Member for Gloucester about the inefficiencies of the system are likely to cause greater problems. Clause 37 is the second attempt to deal with the abuse of lease and leaseback arrangements. A statutory instrument on that in 1994 seems to have been totally inaccurate and did not properly target the issue. There is also a problem about clause 31 on the aggregation of businesses.

I shall not state what the Chief Secretary said I would, that the ideas in this section of the Bill were ours. Columns 694–96 of the Committee Hansards of 9 and 14 March 1995 show that we warned the Government that if they persisted in cuts imposed by a fundamental expenditure review on the Inland Revenue and especially on Customs and Excise there would not be enough properly trained staff to ensure that revenue was collected. The then Paymaster General, the right hon. Member for Wells (Mr. Heathcoat-Amory), said: Customs and Excise can maintain—indeed, improve—its output, even with fewer staff."—[Official Report, Standing Committee D, 14 March 1995; c. 699.] In our debates on the Bill we have discovered that that is not the case but that we need more staff who will be charged with the responsibility of finding the revenue. That is another example of the Government's sheer incompetence.

A Government who cannot even defend their own tax base and who do not understand that they need the staff to protect that base must realise that they are in serious trouble. They cannot create jobs or give people security or address the problem of the decline in our manufacturing base. They cannot even run the departments that are central to the structure of government—those that collect the taxes. The Government have the cheek to tell us that we are inconsistent. They should stop bickering with us in the House and put their record to the electorate. We shall also put ours and I am confident that when the challenge comes the electorate will choose a Labour Government for security, jobs, investment and hope for the future of their families and their grandchildren.

Photo of Michael Jack Michael Jack , Fylde 9:37 pm, 14th January 1997

I thank the hon. Member for Bristol, South (Ms Primarolo) for her kind remarks about my being made a Privy Councillor. She was right when she said that that would be the only nice thing that she would say about the Government. The debate has confirmed that Labour can only criticise, has no serious constructive ideas and is not prepared in the fierce heat of debate in the Chamber to put any of their policies or ideas to the test. That shows that the Opposition are frightened to expose their thoughts to public view and debate.

This useful debate has enabled us to cover the principal themes of the Budget and the Bill. We have demonstrated that we have clear aims for the economy and the tax system and that we are achieving them. The principal Budget themes with which the debate and the Finance Bill deal are about sustaining an economy that is regarded by international commentators and by our commercial rivals as a Rolls-Royce economy. My right hon. and learned Friend the Chancellor recently returned from Japan with news of the envy with which the British economy and our performance are viewed from the other side of the world.

The debate has also touched on the matter of keeping public borrowing on a firmly downward trend. However, the theme of living standards has been the common denominator in all the talk of tax and criticism of the Budget that we have heard from Opposition Members. In this debate, no hon. Member has successfully challenged our assertion that, in this Budget, we have achieved rising living standards—which will continue to rise, year after year. This Budget brings the basic rate of income tax to its lowest level for 60 years, increases personal allowances, freezes wine and beer duty and cuts spirits duty for the second consecutive year—a point made by the hon. Member for Gordon (Mr. Bruce) in his remarks on the benefits realised by the whisky industry. The hon. Member for Bristol, South mentioned, although in rather carping terms, that we have introduced further measures to secure the tax base by closing loopholes and ending reliefs that we now believe are inappropriate.

Most importantly, the Budget demonstrates the continuation of our tax-cutting agenda, in which our clearly stated aim is to achieve a basic income tax rate of 20p for all, while not taking any risks with the economy. Tax cuts and rising incomes mean that a family on average earnings will be £20 a week better off next year than at the time of the most recent general election. Prudent management of the public finances backs up that agenda, because we have achieved decreasing borrowing with an overall tax burden that is no higher than at the time of that election. It is a Budget, and now a Finance Bill, that is built for lasting prosperity.

Photo of Denis MacShane Denis MacShane , Rotherham

Will the Financial Secretary confirm that the burden of taxation is higher now than in 1992?

Photo of Michael Jack Michael Jack , Fylde

I can confirm that the burden of taxation in the next financial year will be no greater than it was at the beginning of the most recent general election. The hon. Gentleman—who claims to be an economic literate—fails to understand that further figures in the Red Book demonstrate the simple proposition that as people earn more, they pay more tax.

I should now like to reply to the speeches made by my right hon. and hon. Friends in this debate. In the telling speech of my hon. Friend the Member for Havant (Mr. Willetts), he rightly drew our attention to the Labour party's £30 billion of spending pledges. The hon. Member for Edinburgh, Central (Mr. Darling) seemed to wriggle very hard when he said that Labour's pledges were not pledges but something else—perhaps an eternal wish list. However, some people who claim to be supporters of the Opposition see matters rather differently. On the matter of Labour's pledge on teacher's sabbaticals, for example, Doug McAvoy said: Well I think it's been a commitment of David Blunkett's for some time and he sees it as a means by which teachers can be updated, they can be retrained and reinvigorated into the job.

Photo of Michael Jack Michael Jack , Fylde

Not at this point; I am making an important point about the matter of a pledge. The point underpins the argument made by my hon. Friend the Member for Havant, and it makes it very clear to the House and the public that, despite what the Opposition say, one would have to pay a £30 billion bill to meet the pledges of the Labour party.

Photo of Dawn Primarolo Dawn Primarolo Shadow Spokesperson (Treasury)

On the issue of pledges, could the Financial Secretary explain to us why, on page 88 of the Red Book, under "Total taxes and NICs", it states that, for 1992–93, the total take was 34¼ per cent., but that, for 1997–98, it will be 36¼ per cent.? Is that not a rise?

Photo of Michael Jack Michael Jack , Fylde

It is remarkable that, as soon as we hit home with the cost of a Labour Government, Labour Members change their line of attack.

Photo of Michael Jack Michael Jack , Fylde

I will deal with the point. As the hon. Lady said, I pointed out a moment ago, as have all my right hon. and hon. Friends, that as people earn more, the amount of tax taken in the economy increases.

Photo of Michael Jack Michael Jack , Fylde

I will not give way on that point because I want to make some progress.

The percentage of tax burden in this financial year will be the same as it was in the year of the last general election.

We have seen the way in which the Opposition reacted to the points on public expenditure raised by my hon. Friend the Member for Havant. If that causes them so many problems, let me turn to another point raised in the debate by my hon. Friend the Member for Havant—the windfall tax.

None of what the Opposition said gave us any insight into how much people will pay, who will pay and how the tax will be levied. On the central question of the legal opinion obtained by the organisation Aims for Industry we got no satisfaction from the Opposition. They did not tell us about the basis on which they say that the tax could be sustained. The Opposition may not have had a chance to see that advice, although it is in the public domain. I will do a deal with the right hon. Member for Dunfermline, East (Mr. Brown) and his hon. Friends. For greater accuracy I have obtained a copy of the advice and I am prepared to make it available to them with the proviso that they make public the advice in which they put so much confidence. If they do not make that advice available, we will know that it is wanting, that the tax will be non-existent and that there will be a considerable hole in Labour's finances.

My hon. Friend the Member for Havant went on to tell us about the strengths of the British economy and he was absolutely right. All we heard from the Opposition were carping and negative comments about the performance of the British economy. I want to pick one example of an article in the Financial Times. The—

Photo of Alex Salmond Alex Salmond Leader, Scottish National Party

On a point of order, Mr. Deputy Speaker. Is it appropriate for a Minister to refer to a document that he says he will make conditionally available and not put in the Library of the House as is the normal procedure?

Photo of Mr Michael Morris Mr Michael Morris , Northampton South

That is a matter for debate.

Photo of Michael Jack Michael Jack , Fylde

I am prepared to make it available to the hon. Member for Banff and Buchan (Mr. Salmond). I was trying to elicit some facts from the Opposition for the benefit of the House, but they have remained totally silent. We can draw our own conclusions from that.

The Bosch-Siemens company made clear its view on the competitiveness and excellence of the British economy when it pointed out that it was the company's wish to increase the purchases of white goods from this country because of our low wage costs and flexible working record. That is a simple testament to the excellence of the supply-side reforms that the Government have introduced, our tax policies, the competitiveness of the British economy and the high regard in which we are held by the rest of Europe. The Finance Bill delivers more of that.

My hon. Friend the Member for Stamford and Spalding (Mr. Davies) unmasked the true spirit of the Labour party. He pointed out that it is a party of taxers which still believes in devaluation and can see nothing but state investment. He made those points tellingly. I can tell him that we have contained the growth in social security, to which he also referred, to a level that we can afford. One of the themes that underpins this Finance Bill and the Budget is the control of our public finances.

My hon. Friend the Member for Milton Keynes, South-West (Mr. Legg) made some telling points about the real economy about which we have heard so little from the Opposition. I was delighted that he welcomed that part of the Bill which enacts his suggestion from last year's consideration on the subject of charities and their receipts from their trading enterprises. I am glad that we have been able to incorporate that into the Bill. I was also grateful for his support on borrowing and inflation.

My hon. Friend the Member for Bournemouth, West (Mr. Butterfill) made some important points about small businesses. I was grateful to him for pointing out why this was the best Budget for small businesses for a decade. He was entirely right.

I should like to take up my hon. Friend's point about long-life assets and the aircraft industry. We consider that case to be different from the need to encourage the burgeoning railway industry and we recognise some of the real problems for commercial shipping. I cannot offer my hon. Friend the comfort that he sought, but I am grateful to him for making that point.

My right hon. Friend the Member for City of London and Westminster, South (Mr. Brooke) and my hon. Friend the Member for Gloucester (Mr. French), as well as my hon. Friend the Member for Bournemouth, West, raised concerns about value added tax and property. I confirm that Customs and Excise has already had several meetings with interested parties on that point. My hon. Friend the Exchequer Secretary will have further meetings on that next week. I also congratulate my hon. Friend the Member for Gloucester on his detailed analysis of the Bill. We shall study carefully his comments on several issues relating to VAT.

My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) made a characteristic speech, drawing the attention of the House to important aspects of monetary policy, pointing out that the Opposition's monetary committee-type proposals were not worth the paper that they were printed on. My hon. Friend the Member for Northampton, North (Mr. Marlow) reminded us clearly that at the heart of every Labour Member is a desire to raise taxes and spend more. As the Bill confirms, we Conservatives are intuitively tax cutters.[Interruption.] Labour Members may laugh, but while they have chastised the Conservatives for what they call 22 tax increases, I remind the House of the 25 tax decreases, among others, that we have made.

In dealing with the contributions from Opposition Members, I pay public tribute to the hon. Member for Barnsley, East (Mr. Ennis), who made his maiden speech in what I believe will be a characteristically direct fashion. He talked about the traditions and needs of his community in Barnsley and rightly paid tribute to our former colleague, Terry Patchett. When the hon. Gentleman talked about the Grimethorpe band, one could almost hear it playing in the background. We now know the secret of his success, which was to keep it in the family. However, there is a clear message from the Budget and the Finance Bill that I want him to take back to all the members of his family and all his new constituents: a family on average earnings will be £370 better off this year as a result of the Budget. That is an incorruptible message coming out of our considerations.

I remember thanking the hon. Member for Gordon for his contribution on the reductions that we have made to spirit duty. I remind him, too, of the rising living standards to which I have attested.

The hon. Member for Upper Bann (Mr. Trimble) made some important points about the Northern Ireland economy and I shall certainly draw to the attention of my right hon. and learned Friend the Secretary of State for Northern Ireland some of the local points that he made, particularly about education. We shall give careful consideration to his comments on the air passenger duty and the insurance premium tax. I shall also look into some of his concerns about the private finance initiative because, as he knows, I went to Belfast specifically to encourage developments in that respect. I am grateful to him for mentioning that point.

The shadow Chief Secretary spoke in support of the Opposition amendment. At no point in that speech did we hear any rebuttal of the central point at the heart of the Finance Bill: the increase in this country's living standards. Living standards have not just increased this year. Let us look at the Government's record. Since the last general election, the average family on average earnings is £100 a week better off in real terms as a result of the Government's stewardship of the economy.

The right hon. Member for Dunfermline, East needs to refresh his memory about some of the 25 tax decreases. Personal allowances rose by £240 in the 1995 Budget and the basic limit was raised by £1,200. In the 1996 Budget, the basic rate of income tax was cut to 23p. I could go on. We have fulfilled our pledges to resume a downward path concerning taxation.

The right hon. Member for Dunfermline, East started out by trying to criticise the Government over matters connected with the council tax, insurance premium tax, airport duty and profit-related pay, but shied right away from telling the House the truth about his party's real policy. In debates on the Finance Bill, he must come clean with the House of Commons and the wider public instead of just criticising and tell us about his alternatives ideas. It is easy to criticise but much more difficult to be constructive.

I remind the right hon. Member for Dunfermline, East that the total net wealth of the personal sector has doubled in real terms and net financial wealth has risen almost fourfold in real terms since 1979. I remind the hon. Member for Bristol, South that research by the independent Institute of Fiscal Studies shows that the spending of the poorest 10th of households, to which she referred, has increased by 14 per cent. since 1979. That rebuts some of the claims that she made.

On investing in skills, the Bill contains some important measures that deal with training. One in three school leavers go on to university in this country—one of the highest rates in Europe. Last year, business spent £10.5 billion on training, and 95 per cent. of businesses forecast that they will increase or maintain the present amount spent on training. That would not be possible if we were not able through our stewardship of the economy to have competitive industry.

If Opposition Members want to know the facts about the support that we are giving people to get back to work, I urge them to look at the 46th edition of "The UK at Work: Key Facts," which lists programme after programme designed to get people back to work. Such programmes have returned 768,000 people to the labour force over the past four years. That figure is from the labour force survey.

The hon. Member for Edinburgh, Central mentioned profit-related pay. Perhaps I might refresh his memory on what his right hon. Friend the Member for Sedgefield (Mr. Blair) said—[Interruption.]

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

Order. The House must come to order. I cannot hear the Minister.

Photo of Michael Jack Michael Jack , Fylde

The right hon. Member for Sedgefield said: We intend to vote against the general principle of profit-related pay".—[Official Report, 14 July 1987; Vol. 119, c. 981.] The hon. Member for Edinburgh, Central had better re-examine very carefully what he said to the House earlier in the light of what his now leader said in 1987.

The amendment that the Opposition ask the House to support can have been produced only on a bad Sunday in Islington over an equally bad bottle of wine. It bears no relation to this country's economy, which is now the fastest growing major economy in western Europe. That growth is set to continue next year and the year after. Those are not my words; they are the words of the Organisation for Economic Co-operation and Development.

The Labour party does not see the reality of rising growth, falling inflation, reduced unemployment, tight control over public spending and an economy that has been well managed. Our public finances are in excellent order. Whole economy investment is forecast to go up by 6 per cent. We remain the number one site for inward investment in Europe and people are showing great confidence in our economy. The Finance Bill, with the work that it will do to secure the tax base, is a proper basis on which to go forward and to put to the British people the proposition that the Government have the measure of the British economy and will continue to deliver rising living standards and that the Labour party presents a threat to that picture.

Question put, That the amendment be made:—

The House divided: Ayes 287, Noes 322.

Division No. 37][9.59 pm
AYES
Abbott, Ms DianeCook, Robin (Livingston)
Adams, Mrs IreneCorbett, Robin
Ainger, NickCorbyn, Jeremy
Ainsworth, Robert (Cov'try NE)Corston, Ms Jean
Allen, GrahamCousins, Jim
Alton, DavidCox, Tom
Anderson, Donald (Swansea E)Cummings, John
Anderson, Ms Janet (Ros'dale)Cunliffe, Lawrence
Armstrong, Ms HilaryCunningham, Jim (Cov'try SE)
Ashdown, PaddyDafis, Cynog
Ashton, JosephDalyell, Tam
Austin-Walker, JohnDarling, Alistair
Barnes, HarryDavidson, Ian
Barron, KevinDavies, Bryan (Oldham C)
Battle, JohnDavies, Chris (Littleborough)
Bayley, HughDavies, Ron (Caerphilly)
Beckett, Mrs MargaretDavis, Terry (B'ham Hodge H)
Beith, A JDenham, John
Bell, StuartDewar, Donald
Benn, TonyDixon, Don
Bennett, Andrew FDobson, Frank
Benton, JoeDonohoe, Brian H
Bermingham, GeraldDowd, Jim
Berry, RogerDunwoody, Mrs Gwyneth
Betts, CliveEagle, Ms Angela
Blair, TonyEastham, Ken
Blunkett, DavidEnnis, Jeff
Boateng, PaulEtherington, Bill
Bradley, KeithEvans, John (St Helens N)
Bray, Dr JeremyEwing, Mrs Margaret
Brown, Gordon (Dunfermline E)Fatchett, Derek
Brown, Nicholas (Newcastle E)Faulds, Andrew
Bruce, Malcolm (Gordon)Field, Frank (Birkenhead)
Burden, RichardFisher, Mark
Byers, StephenFlynn, Paul
Caborn, RichardFoster, Derek
Callaghan, JimFoster, Don (Bath)
Campbell, Mrs Anne (C'bridge)Foulkes, George
Campbell, Menzies (Fife NE)Fraser, John
Campbell, Ronnie (Blyth V)Fyfe, Mrs Maria
Campbell-Savours, D NGalbraith, Sam
Canavan, DennisGapes, Mike
Cann, JamieGarrett, John
Chidgey, DavidGeorge, Bruce
Chisholm, MalcolmGerrard, Neil
Church, Ms JudithGilbert, DrJohn
Clapham, MichaelGodman, Dr Norman A
Clark, Dr David (S Shields)Godsiff, Roger
Clarke, Eric (Midlothian)Golding, Mrs Llin
Clarke, Tom (Monklands W)Gordon, Ms Mildred
Clelland, DavidGrant, Bernie (Tottenham)
Clwyd, Mrs AnnGriffiths, Nigel (Edinburgh S)
Coffey, Ms AnnGriffiths, Win (Bridgend)
Cohen, HarryGrocott, Bruce
Connarty, MichaelGunnell, John
Cook, Frank (Stockton N)Hain, Peter
Hall, MikeMeacher, Michael
Hanson, DavidMeale, Alan
Hardy, PeterMichael, Alun
Harman, Ms HarrietMichie, Bill (Shef'ld Heeley)
Harvey, NickMichie, Mrs Ray (Argyll Bute)
Hattersley, RoyMilburn, Alan
Henderson, DougMiller, Andrew
Heppell, JohnMitchell, Austin (Gt Grimsby)
Hill, Keith (Streatham)Moonie, Dr Lewis
Hinchliffe, DavidMorgan, Rhodri
Hodge, Ms MargaretMorley, Elliot
Hoey, KateMorris, Ms Estelle (B'ham Yardley)
Hogg, Norman (Cumbernauld)Morris, John (Aberavon)
Home Robertson, JohnMudie, George
Hood, JimmyMullin, Chris
Hoon, GeoffreyMurphy, Paul
Howarth, Alan (Stratf'd-on-A)Nicholson, Miss Emma (W Devon)
Howarth, George (Knowsley N)Oakes, Gordon
Howells, Dr KimO'Brien, Mike (N Warks)
Hoyle, DougO'Brien, William (Normanton)
Hughes, Kevin (Doncaster N)O'Hara, Edward
Hughes, Robert (Ab'd'n N)Olner, Bill
Hughes, Roy (Newport E)O'Neill, Martin
Hughes, Simon (Southwark)Orme, Stanley
Hutton, JohnPearson, Ian
Ingram, AdamPendry, Tom
Jackson, Ms Glenda (Hampst'd)Pickthall, Colin
Jackson, Mrs Helen (Hillsborough)Pike, Peter L
Jamieson, DavidPope, Greg
Janner, GrevillePowell, Sir Raymond (Ogmore)
Jenkins, Brian D (SE Staffs)Prentice, Mrs B (Lewisham E)
Johnston, Sir RussellPrentice, Gordon (Pendle)
Jones, Barry (Alyn & D'side)Primarolo, Ms Dawn
Jones, leuan Wyn (Ynys Môn)Purchase, Ken
Jones, Dr L (B'ham Selly Oak)Quin, Ms Joyce
Jones, Martyn (Clwyd SW)Radice, Giles
Jones, Nigel (Cheltenham)Randall, Stuart
Jowell, Ms TessaRaynsford, Nick
Kaufman, GeraldReid, Dr John
Keen, AlanRendel, David
Kennedy, Charles (Ross C & S)Robertson, George (Hamilton)
Kennedy, Mrs Jane (Broadgreen)Robinson, Geoffrey (Cov'try NW)
Khabra, Piara SRoche, Mrs Barbara
Kilfoyle, PeterRogers, Allan
Kirkwood, ArchyRooker, Jeff
Lestor, Miss Joan (Eccles)Rooney, Terry
Lewis, TerryRoss, Ernie (Dundee W)
Liddell, Mrs HelenRowlands, Ted
Litherland, RobertRuddock, Ms Joan
Livingstone, KenSalmond, Alex
Lloyd, Tony (Stretf'd)Sedgemore, Brian
Llwyd, ElfynSheerman, Barry
Loyden, EddieSheldon, Robert
Lynne, Ms LizShore, Peter
McAllion, JohnSimpson, Alan
McAvoy, ThomasSkinner, Dennis
McCartney, Ian (Makerf'ld)Smith, Andrew (Oxford E)
Macdonald, CalumSmith, Chris (Islington S)
McFall, JohnSmith, Llew (Blaenau Gwent)
McKelvey, WilliamSnape, Peter
Mackinlay, AndrewSoley, Clive
McLeish, HenrySpearing, Nigel
Maclennan, RobertSpellar, John
McNamara, KevinSquire, Ms R (Dunfermline W)
MacShane, DenisSteel, Sir David
McWilliam, JohnSteinberg, Gerry
Madden, MaxStevenson, George
Maddock, Mrs DianaStott, Roger
Mahon, Mrs AliceStrang, Dr Gavin
Mandelson, PeterStraw, Jack
Marek, Dr JohnSutcliffe, Gerry
Marshall, David (Shettleston)Taylor, Mrs Ann (Dewsbury)
Marshall, Jim (Leicester S)Taylor, Matthew (Truro)
Martin, Michael J (Springburn)Thompson, Jack (Wansbeck)
Martlew, EricThumham, Peter
Maxton, JohnTimms, Stephen
Tipping, PaddyWigley, Dafydd
Touhig, DonWilliams, Alan (Swansea W)
Trickett, JonWilliams, Alan W (Carmarthen)
Tyler, PaulWilson, Brian
Vaz, KeithWinnick, David
Wise, Mrs Audrey
Walker, Sir HaroldWorthington, Tony
Wallace,JamesWray, Jimmy
Walley, Ms JoanWright, Dr Tony
Wardell, Gareth (Gower)Young, David (Bolton SE)
Wareing, Robert N
Watson, MikeTellers for the Ayes:
Welsh, AndrewMr. Jon Owen Jones and
Wicks, MalcolmMr. Dennis Turner.
NOES
Ainsworth, Peter (E Surrey)Coe, Sebastian
Aitken, JonathanColvin, Michael
Alexander, RichardCongdon, David
Alison, Michael (Selby)Conway, Derek
Allason, Rupert (Torbay)Coombs, Anthony (Wyre F)
Amess, DavidCoombs, Simon (Swindon)
Ancram, MichaelCope, Sir John
Arbuthnot, JamesCormack, Sir Patrick
Arnold, Jacques (Gravesham)Couchman, James
Arnold, Sir Thomas (Hazel G)Cran, James
Ashby, DavidCurrie, Mrs Edwina
Aspinwall, JackCurry, David
Atkins, RobertDavies, Quentin (Stamf'd)
Atkinson, David (Bour'mth E)Davis, David (Boothferry)
Atkinson, Peter (Hexham)Day, Stephen
Baker, Kenneth (Mole V)Deva, Nirj Joseph
Baker, Sir Nicholas (N Dorset)Devlin, Tim
Baldry, TonyDicks, Terry
Banks, Matthew (Southport)Dorrell, Stephen
Banks, Robert (Harrogate)Douglas-Hamilton, Lord James
Bates, MichaelDover, Den
Batiste, SpencerDuncan, Alan
Beggs, RoyDuncan Smith, Iain
Bellingham, HenryDunn, Bob
Bendall, VivianDurant, Sir Anthony
Beresford, Sir PaulDykes, Hugh
Biffen, JohnEggar, Tim
Body, Sir RichardElletson, Harold
Bonsor, Sir NicholasEmery, Sir Peter
Booth, HartleyEvans, David (Welwyn Hatf'ld)
Boswell, TimEvans, Jonathan (Brecon)
Bottomley, Peter (Eltham)Evans, Nigel (Ribble V)
Bottomley, Mrs VirginiaEvans, Roger (Monmouth)
Bowden, Sir AndrewEvennett, David
Bowis, JohnFaber, David
Boyson, Sir RhodesFabricant, Michael
Brazier, JulianFenner, Dame Peggy
Bright, Sir GrahamField, Barry (Isle of Wight)
Brooke, PeterFishburn, Dudley
Brown, Michael (Brigg Cl'thorpes)Forman, Nigel
Browning, Mrs AngelaForsyth, Michael (Stirling)
Bruce, Ian (S Dorset)Forsythe, Clifford (S Antrim)
Budgen, NicholasForth, Eric
Burns, SimonFowler, Sir Norman
Burt, AlistairFox, Dr Liam (Woodspring)
Butcher, JohnFox, Sir Marcus (Shipley)
Butler, PeterFreeman, Roger
Butterfill, JohnFrench, Douglas
Carlisle, John (Luton N)Fry, Sir Peter
Carlisle, Sir Kenneth (Linc'n)Gale, Roger
Carrington, MatthewGallie, Phil
Carttiss, MichaelGardiner, Sir George
Cash, WilliamGarel-Jones, Tristan
Channon, PaulGarnier, Edward
Chapman, Sir SydneyGill, Christopher
Churchill, MrGillan, Mrs Cheryl
Clappison, JamesGoodlad, Alastair
Clark, Dr Michael (Rochf'd)Goodson-Wickes, Dr Charles
Clarke, Kenneth (Rushcliffe)Gorman, Mrs Teresa
Clifton-Brown, GeoffreyGorst, Sir John
Grant, Sir Anthony (SW Cambs)Malone, Gerald
Greenway, Harry (Ealing N)Mans, Keith
Greenway, John (Ryedale)Marland, Paul
Griffiths, Peter (Portsmouth N)Marlow, Tony
Gummer, JohnMarshall, John (Hendon S)
Hague, WilliamMarshall, Sir Michael (Arundel)
Hamilton, Sir ArchibaldMartin, David (Portsmouth S)
Hamilton, Neil (Tatton)Mawhinney, Dr Brian
Hampson, Dr KeithMayhew, Sir Patrick
Hanley, JeremyMellor, David
Hannam, Sir JohnMerchant, Piers
Hargreaves, AndrewMitchell, Andrew (Gedling)
Harris, DavidMitchell, Sir David (NW Hants)
Haselhurst, Sir AlanMoate, Sir Roger
Hawkins, NickMolyneaux, Sir James
Hawksley, WarrenMonro, Sir Hector
Hayes, JerryMontgomery, Sir Fergus
Heald, OliverMoss, Malcolm
Heath, Sir EdwardNeedham, Richard
Heathcoat-Amory, DavidNelson, Anthony
Hendry, CharlesNeubert, Sir Michael
Heseltine, MichaelNewton, Tony
Hicks, Sir RobertNicholls, Patrick
Higgins, Sir TerenceNicholson, David (Taunton)
Hill, Sir James (Southampton Test)Norris, Steve
Hogg, Douglas (Grantham)Onslow, Sir Cranley
Horam, JohnOppenheim, Phillip
Hordern, Sir PeterOttaway, Richard
Howard, MichaelPage, Richard
Howell, David (Guildf'd)Paice, James
Howell, Sir Ralph (N Norfolk)Patnick, Sir Irvine
Hughes, Robert G (Harrow W)Patten, John
Hunt, David (Wirral W)Pattie, Sir Geoffrey
Hunt, Sir John (Ravensb'ne)Pawsey, James
Hunter, AndrewPeacock, Mrs Elizabeth
Hurd, DouglasPickles, Eric
Jack, MichaelPorter, David
Jackson, Robert (Wantage)Portillo, Michael
Jenkin, Bernard (Colchester N)Powell, William (Corby)
Jessel, TobyRathbone, Tim
Johnson Smith, Sir GeoffreyRedwood, John
Jones, Gwilym (Cardiff N)Renton, Tim
Jones, Robert B (W Herts)Richards, Rod
Jopling, MichaelRiddick, Graham
Kellett-Bowman, Dame ElaineRifkind, Malcolm
Key, RobertRobathan, Andrew
King, TomRoberts, Sir Wyn
Kirkhope, TimothyRobertson, Raymond S (Ab'd'n S)
Knapman, RogerRobinson, Mark (Somerton)
Knight, Mrs Angela (Erewash)Roe, Mrs Marion
Knight, Greg (Derby N)Rowe, Andrew
Knight, Dame Jill (Edgbaston)Rumbold, Dame Angela
Knox, Sir DavidRyder, Richard
Kynoch, GeorgeSackville, Tom
Lait, Mrs JacquiSainsbury, Sir Timothy
Lamont, NormanScott, Sir Nicholas
Lang, IanShaw, David (Dover)
Lawrence, Sir IvanShaw, Sir Giles (Pudsey)
Legg, BarryShephard, Mrs Gillian
Leigh, EdwardShepherd, Sir Colin (Heref'd)
Lennox-Boyd, Sir MarkShepherd, Richard (Aldridge)
Lester, Sir Jim (Broxtowe)Shersby, Sir Michael
Lidington, DavidSims, Sir Roger
Lilley, PeterSkeet, Sir Trevor
Lloyd, Sir Peter (Fareham)Smith, Sir Dudley (Warwick)
Lord, MichaelSmith, Tim (Beaconsf'ld)
Luff, PeterSmyth, Rev Martin (Belfast S)
Lyell, Sir NicholasSoames, Nicholas
MacGregor, JohnSpeed, Sir Keith
MacKay, AndrewSpencer, Sir Derek
Maclean, DavidSpicer, Sir Jim (W Dorset)
McLoughlin, PatrickSpicer, Sir Michael (S Worcs)
McNair-Wilson, Sir PatrickSpink, Dr Robert
Madel, Sir DavidSpring, Richard
Maitland, Lady OlgaSproat, Iain
Major, JohnSquire, Robin (Hornchurch)
Stanley, Sir JohnViggers, Peter
Steen, AnthonyWaldegrave, William
Stephen, MichaelWalden, George
Stern, MichaelWalker, Bill (N Tayside)
Stewart, AllanWaller, Gary
Streeter, GaryWard, John
Sumberg, DavidWardle, Charles (Bexhill)
Sweeney, WalterWaterson, Nigel
Sykes, JohnWatts, John
Tapsell, Sir PeterWells, Bowen
Taylor, Ian (Esher)Wheeler, Sir John
Taylor, John M (Solihull)Whitney, Sir Raymond
Taylor, Sir TeddyWhittingdale, John
Temple-Morris, PeterWiddecombe, Miss Ann
Thomason, RoyWiggin, Sir Jerry
Thompson, Sir Donald (Calder V)Wilkinson, John
Thompson, Patrick (Norwich N)Willetts, David
Thornton, Sir MalcolmWilshire, David
Townend, John (Bridlington)Winterton, Mrs Ann (Congleton)
Townsend, Sir Cyril (Bexl'yh'th)Winterton, Nicholas (Macclesf'ld)
Tracey, RichardWolfson, Mark
Tredinnick, DavidYeo, Tim
Trend, MichaelYoung, Sir George
Trimble, David
Trotter, NevilleTellers for the Noes:
Twinn, Dr IanMr. Timothy Wood and
Vaughan, Sir GerardMr. Gyles Brandreth.

Question accordingly negatived.

Main Question put forthwith, pursuant to Standing Order No. 60 (Amendment on Second or Third Reading):

The House divided: Ayes 314, Noes 30.

Division No. 38][10.16 pm
AYES
Ainsworth, Peter (E Surrey)Brown, Michael (Brigg Cl'thorpes)
Aitken, JonathanBrowning, Mrs Angela
Alexander, RichardBruce, Ian (S Dorset)
Alison, Michael (Selby)Budgen, Nicholas
Allason, Rupert (Torbay)Burns, Simon
Amess, DavidBurt, Alistair
Ancram, MichaelButcher, John
Arbuthnot, JamesButler, Peter
Arnold, Jacques (Gravesham)Butterfill, John
Arnold, Sir Thomas (Hazel G)Carlisle, John (Luton N)
Ashby, DavidCarlisle, Sir Kenneth (Linc'n)
Aspinwall, JackCarrington, Matthew
Atkins, RobertCarttiss, Michael
Atkinson, David (Bour'mth E)Cash, William
Atkinson, Peter (Hexham)Channon, Paul
Baker, Kenneth (Mole V)Chapman, Sir Sydney
Baker, Sir Nicholas (N Dorset)Churchill, Mr
Baldry, TonyClappison, James
Banks, Matthew (Southport)Clark, Dr Michael (Rochf'd)
Banks, Robert (Harrogate)Clarke, Kenneth (Rushcliffe)
Bates, MichaelClifton-Brown, Geoffrey
Batiste, SpencerCoe, Sebastian
Bellingham, HenryColvin, Michael
Bendall, VivianCongdon, David
Beresford, Sir PaulConway, Derek
Biffen, JohnCoombs, Anthony (Wyre F)
Body, Sir RichardCoombs, Simon (Swindon)
Bonsor, Sir NicholasCope, Sir John
Booth, HartleyCouchman, James
Boswell, TimCran, James
Bottomley, Peter (Eltham)Currie, Mrs Edwina
Bottomley, Mrs VirginiaCurry, David
Bowden, Sir AndrewDavies, Quentin (Stamf'd)
Bowis, JohnDavis, David (Boothferry)
Boyson, Sir RhodesDay, Stephen
Brazier, JulianDeva, Nirj Joseph
Bright, Sir GrahamDevlin, Tim
Brooke, PeterDorrell, Stephen
Douglas-Hamilton, Lord JamesJack, Michael
Dover, DenJackson, Robert (Wantage)
Duncan, AlanJenkin, Bernard (Colchester N)
Duncan Smith, IainJessel, Toby
Dunn, BobJohnson Smith, Sir Geoffrey
Durant, Sir AnthonyJones, Gwilym (Cardiff N)
Dykes, HughJones, Robert B (W Herts)
Eggar, TimJopling, Michael
Elletson, HaroldKellett-Bowman, Dame Elaine
Emery, Sir PeterKey, Robert
Evans, David (Welwyn Hatf'ld)King, Tom
Evans, Jonathan (Brecon)Kirkhope, Timothy
Evans, Nigel (Ribble V)Knapman, Roger
Evans, Roger (Monmouth)Knight, Mrs Angela (Erewash)
Evennett, DavidKnight, Greg (Derby N)
Faber, DavidKnight, Dame Jill (Edgbaston)
Fabricant, MichaelKnox, Sir David
Fenner, Dame PeggyKynoch, George
Field, Barry (Isle of Wight)Lait, Mrs Jacqui
Fishburn, DudleyLamont, Norman
Forman, NigelLang, Ian
Forsyth, Michael (Stirling)Lawrence, Sir Ivan
Forth, EricLegg, Barry
Fowler, Sir NormanLeigh, Edward
Fox, Dr Liam (Woodspring)Lennox-Boyd, Sir Mark
Fox, Sir Marcus (Shipley)Lester, Sir Jim (Broxtowe)
Freeman, RogerLidington, David
French, DouglasLilley, Peter
Fry, Sir PeterLloyd, Sir Peter (Fareham)
Gale, RogerLord, Michael
Gallie, PhilLuff, Peter
Gardiner, Sir GeorgeLyell, Sir Nicholas
Garel-jones, TristanMacGregor, John
Garnier, EdwardMacKay, Andrew
Gill, ChristopherMaclean, David
Gillan, Mrs CherylMcLoughlin, Patrick
Goodlad, AlastairMcNair-Wilson, Sir Patrick
Goodson-Wickes, Dr CharlesMadel, Sir David
Gorman, Mrs TeresaMaitland, Lady Olga
Gorst, Sir JohnMajor, John
Grant, Sir Anthony (SW Cambs)Malone, Gerald
Greenway, Harry (Ealing N)Mans, Keith
Greenway, John (Ryedale)Marland, Paul
Griffiths, Peter (Portsmouth N)Marlow, Tony
Gummer, JohnMarshall, John (Hendon S)
Hague, WilliamMarshall, Sir Michael (Arundel)
Hamilton, Sir ArchibaldMartin, David (Portsmouth S)
Hamilton, Neil (Tatton)Mawhinney, Dr Brian
Hampson, Dr KeithMayhew, Sir Patrick
Hanley, JeremyMellor, David
Hannam, Sir JohnMerchant, Piers
Hargreaves, AndrewMitchell, Andrew (Gedling)
Harris, DavidMitchell, Sir David (NW Hants)
Haselhurst, Sir AlanMoate, Sir Roger
Hawkins, NickMonro, Sir Hector
Hawksley, WarrenMontgomery, Sir Fergus
Hayes, JerryMoss, Malcolm
Heald, OliverNeedham, Richard
Heath, Sir EdwardNelson, Anthony
Heathcoat-Amory, DavidNeubert, Sir Michael
Hendry, CharlesNewton, Tony
Heseltine, MichaelNicholls, Patrick
Hicks, Sir RobertNicholson, David (Taunton)
Higgins, Sir TerenceNorris, Steve
Hill, Sir James (Southampton Test)Onslow, Sir Cranley
Hogg, Douglas (Grantham)Oppenheim, Phillip
Horam, JohnOttaway, Richard
Hordern, Sir PeterPage, Richard
Howard, MichaelPaice, James
Howell, David (Guildf'd)Patnick, Sir Irvine
Howell, Sir Ralph (N Norfolk)Patten, John
Hughes, Robert G (Harrow W)Pattie, Sir Geoffrey
Hunt, David (Wirral W)Pawsey, James
Hunt, Sir John (Ravensb'ne)Peacock, Mrs Elizabeth
Hunter, AndrewPickles, Eric
Hurd, DouglasPorter, David
Portillo, MichaelSweeney, Walter
Powell, William (Corby)Sykes, John
Rathbone, TimTapsell, Sir Peter
Redwood, JohnTaylor, Ian (Esher)
Renton, TimTaylor, John M (Solihull)
Richards, RodTaylor, Sir Teddy
Riddick, GrahamTemple-Morris, Peter
Rifkind, MalcolmThomason, Roy
Robathan, AndrewThompson, Sir Donald (Calder V)
Roberts, Sir WynThompson, Patrick (Norwich N)
Robertson, Raymond S (Ab'd'n S)Thornton, Sir Malcolm
Robinson, Mark (Somerton)Townend, John (Bridlington)
Roe, Mrs MarionTownsend, Sir Cyril (Bexl'yh'th)
Rowe, AndrewTracey, Richard
Rumbold, Dame AngelaTredinnick, David
Ryder, RichardTrend, Michael
Sackville, TomTrotter, Neville
Sainsbury, Sir TimothyTwinn, Dr Ian
Scott, Sir NicholasVaughan, Sir Gerard
Shaw, David (Dover)Viggers, Peter
Shaw, Sir Giles (Pudsey)Waldegrave, William
Shephard, Mrs GillianWalden, George
Shepherd, Sir Colin (Heref'd)Walker, Bill (N Tayside)
Shepherd, Richard (Aldridge)Waller, Gary
Shersby, Sir MichaelWard, John
Sims, Sir RogerWardle, Charles (Bexhill)
Skeet, Sir TrevorWaterson, Nigel
Smith, Sir Dudley (Warwick)Watts, John
Smith, Tim (Beaconsf'ld)Wheeler, Sir John
Soames, NicholasWhitney, Sir Raymond
Speed, Sir KeithWhittingdale, John
Spencer, Sir DerekWiddecombe, Miss Ann
Spicer, Sir Jim (W Dorset)Wiggin, Sir Jerry
Spicer, Sir Michael (S Worcs)Wilkinson, John
Spink, Dr RobertWilletts, David
Spring, RichardWilshire, David
Sproat, IainWinterton, Mrs Ann (Congleton)
Squire, Robin (Hornchurch)Winterton, Nicholas (Macclesf'ld)
Stanley, Sir JohnWolfson, Mark
Steen, AnthonyYeo, Tim
Stephen, MichaelYoung, Sir George
Stern, Michael
Stewart, AllanTellers for the Ayes:
Streeter, GaryMr. Timothy Wood and
Sumberg, DavidMr. Gyles Brandreth.
NOES
Alton, DavidLynne, Ms Liz
Ashdown, PaddyMaclennan, Robert
Beith, A JMaddock, Mrs Diana
Bruce, Malcolm (Gordon)Michie, Mrs Ray (Argyll Bute)
Campbell, Menzies (Fife NE)Nicholson, Miss Emma (W Devon)
Canavan, DennisRendel, David
Chidgey, DavidSalmond, Alex
Davies, Chris (Littleborough)Skinner, Dennis
Ewing, Mrs MargaretTaylor, Matthew (Truro)
Foster, Don (Bath)Thurnham, Peter
Harvey, NickTyler, Paul
Hughes, Simon (Southwark)Wallace, James
Johnston, Sir RussellWigley, Dafydd
Jones, Nigel (Cheltenham)
Kennedy, Charles (Ross C & S)Tellers for the Noes:
Kirkwood, ArchyMr. Andrew Welsh and
Llwyd, ElfynMr. Cynog Dafis.

Question accordingly agreed to.
Bill read a Second time.
Motion made, and Question put, pursuant to Standing Order No. 61 (Committal of Bills),
That—

  1. (1) Clauses 40, 62, 68, 82 and 92 and Schedules 7 and 13 be committed to a Committee of the whole House;
  2. (2) the remainder of the Bill be committed to a Standing Committee; and
  3. (3) when the provisions of the Bill considered, respectively, by the Committee of the whole House and by the Standing Committee have been reported to the House, the Bill be proceeded with as if the Bill had been reported as a whole to the House from the Standing Committee.—[Mr. Jack.]
Question agreed to.
Committee tomorrow.