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Mortgage Interest Payments

Part of Orders of the Day — Finance Bill – in the House of Commons at 7:45 pm on 15th July 1997.

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Photo of Geraint Davies Geraint Davies Labour, Croydon Central 7:45 pm, 15th July 1997

This is a sad day for the Opposition. They complained about the guillotine motion, but how many of them are present? Eight. It is a sad and pathetic day. They said, "This is terrible. We haven't got time to debate these crucial issues. We didn't want the Budget anyway." Look at them. What a sad lot.

Would anyone in their right mind agree to the Opposition's amendment, which underlines the fact that they are not serious about the long-term prospects of the British economy but still spend all their time thinking about the short-term political impact, as presented in the media, and the impact on their Back-Bench committees or whoever runs their party in this day and age. They are not interested in the long term. The Chancellor's Budget, however, is about the long term: it is about confronting, realistically, the legacy of 18 years of Tory rule.

We all know what that legacy is. It is a legacy of under-investment in physical and human capital, a massive public sector debt that was out of control and an economy that was overheating and, at the same time, disabled by under-capacity. Every time we have seen a bit of consumption in the economy, it has fed straight into interest rates. As my hon. Friend the Member for Workington (Mr. Campbell-Savours) pointed out, that contrasts with the situation in Japan, which has had a long-term industrial strategy.

The Chancellor, boldly and courageously, confronted the Tory legacy with, for instance, incentives for long-term investment—in the context of corporation tax and taxes on small businesses—and, before that, with his bold changes in arrangements involving the Bank of England. We all recall the master stroke with which my right hon. Friend delegated responsibility for the setting of interest rates to the Bank of England.

That is the answer to the question posed by the hon. Member for Teignbridge (Mr. Nicholls) about interest rates in the longer term. They are falling because the financial markets can see beyond the current blip—the current difficulties with sterling and the like, linked with sentiments about European monetary union and the fact that our current position in the economic cycle is out of synch with Germany's. In the long term, under the stewardship of our present Chancellor, we can expect interest rates to fall, providing the environment for health and wealth in Britain.

As for what has been said about massive taxes, a large proportion of the money that will be raised from the portfolio of activity that has been proposed will be used to reduce public sector debt—in other words, to cut future taxes. We inherited responsibility for paying back interest of some £25 billion a year, which, given the financial system, must have future tax implications. There are transfers; it is not a case of the old tax-and-spend idea that people seem to want to talk about.

Notwithstanding the denials that we have heard, we have a problem with housing. Consumption is increasing, and an extra £30 billion has been injected following the flotation of building societies and the like. This was the right time at which to help to stabilise the housing market by introducing a marginal reduction in MIRAS from 15 per cent. to 10 per cent.

As has been said, the reduction will not have a dramatic impact; it is just a touch on the brake. Given that we have given independence to the Bank of England, if we had not introduced the reduction, home owners would in any event have had to bear the cost in the form of a marginally larger increase in interest rates. The advantage of the MIRAS reduction is that we can reclaim some of the money and invest it either to avoid debt or to support worthwhile causes.

The changes that we have made are clearly good for Britain and good for the home owner. We do not want to return to the days of boom and bust, when home owners did not know where they were going. Under the Tories, at one moment it was a case of run out and buy a house; at the next, house prices were spiralling; a moment after that, prices were plummeting and people had negative equity. My right hon. Friends the Prime Minister and the Chancellor of the Exchequer are the friends of the home owner.