Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 5:30 pm on 10th March 1999.

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Photo of Mr John MacGregor Mr John MacGregor Conservative, South Norfolk 5:30 pm, 10th March 1999

Given what the Secretary of the State said about he mother of my right hon. Friend the Leader of the Opposition, I must say that I do not consider the £640 million that has been devoted to those cold weather payments to be a prime example of the concentration of massive sums on those who are most in need.

Although I have escaped the 10-minute limit, I intend to limit my speech to 10 minutes anyway. Let me begin by making two declarations of interest. First, as I want to say something about savings—if I have time—I should declare that I am a non-executive director of Friends Provident. Secondly, I am a member of the Magic Circle—and, more precisely, an associate of the inner Magic Circle. It is for that reason that I shall say what I am going to say about the Budget.

In magic, or conjuring, what matters is not what people see on the stage, but what is hidden from their view. Yesterday, it was not what the Chancellor said that mattered, but what lay in the detailed notes behind it. Listening to the speech, as all the so-called goodies unfolded, I was somewhat bamboozled as to how it all added up—until, reading the press briefing later, I found that it was explained by two factors, as well as the windfall of the £4 billion reduction in debt interest payments resulting from lower interest rates worldwide.

First, the Chancellor has introduced a new principle in Budgets. I am something of a connoisseur of Budgets, having been involved in framing some. The new principle is this: "We have not got enough to announce in this Budget, so we shall announce next year's as well, and some of the following year's too". That explains why so many goodies could appear. Reading the press briefing, I could not believe my eyes. Time after time, I came across something that had been announced—something that we all thought would appear this year—which, we now find, will be introduced in the Finance Bill in 2000, or, in some cases, in the year after that. The presentation of the Budget involved an enormous number of conjuring tricks, if I may put it like that. It takes one to recognise another.

That is best illustrated by a table at the front of the press briefing. According to the table, the average household will be £380 better off. The implication is that that is a result of this year's Budget. It is necessary to turn to the notes for editors to discover that the measures involved are those announced in both the 1999 and the 1998 Budgets, and that they will take effect over the three years from 1999. Moreover, the national minimum wage will have an impact. Everything has been thrown in to produce the highest possible figure.

The other factor is this. As my right hon. Friend the Member for Wokingham (Mr. Redwood) pointed out, the Government—as is so common with them, especially in regard to public expenditure increases—have reannounced measures that had already been announced. When I started to look through them, I recognised, as a former Chief Secretary to the Treasury, that the Government had done what we used to do: they had taken some sums out of the year two contingency fund and put them into year one programmes. The number of additional programmes is small. The Government received lots of plaudits from Labour Back Benchers, but their actions are no different from those conducted in the past. We should not be overimpressed by the figures that the Chancellor announced.

It is dangerous for the Chancellor to take a three-year view in a one-year Budget. A possible trap lurks, especially given that the big tax reductions are earmarked for the later years—as usual with the Chancellor. Overall tax reductions total £1 billion in the year ahead and £3.5 billion in 2001— surprise, surprise. However, the danger is that, if the reductions in debt interest fail to materialise in the later years, or, more particularly, if growth, which, again, is expected to rise much more in the later years than this year, fails to materialise, the Chancellor will not be able to introduce additional improvements and benefits on top of those that he has announced. Therefore, he will depend on economic performance worldwide and in this country over three years to implement the Budget fully.

Of course, I welcome some of the measures in the Budget. Even more, I welcome the fact that it does not include measures that previous Labour Chancellors would have been tempted to introduce.

By introducing lower direct tax rates, the small business and enterprise measures, and employee share-owning schemes, the Chancellor is simply following policies and approaches that we Conservatives pioneered over 18 years. Naturally, I am pleased that Labour has been converted to what until now has been an entirely Tory approach, but the Chancellor should not claim, as he did yesterday, that he is embarking on new directions. He has simply recognised the success of the policies that we pursued over 18 years and carried quite a number of them on. It is those that I welcome.

I thought that the small business measures were going to be classic. In fact, I had a great sense of déjà vu because some of them were extremely like the measures that the Conservative Government introduced when I was the Minister with responsibility for small business between 1981 and 1983. However, I looked at the details and too many of the measures were too small and fiddly.

The 10 per cent. corporate tax rate for small businesses looked extremely good until I saw that it was limited to £10,000 profit. Small businesses might be advised not to become incorporated in the first place—the costs of doing so would probably outweigh the benefits of that tax change. That was not apparent in the Budget speech.

One of the features of the Budget is that it has further complicated the tax system, when it should be simplifying it. A range of the measures—all very small, apparently desirable, and which have immediately received a good press—will just complicate the system and not have a big impact.