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

No, I will not, if my hon. Friend will forgive me.

The Government propose to establish the Small Business Service. When I was Minister with responsibility for small business I was responsible for the Small Firms Service. Then we used business people to advise small firms; at that stage, there were not many self-employed and small businesses. We changed the culture successfully over the succeeding years. The service was designed to advise small businesses on practical measures such as marketing, financial control and so on.

I was amused by the highlight of the press release for the Small Business Service: The SBS will have a new role helping businesses comply with regulation. That is like someone saying, "I am going to torture you, but I have good news for you. I have a therapist who will help you to endure the pain."

I have grave doubts as to whether it is right to have publicly financed venture capital funds of the sort announced in the Budget when one of the great successes of the British economy is the growth of venture capital funds from the private sector. The £20 million is peanuts compared with what is being raised from the private sector, including that from venture capital trusts this year, so, again, it sounds like a gimmick.

The main point I should like to make about small businesses is that, overall, all the measures have few pluses when we compare the minus side of companies having to pay at least £4 billion more in tax in each of the next four financial years. The changes that reduce tax are very small compared with the measures introducing those big increases.

The Secretary of State for Trade and Industry did not deal with that point in answer to my hon. Friend the Member for South Cambridgeshire (Mr. Lansley). If the Secretary of State looks at pages 112, 113 and 120 of the Red Book, he will see just how big the increases in tax in the corporate sector are in the 1997, 1998 and 1999 Budgets. They include road fuel duties and the changes in advance corporation tax, which, as Sir Clive Thompson, the Confederation of British Industry president, has pointed out, will add considerably to the tax burden of the business sector over the next four years.

I should like to mention only two more points, because I want to keep within the 10-minute limit if I can. I am really bothered that the fuel duty escalator is inflicting real damage to the economy and to rural areas, and is producing very little environmental benefit. It was originally introduced some years ago to deal with the effects of greenhouse gases and to meet the targets under the original Rio de Janeiro convention, which was followed by the Kyoto convention.

It was felt—as a former Secretary of State, I understand the reasoning—that there had to be some reduction in emissions and that pricing was one way in which to achieve that. With the escalation in that fuel tax, however, and given that the Government increased the escalator beyond what the Conservative Government established, and, in their first year of office, doubled the amount of tax by taking a second chunk of it, we have the highest petrol costs in Europe. Tax represents a higher proportion of the cost of fuel in the UK than anywhere else in Europe.

We have overdone it. We are getting to the equivalent of the law of diminishing returns in relation to the environmental benefits. Frankly, people want to use their motor cars. The damage inflicted by the tax on petrol is seen in rural areas in a constituency such as mine. Most of the representations that I receive are fiercely against the escalator. For many people in rural areas, there is no practical alternative to the car for going about their daily business: getting to work or taking children to school. That tax increase, which is bringing in vast revenue, will have serious consequences for such rural areas, on top of the consequences of earlier measures. It is often those on lower incomes who will have to pay the cost—at least £60 more this year—thus removing the benefits of many of the measures to help the lower paid.

The measure's effect on the economy and its competitiveness is also great, as many road hauliers point out. In addition, there has been a savage reduction in the road programme, which I strongly criticise because I believe that there will inevitably be an increase in road transport. That, combined with the fuel duty escalator, means that we are in danger of adding a factor of considerable uncompetitiveness to the British economy. The Secretary of State, who endorses the competitiveness White Paper, should deal with that issue. The time has come to stop the fuel duty escalator—it is one of the most damaging parts of the Budget.

There is not much in the Budget to encourage the saver or more people to take out pensions. That fact, and all the various measures that the Government have taken before, mean that I am not optimistic that we will achieve the increase in pensions that we seek from all age groups, but particularly younger generations.

The removal of £5 billion from pension funds in the Chancellor's first Budget, the impact of which the ordinary person has not yet understood, has helped him to fund quite a few of the tax reductions in the current Budget, but that measure will do long-term damage, disadvantaging those who retire on pensions. It is already taking away money from pension funds and increases the danger that companies will have to make higher contributions and, therefore, face a higher cost to fill that gap.

That problem is exacerbated by the fact that individual savings accounts are no substitute for the TESSAs and PEPs which we left to the Government. Moreover, the capital gains tax reforms are a huge missed opportunity and are not well directed, while non-tax paying pensioners are being treated appallingly by not being allowed to reclaim their dividend income. We can add to that the confusion over the pension schemes created by the Government and the discouragement of traditional occupational pension schemes as a result of their action on pensions and other matters. There is also the problem of personal pensions, for which I do not blame the Government; and the drop in annuity rates, caused partly by actuarial calculations and the fact that people are living longer, and partly by lower interest rates and yield on gilts. The latter factor is becoming a matter of common comment in the press and is bothering many people who are shortly to retire. It is clear that the overall cumulative effect of the various changes since 1997 has been disadvantageous to pensions and will ultimately be disadvantageous to pensioners. I regret that the Budget has done nothing to put that right.

After 24 hours, I now understand—finishing my speech where I started it—why I was bamboozled by the Budget. However, I know also that the reality of the Budget will become apparent when people read its small print and experience its impact. It will look a very different Budget then.