Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 7:50 pm on 10th March 1999.

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Photo of Mr John Townend Mr John Townend Conservative, East Yorkshire 7:50 pm, 10th March 1999

We live and operate in a global economy, and this country is very affected by the world economic situation. I find it strange, therefore, that the subject is dealt with only scantily in the Red Book, which devotes a mere two pages to it. I believe that the Chancellor's forecasts are too optimistic when one considers the possible dangers to the world economy in the year ahead. The danger worldwide is no longer inflation but deflation. The problem is that few people alive today—bankers, politicians and business men—have lived through and experienced deflation and know how to deal with it.

Asia is still in difficulties. Japan is, at best, bumping along the bottom and, at worst, heading for even more deflation. Europe's economy is weakening and unemployment is rising. The current world economy is being kept on the rails by the motor of the American economy. This situation cannot last indefinitely because of the growing United States trade deficit. The US cannot, and will not, be willing to be the importer of last resort for ever.

If there is a financial crisis in Brazil—all commentators accept that the Brazilian economy remains fragile—it could spill over into the rest of Latin America. If the American stock market were to fall sharply, it could cause a drop in consumer demand and the world economy would move quickly into recession and deflation unless the European Union was prepared to change its policy to allow an increase in growth and open its markets. By announcing next year's tax reductions now, the Chancellor has become a hostage to fortune. I do not believe he has taken sufficient account of the dangers.

I turn now to a constituency matter: the burden on the motorist. I represent a rural constituency where people must use cars to travel to work and the shops and to take their children to school. Once again, the Government have used the injudicious commitment given by the Deputy Prime Minister at Kyoto as an excuse for another pernicious attack on the motorist. Fuel tax now constitutes 85 per cent. of the cost of the petrol that we buy—that is the highest percentage in the European Union. I do not know whether the Government are proud of the fact that, since Labour came to power, British tourists, for the first time in history, can fill their tanks more cheaply in Calais than in Dover.

This is an anti-motorist Government, and I am delighted that the Leader of the Opposition indicated in his response to the Budget a change in our policy. I have long advocated abandoning the concept of an automatic escalator for petrol tax. With my right hon. Friend's statement, we at last have a political party in this country that will fight for a fair deal for the motorist.

The policy has proved an absolute failure on conservation grounds. People have not given up their cars or used them substantially less. My constituents have no alternative: they must pay the tax with money taken from elsewhere in the family budget. The poorest motorists suffer the most, particularly the poor who live in the country. This tax also hits the family because many families' main pleasure is the family car: taking the family out for a day trip is often the highlight of the week.

The change in the vehicle tax does not help the family. The Chancellor clearly has no experience of such things. It is impossible to get two or three growing teenagers and all their luggage into a car of 1,000 or 1,100 cc. Has the Chancellor not heard of the family saloon? This tax hits the family and the countryside.

The Government are proud of their Budget policies for small business. Unlike most Labour Members, I have owned and operated medium-sized enterprises for the past 40 years. I have looked carefully at the Budget proposals, and I have discovered that 98 per cent. of small businesses will get very little. For those who receive something, the benefits will pale into insignificance compared with the cost of implementing the 2,000 additional regulations introduced by the Government through the social chapter, the working time directive, the "Fairness at Work" White Paper, the national minimum wage, the new hygiene regulations, the Sex Discrimination Act 1975 and the Race Relations Act 1976. The list goes on and on.

Most Labour Members have never run a fish and chip shop and they have no idea of the burden that such regulations impose on small businesses. It is not just the financial cost, but the enormous amount of management time that is devoted to such matters that should be spent on productive development of the business.

I shall give an example from my constituency. Mr. Simpson has been a butcher and his family have operated an abattoir for four generations. He spent £30,000 in order to comply with the hygiene regulations introduced by local authority environmental health officers. New regulations will now be imposed from 1 April. Mr. Simpson tells me that when he slaughters for six hours on Monday—he slaughters once a week— three staff members are present as well as up to five members of the inspection staff, for whom he has to pay. Mr. Simpson will be forced to close his business from 1 April.

Labour Members have made much of the 1p cut in corporation tax for small business. A company that makes £50,000 a year will save £500. Apart from the cost of regulations, that sum will be more than gobbled up by the increase in the cost of petrol. For most businesses, motoring costs are a major expense. Most goods are delivered to customers by road, and sales representatives must have cars to do their jobs. The increase in the tax on DERV will be badly received by the haulage industry. As many of my right hon and hon Friends have said today, more and more hauliers are flagging out their trucks. While returning to my constituency by train last week, I spoke to a man who owns a haulage business in Wakefield, who told me that he had just sent 20 vehicles to be registered in Luxembourg.

The tax increases will also be a bitter blow to agriculture, which is important to my constituency and which is suffering badly at present.

The company car has also come in for another battering this year. The reduction of the rebate for high mileage and the abolition of the reduction for cars that are more than four years old mean that an owner could pay an extra £776 for a five-year-old car worth £19,000 that does about 10,000 miles a year. The changes will hit particularly badly sales representatives who work hard and do high mileage. That is most unfair, and represents another attack on middle England.

My right hon. and hon. Friends have talked about stealth taxes. I draw the attention of the House to the increase in tobacco duty. Hon. Members have probably forgotten that there was an increase on 1 January this year of 21p per packet. Less than three months later, there has been another increase of 17.5p. I do not smoke—I think it is a foul habit—but I think that that increase will simply encourage smugglers. Smuggling is no longer an amateur operation: it has been taken over by professional criminals. Many people are shifting from trafficking in hard drugs to trafficking in cigarettes. That is not the way to deal with the problem—it should be addressed by gradually reducing taxes.

The price of sparkling cider has increased by £1.02 a bottle. That will damage the British cider industry. What is the reason for the increase? The Government have given in to pressure from the Italian Government, who believe that cider competes unfairly with cheap Italian sparkling wine. If the Government wanted to deal with the problem, they should have reduced the duty on sparkling wine to the level of that on ordinary wine. There is no reason why we should pay a tax on bubbles as well as face increased cider prices.

This Budget is bad for middle England and destroys the Government's claim to be the party of the middle classes. Those on above-average pay will pay more national health insurance, as will the self-employed. Home owners will lose MIRAS and pay more stamp duty when they move house. Middle England's company car taxes have increased dramatically. The married couples allowance has been abolished, and private and corporate pensions have been attacked yet again. The penny will start to drop with middle England. The Budget, which is bad for business, agriculture, the countryside, the motorist, the smoker and, above all, the hard-working married man who works long hours to provide a better standard of living for his wife and children, will in time prove to be bad for Labour.