§ The Chief Secretary to the Treasury (Mr. Leon Brittan)
I beg to move;That as respects any time after 7th July 1981 the Resolution of the House (Tobacco products) of 16th March shall have effect with the substitution for £18.04, £34.29, £29.56 and £21.92 of £19.03, £35.91, £30.96 and £22.96 respectively.And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.
The purpose of the resolution is to increase the taxation on cigarettes and other tobacco products by amounts that would yield an additional revenue of £65 million in this financial year and £95 million in a full financial year. Together with the increases we propose in the betting gaming taxes, this will restore the revenue lost as a result of the reduction of 10p per gallon on the tax on derv, following the amendment that my right hon. and learned Friend the Chancellor of the Exchequer advised the House to accept in the Finance Bill Committee on 30 April.
The Opposition would, of course, argue that it is unnecessary to recoup the revenue. The right hon. Member for Stepney and Poplar (Mr. Shore) last Thursday described my right hon. Friend's proposals as being "trivial" and "entirely political".
On one point at least the right hon. Gentleman and those in industry would undoubtedly differ. I do not think that industry would accept for one moment that the reduction in the derv duty could be regarded as trivial. It provides a welcome relief for business transport costs, the effects of which will be widely spread. The issues are, therefore, whether it is right to meet the costs of that relief in some other way, and whether the proposals put to the House for raising the necessary revenue are fair and reasonable.
The House will recall that in showing his readiness to accept the derv amendment on 30 April the Chancellor made it clear from the outset that he would have no option but to ask the country to pay the cost of that relief in some other way. He said that in considering the range of possible ways to do this he would take account of what was said in the debate and bring proposals before the House in due course.
That is what has happened. In presenting the Budget, my right hon. and learned Friend made it clear that monetary and fiscal restraint remained essential to the success of the Government's strategy of defeating inflation and thereby securing the conditions for sustainable growth of output and employment. It is on that basis that we judged that we should budget for a public sector borrowing requirement of £10½ billion. The Chancellor's view is that nothing has happened since that date to invalidate that judgment.
§ Mr. D. N. Campbell-Savours (Workington)
The Chief Secretary says that nothing has happened since that date to invalidate the judgement. Has he seen the report published at the weekend by the City stockbrokers Buckmaster and Moore? All hon. Members, including the right hon. and learned Gentleman's hon. Friends, want to hear from him whether that report is correct. We should like to be told whether, in the light of that report, the Chief Secretary believes that the Treasury's statistics are valid.
§ Mr. Brittan
The House is aware that a welter of reports on the economy are produced by stockbrokers and others. It is not customary to comment on them and it would not be appropriate for me to comment on the figures produced in one such report.
§ Mr. John Bruce-Gardyne (Knutsford)
Can my right hon. and learned Friend assist the House on another point? The Chancellor of the Exchequer predicted in the Red Book a yield of £500 million in the current year from the increase in tobacco duty in the Budget. We are through one quarter of the year. Are we on schedule? Have we collected to date £125 million or a smaller amount from the increased duty?
§ Mr. Brittan
Broadly, the estimate has not changed, and on that basis my right hon. and learned Friend believes that the essential Budget judgment should not be altered. That is why the motion is before the House.
The right hon. Member for Stepney and Popular has argued that the cost of the derv change is so small and the margins of error surrounding any forecast of the PSBR is so great that even if one accepts the essential Budget strategy it is not necessary to seek to recoup the revenue that has to be forgone as a result of the reduction in the derv tax.
The scornful phrase that the right hon. Gentleman chose to describe our proposals was "fine fiscal tuning". Whatever the validity of the criticism of the Government's engaging in fine fiscal tuning, it does not come well from a member of a Government who introduced as many Budgets and mini-Budgets as did the Labour Government when the right hon. Member for Leeds, East (Mr. Healey) was Chancellor of the Exchequer.
§ Mr. Austin Mitchell (Grimsby)
The Chief Secretary criticises my right hon. Friend the Member for Leeds, East (Mr. Healey) for introducing mini-Budgets. But what is this? Is it a mini-Budget? Why is the Chancellor of the Exchequer not here to tell us? The whole process looks suspiciously like a mini-Budget.
§ Mr. Brittan
The hon. Gentleman must have been so busy in his duties as a Whip on the Finance Bill Committee that he did not notice the nature of today's exercise. The hon. Gentleman was assiduous, but when my right hon. and learned Friend agreed to the reduction in the derv tax he made it clear that because he did not think that a change in the Budget strategy was called for it was appropriate that there should be a recoupment of the revenue lost by reducing the duty on derv, and he said that he would consider the form which that recoupment should take.
Within the context of the Budget judgment as a whole, I am dealing with the question whether it is appropriate to engage in the recoupment that is the subject of this resolution and others on the Order Paper. As I said, although some no doubt believe that fiscal fine tuning is an inappropriate activity, such criticism does not lie well in the mouth of the right hon. Member for Stepney and Poplar, in view of the frequncy with which the right hon. Member for Leeds, East made such proposals when he was Chancellor of the Exchequer. The truth is that we accepted that it was right that the derv change should be made, the cost of which is £85 million. It is no more than proper that we should seek compensation in alternative forms of taxation. Nobody is pretending that the forecast of the public sector borrowing requirements is so precise that, on 74 the basis of experience, we can pinpoint it to that order of magnatitude. I note that I carry the right hon. Member for Ashton-under-Lyne (Mr. Shelton) with me on that point, if on no other.
It does not follow that because there are substantial margins of error when a change involving a reduction in the revenue is accepted by the Government and the House, nothing should be done to recoup the loss and that we should simply throw our hands in the air and say "We do not know how it will turn out in the end, so we shall leave it." On that basis it would be impossible to take a view of what the proper level should be. It is right that the Government should return to the House, as we have said all long we would do, and put forward proposals for recoupment. I seek to persuade the House that the proposals are a balanced, fair and reasonable package.
I turn to the detail of the resolution. The rate of specific duty on cigarettes is increased from £18.04 to £19.03 per 1,000. After consequential ad valorem duty and VAT has been taken into account, that is equivalent to 3p on a packet of 20—an increase in the duty burden of just under 5 per cent. The duty on other tobacco products—cigars, pipe tobacco and hand-rolling tobacco—is increased by a similar percentage. If the House approves the resolution, all those changes will come into effect at midnight tomorrow. They raise a total of £65 million in 1981–82 and £95 million in a full year. The effect on the retail price index will be an increase of just over one-tenth of 1 per cent.
§ Mr. Jim Craigen (Glasgow, Maryhill)
I wish to refer to a point raised earlier by the hon. Member for Knutsford (Mr. Bruce-Gardyne). When the Treasury considered alternative sources to meet the shortfall in derv tax what consideration was given to the employment implications in the tobacco industry?
§ Mr. Brittan
That matter was taken into account. I shall refer to it in a moment.
We do not think it unreasonable to ask smokers to contribute the greater part of the revenue needed to offset the den, duty reduction. The real value of the duty on cigarettes has fallen substantially from past levels and this increase, together with the larger increase that my right hon. and learned Friend imposed in the Budget, goes only part of the way to restore the position. The duty on king-size cigarettes in real terms will now be broadly the same as in early 1976. It will be below the levels of 1974, 1975 and some earlier years—levels which, no doubt, were thought by those who served in the Administration in power then as being entirely reasonable. We are no more than back to those levels.
The further 3p increase that we are putting before the House comes on top of the 14p which my right hon. and learned Friend added to the taxation of cigarettes in the March Budget. As I said, that goes only part of the way to restoring the past real value of the duty. It is significant that the total increase in cigarette taxation since the March 1980 Budget, resulting from the March 1981 changes, the changes that we are now debating and the additional ad valorem duty and VAT resulting from the manufacturers' price increases at the beginning of this year, is 36 per cent. That is less than the 38 per cent. Budget increases which were necessary in the duties on beer and petrol. It is the same as the 36 per cent. increase in the tobacco duty—which was then charged by weight—imposed by 75 the right hon. Member for Leeds, East in one go in his April 1975 Budget. It is substantially less than the 54 per cent. imposed by the late Dr. Hugh Dalton in 1947. Any suggestion that the percentage increase in tobacco duty on this occasion is disproportionate or unfair, or bears unreasonably on any particular section of the community, is difficult to support if we consider the action taken by the Labour Government and their predecessors long ago.
The hon. Member for Glasgow, Maryhill (Mr. Craigen) raised the question of the state of the tobacco industry and its employment prospects. We certainly considered that matter, although it could be only a part of the picture. The 3p that we propose to add to the cost of 20 cigarettes increases the forecast fall in tobacco consumption as a result of duty changes this year from about 9 per cent. to about 10½ per cent. The House will be familiar with the fact that the fall in cigarette consumption, if not steady, has been in one direction since about 1973. The long-term trend against smoking in recent years, rather than budgetary measures, has had the greatest effect on employment in the tobacco industry.
Much of the short-time working in the industry following this year's Budget resulted from the heavy forestalling in the early part of the year. I fear that on the basis of experience, and not unwisely, many retailers as well as private individuals reached the ineluctable conclusion that the changes of an increase in tobacco duty were sufficiently high for it to be wise for them to take pre-emptive action. That action and the high purchases were the primary factors in the difficulties facing the tobacco industry.
We must look at the package as a whole. It involves consideration of the other measures that fall to be debated under the other resolutions on the Order Paper. I shall do no more than make a passing reference to them. The combination of the tobacco duty, covering the bulk of the recoupment, and the changes in general betting duty, bingo duty and gaming machine licence duty, form a reasonable and balanced package designed to recoup the loss of revenue caused by the reduction in derv duty.
That reduction undoubtedly has benefited, and will continue to benefit, the business community and the country as a whole in its impact on costs. Although the net effect of the change has been slightly to change the balance of the Budget, it has not altered the central Budget judgment. Shifting the balance in favour of industry and against the consumer is a shift in the direction that the Government think it reasonable to make.
For that reason, I commend the resolution to the House as the first of four which together implement the recoupment package which my right hon. and learned Friend announced to the House last week.
§ Mr. Peter Shore (Stepney and Poplar)
This is the first of the four Ways and Means resolutions before the House. They are part of this year's Budget strategy and relate to the general management, or rather mismanagement, of the British economy. The debate is inevitably overshadowed by the continued decline of the economy and the continued rise in unemployment. I suppose that it is most immediately overshadowed by the events of Toxteth and Southall, which were the subject of the Home Secretary's statement.
76 I do not accept for a moment that unemployment justifies the violence, rioting, looting and mob assaults that we have seen on our television screens during recent days. However, as I said in an earlier debate this year, if one in six of the 16 to 19-year-olds is unemployed and the prospect of useful training and employment has become remote and dim, the conditions are right for many forms of lesser mischief. Only last Wednesday the right hon. Member for Sidcup (Mr. Heath) advanced much the same argument when he said thatif half a million young people are hanging about the streets all day, we shall have a massive increase in juvenile crime.He said that we are bound to getracial tensions when young blacks have less chance of getting jobsthan young whites. These are not the only factors that will be shown to have been involved in the recent outbreaks of violence. It is common sense to recognise that in conditions of idleness and social rejection there will be an increase in crime.
§ Mr. Kenneth Lewis (Rutland and Stamford)
On a point of order, Mr. Deputy Speaker. What have the remarks of the right hon. Member for Stepney and Poplar (Mr. Shore) to do with the motion before the House?
§ Mr. Shore
They have a great deal to do with it, as will be quickly revealed to the hon. Gentleman if he will contain himself. There has been an increase in tension, especially in the poorer areas of our cities. It is all the more serious when it is the Government's policy deliberately to cut public expenditure and, within the reduced total, to switch resources from hard-pressed inner city areas, where much stress is undoubtedly to be found, to the more prosperous and relaxed areas.
The Opposition are bitterly opposed to any measures that will increase unemployment and to any reductions in expenditure in our community. We are therefore opposed to further measures of fiscal deflation. That was our principal objection to the Budget and that is our major objection to the motions on the Order Paper.
We have been told that this is a simple and necessary proceeding, designed to recoup the £85 million concession that was made on the Floor of the House on 30 April when the Chancellor of the Exchequer announced that he had decided to reduce to 10p the 20p proposed increase in the price of derv. He made that concession not because he was persuaded by the force of our argument against imposing yet further costs on road haulage used by our sadly uncompetitive industry, and not because he was persuaded by our arguments against fiscal deflation, but because he assumed, correctly, that with the support of the Opposition there were sufficient dissidents among Conservative Members to defeat the Government if the House divided on the issue. In his surly and pedantic way the right hon. and learned Gentleman coupled his concession with the announcement that he would have no option but to ask people to pay the cost in some other way.
The right hon. and learned Gentleman asserted that he had no option because it would be unwise to allow £85 million to be reflected in an increase in the public sector borrowing requirement. He followed his announcement with a promise to consider the range of possibilities for alternative measures, including the various suggestions made during the debate on 30 April.
There are two issues for the House to debate this evening. First, and narrowly, has the Chancellor sought to 77 raise the £85 million in the most sensible way? Secondly, and far more importantly, is it right to recoup the sum at all? I shall concentrate most of my remarks on the second question.
In the Budget Statement the Chancellor announced one of the largest-ever increases in tobacco tax—namely, an increase of 14p per packet of 20 cigarettes, yielding about £500 million a year. In Committee we learnt that the anticipated yield takes account of an estimated fall in consumption of about 9 per cent. and an increase in the retail price index of about 0.7 per cent. Whatever views we may have of the desirability, on health grounds, of discouraging the consumption of tobacco, it is only sensible to take account of the pace at which it is reasonable to expect people, especially the elderly, to change. It is a strongly entrenched and addictive habit. Further adjustments will have to be made by manufacturers and retailers of tobacco in the face of falling sales.
The further impost of 3p per packet of 20 cigarettes following the increase of 14p only three months ago sets much too fast a pace. Smoking is a national habit. Tobacco takes a far higher slice of the income of the average and low-paid consumer than of the income of a Minister of the Crown or the director-general of the CBI.
We cannot ignore the fact that in this year's Finance Bill, let alone last year's and the Budget of 1979, substantial and specific tax concessions have been deliberately made to the wealthiest members of our society. This year we had concessions on capital transfer tax, capital gains tax and development land tax. In Committee the Chancellor found it possible to make concessions in his special tax on bank deposits at a cost of about £25 million. In this year's Budget there are obvious ways in which substantial extra sums could be raised without a further attack upon a specific industry and upon the many who consume its product.
§ Mr. Campbell-Savours
Is my right hon. Friend aware of the considerable anxiety that exists in constituencies such as mine, in Cumbria, with old agricultural and farming communities, when major tax concessions are given to landowners—concessions which were debated in full in Committee and supported by Conservative Members, including those from Cumbria—and to those who are not involved in farming but who are landlords, when the bill has to be picked up by industrial workers who are either working in West Cumbria or have recently lost their jobs? Is not that a measure of the Government's inability to understand that people morally object to the way in which they have conducted their fiscal arrangements?
§ Mr. Bruce-Gardyne
May I revert for one moment to the motion before the House? Is the right hon. Gentleman saying that it is the Labour Party's opinion that tobacco taxation increases are to be advised against at this time?
§ Mr. Shore
If the hon. Gentleman will contain himself, I shall end with a recommendation. If he had been present when the Budget resolutions were presented he 78 would recall that a number of votes took place. including one on the proposed increase of 14p per packet of 20 cigarettes and the resolution that went with it. I advised the House to vote against it. I advised that principally because it was part of a general package of fiscal deflation, which I believe is utterly wrong for the country at present. If the hon. Gentleman will contain himself he will find out my further recommendation later.
The point made by my hon. Friend the Member for Workington (Mr. Campbell-Savours) is right. If the Treasury Bench were bold enough to argue that, somehow or other, £85 million could not be clawed out of this year's tax concessions to landed interests and from capital gains tax and capital transfer tax, I refer it to last year' s Budget, in which about £380 million was made in tax concessions to those sections of the community which are obviously the best advantaged in the land.
I turn now to the wider question whether it is right in the circumstances of the economy in July 1981 to recoup that sum at all. Last Thursday, responding to the Chancellor of the Exchequer's announcement, I said that a sum equal to 0.1 per cent. of this year's tax yield was trivial and, further, that in the light of last year's experience, when the Government's arithmetic on the PSBR was £5 billion in error, such an attempt at fiscal fine tuning was not to be taken seriously. Moreover, the Government are operating in a growing statistical fog, as the information flows on which they normally rely are distorted and interrupted by continued industrial action by the Inland Revenue and other Government services.
Those in themselves are good reasons for leaving well alone and for letting sleeping dogs lie. However, there are stronger reasons which must be considered now. En the three months which have elapsed since the 10 March Budget it has become plain that even the dismal prospect which the Government then put before us is now being falsified by events. Our economic situation has deteriorated on almost all the main fronts which we normally consider. The Chief Secretary had the effrontery to say that nothing had happened in the past three months to invalidate the Budget judgment. I shall assist him in reconsidering that statement.
Let me take, first, unemployment, which, as the House knows, has risen by 200,000 since the March Budget was announced. This year's public expenditure While Paper, which accompanied the Budget, revealed that the Government's unemployment assumption for 1981–82 had increased from 1.8 million to 2.5 million, and would rise to 2.7 million in 1982–83 and beyond. Those figures excluded school leavers.
That is not the end of the story. Last Friday we had the report by the Government Actuary, who now tells us thatthe number unemployed, excluding school leavers, averages 2.6 million in 1981–82.That is an increase of 100,000 since the March public expenditure White Paper. In addition, the number of unemployed school leavers and adult students or persons whose employment is temporarily stopped will average about 240,000.
I am glad to see that in this, at any rate, there is co-ordination between Government Departments. The Government Actuary says that:in accordance with the normal practice, working assumptions have been given to me by the Government in regard to these factors.79 In short, the 2,600,000 is an assumption which the Treasury has instructed him to use.
The second change on which I should like to comment is the revised anticipation of economic growth. In the Red Book which accompanied the Budget Statement the United Kingdom's gross domestic product was expected to fall by a further 2 per cent. in 1981. At the same time, the Red Book forecast that in the first half of 1982 there would be a rise of 1 per cent. over the first half of 1981. Since then, the Treasury has received the June short-term forecast.
I suppose that the Chancellor of the Exchequer has read it. If so, he or the Chief Secretary will be able to confirm or deny the report which appeared in The Daily Telegraph last Saturday. It seemed fairly convincing to me. We learnt that in the Treasury's view the outlook is for roughly nil growth in 1982, or even for some further contraction of output. That is certainly not contradicted either by the latest figures of the index of industrial production or by industry's investment intentions, which show, among other things, an alarming fall of between 11 per cent. and 14 per cent. in investment in manufacturing industry.
Another factor which deserves mention is the reports submitted by the Brussels Commission to successive meetings of the Euro Council. It submitted a report in March at the Maastricht summit, and only a few days ago it submitted one to the summit which took place in Luxembourg. Both reports show that in the EEC as a whole there will be no growth—indeed, minus 0.6 per cent—in 1981. It is significant that the Commission's figure for growth in the United Kingdom has altered between those two forecasts. I can only assume that the Brussels Commission gets its material from the Treasury. It is not a dramatic change. When we talk about growth in gross domestic product in Britain we are talking not about positive growth but about negative growth. The change is from minus 2 per cent. in 1981—the figure which accompanied the March summit—to minus 2.2 per cent. three months later, on the eve of the Luxembourg summit a few days ago.
My third point concerns inflation. In the Red Book the Government forecast inflation falling to 10 per cent. by the fourth quarter of this year and to 8 per cent. by the second quarter of 1982. That was based on the assumption that the exchange rate would remain constant. However, we have now had depreciation of about 8 per cent. in sterling. That by itself could add between about 2 per cent. and 3 per cent. to both those inflation rates. Therefore, on the basis of their assumptions, the Government should now be forecasting double-figure inflation for next year.
The House will also have noted that inflationary expectations, as given in the Financial Times this morning, show a further rise. In particular, firms are expecting to expand their profit margins. That was almost certainly not allowed for in the Red Book forecast and is a further factor tending to increase in the forecast of higher inflation.
Before I came into the Chamber for the debate I collected the press notice put out by the Department of Industry on wholesale price indices for June. I shall not go over it in detail, but I draw attention to the input prices in the price index for materials and fuel purchased by manufacturing industry, which increased by 1½ per cent. 80 between May and June. The increase in that index, measured over 12 months, rose from 12¾ per cent. in May to 14 per cent. in June.
There is no doubt that the Budget forecasts of inflation will be falsified. That development has significance in any event, but it has a special significance for the Government. In their view a higher inflation rate is associated with a rise in sterling M3, and thus the 6 per cent. to 10 per cent. target M3 is almost certain to be exceeded.
Those who remember the debates on the Budget and on Second Reading of the Finance Bill will recall the extraordinary series of statements made by the Chancellor of the Exchequer, the Chief Secretary and the Financial Secretary on the question whether this year's Budget was deflationary. It was my contention that, having reduced the PSBR from its outturn of £14 billion to a new total of £10½ billion in 1981–82, and having increased the burden of taxation by no less than £4,000 million, the inescapable and commonsense conclusion was that the effects would be deflationary. Both the Chancellor and the Chief Secretary claimed that it was not deflationary, because the 1981–82 PSBR figure was higher than they had intended it to be a year before, but I did not find that terribly convincing.
It was left to the ineffable Financial Secretary to claim that the Budget was not deflationary at all, since there was room for growth in the target range for the money supply. If the money supply and inflation are now moving above the 6 per cent. to 10 per cent. range, as I believe they are, even on the Financial Secretary's calculations, there is clearly no room for growth in the economy. Moreover, if the Treasury team remains true to its own monetary doctrines we can shortly expect not lower but higher interest rates to keep the money supply on target.
Let us look at the implications of those three changes since the Budget was introduced for the unemployment calculation and level, the outlook for GNP and the rate of inflation. Incidentally, I cannot resist recalling that it was as long ago as 14 January 1981 that the Financial Secretary gave this judgment in Zurich:we have now more or less reached the bottom, and brighter times are clearly in sight.We are all looking for those brighter times and are most anxious to reach the bottom. However, I am afraid that it appears to be a rolling target for brighter times, and certainly they have been postponed.
An increase in unemployment of 100,000 had already been admitted, and taking account of both the benefits paid and the tax revenues forgone, it will add £500 million to this year's PSBR. That is a simple and, I believe, irrefutable calculation. In addition, the lower prospect for growth will also entail further losses for the Revenue. I hesitate to put a figure on it.
That is the background against which we must now judge the Chancellor's decision to demand £85 million to "restore" the integrity of his Budget judgment of 10 March. Whom does he think he is fooling? Why on earth is he doing it? Is he so obsessed with book-keeping transactions that he is unaware of the larger movements that will affect the whole sum? Sometimes when I look at the Chancellor I could be persuaded that that was, in fact, the case.
However, I am also aware that we are in a period when the Government have embarked on their review of public expenditure for next year. That process, which began with the special Cabinet meeting a fortnight ago, will no doubt 81 come to its conclusion later in the autumn. It may be that the Chancellor is anxious to convince his Cabinet colleagues that if they do not subscribe to further cuts in public expenditure he will, as he did this year, inflict still further increases in taxation in the 1982 Budget.
What should be clear to anyone who has eyes to see is that the Government are heading for still further problems and a still deeper crisis as the year wears on. We are witnessing a repeat of last year's events. The economy is continuing in deep recession. Further public expenditure cuts will be sought in what must now be the certain knowledge that, when achieved, they will only add to the recession and, at the same time, be largely negated by the increase in other forms of public expenditure that an ever-deepening recession makes inevitable. Unless North Sea oil revenues come to the rescue, it is already beginning to look as though the indexing of tax allowances in 1982 is at risk.
We are in a downward spiral. So long as the Government continue along their crazy course of believing that the economy can be successfully managed by an obsessive devotion to money supply targets and by adherence to an inadequate PSBR there is no escape for either the Government or the country.
The sums that we are debating tonight in the Ways and Means resolution are trivial against the background of the country's economic needs, but they are highly symbolic. They are a symbol of the Government's continued commitment to irrational and damaging dogmas.
To come to the question put to me by the now absent hon. Member for Knutsford (Mr. Bruce-Gardyne), in voting against the increased tobacco duty—which I urge on my hon. Friends—we shall also be voting against the whole thrust of the Government's policy.
§ Mr. Teddy Taylor (Southend, East)
The Shadow Chancellor—the right hon. Member for Stepney and Poplar (Mr. Shore)—has extended the scope of the debate beyond what many of us expected. Let me deal briefly with one point in his general argument. The reason why I and the majority of my hon. Friends will support the motion is not that we believe that an increase in tax on tobacco or on anything else is in itself necessarily a good thing, but that it confirms the principle, which, if it had been applied by previous Labour or Conservative Governments, would have avoided the appalling mess that we are in—the simple principle that things should be paid for.
The Shadow Chancellor must be well aware that a major problem in our economy is that successive Governments, particularly Labour Governments, have provided services for the community that it desired, without charging the necessary tax for them. The result is a massive rise in the national debt, to the extent that it now stands at about £100 billion, on which the interest this year will be not far short of £10 billion. Put in realistic terms, it means that the average family in Southend, and, indeed, in the Shadow Chancellor's constituency and elsewhere—
§ Mr. Taylor
—and in Basildon and Glasgow, will have to pay about £18 a week in direct or indirect taxation simply to pay interest on the accumulated debt.
§ Mr. Campbell-Savours
How can the hon. Gentleman go back to Southend and justify the increases in tobacco taxation, in view of the concessions given to a select few in the capital transfer tax provisions? I worked in the Southend by-election when the hon. Gentleman was elected. I do not remember his suggesting to the electors at any time in the campaign that he would support a Government who raised the tax on working people to pay for major concessions in the capital transfer tax provisions. How can he justify that?
§ Mr. Taylor
The hon. Gentleman is aware that the tax is a balancing charge for a reduction in derv, which will help working people substantially. It will affect the average cost of goods, and particularly public transport.
My constituents and those of the hon. Gentleman would not be suffering as they are if, for example, the Labour Government, who inherited a national debt of £42 billion, had not almost doubled it, to £87 billion. The Shadow Chancellor will be well aware that, had we not had that outrageous rise in the national debt, we should not be in this serious situation.
§ Mr. Taylor
The national debt increased more under the previous Government than it did under all other Governments in the history of the United Kingdom, which shows the seriousness of the situation. Before he embarked on his Budget the Chancellor of the Exchequer had to find the equivalent of £18 per week per family in tax simply to pay interest on the accumulated debt. We may argue that it was the fault of one Government or another, but to carry on in this way is to make the situation worse.
§ Mr. Foulkes
If things were as bad at the last general election as the hon. Gentleman alleges, how did he manage to lose his seat for Glasgow, Cathcart?
§ Mr. Taylor
The hon. Gentleman is well aware why, after 15 valiant years, that happened. Irrespective of what happened in Cathcart or South Ayrshire, he should be aware that if we did not have a horrendous national debt the problems of any Chancellor would be much easier to cope with. I hope that in this case the Government will adopt as a general principal—I hope that the Minister will confirm this—the idea that concessions should be paid for in taxation. If they are not, the rake's progress will continue.
I put one other general point to the Shadow Chancellor. He was desperately pessimistic, and there is plenty of evidence to support what he said. There is, however, one missing link—which he did not mention, but which I hope he will consider—which may make the position less gloomy than it might otherwise appear. He will know that the Government have committed themselves to major EEC reforms and are hoping to achieve major changes under the British Presidency. I think that he will agree that if we achieve those changes they may provide a major boost to employment and prosperity in the United Kingdom.
The Government are going for a reduction in contributions. The right hon. Gentleman will know that since we joined the EEC we have had to contribute £3 billion net, a massive sum, which has drained prosperity and jobs in this country. The Government are also seeking to renegotiate the CAP, the burden of which is intolerable 83 and adds enormously to British costs, particularly industrial costs. I think that the right hon. Gentleman would agree that although the outlook is gloomy, if the Government succeed in reducing some of the horrific burdens involved in EEC membership the outlook may not be so gloomy and there may be a major improvement in job prospects for this country.
I make two brief points on the proposal put forward by the Chief Secretary today. First, I accept the principle that we should pay in tax for the concession on derv. I believe that any other proposal would be irresponsible, irrespective of the amount.
§ Mr. Clive Soley (Hammersmith, North)
I understand the hon. Gentleman's point, but will he respond to the point put to him earlier that the taxes should be paid by those with high incomes, particularly in capital transfer tax and the like? Why do they have to be paid by people on lower incomes?
§ Mr. Taylor
I can only say that I am a smoker, and I like to think of myself as not having an unduly low income. Tobacco is smoked by people right across the board. Although there has been a reduction in smoking in the so-called A/B group, the hon. Gentleman must accept that we are talking about a transfer from derv to tobacco. Certainly the reduction on derv will considerably benefit working people, particularly in relation to public transport and other means of conveying themselves to work or indeed anywhere else.
§ Mr. Foulkes
When I used that argument about public transport in discussing the Budget proposals I was attacked by a Conservative opponent in Scotland, who said that the increase did not apply to public transport. Can the hon. Gentleman or the Minister tell me which of them is right on this matter?
§ Mr. Taylor
The hon. Gentleman will be aware that derv is used for all forms of conveyance. I believe that it will be a major help to the whole community, particularly in the transportation of goods, or, indeed, people. A reduction in the cost of transportation will benefit working people. I suggest that if the hon. Gentleman were offered a straight choice of helping his constituents through a 10p concession on derv or a 3p concession on 20 cigarettes he would accept that the net benefit to his constituents would lie in the present proposal.
§ Mr. Taylor
This is a long debate. The hon. Gentleman has interrupted me twice. He has interrupted me a great deal on previous occasions and usually ends up pushing a totally inaccurate point. I think that we should get on with the debate on this minor issue.
I hope that the Chief Secretary will take note that while I accept the general principle that we should pay for the concession, I wonder whether there is a danger in this measure of adding a further burden that might kill the goose that has laid so many golden eggs for this and previous Governments. It may not be generally realised that the Government obtain substantially more revenue from tobacco than from North Sea oil. The figures in the Red Book were £3.2 billion from tobacco, and £2.2 billion from North Sea oil. To that extent, it is certainly an important industry.
84 Has the Chief Secretary also considered the fact that the tobacco industry has a record almost unique in British industry for coping with import penetration? I wonder how many other industries supply about 95 per cent. of home demand and create enormous wealth for the country through exports. By comparison with almost any other industry, the tobacco industry achieves more in resisting imports and promoting exports.
I wonder, too, whether any other industry provides good employment in so many areas where there is massive unemployment. In areas such as Glasgow and Belfast, and in other areas of high unemployment, the tobacco industry not only provides good employment but appears to have as good a labour relations record as any other industry in similar circumstances.
I wonder also whether any other industry makes such a large contribution to the survival and prosperity of the small shops which are so vital throughout our community. I wonder whether many other industries make such substantial charitable contributions.
I have no interest, direct or indirect, in the tobacco industry, but I believe that there is a real danger that if we increase the tobacco tax by too much too fast the Government will find themselves without this enormous source of revenue.
Bearing in mind that the increase in taxation is taking place at the same time as a vigorous Government campaign against smoking, has the Chief Secretary given any thought to the kind of tax that he would bring forward to raise that vast amount of money if receipts from tobacco tax were substantially reduced?
§ Mr. Foulkes
On a point of order, Mr. Deputy Speaker. Is it in order for an hon. Member to mislead the House, in spite of the matter having been drawn to the attention? For public transport, the consequential reduction in stage bus fuel grant means that £10 million is, as it were, returned to the bus operators—
Mr. Deputy Speaker (Mr. Bryant Godman Irvine)
Order. The hon. Member for Southend, East (Mr. Taylor) is responsible for his own speech. No doubt the hon. Member for South Ayshire (Mr. Foulkes) will try to catch my eye to put him right.
§ Mr. Taylor
The hon. Member for South Ayrshire (Mr. Foulkes) has made his parliamentary career and his considerable public career in the basis of making erroneous statements with great regularity. If I have made a mistake, I shall withdraw it forthwith. On the other hand, I hope that he will accept that if the tax on derv is reduced it will reduce the cost of conveying goods and materials and will generally help the economy and help industry, and thereby help employment. I believe that on balance the present proposal is a better deal.
I make this simple point to the Minister. Bearing in mind the amount of money that the Government receive from this one industry, and remembering its unique contribution to the British economy and to exports, will he carefully watch the consumption of tobacco, to ensure that we are not suddenly faced with a collapse of that major source of revenue? Will he also consider it appropriate to tell his colleagues that because of its contribution the industry should be treated with more understanding? I am thinking in particular of advertising, where the industry's attempts to push low-tar cigarettes, which are generally regarded as being less harmful, have been largely 85 undermined by the activities of the Department of Health and Social Security, and to a lesser degree by the Government's own Budget proposal to do away with the extra tax on high-tar cigarettes.
I support the Government's move, because I believe that it is right that concessions should be paid for. I hope that in so doing, however, the Government will bear in mind the unique contribution made by this successful industry. I hope that they will watch carefully for the possibility of that revenue collapsing and having to be replaced from other sources, and I hope that because of that contribution the Minister will advise his colleagues to treat the industry with a little more understanding.
§ 8.9 pm
§ Mr. Michael Martin (Glasgow, Springburn)
I represent an area in which unemployment is worsening day by day, as it is throughout the country. Most of my unemployed constituents would dearly love to be employed by the tobacco industry, which at present employs 3,000 people in my constituency. Unfortunately, the industry has experienced short-time working because of the 14p duty increase. I understand that 13,500 people have been put on short-time working.
I am perturbed about the anti-smoking lobby, which seems to have the ear of the Government at present. I only wish that those who are involved in the anti-smoking campaign would bear in mind that although smoking could be harmful to one's health, unemployment is harmful to people's health—not only to the unemployed but to their families.
The tobacco industry cannot be accused of being a bad employer—far from it; it is a first-class employer. The wages for manual workers are good and the industry introduced equal pay long before it was even talked about in other industries. Working conditions are second to none, and industrial relations are first class. I cannot remember there ever having been a strike in the Glasgow factory. Whenever I have approached the management or the work force they have always been only too pleased to receive me as an elected Member of Parliament. The facilities enjoyed in the industry are far superior to those in any other industry. It provides health care facilities in the factory, and the local community is very grateful for the help that it has received from time to time.
On several occasions I have heard the Prime Minister condemn the British worker because of restrictive practices. If she would care to come to the Glasgow factory she would see that there are no restrictive practices there. In fact, the members of the work force realise that by accepting modern technology they are putting themselves out of a job. Three years ago the machines in the factory turned out about 2,000 cigarettes a minute. A machine has now been introduced which turns out 6,000 cigarettes a minute.
As the Minister said, tobacco consumption is falling—that means that the work force will be in danger of unemployment—and the increase in tax will not help. I urge the Minister to reconsider the increase, because it will affect people—decent, hard-working people, who over the years have built up an excellent record in the industry.
Over the years Imperial Tobacco Ltd. has diversified. It is widely known that it has put a great deal of finance into operations such as breweries and even potato crisp factories, and rightly so. If the industry is declining, it 86 must look to other areas to ensure that it does not go completely out of business. I was perturbed that at this time last year "Imps" invested in the United States and bought a food chain for which, I understand, it paid well over the asking price. Thus, the wealth created by tobacco is going out of the country.
I have constantly put to Imperial Tobacco Ltd. the argument that if it is to diversify it should invest in businesses adjoining the existing factories, so that if the workers are to be put out of work in the tobacco industry they will have the opportunity of working in the new industries in which "Imps" invests. It will be all the harder for me and for other hon. Members with tobacco industries in their constituencies if the Government add more and more taxation to tobacco products. I urge the Minister to consider the facts.
I come now to the question of the anti-smoking lobby. I do not wish to get involved in the health arguments; it would be nonsense to say that tobacco is not harmful to one's health. As the hon. Member for Southend, East (Mr. Taylor) said, the tobacco industry, in its advertising, is trying to direct the consumer towards smoking low-tar cigarettes. It annoys me when people tell us that they wish to prevent smoking because it is harmful to health and that they even want to stop people sitting beside someone who is smoking. I only wish that those people would get involved in the cause of many workers who are having to inhale obnoxious fumes because of the type of processes that are involved in welding, and so on.
§ Mr. Foulkes
Does my hon. Friend agree that this House has enacted much legislation to protect people who are working in environments such as those that he described? Does he not also agree that there is evidence that the health of people sitting next to smokers is affected? Is it not right that they should be protected, and is it not reasonable to argue that case?
§ Mr. Martin
Of course that is reasonable, but I am saying that they should direct their energies into helping those people who work with harmful substances in other industries. They would thereby help people who, over the years, have been crying in the wilderness.
§ Mr. Soley
I understand the argument, but the point is that we should try to control any harmful substance, especially if it affects the health of people who do not indulge in it. The answer is to retrain and to assist companies to invest in other areas rather than to continue manufacturing a product that is known to be harmful. That argument applies to other drugs, such as heroin, which we do not permit at present.
§ Mr. Martin
I would not compare heroin with low-tar cigarettes.
Glasgow has a historic connection with the tobacco industry. Many of our historic buildings were built from the wealth that the industry created. Not long ago the people who ran the tobacco industry also ran the city of Glasgow. It is sad that the heavy engineering and shipbuilding industries have declined. We are worried about some of the colleges of engineering where we train our young people. Many young people ask me "What is the point in staying? Is there any future for us?" It is difficult to give them a positive answer.
If the tobacco industry in Glasgow declines it will impose more and more hardship on our citizens. I ask the Minister to reconsider his proposal.
§ Mr. K. Harvey Proctor (Basildon)
The hon. Member for Glasgow, Springburn (Mr. Martin) is knowledgeable about the tobacco industry. He put his case extremely well, unlike his right hon. Friend the Member for Stepney and Poplar (Mr. Shore), whose speech was a sandwich with a thin filling. There was a slice of stale bread on either side of a filling that consisted of tobacco and the tobacco industry. The first slice consisted of his remarks about the recent distrubances in Toxteth, Liverpool. The right hon. Gentleman almost said that the Government's economic policy should be dictated by mob violence on the streets of that city and other cities, if violence breaks out. That is unacceptable to the House. There is no excuse for the type of rioting that took place in Liverpool and Southall.
The second stale crust in the right hon. Gentleman's sandwich was the link between inflation and unemployment. There is a link, but not necessarily as the right hon. Gentleman perceived it. If inflation is not controlled, I foresee even higher levels of unemployment. The reason why we have such high levels today are many. One is that successive Governments, Labour and Conservative, have allowed too high a level of inflation, with all the difficulties that that has meant for the competitiveness of industry, particularly manufacturing industry.
I come to the Government's attitude to the recoupment by my right hon. and learned Friend the Chancellor of the Exchequer of the diesel fuel oil concession forced upon him by the House. There is no doubt that the Government are right to introduce measures to cover the concession, because I believe that inflation is uniquely caused by politicians; nobody else can cause it. It has been caused by politicians of both parties over the past two decades spending more money than they took in taxation, covering the difference by borrowing or printing money, or by a combination of the two.
The present Government have rightly shied away from that inflationary trend, unlike the Opposition. At the weekend the Leader of the Opposition made it clear that they would try to spend their way out of our economic difficulties. Where the money would come from was a matter of no consequence. There was no commitment to increased taxation. Labour would borrow the money. That would have an increasing effect on interest rates, which the Opposition want to be as low as possible. It is nonsensical to try to get out of the country's difficulties by pursuing policies that have failed under successive Governments for the past two decades.
If the Government had not come forward with a proposal to recoup this money there would have been an added twist—however small or large might be considered—to the inflationary spiral, and rightly the Government shied away from it.
§ Mr. Campbell-Savours
The hon. Gentleman referred to a curious twist. Is not there another curious twist, which is that we all know that very effectively he puts the case on behalf of the British Paper and Board Industry Federation? In all our debates on the paper and board industry, he is noted for his interventions. However, he will notice that in the way that the decision has been taken by the Government, the original inclusion of a 20p increase was objected to by the federation, the case for which he puts so effectively. It said that it would damage its interests in the transport of paper and board from the regional plants to the major conurbations. I heard the hon. 88 Gentleman object to that on the basis that it was an unfair penalty for the industry. But has not he also noticed that the effect of this proposed tax will be to reduce the consumption of cigarettes, and that one of the greatest areas of operation for the paper and board industry is the prodution of packets in which cigarettes are marketed. Has not the hon. Gentleman received already—
§ Mr. Proctor
I think that I understand the gist of the hon. Gentleman's remarks. However, he has commented on the opening paragraphs of my speech rather than waiting for the sum total of it. It is my intention to speak at length about the tobacco industry. The remarks that I was making about inflation were by way of a preliminary to my main contribution. I may carry the hon. Gentleman a little further in a different part of my speech if I cannot do so in this.
§ Mr. Proctor
That is a question for my right hon. and learned Friend, and no doubt he will answer it at the conclusion of the debate.
§ Mr. Proctor
The hon. Gentleman heckles and says that I have the vote. I shall comment on that as well. The interventions of both hon. Gentlemen were a little premature.
I am arguing that in their effort to control inflation the Government are right to recoup the loss to the Exchequer from the diesel fuel concession. Therefore, I now declare a constituency interest, in that I have in my constituency a cigarette-producing factory employing some 1,200 people. Because of the company's success in export markets, unlike other factories in different parts of the United Kingdom, it did not anticipate any loss of jobs as a result of the increased duty imposed by my right hon. and learned Friend in this year's Budget. Had sales in the United Kingdom not fallen since the Budget it could have been in a position to increase its labour force.
In May of this year I received a letter and representations from the general secretary of the Tobacco Workers Union, Mr. C. D. Grieve. I quote one paragraph:The massive tax increase which you imposed in the Budget in March has had a most serious effect upon the 30,000 people directly employed in the industry. It has led to widespread short-time working—a situation which still persists—and in cigar factories in particular this looks set to last for a long time to come. There has as well, of course, been an impact upon the hundreds of thousands indirectly associated with the tobacco industry: paper and board makers—the hon. Member for Workington (Mr. Campbell-Savours) was quite right—engineering companies, wholesalers, small shopkeepers and so on. Any further duty increase, so shortly after the last one, could have even more serious implications.Unfortunately, those representations were not heeded.
Taxation of cigarettes, as my right hon. and learned Friend mentioned, is complex. The tax is made up of three components—a specific tax per 1,000 cigarettes, an ad valorem tax of 21 per cent. of the recommended retail 89 price including VAT and VAT payable on the tax-inclusive price. The total tax on cigarettes accounts for almost 75 per cent. of the retail price—that is it is equivalent to a VAT rate of 300 per cent. The total tax increase in the March Budget was about 30 per cent., increasing the price of 20 cigarettes by 19 to 20 per cent.
As a result of the Budget decision, consumption of cigarettes has fallen and it is estimated that consumption has levelled off at 10 to 12 per cent. below the level following the increase in the 1980 Budget. It will be some months before the true effect is known.
The additional increase in tax proposed in the motion will put up the total taxes on cigarettes by over 35 per cent. since April 1980. After allowing for inflation at 12 per cent., that is a 21 per cent. increase in the real level of tax. Notwithstanding what my right hon. and learned Friend said, that is unprecedented. He was right to point to the example in 1975 when there was a similar percentage increase in cigarette taxes. After allowing for inflation at 25 per cent., the real increase since 1975 has been about 8 per cent.
Because of the size of the increase, the fact that it is a second increase within four months and the present decline in disposable income, reinforced, as the hon. Member for Springburn said, by the anti-smoking campaign, it is possible that the increase in tax will have a disproportionate effect on sales, as my hon. Friend the Member for Southend, East (Mr. Taylor) mentioned.
The industry's estimate is of a 10 to 12 per cent. drop in sales as a result of the increase in the March Budget and that compares with the Treasury's estimate of 8 to 9 per cent. If correct, that will result in a significant Budget deficit on tobacco revenue. The Treasury estimate is that the latest increase in tobacco taxes will yield £60 million. I think that that will be called into question in the light of experience and the fall in sales. I do not think that the Chancellor will receive that amount of money in the remainder of the financial year.
The large and unprecedented increase in tobacco taxes, with the inevitable drop in consumption of tobacco products, will have serious consequences for the United Kingdom tobacco industry, affecting employment—a high proportion of which is likely to be in areas already with high unemployment. The consequential increase in manufacturing costs will affect the competitiveness of the industry in export markets—many of the cigarettes manufactured in my constituency are exported—and that will further affect employment in the industry, its suppliers and the retail trade.
My right hon. and learned Friend said that the test was whether these increases were reasonable and fair. I believe that they are unreasonable and unfair. For those reasons I regret that I cannot support my right hon. and hon. Friends in the Lobby tonight. However, having heard the contribution of the right hon. Member for Stepney and Poplar, and as it is clear that a vote against the resolution is a vote for further inflation, I intend to abstain.
§ Mr. Richard Wainwright (Colne Valley)
These four tax resolutions are a wretched monument to a blindly obstinate Chancellor sitting in a deeply divided and demoralised Cabinet. That is not to say that alterations to the Budget are not urgently necessary. There are many circumstances in which Liberals would have been the first 90 to welcome a change of strategy four months after the Chancellor's forecasts in his Budget Statement, which have proved to be substantially wrong.
Since the Budget forecast was given, unemployment has increased much more rapidly than the Chancellor claimed would happen. The Treasury's confident assertions in the early spring that the recession was bottoming out have proved wrong. There is now great uncertainty about the future of interest rates and the growth of inflation.
There is certainly an overwhelming case for a serious review of the Budget measures, in order to reflate demand, to reduce the burden of taxation and to take urgent action to preserve the physical assets of Britain's infrastructure. Therefore, the Chancellor would have been welcomed in his wisdom had he come to the House—as any Officer of State is entitled to do—and said that his judgments had been faulty and that changes were needed.
Instead, we have this petty measure to make a trivial alteration, for reasons which I find quite baffling, unless it is that those who understand the arcane mysteries of organising a whipped party feel that there must be a measure of petty nursery or kindergarten discipline to rap the knuckles of Conservative Back Benchers who in April were naughty enough to force a modest reduction in derv duty. However, that is no reason for a Chancellor, who should be occupied with major matters, coming forward with this nanny-like, governess-like measure that contributes nothing to Britain's financial policy.
One measure that would have been immensely welcome had it figured in the resolutions would have been the phasing out of the national insurance surcharge, so that we would have lost a deliberate tax on jobs and exports. But there is nothing of that. We simply have this miserable measure, and without hesitation I shall advise my right hon. and hon. Friends to vote against each of the resolutions.
§ Mr. George Foulkes (South Ayrshire)
These days I am not sure whether the advice of the hon. Member for Cone Valley (Mr. Wainwright) to his right hon. and hon. Friends includes those who are in alliance with them. But in these heady days of the by-election at Workington—[Hon. Members: "Warrington".] I apologise to my hon. Friend the Member for Workington (Mr. Campbell-Savours). I know that he has not been feeling too well recently, but we are glad that he is with us and that is no question of a by-election there. That terrible mistake spoils my peroration. As the by-election in the Northern town of Warrington approaches we do not see much of the Social Democrats here. It therefore makes little difference whether the hon. Member for Colne Valley, as well as his Liberal colleagues, is advising them to vote one way or the other.
Now that the Chancellor and his team have seen fit to introduce this mini- or micro-Budget—it may be that we shall get another one in a few weeks—we have a good opportunity to say a word or two about the measures of recoupment that the Chancellor is proposing. There have been great complaints recently about the introduction of gross and unpleasant words into the English language, and "recoupment" is one of the most unpleasent and gross words that I have ever heard. It is unpleasent and gross in itself, but even worse for what it can mean in practice.
91 As my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) said the other day—and, I think, repeated today—the resolution is completely unnecessary in relation to the amounts involved in the Budget strategy. The amount is far smaller than the margin of error in the Budget as a whole. On that ground alone it is ridiculous. The motivation behind the proposal is spiteful. It is a sort of schoolboy reaction from the Government, because they were defeated on their proposal concerning the derv tax.
Now that the hon. Member for Southend, East (Mr. Taylor) has returned to the Chamber—I am very pleased to see him—I should like to tell him that I agree with him about the need to reduce the tax on derv, or at least not to increase it, as had been proposed. He mentioned the extra cost on the carriage of goods. That cost will still be incurred, although it will not be quite as large as orginally proposed, but if the hon. Gentleman wishes to take his argument to a logical conclusion he should not be in favour of any increases in the tax on derv.
I pointed out to the hon. Gentleman a slight inaccuracy in what he was saying. I have much less parliamentary experience than he has—he having represented constituencies in different parts of the country—but it was pointed out to me much earlier, during discussions on the Budget resolutions, that there was a rebate of tax on public transport. However, I apologise to the hon. Gentleman if I caught him unawares when I interrupted him during his speech to point out the inaccuracy. You were not here at the time, Mr. Deputy Speaker, but I was much taken aback by the hon. Gentleman's attack on me in reply to my interruption, when he said that I was building a reputation for inaccuracies. If I had been as spiteful as the Government are I should have asked the hon. Gentleman to withdraw his remark, or at least to justify it, although I know that he cannot justify it.
The Scottish newspapers are very sorry that the dial-a-quote Member has left Cathcart and is now regaling the media in Southend with his regular quotations, such as "Bring in the watercan". The hon. Gentleman has been replaced in Scotland, not in Cathcart but in Aberdeenshire. I am sorry that the hon. Member for Aberdeenshire, East (Mr. McQuarrie) is not with us today for the debate, because he has made a considerable reputation in Scotland and elsewhere as the leader of the rebellion on the derv tax. He is known in the North-East of Scotland as the "Buchan Bull". We have not heard his bellow today. It would have been useful to have his contribution.
§ Mr. Teddy Taylor
Will the hon. Gentleman desist from these unfair, violent and personal attacks on my hon. Friend the Member for Aberdeenshire, East (Mr. McQuarrie), who has achieved far more for Scotland in the short time that he has been an hon. Member than all the Scottish Labour Members put together? It must surely be accepted that the Government's move on derv and saving the people of Gibraltar from being destined to have second-class citizenship are a direct result of initiatives taken by my hon. Friend. The hon. Member for South Ayrshire (Mr. Foulkes), with his limited experience, should get on with trying to do a job for Scotland, instead of spending all his time making nasty, sneering attacks, which were the whole basis for his wretched victory in his constituency.
§ Mr. Deputy Speaker (Mr. Ernest Armstrong)
Order. We have had the diversion and the reply to it. I think that we should get back to the debate.
§ Mr. Foulkes
You are quite right, Mr. Deputy Speaker. My remark did not warrant such an intemperate, insensitive and ignorant remark by the hon. Member for Southend, East. I am happy to congratulate the hon. Member for Aberdeenshire, East on everything that he has done, but one thing that we in the Labour Party have done that he will never achieve is to get rid of the hon. Member for Southend, East. We are proud of that achievement.
I am sorry that my hon. Friend the Member for Glasgow, Springburn (Mr. Martin) is not present. I understand the points that he made about the proposals to increase the tax on tobacco and the problems within his constituency. I understand the worries of hon. Members about employment prospects in their constituencies when jobs are affected. I am not critical of their anxiety that constituency interests should be represented. Quite the reverse. I am, however, one of the people to whom my hon. Friend was referring. I am one of the anti-smokers. I make no bones about the matter. I find it offensive that people smoke in public and affect the health of other people. It is accepted that medical evidence shows that people occupying a room with smokers, sitting in the same railway carriage as smokers, or, indeed, finding themselves in any place where there are smokers and who do not smoke themselves, have their health affected by people who are smoking.
I was concerned that my hon. Friend was implying that those who want to reduce smoking are not also anxious about safety in industry. I refute that suggestion. We are equally anxious about health and safety at work, in all its aspects. One cannot represent a mining constituency, as I do, and not know the problems faced by people in that industry. Over the years, Governments representing the party of my complexion have introduced Act after Act to protect people in the mining industry and other industries.
§ Mr. Foulkes
The hon. Gentleman has no effect on me. He has a great effect on the conduct of the debate. No doubt the House will treat the hon. Gentleman's sedentary remarks with the contempt that they deserve. I have mentioned the fact that Labour Governments have introduced legislation to protect people in industry. We are equally concerned about the effect of continual smoking not only on smokers themselves but on those who are in the vicinity. Our anxiety for the people who smoke must lead us to the view that some action is necessary to try to reduce the amount of smoking. I have grave reservations, however, about whether that should be done through taxation. There are many other ways to achieve that.
I support what Mr. David Simpson, the director of ASH, said when commenting on the concordat, or agreement, signed by the Government and the tobacco industry. He said:It is like the Home Guard trying to fight off a nuclear attack.That describes much of what the Government do. Mr. Simpson suggested a complete ban on advertising except at the point of sale. He suggested a complete ban on sponsorship and the devising of health warnings that work. I support such suggestions. I hope that the Health 93 Ministers will take firm action, so that taxation is not used as a social tool. The Government say that they are not trying to use it as a social tool.
The Treasury has never used that argument. It argues that the tax will be a revenue raiser. We would not be here today if that were not so. The Treasury says that it is losing £85 million because of the reduction in the tax on derv and that it must find some other way to raise the revenue. However, as my hon. Friend the Member for Workington said, there is increasing evidence that the fall-off in smoking—which I welcome from a health point of view—means that the Treasury will not receive the money that it expects.
It is not just a matter of Buckmaster and Moore. The Minister was particularly inept in answering questions on that matter when it was raised by my hon. Friend the Member for Workington. He dismissed it as involving just one City stockbroker. However, when one City stockbroker or City analyst produces even the most minuscule forecast hinting that the Government's strategy may be successful it is quoted as gospel by everybody, including the Prime Minister. The Minister cannot dismiss one careful analysis about the way in which the revenue is falling off when, on numerous occasions, he and his colleagues quote similar sources to support a belief—and it is just a belief—that the economy is bottoming out and that an upturn is on the way. Buckmaster and Moore predicts that the rise in tax announced in the Budget will lead to a substantial falling-off—more than the 15 per cent. forecast by the Treasury. The new tax must lead to a further falling-off. It cannot produce the revenue expected of it.
It could be said that people who argue as I do should suggest other ways of bringing in revenue. I shall come to that. I question the need for such fiscal fine tuning. In the Finance Bill Committee the Financial Secretary to the Treasury announced a change in the windfall tax for banks. That was welcomed by both sides of the House. I do not criticise it.
§ Mr. Michael English (Nottingham, West)
I hope that my hon. Friend will withdraw his remark that it was generally welcomed by both sides of the House. Many hon. Members on both sides have distinct reservations about any ad hoc taxes, including that one.
§ Mr. Foulkes
I will certainly withdraw any implication that the windfall tax was generally welcomed. I welcomed the windfall tax, but I know that it was not welcomed by many Conservative Members. What I was talking about was the change in the windfall tax, which was particularly helpful to small banks. In the Finance Bill Committee the reduction in that tax was generally welcomed by both sides—that is what I was trying to get over.
The hon. Member for Galloway (Mr. Lang) spoke before the announcement on behalf of the Trustee Savings Bank. He is a director of the South of Scotland Trustee Savings Bank, and he argued for a reduction in the tax. My hon. Friend the Member for Huddersfield, East (Mr. Sheerman) and other hon. Friends argued equally strongly on behalf of the Co-operative Bank. So when we got the £25 million concession it was generally welcomed. I hope that my hon. Friend the Member for Nottingham, West (Mr. English) will accept that adjustment and clarification of what I said.
The £25 million is more than one-quarter of the amount with which we are dealing—the £85 million for which we 94 had the mini-Budget, this series of Ways and Means resolutions and an expensive debate. Will there be another mini-Budget, a mini-mini-Budget, a mini-micro-Budget, a micro-mini-Budget, or whatever, to recoup the £25 million? I doubt it very much.
What is the difference in scale between £85 million and £25 million? I can work out the arithmetic, but in terms of the Budget as a whole it is roughly the same and within the margin of error. Why are we having this measure and long series of Ways and Means resolutions? That brings me back to my original point. The motion is before us because the Government are acting in a spiteful manner, because they are so annoyed and so peeved and are such a thrawn lot.
§ Mr. Proctor
Is it not true that the Government are introducing these measures because they want to control inflation but the hon. Gentleman does not?
§ Mr. Foulkes
I am not sure how putting up the price of cigarettes will control inflation. That seems a new thesis. That has never controlled inflation and it will not do so now. I am glad that the hon. Gentleman has given me the opportunity to say that it is not the case that we do not wish to control inflation. The record of the Labour Government in controlling inflation shows that they were successful in the last two years. Inflation was at a lower level when we left office than it is now, and it was coming down. The Government have put inflation up, and now take some credit for bringing it down.
§ Mr. Soley
I do not think that my hon. Friend understands the argument put by the Government. The Conservative policy works in this way: VAT is increased, so that inflation also increases massively, and then they wait for it to work through the system and claim to have brought inflation down. That is the principle on which they are working here.
§ Mr. Foulkes
I thank my hon. Friend for explaining the system to the House and to me. It certainly is a strange process. I knew that the Conservatives had "Alice Through the Looking Glass" policies and this is one.
Let us suppose that we have these "adjustments", this fiscal fine tuning, this mini Budget, which means that we have to find £85 million—though I do not accept that. Even if we accept that hypothesis, there are many more acceptable ways by which money could be raised—fairer ways that would ensure that the money is paid by those who can afford to pay.
In Committee I raised a number of questions about the oil companies and the fact that they were not paying the tax that they should be. We received some general but fairly mild assurances from the Minister that he would try to strengthen the measures for drawing in tax from the oil companies. We were not impressed by his assurances. It did not appear that anything substantial would be introduced in the near future, because of the lackadaisacal way in which the Government approached tax avoidance by major oil companies and supply companies.
If the Government undertook to raise the taxes that the oil and supplies companies should be paying with the same determination as they use when squeezing the few pounds to which they may not be entitled from the disabled, the pensioners and the unemployed, we would get not millions but billions of pounds. In Committee we put forward various arguments about ways in which the money could 95 be raised from the oil companies. It would try your patience, Mr. Deputy Speaker, and that of the House if I went through them now.
We also raised the whole question of the tax loophole for the Vestey family. One of my right hon. Friends said that the loophole was yards across and that we were trying to plug it with a plug only a few inches across. How does one plug a loophole with a plug? It is a strange concept. It was not made clear how the loophole would be fully plugged. The Vestey family will get away with a great deal more.
The Finance Bill contains a despicable proposal that group premiums for private medicine—BUPA and PPP—should have tax concessions. That will cost a substantial amount. The Government could have examined that area. That proposal could have been withdrawn.
I hope that my hon. Friend the Member for Workington, who has taken an interest in these matters, will develop my next point in greater detail. The concessions in capital gains tax and capital transfer tax are an outrage. They literally hand out millions of pounds to those who already have more than enough. In Committee we sat through the debates on a Bill that takes small amounts from the unemployed, the sick and those who can least afford to pay, but gives substantial tax concessions to companies and individuals, landowners and others, who already have far too much.
The more that we sat in Committee the more we saw Conservative Members not only supporting the tax concessions but arguing for more for the petrol companies, the banks, and the property companies—and the more sick we became. It was a revelation for those of us who had not served previously on the Committee of the Finance Bill to see the vested interests of Conservative Members working on behalf of their paymasters—whether banks, petrol companies or property companies.
§ Mr. Campbell-Savours
My hon. Friend raises an important point, which, unfortunately, many people do not realise. There was much discussion in Committee on that matter. What effect did that have on the Government? Will they come forward with concessions of a similar nature next year, or have they learnt that they cannot fool all of the people all of the time? One day the media will pick up the discussions in Committee and the amendments being moved by Government Back Benchers in the area of concessions.
§ Mr. Foulkes
I should like to be as optimistic as my hon. Friend and believe that we have persuaded the Government of the error of their ways. We had long, extensive, detailed and important discussions in Committee, but the media picked up only the trivia.
§ Mr. Foulkes
That was done especially by the popular media. We discussed important political issues hour after hour, day after day, and week after week, but those discussions were not reported by the media, with the exception of technical magazines such as Accountancy, Age and Investors Chronicle. The technical sector advised those who already have far too much money of ways in which they could make even more. We were given advice 96 and guidance by accountancy bodies and by all the organisations that represent the interests of, for example, financiers, banks and petrol companies. That advice and guidance was carefully scrutinised and we received considerable briefing. The details were picked up by the professional and expert media, which provide advice to those who want to make a bit more money.
I regret that the popular media did not pick up enough of the devastating way in which poor people will be hammered by the Finance Bill and the contrast between the way in which they will be hammered and the money that will be handed out to those who are far too rich already.
§ Mr. Campbell-Savours
Does my hon. Friend agree that when we were discussing capital gains tax provisions, capital transfer tax and the concessions that the Government intended to make, we did not attract much attention from the media? However, they grossly distorted an issue that arose in Committee when it was alleged that a member of the Committee had been listening to a radio—an allegation that was proved to be incorrect. All the national newspapers carried that story without consulting the individual concerned to establish the truth. They failed to deal with the real problem of the Chancellor's concessions.
§ Mr. Foulkes
My hon. Friend is right. The media tend to concentrate on trivia. I gather from some of the sedentary remarks of Conservative Members that the Tories blame those who were members of the Committee for what was picked up by the media. If Conservative Members read the proceedings in Committee, they will become aware of the detailed arguments which were presented by Opposition Members, which made clear the way in which the Bill will clobber the poor and provide handouts for the rich.
§ Mr. Austin Mitchell
Is that not exactly the lesson that is provided by the measure that we are debating? Who are the people who will smoke the cigarettes and use the tobacco that is to be subject to extra taxation? It will be smoked by those who are looking for work, by those who are still in work and by the less well off. The burden of taxation will fall again on them, while the wealthy will continue to receive the Government's handouts.
§ Mr. Foulkes
My hon. Friend is right. In Committee my hon. Friend played a rather unusual role for a Whip and made an extremely positive and helpful contribution to the majority of our debates. When we were discussing the substantial amount of extra taxation that the Government wish to impose on mopeds, my hon. Friend argued that such a tax would have its effect on the working class. He participated actively in the debates in which we emphasised that the Government were making tax concessions for the rich.
Throughout our discussions, when we learnt of the way in which the poor, the unemployed and the sick were to be taxed, only the Chief Secretary to the Treasury intervened. Perhaps I am giving him too much credit when I say that at times he sat in his place somewhat shamefacedly. None of the Conservative Back Benchers participated. They sat quietly looking away—
§ Mr. Foulkes
No. But when we reached the question of giving handouts to the people who already have too 97 much money, the Back Benchers thought that what the Government were doing did not go far enough and they came in with their amemdments to hand out more. If we must look for £85 million—
§ Mr. Campbell-Savours
My hon. Friend has referred to Conservative Members rising to their feet to move amendments. On one evening Conservative Back Benchers in the space of three hours, tried to extract from the Treasury an extra £480 million to safeguard their interests. My hon. Friend will recall that in one amendment the sum was £250 million. That was to be a concession for better-off people in society.
§ Mr. Foulkes
My hon. Friend the Member for Workington is underestimating the amount, which was over £500 million additional money which the Conservatives wanted to give away to the banks, the petrol companies and the property companies. During our discussions we also found that one of the hon. Members who proposed amendments was the director of a petrol company and one of the Conservative Members proposing amendments on land tax was a director of about 30 or 40 property companies.
§ Mr. Jack Straw (Blackburn)
While we are on the subject of handouts to the rich and to the oil companies, will my hon. Friend confirm that the Social Democratic Party representative moved amendments which would have given away hundreds of millions of pounds to the oil companies? Beforehand he had no idea what largess those amendments would have involved.
§ Mr. Foulkes
On one of his rare visits to the Committee, the hon. Member for Thornaby (Mr. Wrigglesworth), who said that he was speaking on behalf of the oil companies, moved an amendment to give away money to the oil companies. It would seem that those who are switching their allegiance from the Conservative Party to the Social Democratic Party are perhaps finding kindred spirits there. I believe that a substantial number of votes will be taken away from the Conservative Party rather than the Labour Party by the Social Democratic Party. Perhaps I am being led astray from the motion. I was about to say—
§ Mr. Dennis Skinner (Bolsover)
Will my hon. Friend accept that another large group of people is concerned about what the Government are doing in the Ways and Means resolutions, particularly the one which my hon. Friend is discussing? Although we shall take a decision tonight, the voters in Warrington will take one on 16 July. Incidentally, the Social Democrats are not here to represent the voters of Warrington—the pensioners who will be affected by the increase in the price of tobacco and all the other increases which will attack the working class people of Warrington. Those people will make the verdict at the end—although my hon. Friend is putting up a stalwart performance tonight—on 16 July when the issue
§ Mr. Foulkes
The voters of Warrington are a sophisticated electorate who know what sort of people they should support, as they have shown in the past. I am sure that they will understand the meaning of what we are saying tonight. We shall see a contribution to help towards reducing the PSBR, namely, the Conservative candidate's deposit, which will be a great boost to Government funds.
§ Mr. Teddy Taylor
At the end of a long speech, the hon. Member has spent 15 minutes complaining that the 98 speeches made in the Finance Bill Committee were not publicised in the popular press. He is now giving us his views about the Warrington by-election. Is not this a blatant filibuster and an abuse of the House?
§ Mr. Foulkes
As you have said, Mr. Deputy Speaker, it is for the Chair to decide. I wish that you had been here during the contribution of the hon. Member for Southend, East, which was far more irrelevant than anything we have heard tonight.
§ Mr. Deputy Speaker
Order. That is also for the Chair to decide. Let us get on with debating the motion.
§ Mr. Foulkes
I shall not accept any more interventions, Mr. Deputy Speaker.
In the Red Book there is a give-away in corporation tax of £56 million, in capital gains tax of £15 million and in capital transfer tax of £20 million. If my arithmetic is correct, the total is £91 million, which is more than enough to cover the £85 million, if we have to pay for it. Instead of putting additional tax on tobacco, bingo and gaming the Government should stop the handouts to those who already have far too much money. The means are available.
The Minister of State's refrain in Committee, day after day and week after week, was "We need the money". We were on the point of putting it to music. We now see £91 million which the Government apparently did not need. They were prepared to give it away to people who already have far too much. They could have found the money by those means without taxing people who can ill afford to pay additional taxes.
I oppose the Government's proposal. I do not believe that it is necessary. The Government are being spiteful because they did not get their way. They are saying to the House "If you will not do it this way, we shall make you provide the money in another way." That schoolboyish and vicious attitude pervades many of the Government's policies.
§ Mr. Campbell-Savours
My hon. Friend referred to the various interests of Conservative Members which were revealed in Committee. Did he see the press reports this morning of a likely rebellion on the Government Benches against the resolution? The hon. Member for Basildon (Mr. Proctor) may be among them. Perhaps we could be told privately whether the Conservative Members who intend to rebel against the Government have a direct interest in the tobacco industry, which may have been declared in obscure places of the House, and are rebelling to safeguard their private interests.
§ Mr. Foulkes
I must not stray too far down that path, although in Committee it was made clear that a large number of people had an interest in the capital transfer, corporation and capital gains tax concessions. It was also clear that it was for them to decide how far their interests prevented them from voting.
It was unnecessary to bring forward the resolution. I hope that I have helped to prove that. However, even if we are generous enough to give the Government the benefit of the doubt and say that there may be an inkling of a case for bringing the resolutions before the House, there are far better ways to get the money, which would not harm ordinary working people and which would get the money from people who are already far too rich. The 99 banks have excessive profits. In Committee, petrol companies were quoted whose profits had doubled and trebled. Other companies are paying far less corporation tax than we might reasonably expect. That is where we should be getting the money, and not from ordinary working people, who the Government are continually persecuting.
§ Mr. Michael English (Nottingham, West)
There are several aspects to this Ways and Means resolution. One is the effect of the tax on the tobacco industry, in which I have an interest. It is not a financial interest, but in my constituency we have one of the largest tobacco interests in the United Kingdom—the John Player factories.—[Interruption.] Does the Chief Secretary wish to intervene?
§ Mr. Bob Cryer (Keighley)
The right hon. and learned Gentleman is attacking my hon. Friend in a disgraceful way.
§ Mr. English
I represent in a constituency sense the industry that the right hon. and learned Gentleman is attacking.
The second aspect was briefly mentioned by my hon. Friend the Member for South Ayrshire (Mr. Foulkes) when he referred to the spiteful nature of the resolution. I would say that it was done in a fit of pique.
Let us be clear about what is actually being done. In the 1980 Budget the general Government current receipts were forecast at more than £94 billion. In the 1981 Red Book, the Financial Statement and Budget Report, published much earlier this year, an outturn of £93.745 billion was forecast. That is in table 14 of the Red Book. The right hon. and learned Gentleman may say that he was not Chief Secretary then, bcause of the reshuffle. That is a difference of £370 million—a mere detail, I suppose, but it is 4.3 times the £85 million that we are dealing with here, and it is the smallest of the figures that I am about to quote.
To take a more interesting figure, the public sector borrowing requirement in 1980–81 was forecast at £8½ billion.
§ Mr. English
As my hon. Friend says, they got it wrong, but they got it wrong rather more seriously than that. The estimated outturn in the Red Book was £13.5 billion. That is a difference of £5 billion. It is also 59 times the £85 million that we are discussing today. A later figure showed a lower PSBR. It may be only £12 billion, so we might say that the Government got it wrong by only about 50 times the figure that they are asking us to consider tonight.
To take a similar figure, general Government current and capital expenditure was forecast in the 1980 Budget as £100.8 billion. In the 1981–82 Red Book, the estimated outturn was £103.7 billion—a difference of about £3 billion or 35 times the £85 million that we are dealing with here.
I accept that one year's figures may not prove a great deal, except that they are so massively greater than the amounts under consideration today that they must prove something. Certainly the figures have obviously changed since the Red Book was published earlier in the year.
100 Let us take the average error in PSBR forecasts over the period 1967 to 1979, covering both Labour and Conservative Governments, which was 1½ per cent. of the gross domestic product. The average error in the forecast each year was roughly £3.5 billion in 1981–82 money terms. That is a fairly solid figure. In round terms it is 40 times the £85 million that we are considering today. I am talking not just about this resolution, but about all the resolutions together. As I understand it, £65 million relates to resolutions relating to tobacco and a further £20 million to the later gambling resolutions. Taken together, the £85 million is to replace the revenue lost on derv as a result of the Tory revolt.
The Government say that they can get the PSBR wrong by 40 times the amount that they are asking the House to waste its time on now. It would be nice if we could have a debate of this length on the Government's expenditure plans, but we do not have it. The Chief Secretary indicates that we do. Will the right hon. and learned Gentleman explain why we have the Procedure Committee, of which I am a member, sitting now to discuss how the House can regain control over expenditure?
We have no control over expenditure. The Government put forward proposals for expenditure. Private Members are not allowed to do so. In Commonwealth countries the rule on expenditure is that only a Minister may propose expenditure. The Minister may propose massive figures—
§ Mr. English
That was the figure in 1980. It has gone up since then.
Ministers may put forward massive figures. Back Benchers may not propose them, though they may propose reductions. If they do, the motions will go on the Order Paper and be ruled out of order. If a Back Bencher wishes to challenge an Estimate, he may put down a motion and there may be a vote upon it, but there is no guarantee that there will be any debate on it. That is what the Procedure Committee is discussing at present.
§ Mr. K. J. Woolmer (Batley and Morley)
In dealing with the errors in forecasting the Government's borrowing requirement, my hon. Friend is perhaps being too generous to the Treasury. Are not all the major independent forecasters much more accurate at forecasting the public sector borrowing requirement than the Treasury is? Last year it was £5 billion wrong. I believe that it forecast £8½ billion and the actual figure was £13½ billion. How can we trust its judgment on a motion as modest as this?
§ Mr. English
I mentioned the £5billion, but I thought that my case that the Government's action was a fit of pique was strengthened by giving the average over the past dozen years, which, at current prices, is about £3½ billion.
I am prepared to accept that the Government did not anticipate the fall in revenue that has assisted in bringing their error above the average. They should have expected that their policies would cause a high level of unemployment and lead to a fall in revenue, but perhaps they did not expect that it would be of such an extent.
However, Mr. Deputy Speaker, I think that you would suggest that I was deviating if I went into the whole of the Government's economic policy. Later in my argument I may return to this point.
§ Mr. Skinner
So badly did the Government take into account the rolling average of £3½ billion out over a period of years, notwithstanding the £5 billion that they were wrong this time after being in office for less than two years, that I am beginning to come to the conclusion that my hon. Friend's case is as follows. If the Government can be out to that extent on one issue alone—the public sector borrowing requirement—it is not £80 million that they will come here for next. That is what they are asking for tonight on tobacco, which we are discussing now, with gaming, bingo and all the rest to come. The amount that they are putting on tobacco and so on for the voters of Warrington could be exceeded later on betting and gaming, and there might be more on petrol to come.
§ Mr. English
I think that that must be so, because the loss in revenue over the Government's forecast was small, only 4.3 times the £85 million that we are now talking about, whereas the change in the PSBR was £5 billion—59 times the £85 million.
The difference is public expenditure. In spite of what they have said and done, the Government have not carried out £5 billion-worth of the cuts that they promised last year, when they said in effect that they would cut public expenditure by a certain amount and have a PSBR of a certain amount. This year they have turned out to have a PSBR £5 billion greater than that. As I say, it is 59 times the amount which we are discussing on all these resolutions together.
I fear to contemplate what the consequences might have been if the Government's 1980 Budget had been carried out. Perhaps we could discuss that thought on some other occasion. Nevertheless, the basic change in the Government's Budget in the past has not been a paltry saving on derv, petrol or anything else by Government Back Bench revolts. The basic change has been a gross overspending by the Government on their own promises. I suppose that that is why the Chief Secretary is sitting on the Treasury Bench. He is supposed to be a hard man, capable of bringing some control back into the organisation.
§ Mr. David Stoddart (Swindon)
Does my hon. Friend remember 1977, when some amendments about the indexation of taxes were carried? On that occasion, due to Opposition Members, the then Labour Government lost £350 million in revenue which they did not seek to restore when the Finance Bill came back to the Floor of the House. We are talking about £85 million. My hon. Friend is right that this is really chicken feed to the Government in terms of their net borrowing requirement and certainly in terms of the £350 million which was lost in 1977. Can my hon. Friend comment on the damage which this proposal will do to the industry that he and I represent? I have a small factory in Swindon. Does my hon. Friend agree that for the sake of this relatively small sum of £85 million his constituents and mine will be put out of work or on to short time?
§ Mr. English
I agree with my hon. Friend. But let me comment on his first remarks. I know many right hon. and hon. Members on both sides of the House who like the former Labour Chancellor of the Exchequer, my right hon. Friend the Member for Leeds, East (Mr. Healey). I also know many who dislike him. But I have never heard anyone describe him as petty.
§ Mr. English
This action is petty. Even my hon. Friend the Member for Bolsover (Mr. Skinner), who does not necessarily support my right hon. Friend the Member for Leeds, East on every item of policy, would never describe him as petty. He would say that he would accept defeat gracefully—
§ Mr. English
—on a small sum such as this.
There is no doubt that the present Chancellor of the Exchequer and the Chief Secretary and their Cabinet colleagues think in this way, and I might point out that it is not the accepted way.
Earlier, I was talking about the interesting constitutional change that they were trying to introduce. If I may discuss the subject briefly, in the British Commonwealth procedure, quite unlike the American procedure, a Back Bench Member cannot propose an increase in expenditure. Nevertheless, the Government not only can propose an increase in expenditure but can, without the control of the House of Commons—that is why the Procedure Committee is sitting at the moment—even have a £5 billion excess on their own proposals for expenditure, because nearly all that £5 billion is on the expenditure side.
That is the British principle. The American principle is quite different. There, the President and the Administration may propose but Congress disposes. What we are introducing here is neither the American principle, where the legislature controls expenditure, nor the Commonwealth principle, where the Government do. We are having a very interesting principle. We are having the French principle.
§ Mr. English
A week or so ago, when the Foreign Office decided to cut the BBC's external sere ices to Western Europe, I thought that at last the Foreign Office was losing interest in the European Community. It is already the case that France spends twice as much on promoting the French language in Britain as we spend in France on promoting the English language. But there is the parable of the prodigal son. If the Foreign Office is suddenly losing its interest in the European Community and Western Europe, it is an interesting political thought. I cannot see why it wishes to reduce our influence in the European Community. I should have thought that we would wish to influence our European neighbours, whether we were in or out of the Community, but, apparently the Foreign Office, with the approval of the Chief Secretary, wants to cut that.
However, the Chief Secretary now wants to introduce the very interesting French constitutional principle. I am sure you are aware, Mr. Deputy Speaker, that the French constitutional principle is quite different from the American or the British. That information was produced for the Procedure Committee. Whenever a Back Bench member of the French Assembly proposes a reduction or an increase in expenditure he must propose a compensating amount. The principle that the Chief Secretary is trying to introduce is a slight modification of the French system. It does not matter whether he increases or reduces expenditure by £5 billion. It does not matter what the Government do, but if a Back Bencher, 103 especially a Conservative Member, dares to propose to reduce taxation or to alter the public sector borrowing requirement by a mere £85 million or £95 million, the compensating amount on the other side of the balance sheet must be introduced in the House of Commons and passed. We do not mind if it is petty—it is the principle.
The Chief Secretary said that he wanted to introduce a new principle. The Government want to get away from the Commonwealth procedures and the American principle and to introduce a procedure similar to the French Assembly's principle on finance. If they do, why do they not go the whole hog and allow us to propose expenditure increases? My hon. Friends the Members for Bolsover and Keighley (Mr. Cryer) could suggest a few interesting increases in expenditure which might help to put a few of their constituents back into jobs. I am sure that some of my hon. Friends who do not believe in tobacco smoking could think of some expenditures in Nottingham, West which would help some of my tobacco workers into jobs that might not be producing cigarettes. If we are to have a part of the French system, let us have the whole of it. Let us not have the pettiness on the part of the Government saying "We are allowed to spend £5 billion over our proposed public sector borrowing requirement. We are allowed to do anything we wish without the control of the House of Commons. We may do all these things. But if a Conservative Back Bencher suggests one modest petty alteration—one fifty-ninth of what the Government have done—we must instantly put it back to prove that they should not do it".
Let us suggest a few increases in public expenditure and a few alterations in taxation—all of them designed, I hope, to put some of the people now out of work back into work.
The Government do not even know where they are going in their economic policy. They started with a policy which worked in what they proposed. As a monetary policy it brought the confidence of the whole financial world to this country. It brought up our interest rates. Interest rates and the pound went up. Many years ago, oddly enough, Conservative Members would attack Labour Governments and Labour Members would attack Conservative Governments because of the constant decline in the pound combined with the constant rise in the German deutschemark. The Germans revalued the deutschemark every couple of years and we thought how splendid that was because of the strength of their economy. This Government came into power and the pound went up as a result of their increase in interest rates sucking money towards this country. Instantly there were protests from our exporters—so instantly that the Government took action to reverse themselves. They took action to reduce interest rates so that demand for the pound went down.
Now we hear protests not from the exporters but from the importers to this country who say "You are putting up our prices and people cannot afford to buy our products because 3 million are out of work". Now there are stories in the press that the Prime Minister has issued intructions to her economic Ministers—most of whom are lawyers, not economists—that the pound must not be allowed to fall further. British exporters who breathed a sigh of relief when the value of the pound went down will hardly be cheered by the news that in the opinion of the Prime Minister it must now go up. That reveals the inconsistency of these policies.
104 We are told that the Prime Minister does not go in for U-turns—only for modest, broad bends in the road.
§ Mr. English
This is a hairpin, and that is an appropriate analogy to the Prime Minister—a woman so feminine that she will not allow another woman in the Cabinet.
§ Mr. English
But the hairpin economic policy is not ideal for the country as a whole where some people are exporters and others are importers. There is constant lack of knowledge about where the Government want to go. We are now talking about the thousands of millions—the average of £3½ billion a year errors. We are not talking about the £85 million that honest Conservative Back Benchers dedided to save their constituents. Those are the figures about which we should be talking. But since seven o'clock until later this evening we are discussing a mere £85 million—one fifty-ninth of the Government's errors in their own PSBR.
Perhaps the Government are doing better than they said they were in March. Let us give them the benefit of some doubt and say that we are discussing one-fiftieth of what they have done. We should not be wasting the time of the House on this stupid resolution simply because the Government are frightened of their own Back Benchers. They have too large a majority.
§ Mr. English
I shall come to that. The results of this stupid action of changing one-fiftieth of the Government's own change in the PSBR are considerable for my constituents, as my hon. Friend the Member for Bolsover is aware. He has constituents who work—my constituency, too.
Perhaps because of the health educaion campaign, the trend among men has been a decline in smoking. There is still an increasing trend among women, but broadly speaking the erstwhile increase in smoking that has been true for the last 50 years or even longer has stopped. For one reason or another, there was a fragile stability in the industry.
However, in this year's Budget the Chancellor decided to increase the tobacco duties. There was some scope for that. No one can deny that over the years tobacco duties have not been increased in line with inflation. As was mentioned earlier, the index linking introduced by some Conservative and Labour Members has been scrapped by the Government, but they have scrapped it for some things only. They like index linking for tobacco, but not for income tax or tax reliefs. They like it in respect of inflation-proof pensions which the 1971 Conservative Government introduced.
§ Mr. English
They are talking about it, but they will probably go on talking about it until the next election and do nothing about it.
I do not deny that there are arguments for index linking, just as there are arguments for increasing the tobacco tax. But there is no argument for letting the tax slowly decline in real terms and then having a sudden jump, because that is the way to upset a market, the sales of the product and employment in the industry.
§ Mr. Cryer
Does my hon. Friend accept that there is likely to be a long-term decline in the sale of tobacco products because of their association with ill health? Does he also accept that for the Government to pile on the tax in this way, without planning in any shape or form for alternative jobs, is yet another savage attack on the working class when there are already nearly 3 million people on the dole?
§ Mr. English
That is true, and I have some sympathy with shareholders in the industry who are singled out for different treatment from that given to shareholders in other industries. I have sympathy with them as well as with the workers, and I shall deal with both groups.
Sales in the industry had already gone down as a result of the original increase. This action has been taken for reasons of pique, the Government's fear of their own Back Benc hers and their desire to show that the Chief Whip is still in control of his Back Benchers. They are seeking to restore that control by these actions on the part of the Treasury.
That is why there has been an attack on the tobacco industry and on the gambling industry. Whatever else can be said about gambling, no one can claim that it injures health, even if it is said that tobacco injures health. The reasons for the two increases cannot be the same. But let us suppose that the Government had suddenly been converted by the junior Minister at the Department of Health and Social Security. Obviously, a junior Minister who is an old Etonian has an enormous influence on the Cabinet.
The Chief Secretary seems to find this amusing. He should realise that the Under-Secretary of State for Health and Social Security, who has campaigned to reduce smoking, has had a tremendous influence on Conservative policy. Full credit should be given to him for what he has done. Perhaps the Chief Secretary does not like him. But I suspect that when the Government were casting round for ways of beating their own Back Benchers over the head, some of the old Etonians in the Cabinet must have spoken to the old Etonian in the DHSS and asked him to think of something. It would appear that because his Department lost the battle in March and did not get the increase in tobacco duty that it wanted, it has responded by producing it again as a candidate for a tax increase.
None of these people cares about the effects on employment in the tobacco industry. That point was made by my hon. Friend the Member for Keighley. There has already been an effect as a result of the first Budget of this year, before we got to this second Budget. There has already been an effect upon the sales of tobacco products, and in particular upon employment in the industry. It has not, fortunately, been as bad as the effects of Government policy on employment in the cycle industry. At the Raleigh works in my constituency, hundreds of people were put on a two-day week. I had never heard of a two-day week until recently. I understand that some of them have now gone back to a three-day working week.
In the tobacco industry, people have suffered directly as a result of the Government's earlier action, and they are bound to suffer even more as a result of the subsequent action. All this is simply for the sake of restoring the control that the Chief Whip had lost over his own Back Benchers. Just because one Department lost an argument with the Treasury earlier in the year, and because some Conservative Back Benchers, being honest to their own 106 constituents, talked about the excessive cost of fuel in rural areas and won their argument, my constituents in Nottingham are now to be directly clobbered, merely to keep a junior Minister in the DHSS and a fairly inadequate Chief Whip happy.
§ Mr. English
As long as he maintains this rate of progress I want to keep him in his job. I do not mind if he is inadequate so long as he is on the opposite side of the House. There is complete disregard for the effects of one's actions which are taken for immediate, personal short-term reasons with no thought about what is happening in the country outside London.
§ Mr. Woolmer
Does my hon. Friend recognise that there would be some sympathy for increasing taxes of this kind if the money was spent on helping to create jobs? I understand my hon. Friend's concern about loss of jobs in his constituency. My hon. Friend the Member for Keighley (Mr. Cryer) and I have seen the textile and clothing industry lose 160,000 jobs under this Government. I see no possibility of a penny of this extra money being spent on helping those industries. I understand my hon. Friend's concern about the tobacco industry. I assure him that if those involved in industry in Yorkshire thought that the money would be spent constructively on industrial investment, there would be some sympathy for the proposal. All we see, however, is this money going down the drain, just like North Sea oil revenues, without helping to create a single job and simply helping to finance deflation.
§ Mr. English
This is an item that my hon. Friend and I have discussed many times in the Select Committee on the Treasury and Civil Service. I must declare an interest. I once smoked 80 cigarettes a day. In the past few years I have not smoked at all. If the State—the State and not just the junior Minister in the Department of Health and Social Security—decides that the tobacco industry should cease and close, the State should take appropriate steps to compensate workers and, for that matter, the shareholders in the industry. This is not simply an argument that I produce tonight. I have spoken many times on the issue. I have always produced this argument.
My hon. Friend the Member for Bolsover will recollect a time when the State decided that a number of pits should be closed and the force of miners reduced by hundreds of thousands.
§ Mr. English
My hon. Friend was put out of a job but, fortunately, the electors put him back in another one. That was an action of the Government of the day. The miners, remarkably, peacefully accepted it, just as the tobacco workers of Nottingham, remarkably, peacefully accept the actions of the Government in relation to them. It is not just. Since the time of the mining closures, to which I have referred, the principle of redundancy payments, introduced by the 1964 Labour Government in a 1965 Act, has been accepted.
§ Mr. English
It was actually nearer the previous election than the next election because I served on the Standing Committee on the Bill. If the State wishes to do 107 these things it should take responsibility for its actions. Instead of playing abut with the taxation of tobacco, drink or gambling, the Government should say that, if they do not like gambling, they intend to go back to the law prohibiting gambling. If they do not like tobacco smoking they could say that they intend to close down the industry, compensate the people made unemployed and use the saving to the country which those at the Department of Health and Social Security say would arise because more people would be alive and able to work, to make sure that those people are given jobs. None of this has been considered. In a fit of pique, the Government introduced this proposal without doing anything about changes in the public sector borrowing requirement. They attack the tobacco workers and shareholders simply because they are upset by the fact that some of their own Back Benchers were honest enough to vote against them.
§ Mr. Skinner
Has my hon. Friend taken into account that the tobacco increase comes only 12 months after the Chancellor of the Exchequer packed up smoking himself? He did not put it up previously.
§ Mr. English
The night is young only if the Government carry their Division at 10 pm. I understand that if the Government carry the 10 o'clock business motion we could be here for some time. I make no bones about it—I do not wish to continue debating after 10 o'clock. I am sure that my constituents would support me in that. For once, they would probably say "You should go home early, Michael, but you should make sure that there is no increase in tobacco duty." Certainly, they would agree that there should not be an increase, with all its effects on Nottingham, West, Bristol and other parts of the United Kingdom, just for the reasons adduced earlier.
The Government should be men enough to take defeat by their own Back Benchers. They should remember that their own errors and forecasts are 50 times bigger than the actions of their Back Benchers.
§ Mr. Woolmer
I am appalled to think that my hon. Friend believes that there will be a Division at 10 o'clock. Many hon. Members feel strongly about this issue. The Government appear to be moving the resolution because 108 they believe that a derv tax reduction must be counter-balanced. Is there any assurance that the increase in the cost of living for working people that the increased tobacco duty will cause will be offset by a reduction in the cost of living caused by the reduction in the tax on derv? This order will increase the cost of living for working people, but the reduction in the taxation on derv will not be felt at all. Should we not be pressing the Minister—
§ Mr. English
I agree. It was a good intervention. The tax will injure through their pockets smokers and those who produce cigarettes. How many increases in tax on tobacco or drink are passed on immediately? Has anybody ever experienced reductions in tax being passed on immediately?
The resolution should not have been introduced. It illustrates yet another reason for reforming our procedures. We should not equate an increase in one tax with a reduction in another tax. We should equate increases or reductions in tax with increases or reductions in expenditure and the need for a given public sector borrowing requirement. We should consider, as the Americans and French do, the introduction of a proper Budget every year. That Budget should tell us, on both sides of the balance sheet, exactly what we are spending and how we propose to raise the money. We should not need to spend hours discussing such a tiny matter when great matters escape us.
§ Mr. Ray Mawby (Totnes)
The hon. Member for Nottingham, West (Mr. English) said that we should be considering a Budget and its whys and wherefores. The reason for the motions is that a number of us decided that within the well-balanced Budget we should seek to reduce the tax on derv. We put to my right hon. and learned Friend the Chancellor of the Exchequer ways in which he could collect the revenue that he would lose from the 10p reduction in derv duty.
§ It being Ten o'clock, the debate stood adjourned.