Budget Resolutions and Economic Situation

§ The Secretary of State for Employment (Mr. Norman Fowler)

One of the central achievements of the Budget has been to tackle some of the outstanding barriers to employment that still remain in this country. Employment is already at an all-time record with more people in employment now—more than 26 million—than at any stage in our history. Unemployment has fallen at a record rate since the 1987 election and has fallen by more than 1 million since then. However, my right hon. Friend's Budget recognises the potential for further improvement. It sets out ways that new employment can be created and, above all, it sets out those proposals at a time when the labour market is changing rapidly.

Perhaps the Budget measure that gives some of us on this side of the House most cause for satisfaction is the abolition of the pensioners' earnings rule, because that removes a major disincentive to people who want—it is their choice—to work beyond the statutory retirement age. It means that men between 65 and 69 and women between 60 and 64 will no longer be faced with the loss of pension income if they remain in employment. We previously raised the earnings limit, but that still meant that anyone earning more than £75 a week had the disincentive of a reduced pension if they remained in employment.

The abolition of the earnings rule means that there is substantially more choice for men and women in their sixties. If they choose to work on—whether full-time or part-time—it will not affect their pension entitlement; while, of course, if the man or woman does not draw his or her pension at all, he or she builds up an increased pension. In other words, the Budget achieves an increase in flexibility and choice for the older worker. That recognises the changing nature of the British labour market.

737 I am probably the first Employment Secretary in 20 years to come to a Budget debate to say that, now, our priority is to increase the supply of labour to meet the rising demand that we will face in the years ahead. In the next seven to eight years we will face, for the first time, a relative shortage of new school leavers coming to the labour market—there will be a drop of a quarter by the mid-1990s. That is in stark contrast to the position in the 1970s and most of the 1980s, when our central concern was to find jobs for young people. That position is now changing radically, and for the better.

In the past two years, unemployment among young people has fallen substantially. The United Kingdom now has a lower unemployment rate for the under-25s than any other major European Community country, with the exception of Germany. Today, the prospects for well-qualified young people have never been better, but we must recognise that the supply of new school leavers will not be sufficient to keep up with demand in the manufacturing and service industries or in the public services, such as the Health Service.

One of the aims of policy, therefore, must be to look at new sources of recruitment. One course is to attract back married women, and a range of employers are currently pursuing that policy. A less obvious but vital course is the recruitment and retainment of older workers.

§ Mr. Paddy Ashdown (Yeovil)

I am sure that the right hon. Gentleman is aware of the woefully low level of over-16s who go on to further education in Britain. I am sure that the right hon. Gentleman agrees that there is a need to raise that percentage towards the levels enjoyed in Germany and Japan—60 per cent. and 90 per cent. respectively. Will he give an undertaking to the House that no deficiency in the labour market will stop the Government seeking to raise the numbers who go on to further education and to better qualifications?

§ Mr. Fowler

Yes, Sir. I will give such a commitment, as it is entirely correct. We want people aged between 16 and 18 to be as well educated and as well trained as possible. The fact that there will be fewer young people coming on to the labour market underlines the importance of that, but it is a question not just of education, but of training. The whole aim and purpose of policy must be to improve the professional standards of all people not only young people.

The abolition of the earnings rule takes a giant step towards more choice for older workers. As a nation, we have not sufficiently valued the contribution that older workers can make. At a time when people are living longer, we have become preoccupied with earlier and earlier retirement. I believe that debate should be about maximum flexibility and about maximum choice for people.

§ Mr. Ron Leighton (Newham, North-East)

The Secretary of State mentioned the need to attract married women back into the labour market. Can he tell us why the Budget did not abolish the tax on women using workplace nurseries? Was that not a mistake?

§ Mr. Fowler

I do not think so. We are witnessing the unprecedented development of the exact measures to attract women back to the labour market. A whole range of employers are undertaking developments that are not 738 only right—of course, they get tax relief on them—but in their own interests. I can hardly think of a time when there has been more development in such measures.

§ Mr. Christopher Hawkins (High Peak)

On the last available figures, GDP per head has been rising at about 2.6 per cent. per annum. The Treasury is forecasting that the economy will grow in the coming year by only about 2.5 per cent. The labour force is rising. If output rises by 2.5 per cent. and productivity goes up by more than 2.5 per cent., it is impossible for unemployment to go on falling, even without increasing the labour force as the Government are suggesting. Would my right hon. Friend please comment on that?

§ Mr. Fowler

I will comment on that at some length at the relevant stage in my speech.

The second major change in the Budget concerns national insurance. That proposal will bring gains to nearly 19 million workers at an annual cost of about £2.8 billion. Every employee with a weekly income of £115 or more will gain £3 a week. Everyone with a weekly income of more than £75 will gain between £1.50 and £3 a week. The change will particularly benefit those on half average earnings, where the national insurance charge is of crucial importance.

Just as important is the fundamental change which my right hon. Friend the Chancellor of the Exchequer has introduced to the system of national insurance. In 1985, the Government introduced lower rate contributions for the lower-paid. That was a welcome step, but a major problem remained. When an individual crossed the lower earnings limit of national insurance, he had to pay 5 per cent. on all his earnings. If he earned £1 more than the lower earnings limit of £43, he lost £2.15 through national insurance. Not surprisingly, many people were deterred by that cliff-edge effect from crossing the lower earnings limit. Among other things, they were excluded from a range of national insurance benefits.

The changes introduced by my right hon. Friend the Chancellor means that those earning below £43 a week will continue to pay nothing. Those with earnings above the lower earnings limit will pay 2 per cent. on the first £43 —that is, 86p—and 9 per cent. on the rest, up to the upper earnings limit of £325. The 86p earns entitlement— I must stress this—to contributory benefits including the basic retirement pension.

In summary, those changes will remove a disincentive for employees to increase the hours that they work. They will also generally increase incentives for people on low incomes. They should contribute to employment where growth has already been so remarkable.

The 1988 labour force survey, published last week, shows that there has been a real and dramatic improvement in employment in this country. It shows that there are now 1 million more people in employment than in 1979. It shows that, in the year to September 1988, total employment increased by more than 730,000 and that 85 per cent. of those new jobs were full-time posts. It also shows that self-employment has increased by 1.1 million since 1979 and by 125,000 in the year to September 1988. It shows that, over the past two years, we have had the fastest employment growth since 1945.

§ Mr. Win Griffiths (Bridgend)

Despite those impressive figures, will the Secretary of State accept that in the standard planning regions in the United Kingdom of 739 Wales, the west midlands, the north-west, the north, Yorkshire and Humberside, Scotland and Northern Ireland, there are still 800,000 fewer jobs than in 1979 despite this economic miracle? Virtually all the jobs have been created south of a line between the Severn and the Wash, and most of them are part-time.

§ Mr. Fowler

That is not true of the growth in employment or of the fall in the rate of unemployment. The rate of unemployment has come down fastest in many of the areas to which the hon. Gentleman referred including the west midlands, Wales, the north and north-west.

§ Mr. Michael Meacher (Oldham, West)

Will the Secretary of State give way?

§ Mr. Tony Marlow (Northampton, North)

Will my right hon. Friend give way?

§ Mr. Fowler

I want to continue for a moment.

The labour force survey shows that there is absolutely no truth in the suggestion that unemployment has not been falling at the rate shown by the monthly unemployment count. On the contrary, it shows that, in the 12 months to June 1988, unemployment fell by 500,000 on the international definition of unemployment used in the labour force survey and on the figures recorded by the unemployment count.

Furthermore, the survey confirms that unemployment fell because of the record number of new jobs created. In the 12 months to June 1988, employment increased by 870,000, more than matching the fall of 540,000 in the number unemployed. In other words, more than enough jobs were created to bring about a fall in unemployment and to provide employment for a 300,000 increase in the labour force. Those are the facts about Britain's employment position.

Only the hon. Member for Oldham, West (Mr. Meacher) seeks to contradict that improvement. He is on record as saying that the labour force survey would show unemployment at 2.6 million in the spring of 1988. He is on record as saying that both in the House and outside it as well. The hon. Gentleman is wrong to the tune of 200,000. Last Thursday, the hon. Gentleman made another prediction: Unemployment has fallen as far as it can go with current Government policies. With the hon. Gentleman's record, that prediction must be the best news that the unemployed have had for a very long time.

§ Mr. Marlow

Would it be true to say that one of the reasons that unemployment has dropped so dramatically over the last couple of years or so is the large amount of inward investment we have had into this country— particularly from Japan and countries like that? Would my right hon. Friend confirm that one thing that would put off the Japanese and other people wishing to invest in our productive and successful economy would be the institution by him or somebody else of some airy-fairy concept like a Ministry of Innovation or, alternatively, a system of picking winners, whereby my right hon. Friend would take more tax from some companies so that he could expend his largesse on various political operations that he thought might be beneficial?

§ Mr. Fowler

I am sure that my hon. Friend is entirely right. We do not even need to consider the hypothetical situation. We can see what happened in respect of inward investment at Dundee, where the threat of industrial action, and the rest, deterred valuable inward investment. Worst of all, the hon. Member for Oldham, West, who leads for the Opposition on employment, did not at any stage have the courage to condemn the action that was taken at Dundee. That is the condemnation of the Labour party.

§ Mr. Meacher

Is the Secretary of State really bragging about the fact that unemployment is still over 2 million and still twice as high as it was in 1979? Is he aware that the latest labour force survey figure shows also that, in the period following the end of March 1988, which is the half-year for which figures are available, jobs increased at only half the rate of the year before, showing that the jobs boom is clearly over and that unemployment is clearly bottoming out? Is the right hon. Gentleman aware also that vacancies have fallen by 39,000 net over the past year, which is a trend normally associated with rising unemployment? Is he satisfied that adult male unemployment is still twice as high as the European average?

§ Mr. Fowler

I am not bragging about the employment or unemployment situation. I am saying that the hon. Gentleman not only got his predictions wrong but self-evidently wrong, and that if he had any courage at all, he would get up and apologise to the House and to the country for his inaccurate statements about the fall of unemployment. The fact remains that unemployment has come down, but that the hon. Gentleman has sought month after month to fiddle the unemployment figures upwards. His claims have now been shown to be entirely bogus, which comes as no surprise to those of us who have known the hon. Gentleman over the years.

Dame Elaine Kellett-Bowman (Leicester)

Will my right hon. Friend commiserate with the 1,000 workers in Liverpool who have lost their jobs because of the Luddite tactics of the antiquated unions there?

§ Mr. Fowler

My hon. Friend is right. The part of the Transport and General Workers Union in that dispute needs to be examined, and people need to learn what is going on.

Let me take up what the hon. Member for Oldham, West has just said about vacancies. The significant point about unfilled vacancies is how the number has kept up. On Thursday, the hon. Gentleman issued a press release in which he talked about the alarming fall in vacancies. He said that vacancies had fallen by 1,000 in jobcentres over the past month, and if he wants to deny that we have it on record. There are now nearly 230,000 vacancies in jobcentres alone, which means that in the economy generally there are probably between 600,000 and 700,000.

§ Mr. Richard Holt (Langbaurgh)

rose——

§ Mr. Fowler

I would like to make progress.

In such circumstances, it is entirely right for the Chancellor to remove barriers that stand in the way of those jobs being taken up, and to take away obstacles that prevent new jobs from being created.

§ Mr. Holt

rose——

§ Mr. Fowler

I would like to make progress, if my hon. Friend will forgive me.

My right hon. Friend has done that by ending the pensioners' earnings rule for men and women in their sixties. He has done it by reforming the national insurance system, which I should have thought would be welcomed by hon. Members on both sides of the House. He has also done it by increasing corporation——

§ Mr. Holt

I am sorry that my right hon. Friend does not wish to hear the good news from Teesside that I would like to give him. The latest newsletter from the Teesside chamber of commerce shows that 28 per cent. of firms anticipate taking on new labour in the next few months, and that the vacancies advertised in the newspapers in that location are running into pages and pages. Last Friday, there were five pages of vacancies.

One reason why the number of vacancies registered with the jobcentres is not as high as it was may be that jobcentres are no longer a source of labour. Jobs are being advertised in newspapers, as has been the case historically, and in Teesside they are booming.

§ Mr. Fowler

I am grateful to my hon. Friend, and I apologise for not having given way to him earlier. It was unforgivable of me not to allow him to give news of that kind. I should like, however, to make a few minutes' progress with my speech before giving way to any more hon. Members on either side of the House.

By increasing the corporation tax threshold for small companies, my right hon. Friend has reduced the corporation tax burden for 20,000 small companies. He has simplified the tax regime for small business men and raised the compulsory threshold for VAT. By any standards those are significant measures, but of course other barriers to employment exist.

At the same time as making those reforms, it is right for us to consider other measures to improve employment levels. As my right hon. Friend said in his Budget speech: The task of business and industry is to control their pay and other costs. The more successfully they do so, the less costly in terms of output and employment the necessary adjustment will be."—[Official Report, 14 March 1989; Vol. 149, c. 245.] As the House knows, we have been reviewing the closed shop, particularly the pre-entry closed shop. The effect of the closed shop is to limit employment opportunities and to reduce the supply of labour. At the same time, it limits the employer's freedom to decide whom to employ and whom not to employ, and the employee's freedom to decide whether or not to join a trade union in the first place.

As part of the review, I commissioned a special survey of the extent of the closed shop, which shows that the number of jobs covered by the closed shop has fallen from a peak of 5 million in 1978 to just over 2.5 million today. Nevertheless, the survey found that one worker in 10 said that the most important reason for union membership was that it was a condition of having the job. The survey also shows that 1.3 million jobs are the subject of a pre-entry closed shop. To get the job, one needs a union card. That is substantially more than previous estimates and, in effect means that there are still 1.3 million jobs which are closed to anyone who is not already a member of a trade union. We have already taken action against the post-entry closed shop whereby the employer may take on a non-unionist, so long as such a 742 recruit joins the union shortly after starting the job. In such a case, the victim of the post-entry closed shop can go to an industrial tribunal with a claim for unfair dismissal.

As I said in my December statement, I believe that the time has now come to act against the pre-entry closed shop. I am publishing today for consultation a Green Paper which for the first time gives a similar remedy to anyone who is excluded from a job because of the pre-entry closed shop.

At the same time, we need to recognise that bad industrial relations can also provide a major obstacle to employment growth. Strikes export jobs to our competititors. In the 1970s, this country lost on average 13 million working days a year because of strikes. At this time 10 years ago, we were in the immediate aftermath of the winter of discontent which did so much damage to the reputation of this country.

Working days lost through strikes are now down to about 3.75 million a year. The number of working days lost in January of this year was the lowest in any month since August 1940, but although the position has improved, there are still areas where I believe that action should be taken.

We are particularly concerned with secondary industrial action. Although the 1980 Act took important action in this area, the position remains that as the law stands at present immunity can apply to organising certain forms of secondary action. The Government's view is that there is no good reason why employers who are not party to a dispute should be at risk of having industrial action organised against them.

For example, secondary action can deter employers from starting up for the first time in this country—in a situation where secondary action is threatened among workers in the new firm's customers or suppliers with the aim of forcing the new enterprise to accept certain terms and conditions. Indeed, exactly that sort of threat was made at Dundee, when the American Ford company planned to establish a new factory. Dundee, above all, shows the link between industrial relations and jobs.

§ Mr. John Townend (Bridlington)

I welcome the news about the closed shop, but will my right hon. Friend deal as soon as possible with that relic of the corporate state, the national dock labour scheme, as a result of which the container terminal in Hull remains shut, jobs are being lost and trade is going to other ports?

§ Mr. Fowler

My hon. Friend will not be surprised to learn—if he is, I apologise for it—that my right hon. Friend the Prime Minister gave an exact reply to his question on 19 January. I have nothing to add to what my right hon. Friend said then. My announcement today will enable the reform of industrial relations to go forward. There will be a step-by-step reform of industrial relations law. I am glad that my hon. Friend welcomes the proposals.

A range of measures is being taken to tackle barriers and obstacles to employment, but the Budget goes beyond that. It also gives opportunities for employment itself to be more attractive. It gives employees further opportunities to participate in the success of their firm. It recognises the impact that successful employee participation schemes can have on staff commitment and the business performance of the company. The experience of many leading British companies bears this out. So the Budget includes 743 important new proposals on employee share ownership, profit-related pay, and pensions, including personal pensions.

In all these areas, the Budget builds on the substantial progress that has already been made. More than 1.75 million employees have already benefited from approved employee share scheme. They have received shares or options for shares worth some £4 billion. The tax relief on profit-related pay, which came into effect only 18 months ago, already covers more than 120,000 employees and profit-related pay worth more than £100 million. In this Budget, my right hon. Friend the Chancellor has proposed significant improvements which will give further encouragement to those important developmemnts.

First, increased benefits will be available under employee share schemes. The limits will be raised so that firms will be able to give staff more shares free of tax. Secondly, the Budget proposes a new tax relief which is specially designed to help companies that set up employee share ownership plans. My right hon. Friend also proposes to increase the maximum of profit-related pay which can attract tax relief.

For the individual worker, the new personal pensions and money purchase pension schemes are making it substantially easier for employees to move from firm to firm and take their pension entitlement with them. That is a substantial advance in the rights of working people.

Personal pensions have been a major success story. One million people have already taken advantage of the new opportunities that have been available since last July. Money purchase schemes can be used to contract out of the state earnings-related pension scheme. Already, more than 8,000 schemes have been established, including some industrywide schemes, such as those in engineering, construction and the footwear industry.

The Budget changes will allow greater flexibility in pension provision. They will improve the arrangements for personal pensions and make very significant increases in the contribution limits for people over 35 who, as a result, will be able to make better provision for their retirement. They will make it easier and more attractive for employees to pay additional voluntary contributions to secure better benefits, simplify the rules for occupational pension schemes, and reduce the administrative burden on employers.

All in all, the Budget proposals offer employers a range of important opportunities to increase employee participation in the prosperity of their firms. They will give a further impetus to developments which have already proved successful, effective and popular with employers and employees alike.

There are other issues that affect workers' and staff commitment. At the beginning of this debate on Wednesday, the shadow Chancellor, the right hon. and learned Member for Monklands, East (Mr. Smith), referred to the importance of investment in training. I agree about its importance. That is why the Government are investing £3 billion in training for young people and the long-term unemployed—£3 billion made possible by the Chancellor's policies. It is also why we are setting up training and enterprise councils around the country—to achieve more training by employers and more training generally, geared to the needs of the local labour markets.

744 It is because of the crucial importance that we attach to training that I published two White Papers last year proposing important changes in our arrangements.

On training, we are entitled to say to the Opposition, "We hear the words, but we remember the action." We remember that, when the employment training programme for the long-term unemployed was launched, it was bitterly opposed by the Labour party conference. We remember that, although—to his credit—the Leader of the Opposition backed the programme, the Trades Union Congress rejected his advice. We remember that the shadow spokesman on employment, to his great discredit, took the easy way and campaigned against a training programme for the long-term unemployed.

§ Mr. Meacher

If the right hon. Gentleman is so pleased with his employment training scheme, will he explain why, after six months, only 50 per cent. of the target number of places have been filled and why a large number of companies, including McAlpine, which has close associations with the Tory party, refuse to have anything to do with it?

§ Mr. Fowler

I thought for a moment that the hon. Gentleman might have been getting to the Dispatch Box to deny that he has been campaigning against employment training. His intervention establishes and underlines what I was saying. I shall answer the hon. Gentleman directly. At the moment, we are getting about 40,000 entries to the programme each month. There are now about 170,000 people on employment training. Therefore, given that employment training has been going for only six months, the programme is off to an extremely good start by any standard. The new job training scheme, which the hon. Member for Oldham, West also tried to sabotage, attracted only 30,000 people after 12 months. After six months, 170,000 people are on employment training.

What I find so distasteful about the hon. Gentleman's attitude is that it entirely confirms what I said. Although the Leader of the Opposition had the guts to get up and back employment training, I cannot say the same for the Labour party spokesman on employment.

A whole range of companies is involved in employment training, including IBM, Sainsbury, Laing and many other major companies. McAlpine occupied a special position in Yorkshire. The hon. Gentleman's only contribution to training in the past 12 months has been to try to prevent training in Britain. We shall not take lectures about training from the shadow Chancellor at least until he gets rid of the Opposition spokesman on employment, and that can only be a matter of time. I notice that we shall not have the pleasure of hearing the Opposition spokesman on employment reply to the debate. Obviously, he is on the substitutes' bench in these matters.

The Budget builds on the policies which have made possible the record growth in jobs and the record fall in unemployment in Britain. Since the last general election, unemployment has fallen by more than 1 million. Over the last year, the rate of unemployment has fallen faster in this country than in any other major industrialised country. Unemployment in Britain is now well below the European Community average, and below the figures for France, Belgium, the Netherlands, Spain, Italy and Ireland.

Contrary to what the hon. Member for Oldham, West suggested, the 1988 labour force survey published last week has confirmed the record of rapidly falling 745 unemployment which the monthly unemployment count has shown for the last 31 months. It also confirmed that unemployment has fallen, because record numbers of new jobs have been created.

At the last general election, the Labour party promised to reduce unemployment by 1 million within two years. Part of its plan for achieving that was to extend early retirement to 160,000 people in Britain, and a whole range of similar measures. However, since the election this Government have reduced unemployment by more than 1 million in less than two years, and our policies have reduced unemployment by creating real jobs—more than 1.75 million new jobs between March 1987 and September 1988 and a total of more than 2.5 million since 1983.

The truth is that the Opposition have nothing to offer except a return to a high taxation, low incentive and a low-growth economy. My right hon. Friend's Budget is a budget for investment, for continued employment growth and for a strong economy. I commend it to the House.

§ Mr. John Garrett (Norwich, South)

I regret that about half an hour before the debate we, or rather I, learnt of the indisposition of my hon. Friend the Member for Dagenham (Mr. Gould). I am sure that we all wish him a speedy recovery.

Our view is that once again the Budget has failed to provide for a fair society and a strong economy. It does nothing to strengthen our economy. The 1988 Budget gave tax breaks to the rich when any economic scribbler knew that resources should have been spent on the supply side—education, research and development and training. The overheating caused by boosting demand and neglecting supply has led to savage increases in mortgage interest rates and we all know from our advice surgeries how much suffering that has caused to our constituents. This version of the Barber-boom is over and we have to ask two basic questions: first, when will interest rates come down and, secondly, when will the balance of payments improve?

The Budget insults the low paid. After last year's giveaway to the rich, the decent thing would have been to have given something to the poor this year. However, analysis shows that for those earning under £100 a week the gain is only £1 and for the ordinary working family it is just £3. That should be compared with last year when a person on £100,000 a year was given an extra £260 a week —more than the average family will receive in a year from the 1989 Budget.

Many tax dodges still exist to be exploited by those who can afford accountants. The Government's latest contribution to the condition of the, low paid has been to attack the wages councils, so the poorly paid will lose the only defence that they have had in past years.

The Government tell us that Budgets are to increase incentives. Is it efficient to discourage women from going to work by failing to end the tax on workplace nurseries? Is it efficient to increase loopholes for the rich by tax relief on private health schemes or to throw money around to encourage share ownership simply to ensure that privatisation works? The Budget shows that the economy and the Chancellor have grave problems. Despite having accumulated a Budget surplus of £14 billion over the past year when the Chancellor forecast £3 billion originally, he has been unable to reduce the burden of taxation or to begin investing in the supply-side measures that Britain 746 needs. He should have begun the supply-side revival by targeting expenditure on training, research and development and our deteriorating infrastructure. Not to do so is folly, not prudence.

§ Mr. Andrew MacKay (Berkshire, East)

Will the hon. Gentleman give way?

§ Mr. Garrett

Not for a minute.

Those long-term problems are the outcome of 10 years of Government economic mismanagement. Our problems are coming home to roost in the appalling balance of payments deficit—a deficit that the Chancellor admits is here to stay as far ahead as we can see because balance of payments deficits of over £10 billion a year are forecast in the Red Book over the planning period. The deficit is the product of 10 years of under-investment in the productive strength of the British economy. In those 10 years manufacturing investment has never returned to the 1979 level. It has been 10 years of a growing trade deficit in almost every sector of British industry.

§ Mr. Andrew MacKay

rose——

§ Mr. Garrett

I will give way to the hon. Gentleman in my own time, not his.

Let us look at some of the most noticeable loopholes in the Budget. Let us look at those affecting corporate management, such as personal equity plans. That pet scheme of the Government flopped last year. Now, in their passion to make it work, they have created an even bigger tax loophole. Before now, only new money could be used to invest in PEPs to gain from the tax breaks that were offered. Now, privatisation shares taken up outside PEP schemes can be transferred into them, tax free. Tax-free privatisation is now the Government's policy.

§ Mr. Andrew MacKay

The hon. Gentleman has just criticised my right hon. Friend the Chancellor for not further reducing the tax burden. This seems a suitable opportunity for him to tell us what the basic level of taxation would be under a future Labour Government. Would it be above or below 25 per cent? That is not clear at the moment.

§ Mr. Garrett

I do not need to take instruction from any hon. Member on that. I am here to discuss the Budget and that is what I intend to do. My duty is to examine the Budget in terms of its effect on industry and the economy.

Another corporate issue is company cars. Understandably, the Chancellor has reduced the tax benefits accruing from having a company car. That seems fair enough, but he has failed to distinguish between those for whom cars are essential for work and those for whom a company car is a tax perk. The health visitor. for example, has been hit as hard as the company director.

We now have a simpler system for the assessment of the earnings of directors. Directors will now pay tax on the amount that they receive in the tax year, rather than the amount they earn or accrue in the tax year. Clearly, that can be exploited, giving company directors the ability to minimise tax bills by choosing when they receive income.

I want to consider the effect of the Budget on industry and the economy generally. Instead of strengthening the trading industries of Britain—the industries that must capture new markets abroad and defend markets at home —the Government's high interest rate strategy hits investment, building up yet further problems for the 747 future. It is no wonder that we find the Chancellor's trade forcasts incredible. In his Autumn Statement, five months ago, he forecast that in 1989 exports would grow by 7 per cent. and imports by 5 per cent. The export forecast has now been reduced to 5.5 per cent. and the import forecast has been revised up to 5.5 per cent. as well. Even so, the Chancellor is assuming that the growth of exports will have to accelerate from 0.5 per cent., which it is today, to 5.5 per cent. and that imports will have to fall from a rate of growth of 13 per cent. to 5.5 per cent., while he keeps interest rates up and the pound high.

The Government's failure over the past decade has led to a massive increase in the percentage of products in the domestic market that are imported. I shall give a few examples. In 1978, 18 per cent. of colour televisions were imported. From January to September 1988, the figure was 40 per cent. For telephone receivers, the figure has increased from 2 per cent. to 41 per cent. and for buses and coaches, from 3 per cent. to 38 per cent. In my own constituency, 4,000 to 5,000 people are still employed in the footwear industry. There is great concern that imports of footwear have risen from 30 per cent. to 47 per cent. The Government boast that investment is booming, but as investment in manufacturing is down on 1979, the main growth areas have been investment in distribution and the financial sector—aiding the financing and distribution of imports.

Growth in the past year has been fuelled by a massive consumer boom, irresponsibly stoked up by the Government. The boom has been paid for by growing personal debt. The ratio of debt to income in Britain is now the highest in the western world, threatening the future of individual families and the future stability of the economy. In the past year, the amount of mortgage lending would have bought all new housing stock twice over.

The Chancellor has admitted that inflation will rise to over 8 per cent. before falling back towards the end of the year. That fall will be caused not by any slackening in the rate of price increases, but because year-on-year comparisons will be with the high inflation months in the second half of 1988.

§ Mr. Tim Yeo (Suffolk, South)

Will the hon. Gentleman give way?

§ Mr. Garrett

No, although I know that this is a debate.

§ Mr. Frank Dobson (Holborn and St. Pancras)

My hon. Friend should ignore the hon. Member for Suffolk, South (Mr. Yeo). He is a ratbag. He is a person who interrupts.

§ Mr. Garrett

I do not care whether the hon. Gentleman is a ratbag or not. That is my hon. Friend's opinion. The hon. Gentleman may be a good husband and father, for all I know.

There are substantial and mysterious anomalies in the Red Book. I was trying to draft some questions for the Chancellor on those when I was hauled in here, protesting, half an hour ago. These questions really are my questions and I am trying to get at the truth of the matter. The Red Book tells us that underlying inflation is continuing to fall. Yet if I look at table 3.9 on page 34 of the Red Book, which deals with the increase in output prices over the previous year, I see that in 1987 the increase was 4¼ per cent. In 1988 it 748 was forecast at 4¾ per cent. and for 1989 the forecast is 5½ per cent. However, the Chancellor forecast a fall in inflation, as measured by the retail price index in 1989. The only way that that can be achieved is if he is right in his assumption that interest rates will stop rising, that is, unless he tries to fiddle the RPI by taking mortgage interest out of it.

§ Mr. Yeo

I know how difficult it must be for the hon. Gentleman to know his party's policy on income tax, so I shall not ask him any questions about that, but he may like to recall a historical fact. Can he tell the House the lowest rate of inflation achieved by the previous Labour Government?

§ Mr. Garrett

As I recall, when the Labour Government left office inflation was 7 per cent.—and it was falling. But what is the point of discussing that when we are talking about the Chancellor's forecast? I am simply saying that the Chancellor's forecasts of inflation do not gel or make sense. If output prices have risen by 5 per cent. on the year before, how does he expect the cost of living to fall as he forecasts?

§ Mr. Ashdown

Perhaps I can assist the hon. Gentleman on this point.

§ Mr. Garrett

I thank the hon. Gentleman but I do not need any assistance with my speech and if he catches your eye, Madam Deputy Speaker, the hon. Gentleman can make his own speech later.

When reading the newspapers over the weekend, I noted that the Americans are planning to push up interest rates, which will inevitably lead to a round of interest rate increases throughout the world in which we shall have to take the lead, as at the moment. With the forecast balance of payments deficit running at well over £10 billion into the future, the pound will not be sustainable at its present level without further interest rate increases. Think of the personal misery that interest rate increases cause. Think of the mortgage foreclosures and of the people I have mentioned who come to my surgery in tears because they cannot continue to maintain their mortgage interest repayments.

In recent years we have had a novel development in economic policy—the repayment of the national debt. According to the Government, that is a new triumph, and I am willing to believe them up to a point. However, the Government also say that it represents the repayment of the debt that Labour incurred in its years of government. When one considers it, it is, in fact, the Tory debt that has been run up in the past eight years. It is the bill for unemployment.

The biggest mystery is why, when the Government forecast a repayment of £3 billion for 1988–89, they repaid £14 billion. We can piece together some of the answers. There was, for example, a £2 billion overrun on privatisation receipts and a £1.5 billion shortfall on fixed investment by the Government. There was also excess revenue from income tax, national insurance contributions and VAT because the Government could not control inflation. Receipts were increased by the Government's own inflation. I am sorry to have to say that those figures also include a £0.3 billion saving on transport spending —which is a matter of some resonance given recent news.

The Chancellor's Budget shows no recognition of the hard landing forecast in his predictions for British industry. The Budget and the public expenditure 749 programme that preceded it do not help the reconstruction of industry and do not provide the training, the education or the infrastructure that our economy must have in order to be efficient and competitive. Worse still, the Budget does nothing for our new underclass, such as the homeless young people whom one can see sleeping in cardboard boxes across the river at Waterloo on any night of the week; the confused who have been discharged from mental institutions; single parents or for the great grey army of the unemployed. The Budget combines incompetence with inhumanity.

Several Hon. Members

rose——

§ Madam Deputy Speaker (Miss Betty Boothroyd)

Order. Before I call other hon. Members, I must tell the House that Mr. Speaker has determined that, because of the number of hon. Members who wish to speak, there should be a 10-minute limit on speeches between the hours of 7 pm and 9 pm.

§ Mr. Edward Heath (Old Bexley and Sidcup)

I was somewhat taken aback by the abrupt end of the hilarity promoted by the hon. Member for Norwich, South (Mr. Garrett).

I shall concentrate on two main points. Before I do so, I agree with the praise by my right hon. Friend the Secretary of State for Employment for the measures which the Chancellor of the Exchequer has taken in respect of the benefit system and, in particular, of the abolition of the earnings rule. I utter just one word of caution. I am not convinced that, although desirable, the abolition of the earnings rule will lead to a great increase in production or employment. Those who were affected by the earnings rule usually found ways and means of achieving their ends without necessarily having the rule abolished or falling into trouble. But its abolition is a sound measure, and one which we have wanted for a long time. I hope that it leads to a solution of the problem.

My one reservation about my right hon. Friend's speech concerns his comments about training. I shall say much more about that point later on. He mentioned that we had the utmost difficulty in finding jobs for young people in the 1970s. I ask him to take further advice from his Department on that point. As we had 580,000 unemployed when we left office in 1974, there was no problem about finding jobs for young people—they were all in jobs. It was only in limited areas where we had any serious degree of unemployment.

I now refer to the two points on which I wish to concentrate, although fairly briefly. First, this Government have now been in power for a decade. The debate is an opportunity to look at matters over the decade, in the light of the Chancellor of the Exchequer's Budget. On this occasion, the Chancellor of the Exchequer has proved himself to be a wise man. He is not a far-seeing man, that we must know—[Interruption.] He will agree that, in his previous Budget, he did not foresee that his surplus would be four or five times that which he calculated. He is not a well-informed Chancellor. The reason for that is that the Prime Minister's campaign against the worthless bureaucracy has so affected the statistical department of the Treasury that it often does not know what is going on.

750 But the Chancellor is wise. The reason I say that is that he has got himself and the country into a position in which he does not know what to do. He has therefore very wisely decided to do nothing. It may be for that that we should be grateful.

As the Chancellor knows, he is my favourite one-club golfer. On the last occasion, he made a splendid drive from the tee. Enormous reductions in taxation were widely hailed. He now finds himself in a bunker, and he is discovering how difficult it is to get out of a bunker with the wooden club with which he drove off. All I ask is that he should now reconsider his bag of clubs and perhaps embrace a few more.

Why did I say that I want to examine matters over the past decade? It is because we have been through a decade which has not been altogether different from the decades since the second world war. The sooner we recognise that, the better. It is true that, at the beginning of this decade, the depression was lengthened because of the measures taken by the Government at the time, in particular by imposing a drastic increase in indirect taxation and allowing the pound to rise to heights which put our businesses out of practice. Our exports were seriously damaged, and they have never been able to recover. Since then, we have had the upward graph and now, undoubtedly on the Chancellor's calculations, we are at the top of that graph and are on the downward slope again. Nobody challenges that.

I accept that we have gone through that process yet again. It is the fourth time that that has happened in my time in the House of Commons. Quite honestly, I am getting rather bored with it. Every time, it has happened to a greater and worse degree.

We have heard the employment figures. Increases in the number of people employed are welcome, but there are still more than 2 million unemployed. On the basis of the statistical adjustment that is made at the end of the month, according to the season, the figure is just under 2 million, but the number of people who do not actually have jobs is over 2 million. [Interruption.] Well, that is the figure, which is seasonally adjusted. I have not forgotten completely my days as Minister of Labour. The problem is that, for the first time when we have been at the top of the cycle, we still have more than 2 million people without jobs—a large number of them young people. That is the first factor.

Secondly, borrowers now have to face interest rates higher than at any time in the past 45 years when we have been at the top of the cycle. Indeed, interest rates are higher than they have ever been. Thirdly, the adverse balance of trade is of a scale that we have never had at this point of the cycle. All these things constitute an appalling aspect of the development of the cycle in this decade, compared with the previous four and a half decades. [Interruption.] Was there a sedentary interruption?

Dame Elaine Kellett-Bowman

I was just pointing out that my right hon. Friend seems to look on the gloomy side. Never in his day, or in any other day, did we have such a massive improvement in the Budget surplus.

§ Mr. Heath

I am coming to that. The Chancellor's problem is that he did not expect this surplus, and he does not know what to do with it. He and the Prime Minister regard the rate of inflation as abominably high, so he has said that he is going to use the surplus to repay the national 751 debt. One has to ask oneself what will happen when the national debt has been repaid. What guarantee does the Chancellor have that the funds will not be used for consumption? One cannot automatically assume that they will be used by corporations for further investment.

The Chancellor may very well find that, with the pressures of high interest rates, those people who now find themselves with cash instead of investments will start spending the cash. That would defeat his purpose, and preventing it must be one of his problems. Indeed, can he prevent it at all? I do not think so. That is another aspect of his having got himself deep into the bunker.

This is the situation in which we find ourselves after a decade. Parliament and the country ought to be asking how we can get out of this situation, which has occurred four times in the last 40 years, and achieve a stabilised system in which we are not forced to expand the economy and then to wreck that economy automatically.

I am not ignoring the personal harm, anxiety and agony caused by the measures that are taken in these circumstances. I am, thinking, for instance, of high interest rates. I sometimes feel that those, both in the City and in Whitehall, who have to deal with policy of this kind are dealing with something which, to them, has no relationship at all to human beings; that the level at which interest rates have to be pitched is a pure intellectual exercise to get a certain answer as to money circulation, and that that is only a guide as to which particular monetary definition may be adopted at a given time—they can change it as they go along.

People come to our advice bureaux. Indeed, a lady from outside my constituency wrote to me the other day saying: It was such a happy time when we got our mortgage as first buyers. We did what the Government told us to do. Now it is agony. I can see no future except suicide. The only thing that stops me is my two children. It is appalling that people should get to that stage, which is brought about by those who regard as a purely intellectual exercise the level at which interest rates should be set. It behoves us all to look at that.

Several factors have kept us in this state. First, at the beginning of this decade, the market dogma adopted wiped out any question of regional aid. The market was going to put everything right. If the market preferred the south, it would move to the south and everything would be put right. We know that that was nonsense. Even if we wanted the market to move to the south, we did not make it possible for it to do so. We did not provide housing, roads, railways or anything. [Interruption.] Look at the state of the railway lines. Do I need to comment on that? I shall be accused of interfering with justice if I comment on railway lines. We did not make it possible for those in regional development to move to the south. We continued with long unemployment, and we have suffered the results politically in Scotland, the north-east and over a large part of the country. The Government should bear that in mind.

We were scorned when we said that ways could be found of choosing the infrastructure in which investment could be placed without increasing inflation. Ministers are constantly pulling out figures, saying that we are spending whatever percentage it is more than last time or more than under the Labour Government in 1979, The latter is of no interest to me or the great majority of British people. The former is not relevant to the problem. The question is: is 752 what we are doing satisfactory to deal with the problem which faces the country today? The plain answer is no, even in the south.

My colleagues from the south know that many motorways are unfinished, even in the south. There is the M2 in my constituency, the M20, the M25 and the M27, and in the west country there are none. Our motorways are inadequate, as are all our transport facilities. Our airports are overcrowded. Look at the mess at Heathrow. The Labour Government are largely to blame for that, because they cancelled the plans to build a great new airport on the east coast.

What happens to business men who want to travel to improve their business? I travel a reasonable amount and what am I told? It all depends on whether there is a "slot". That is the latest jargon. The other day at Dusseldorf and Cologne I was told, "You can't get back. We are an hour and a half late. There is not a slot at Heathrow." Life now depends on slots. This is not the higher quality of life of which the Prime Minister spoke at Scarborough on Saturday afternoon.

Housing demands are not being met, again because it was said that the market would do all that was necessary. One sees the conditions in which many of our fellow citizens have to live. The young cannot find anywhere to live; they have families, and they still cannot find anywhere to live. Housing is another major problem that has not been dealt with.

We have not dealt with education. We have bashed it on every possible occasion. We have bashed the teachers just to bash a handful of loony Labour councils in London which do silly things. That has not produced results.

§ Mr. Brian Sedgemore (Hackney, South and Shoreditch)

Steady on, old man.

§ Mr. Heath

I am using modest language.

The other night I heard my right hon. Friend the Prime Minister on television say that we must find a new means of dealing with education and that there used to be guilds. They are out of date, yet she compared the new arrangements with the guilds. I find that difficult. I know that we have been looking back the whole time. We looked back to Marshall and the 19th century to give us our economics. He was not entirely satisfactory, so we looked back to Adam Smith and the 18th century for more economics. He has not proved foolproof, so now we are looking back to the guilds for our training arrangements. [Laughter.] I am prepared to acknowledge my vested interests. I am a member of Goldsmiths Company and the Honourable Artillery Company. I do not regard those companies as having responsibility for training. Moreover, the guilds were the most protectionist organisations which Europe has ever seen. My right hon. Friend runs all the risks of abolishing the closed shop in every conceivable circumstance, yet creates guilds which will be extremely protectionist and will not produce the education that we want.

We shall never deal with the problems until we have a training system for industry which is embodied in the whole education system—and we must face that. There has always been a Department of Employment which has fought the Department of Education and Science about that. It argues that what happens after pupils leave school has nothing to do with education but is entirely to do with labour. I may even have said that myself. I certainly do not 753 say that now, because I have seen the experiments and they have all failed. In 1970–74. we made a further attempt with training agencies. Three or four were successful, but the rest were not. I have come firmly to the conclusion that we shall never have a successful industry until training is embodied as part of our complete education system.

That applies equally to management. It is natural for some of my hon. Friends always to shout when a trade union is mentioned—to bash the unions. Unions are not entirely to blame. Today we should encourage enterprising unions which recognise the modern world. They may be expelled from the Trades Union Congress, but they are certainly getting on with the job of training and they are facing the modern world. They should be encouraged, not damned.

I regret to say that many of our management are not interested in management as such. They are interested in finance and the quickest way of getting their money. That is not the same as management. That is horrifying in the context of 1992, especially when one goes around the country asking people what preparations they have made. An employer wrote to me recently, "God help us when we get to 1992." I replied, "Would it not be more appropriate and effective if we helped ourselves?" Alas, that is not helping. Management training is just as important as employee training.

Such training will affect the Chancellor of the Exchequer. If we are to have some overall technical education system for industry and management as part of our education system, the Treasury will have additional burdens put on it. I believe that we have reached that point and that it is necessary.

If we compare ourselves with the two successful countries in the post-war world, the Federal Republic of Germany and Japan, we see enormous contrasts. We have only to ask ourselves the simple question: why are we not doing as they are doing?

§ Mr. Nicholas Budgen (Wolverhampton, South-West)

Because we are not like that.

§ Mr. Heath

I think that my hon. Friend would be more accurate if he said that we were not like them. That is the real point. They were both defeated in war. Japan was bombed with atom bombs and Germany was almost entirely destroyed, yet here are we unable to compete with them or to emulate what they have done.

§ Mr. Marlow

My right hon. Friend, sadly, is in one of his Cassandra-like moods. He is telling us about everything that he finds wrong. I wonder whether he could do us and perhaps himself a favour by telling us some of the things that the Government have done which have been successful and of which he approves.

§ Mr. Heath

I approve of the abolition of the earnings rule. I said that earlier. I fully approve of that.

§ Mr. Budgen

Will my right hon. Friend give way?

§ Mr. Heath

I do not think so.

§ Mr. Budgen

rose——

§ Mr. Heath

Very well, then.

§ Mr. Budgen

My right hon. Friend appears to believe that our society should be the same as one sees in both Japan and in West Germany. He goes on to say that the main purpose of education should be materialistic and 754 devoted to earning more money in later life. Was that the sort of view that was behind his devotion to music when he was at Oxford? Does he believe that our society would wish to be the same as that in Japan or West Germany?

§ Mr. Heath

I wish that we had as many opera houses and top-class operas as the Germans. I wish, too. that we were devoting as much to education as the Japanese. I cannot criticise them on those grounds.

I shall quote one or two figures. We have heard about the fixed capital formation, and all I would say is, whatever good we may have done, do not let us think of it as being the answer to everything or that it compares with what other countries have done. We must look at it from the point of view that we are the lowest in the Community league. The latest figures for the whole of 1987 show that we are down to 17.3 per cent. of GDP.

§ The Chancellor of the Exchequer (Mr. Nigel Lawson)

indicated dissent.

§ Mr. Heath

The Chancellor shakes his head, but that information comes from my best statistical advisers—[Interruption.] We were down to 17.3 and everyone was higher than we were.

§ Mr. John Garrett

That is right.

§ Mr. Heath

That has been confirmed by the spokesman for the Opposition, who has his own source of information.

We then come to the question of the prime lending rate, which affects the whole of our industry and our citizens. Last week, we were 14 per cent., West Germany 7 per cent. and Japan 3.38 per cent. Why can we not have an economy run with similar figures? [Interruption.] There is no answer to that.

Then there is the rate of consumer price inflation.

§ Mr. Ian Gow (Eastbourne)

Will my right hon. Friend give way?

§ Mr. Heath

No, I shall not at the moment.

The latest figures, in 1988, showed that the United Kingdom had a rate of inflation of 6.8 per cent. and my right hon. Friend the Chancellor has said that that will go up to 8 per cent. West Germany is 1.6 per cent. and Japan is 0.9 per cent., with very low interest rates. On the question of trade, if we take the current balances as a percentage of GDP, we have a deficit of 3.26 per cent., West Germany has a plus of 3.09 per cent. and Japan has a plus of 2.76 per cent.—[Interruption.]

Hon. Members

Give way.

§ Mr. Heath

I shall gladly give way to the Chancellor.

§ Mr. Gow

rose——

§ Mr. Heath

I have thought a great many things about my hon. Friend, but I never thought that he was Chancellor.

§ Mr. Gow

My right hon. Friend accused my right hon. Friend the Chancellor of a lack of compassion in having put up the interest rates. Does my right hon. Friend believe that he showed more compassion by failing to abate inflation or that my right hon. Friend the Chancellor is showing true compassion by trying to abate inflation?

§ Mr. Heath

I did not accuse the Chancellor of a lack of compassion. I said that those who so constantly deal in interest rates as a solution to economic problems do it from a purely intellectual approach, without realising the human consequences, and I stick absolutely by that view.

We did not have to deal with interest rates of that kind, and I believe that we were—[Interruption.] The Chancellor was one of the advisers. We were dealing with the problems of infrastructure and of housing on an infinitely bigger scale than the Government have been doing in the past 10 years. However, it will all be in the memoirs.

The question is why, after 45 years, we cannot do the same as those industrial countries. We must address ourselves to that. It means that, instead of going on a purely monetary dogma, a balance must be struck between those matters which emphasise inflation, those which require a reduction of interest rates, a lower pound to get a better balance on trade——

§ Mr. Lawson

indicated dissent.

§ Mr. Heath

The Chancellor always shakes his head about this. He knows that it is right, but he is not allowed to do it. He knows that the pound is too high for our exporters. He knows that it is far too high for our exports to Europe.

§ Sir William Clark (Croydon, South)

Who is stopping him?

§ Mr. Heath

I never mention names in public.

If we are to give our exporters a chance, the pound must be dealt with. It is always a question of keeping the balance.

§ Mr. Neil Hamilton (Tatton)

My right hon. Friend made great play of exchange rates stopping us exporting, but is he aware that in the past two years the yen has appreciated against the dollar by virtually 100 per cent., yet the Japanese trade surplus is increasing? Does that not show that there is not necessarily a connection between the two?

§ Mr. Heath

I am not saying that there is a necessary connection, but our business men recognise that they lose many exports because of the rate of the pound. If we consider Germany from Erhard's time onwards, it is true that he was able step by step to improve the value of the deutschmark and at the same time encourage the exporters to increase their exports. That is right, but that has not happened here.

I am asking the Chancellor and the Government to strike a balance between the different factors involved and gradually to adjust them—with such a crisis, they have not much time—so that exports can be increased and the adverse balance of trade reduced. They could, therefore, do more for the infrastructure and for housing and, above all, they could start thinking about an overall education system for technology and management that is not improvised from Government to Government but becomes part of our internal education system in exactly the same way as it did in Germany in the 19th century and as it is in Japan at the end of the 20th century. That can be the only answer. We must face the facts and not just engage in inter-party squabbles about whose figures were right and whose went up the most. We must look at the real basis of the situation and then start dealing with it.

§ Mr. Paddy Ashdown (Yeovil)

It is a pleasure to follow the right hon. Member for Old Bexley and Sidcup (Mr. Heath), who said so much with which I would agree, little with which I would disagree and some of which I shall mention later. I hope, nevertheless, that he will understand if I say that the pleasure of his speeches comes not just from listening to them but from their visual impact. We have a unique advantage that is denied to those who read the right hon. Gentleman's speeches afterwards—that of watching the miserable, downcast, scowling looks on the faces of all those on the Treasury Bench as the right hon. Gentleman's speech proceeds. At no stage did I see anything other than a deep scowl from the Chancellor. I look forward to the coming of television to the House so that the rest of the British public can enjoy the spectacle.

I am sure that I speak for many other hon. Members in wishing the hon. Member for Dagenham (Mr. Gould) an early recovery. That is no reflection on the speech made by the hon. Member for Norwich, South (Mr. Garrett), but we always look forward to the speeches of the hon. Member for Dagenham and we always listen attentively. We shall miss him in this debate.

This Budget has been described as "the boring Budget" and no doubt that is an apt description, but the apparent torpor of the Budget should not be allowed to hide the basic realities of the situation in which the British economy finds itself. The realities which should be addressed by the Budget include a structural trade deficit, declining competitiveness, an unacceptable rate of unemployment and rising underlying inflation. Nor should this boring Budget be allowed to hide the injustices contained in the Government's strategy, which have been touched upon by the right hon. Member for Old Bexley and Sidcup.

This was certainly not a Budget for the low paid as more of them will now pay tax. It was not a Budget for those on benefit, nor was it a Budget for families. Those who have seen child benefit effectively cut again will recognise that only too powerfully.

The changes to the pensioners' earnings rule and to national insurance contributions are welcome—the Secretary of State for Employment touched upon them —but they do not go far enough. It was depressing to read recent newspaper reports of the Chancellor saying that he had finished reforming and cutting national insurance contributions. Much more could be done in that regard to relieve the poverty trap and make a substantial contribution towards the proper integration of the tax and benefit system.

Despite a boring Budget, we still have a gambling Chancellor who is prepared to gamble our long-term prospects to leave himself enough room for tax cuts in the run-up to the next general election. It is perfectly clear that that is the purpose of the Budget. As the right hon. Member for Old Bexley and Sidcup said, the Chancellor is prepared to gamble with the quality of our life, preferring to satisfy a narrow materalism today rather than to prepare Britain for tomorrow.

I believe that it was the Chief Secretary who said last week that living standards were the final arbiter of economic performance, and no doubt they rightly have a part to play. The rapid rises in domestic consumption are clearly a key ingredient in the Government's electoral calculations, but the Government will soon have to change their tune because the notion that there is more to life than 757 personal material acquisition is not an attractive one to a growing number of people. Many of those who have done best out of Treasury policies now realise that they have to look for something more from Ministers and they are looking for policies which will bring our people together rather than sadly and tragically divide them. They are looking for policies which will correct the dog-eared, down-at-heel nature of public Britain and provide a base for the public goods and services which are essential to the enjoyment of our future prosperity. They are looking for policies which invest in the future because they know that today's tax cuts and consumption become tomorrow's debt burden and trade deficit.

§ Mr. John Townend

How can the right hon. Gentleman talk about tomorrow's debt burden when we have a Budget surplus of some £14 billion?

§ Mr. Ashdown

The hon. Gentleman fails to recognise what has happened since last year. The tax cuts and the increase in consumption, which was deliberately encouraged by the Government, have plunged many families into debt. The reason is perfectly clear. The hon. Gentleman will have had a stream of leaflets coming through his door from one bank after another, all saying exactly the same thing—"For goodness sake, don't worry —extend yourself; we will offer you as much credit as you like." Th