§ [Relevant documents: European Community Document No. 9487/89 on the Annual Economic Report 1989–90 and the un-numbered Explanatory Memorandum submitted by HM Treasury on 31st January 1990 on the final version of the Report as adopted by the Council.]
§ Mr. Speaker
Before I call the Secretary of State for Trade and Industry, I tell the House that many right hon. and hon. Members wish to participate in the debate, but not enough to impose a 10-minute limit on speeches. If right hon. and hon. Members confine their speeches to about 15 minutes each, all those who wish to contribute to the debate will be able to do so.
§ Mr. Dick Douglas (Dunfermline, West)
On a point of order, Mr. Speaker. I wish to take up a remark that you made about the opportunities to raise a matter that concerns many Scottish Members. You referred to Scottish questions next week. Will you try to use your good offices to ensure that we have a statement at least by Wednesday? I appreciate that there are many Scottish questions tabled for that day.
§ Mr. Speaker
That point has been made on numerous occasions by Opposition Members. I am sure that it has been heard by the Leader of the House, who has been present throughout.
§ Mr. Ridley
We come to the trade and industry part of the debate on the Budget. I shall argue that, through the sound policies of this Government, we live in a very different world from that which we knew 10 years ago. That is too easily forgotten. The Budget, which I strongly commend to the House, will sustain and build on those achievements. It will allow industry and commerce to redouble their growing contribution as engines of growth. All this is in marked contrast with the empty words mouthed by the Labour party. I will press them again and again—and doubtless in vain—to put some flesh on the 1254 skeletons that they keep digging out of the cupboards of the 1960s and 1970s when they had responsibility for these matters.
I commend the Budget for three reasons—first, because it is the right Budget to squeeze inflation out of the system, secondly, because it makes valuable changes in relation to the taxation of savings, charitable giving, workplace nurseries and other areas, and thirdly because I believe that it will be good for British business in all its manifestations. I intend to concentrate on the third of those areas.
When Opposition Members talk of business they think of large manufacturing industry, no doubt because their paymasters are manufacturing industry trade unions. In fact, there is a wealth of activities, including small businesses, services such as retail, consultancy and financial services, and many others, as well as manufacturing. It is the success of all sectors which matters for our standard of living.
In the past decade, thanks to the combined success of all these sectors, our standard of living has increased very substantially. I know that the mortgage rate, and the consequences of a spending spree by Labour local authorities are causing deep concern, and some hardship. But the take-home pay of a married man, with two children, on average earnings, has increased by more than a third in real terms since the Government took office. We should look at current difficulties against that background. Most people in this country are considerably better off now than they were in 1979–80.
In relative terms, too, our standard of living has improved. Let us look at "Purchasing power parities", as published by the Organisation for Economic Co-operation and Development. These make international comparisons of what our incomes will buy in different countries. During the 1970s Britain slipped back, and by 1980 we came eighth of the 12 EC countries. By 1988, we had moved up to fifth. We had overtaken Italy, the Netherlands and Belgium and had moved to within 5 per cent. of Germany and within 1 per cent. of France. Only Japan, of all the 24 OECD countries, has moved up the league table faster. What was the sick man of Europe is now doing very well.
Figures of economic growth in member countries also show that gross domestic product in the United Kingdom grew at an average annual rate of 3.2 per cent. between 1981 and 1989. The figure for Germany was 2.2 per cent. and for France 2.1 per cent. Here is further proof of the resilience of the British economy under this Government.
§ Mr. D. N. Campbell-Savours (Workington)
If we are doing so well, where has the surplus on invisibles gone? Why has it evaporated?
§ Mr. Ridley
I am glad that the hon. Member for Workington, (Mr. Campbell-Savours) acknowledges that we are doing so well, and I agree with him. I will give him the answer, if I may, later in my speech. I am coming to the very point that he has raised, but I would rather put it in the right context.
All this is a far cry from the days of the last Labour Government when, with very high levels of unemployment and inflation and appalling standards of living, all the then Chancellor of the Exchequer, the right hon. Member for Leeds, East (Mr. Healey)—who, I am sorry to see, is not in his place—could say—[Interruption.]—I quote him 1255 because I am sure that Opposition Members would like to hear what their last Chancellor said, so perhaps they would be quiet and listen—was:of course there has been a fall in people's standard of life. And it has fallen this year and will fall again next year.That is the truth. Labour Chancellors promise misery; Conservative Chancellors have brought economic success.
In examining the current state of business in Britain, I want to look at the various sectors I mentioned earlier. First, small businesses: in 1988 a total of 1,200 small businesses a week came into existence—that is a net figure, after allowing for firms going out of business. The corresponding figure in 1980 was 300 a week. Much of the credit for this belongs to the Government. Reductions in personal and corporate tax and succesive programmes of deregulation have produced in Britain one of the best climates in the world for the birth and early growth of new businesses. My right hon. Friend's Budget continues the good work in several ways.
The increase in the profit limit for the small companies' rate of corporation tax and in the upper limit above which companies will pay the full rate will release £40 million in a full year which small businesses can use for investment. The measure will benefit 20,000 small companies, and it will mean that only companies with profits of more than £1 million will pay the full 35 per cent. rate of corporation tax. The House will recall that, when we took office, a company that made profits of more than £100,000 faced a swingeing 52 per cent. rate of corporation tax. We now have what is probably the most advantageous tax regime for small and medium enterprises of all our competitors.
The changes in value added tax that my right hon. Friend announced will also reduce both the financial impact of this tax and its administrative burden. The new system for bad debt relief will benefit business to the tune of £150 million a year, as well as ending what has become widely seen as an injustice, and the simpler rule for VAT registation by new and growing businesses will bring a useful additional relief, as well as removing a worrying risk of an unwitting breach of the regulations.
In Britain, as in other industrial countries, services account for a growing proportion of the economy. The service sector of the economy has grown by a third since 1981; employment in the service sector has increased by nearly 2.5 million people in the last six years, and services are a major contributor to the balance of trade. Last year, we earned a surplus of more than £4 billion on services. Many of the measures that we are fighting for in the single market negotiations are aimed at making a reality of competition in the supply of services in the community. The opportunities for competitive British suppliers, and the rewards, may well be greater than in manufacturing.
Nowhere is international competition sharper than in the financial services sector, which alone contributed more than £7 billion a year to the balance of trade in 1988. Deregulation, and modern information technology, have revolutionised both the structure of this sector and its operations in a few short years. It is essential for the tax regime to keep pace with these developments.
Stamp duty on share transactions accounts for a quarter of the cost of a modest transaction by a private investor, and for no less than three quarters of the cost of the largest transactions. Other financial centres in Europe are moving quickly to eliminate comparable taxes, and I congratulate my right hon. Friend the Chancellor on doing the same; it is essential if we are not to put at risk the 1256 leading position that the City has attained over the years. Together with the introduction of TAURUS, that will enable us to keep London the prime financial centre of Europe. I know that the Labour party hates the City, but we all benefit from its success, including the Opposition.
§ Mr. Ian Taylor (Esher)
My right hon. Friend makes an important point about safeguarding and encouraging the City of London's international position, but does he agree that the abolition of that stamp duty will also help to widen share ownership?
§ Mr. Ridley
I agree: in a year when the Chancellor did not have much to release from his Budget, that was a wise thing for him to do for our future prosperity and it will help greatly to widen share ownership.
Manufacturing, too, to the disappointment of the Opposition, is a success story. Manufacturing output was up again by 5 per cent. in 1989 to its highest level ever —32 per cent. higher than in 1981 and 7 per cent. above the previous all-time peak in 1974.
Manufacturing investment was up by 5 per cent. in 1989, following a 12 per cent. increase in 1988. Since 1983, the average annual rate of growth in manufacturing investment has been no less than 8 per cent.
Manufacturing profits, too, are at their highest level for almost 20 years. Perhaps most remarkable of all, after our appalling performance of the 1970s, manufacturing productivity has risen by some 60 per cent. since 1980.
§ Mr. Tony Banks (Newham, North-West)
The obvious question to ask the Secretary of State is why, in view of what he is now claiming to be yet another economic miracle, we had a £21 billion deficit in manufactured goods last year. Why do we keep being told that all the imports are going into capital investment in industry? What are they equipping themselves with—Japanese hi-fi? We do not see any return in terms of the balance of payments on manufactured goods.
§ Mr. Ridley
The hon. Gentleman simply has not understood or listened to what I was saying. This is the best industrial performance that we have seen in his lifetime, and probably for much longer than that. Why do the Opposition continue to denigrate it, knock it and pick holes in it?
§ Mr. Ridley
Many countries would give their eye teeth to be able to quote those figures. But, as I have said before, there is more to do.
§ Mr. Hugh Dykes (Harrow, East)
My right hon. Friend makes a powerful point on behalf of the strength of British industry and our commercial resilience in the face of spurious attacks from the Opposition. Does he agree that that strength now gives us the opportunity to join the exchange rate mechanism without any further delay?
§ Mr. Ridley
My right hon. Friend the Chancellor dealt with that in his Budget speech. I have nothing to add to, or subtract from, what he said.
As I said, there is more to do. In particular, we need better education, better management education, and better skills training. We recognise that, and we have a clear policy.
1257 Training is primarily the responsibility of employers. Private sector spending on training is running at £18 billion a year. The number of employees receiving training rose by 70 per cent. in the five years to 1989. So business is rising to the challenge. The Government for their part are spending £2.5 billion a year on training, and here too, it is right that business should have a large say in the determination of priorities. That is why the training and enterprise councils are being established, to manage the greater part of the Government's training programmes.
I believe that the TECs will revolutionise training in this country, but they never get a mention from the Labour party. The Chancellor's proposals to allow tax relief for a period of five years for business donations to TECs is a cost-effective incentive to further involvement in training by employers.
§ Mr. John Garrett (Norwich, South)
May I revert to what some countries would give their eye teeth for? Is not the Government's forecast for the growth in manufacturing output next year nil? That must be a record since the Red Books were introduced. Precisely what is the right hon. Gentleman boasting about?
§ Mr. Ridley
It is not a record. When the hon. Gentleman's party was in government, it used to go down every year.
Research and development is equally vital to our industrial success, and here, too, the performance of business has been most encouraging. The value of industry's own-funded R and D was some £5 billion in 1988, having grown at the healthy rate of more than 6 per cent. a year in real terms over the previous five years. As a proportion of gross domestic product, industry's own-funded R and D in the United Kingdom in 1988 was on a par with that in the USA, and ahead of that in France and Italy. Government-funded R and D, as a proportion of GDP, was behind only France and the USA, and ahead of Germany and Japan.
Despite all that, Labour Members go around predicting impending disaster for British industry.
The predecessor of the hon. Member for Dunfermline, East (Mr. Brown), the hon. Member for Dagenham (Mr. Gould), thought of all sorts of "remedies" for that hoped-for disaster, but it has not and will not materialise. He has now begun to shut up about the payroll tax, renationalisation without compensation, national investment banks and all the rest. He has fallen back on an "apple pie and motherhood" approach with nothing tangible in the way of policy. His buzz words now are "stability, consensus and partnership". Nobody could disagree with any of those. Indeed, I rather think that they are what we ourselves have given British industry over the 1980s. But in his mouth the words are meaningless, and I think that we would all be grateful if for once he would explain what they entail. What exchange rate or interest rate policy do they imply? What changes in taxation——
§ Mr. Ridley
My right hon. Friend the Chancellor told the House on Tuesday what his was.
What changes would the Labour party make to shareholders' rights and company law? Above all, how 1258 much will they cost the taxpayer? I realise that to spell it all out would really rock the markets, and there may be a lesson for the Labour party even in that. However, pious aspirations are no substiture for policy. I am prepared to allow the right hon. and learned Member for Monklands, East (Mr. Smith) or the hon. Member for Dunfermline, East to intervene.
I see that they do not want to intervene. Exactly the same happened the last time I asked them the same questions, on 6 March. The right hon. and learned Member for Monklands, East and the hon. Member for Dunfermline, East sat on the Bench as they are sitting today, mute and inglorious.
§ Mrs. Edwina Currie (Derbyshire, South)
As the idiots on the Opposition Benches are so incapable of answering my right hon. Friend's question, may I offer him one more to put to them? My right hon. Friend will know that Toyota is now active on site in my constituency creating a £700 million factory which will help us to turn around the balance of payments in future. Does he agree that the reason why companies such as Toyota come to Britain —there are many others like it—is that we have a substantially deregulated economy in which there is relatively little interference with business? Does he agree that if that little lot opposite got their hands on business, British or otherwise, the regulations would go on, the interference would go on and the compulsory investment pattern would go on, the subsidies would be re-created, the tax system changed, and those businesses would fly from this country as fast as ever they could?
§ Mr. Ridley
My hon. Friend is absolutely right. Would she have a word with Toyota to ask whether it has included in its costings the payroll tax that the Opposition said that they were going to impose? It must be important for Toyota to know the answer. I am afraid that I cannot give my hon. Friend the answer to her question, but perhaps one day the Opposition will.
I wonder what the truth is. Either the Opposition have no real criticism of what the Government are doing, and thus no alternative policies to offer, or they intend to press ahead with—[Interruption.] I heard an Opposition Member say that they would not tell the electorate their policy until after the next election. That confirms my thoughts on the matter. I believe that the Opposition are still thinking in terms of imposing an East German solution on the problems of West Germany. They still do not understand that the process is the other way around, but they have wisely decided that discretion is the better part of valour.
§ Dr. Norman A. Godman (Greenock and Port Glasgow)
Would the right hon. Gentleman mind my asking a constituency question about the competitiveness of the shrunken British shipbuilding industry in the light of the unification of the two Germanies? Is he aware that, when the two Germanies become one, the German shipbuilding industry will be increased by 17 or 18 yards and by 55,000 lowly paid shipbuilding workers? Will those yards be entitled to claim subsidies under the sixth EC directive on the shipbuilding intervention fund?
§ Mr. Ridley
It is not for me to interpret what the Commission might say to that, but I should imagine that the West German managers, in the bracing atmosphere of the Community, with all its policies on restricting state aid 1259 and getting to market pricing, would want to ensure that their capacity was either economic or taken out, as has happened here.
The Opposition must realise that their form of genteel intervention has been rejected by tens of millions of people in east Europe. The drug of interventionism is addictive. East Europe has been so revolted by the full dose that it does not want the drug at all: it wants it banned. That is why East Germany voted last Sunday for the CDU, not the SPD. East Germans realise that the market economy works and Socialist intervention does not.
The Opposition demanded a debate last month on one erratic set of trade figures. Today's trade figures—I am sure that the Opposition will welcome them—show a return to the progress that my right hon. Friend the Chancellor predicted would reduce the current account deficit over time. The deficit fell to £1.4 billion in February, reflecting the continued strong growth in export volume and the sharp slowdown on the growth of import volume which has been obvious for some time to all but the Opposition. Underlying export volumes have been growing more than twice as fast as underlying import volumes since last November—[Interruption.] It is odd that, whenever the Opposition hear good figures, they sit and shout. I am almost beginning to be delighted that the House is being televised; I hope that the public can see the way in which the Opposition react to good news.
In the three months to February, export volumes, less oil and erratics, were 3.5 per cent. higher than in the previous three months and 11 per cent. higher than a year earlier. Import volumes, less oil and erratics, were 1 per cent. lower than three months earlier and only 0.5 per cent. higher than a year earlier. The trend remains good. The improved trade figures include an estimated zero contribution from the invisible sector, reflecting, among other factors, exceptionally high payments to the European Community and lower net earnings on interest, profits and dividends.
My right hon. Friend the Chancellor was right to say that it is demand which has grown too much. Export performance remains good. My right hon. Friend has taken steps in the Budget to keep demand under control while production and exports grow, to eliminate both inflationary pressures and the trade deficit.
The task now for industry and Government alike is to ensure that the progress of the past 10 years is safeguarded and maintained through the 1990s. The level of pay settlements remains critical to industrial costs and to our ability to compete. It is far more vital, in fact, than the interest rate as an element of industrial costs. Unfortunately, our unit labour costs are once more rising faster than they are in some competitor countries. It is up to each company to consider what wages it can afford, bearing in mind its productivity and competitiveness. I hope that the trade unions will see that that has been our Achilles heel in the past.
Partnership and consensus are vital. The Opposition are always eager to support any group hell bent on defying that principle, but the public should be aware that the inevitable result of such defiance is pricing ourselves out of world markets, which would lead in turn to higher unemployment or a loss of trade share.
Internationally, we are working for open markets everywhere. We are doing so in the Community by a constructive contribution to the completion of the single market. Worldwide, we are taking an active part, through 1260 the Community, in the negotiations for the GATT Uruguay round. Huge opportunities for investment are opening up all over eastern Europe. Investment will lead to markets, and markets will lead to trade and to profits. Profits will help the trade deficit and the growth of the economy.
In due course, this will lead to more direct trade opportunities, too. These opportunities cannot be exploited by the Opposition's mixture of milk-and-water Socialism and their ludicrous proposal for returning to the barter system. My recent visit to Poland convinced me that the way to help the Poles and ourselves is to encourage private investment. I am glad to say that our business men are taking the opportunities that exist there now.
Unlike the Opposition's recipes, the Budget is a Budget for stability, growth and prosperity. It will drive down inflation, for which the Opposition have no policy, without harming production and exports. It will increase saving to fund more investment and it will ensure that the United Kingdom can meet the challenge of the coming decade.
§ Mr. Gordon Brown (Dunfermline, East)
I now realise that when the previous Chancellor described 1990 as a year that would be dull, he meant not just that the economy would have a dull face but that the Budget would be dull and all the speeches about it from Ministers would be dull.
I am surprised that we did not hear from the Secretary of State this afternoon a statement about the amendment that has just been made to the Budget, especially as it refers to the policy that the right hon. Gentleman was prominent in introducing—the poll tax—the policy which he used to call the flagship policy.
On Tuesday, when making his announcement about the capital ceilings for poll tax rebates, the Chancellor refused on principle to provide those rebates to Scottish pensioners. On Wednesday, the Chief Secretary said that it could not be done in practice. Today we have the Cabinet in full retreat.
The Secretary of State for Scotland should have come to the House this afternoon to explain the change of policy, to explain why it took the Opposition to secure that change, to explain what will be done to pay for the £4 million and which parts of the Scottish budget will be cut to make way for that expenditure and to explain that it is not the moderation of the poll tax that is now necessary, but its complete elimination.
The Secretary of State for Trade and Industry did not say that, in the Budget speech, the Chancellor had to admit that inflation will be above 7 per cent. by Christmas, the highest in Europe; that manufacturing industry will stagnate this year, the worst performance in western Europe; that interest rates will remain high during the year, and they are the highest in western Europe; that the downturn is likely to be quite severe, as the Chancellor put it; and that business investment will fall by 1 per cent. The Chancellor also said that unemployment may rise over the year. None of that was mentioned today by the Secretary of State.
§ Mr. Kenneth Hind (Lancashire, West)
The hon. Gentleman says that British industry will stagnate this year. Does he still stand by the Labour proposal to introduce a payroll tax of 0.;5 per cnt.—a tax on the 1261 payroll of every company in Britain—and, if so, what does he think that would do for the stagnation of British industry?
§ Mr. Ridley
I am grateful for that information. Will the hon. Gentleman confirm that the policy review proposals in relation to industry are still the policy of the Labour party?
§ Mr. Brown
Of course the policy review proposals on trade and industry are still this party's policies. The policy review was passed by the party's annual conference. I have been going round the country talking to representatives of business and industry and they have made it clear that they want the implementation of Labour's policies to deal with the problems of the economy—[Interruption.]
The hon. Member for Lancashire, West (Mr. Hind) spoke about manufacturing output. It is interesting to note that at the last general election the hon. Gentleman said:inflation to be further reduced" —
§ Mr. Richard Tracey (Surbiton)
The hon. Gentleman says that industry is waiting for the implementation of Labour's policies. Will he confirm that a payroll tax, as spelt out in Labour's policy review, would add £1 billion to industry's costs? Or does he intend to fudge what he is saying this afternoon as he did in "The Money Programme" on BBC television at the end of February?
§ Mr. Brown
I am answering. Firms are saying that it is totally wrong for companies that do not train to poach people from other firms. They want policies that will deal with the situation in which half the people in British industry are at present not receiving any in-work training. 1262 Indeed, 100,000 young people leaving school and entering work are not receiving any training either. That is why they need the statutory undeRPInning that Labour policies will provide.
We needed an investment Budget to deal with the problems of training in industry, a Budget that would pave the way for negotiations to enter the European monetary system, a Budget that would do something about the problems that industry now faces, with investment flat and falling away.
§ Mr. Graham Riddick (Colne Valley)
Since the Italian lira and the French franc entered the exchange rate mechanism of the EMS, those two currencies have been devalued against the mark by more than the pound. Will the hon. Gentleman explain how membership of the ERM would provide the stability of sterling which presumably he seeks?
§ Mr. Brown
The hon. Gentleman does not seem to be part of this debate. He should realise that the pound in relation to the mark has moved from 3.20 to 2.60 and now stands at about 2.70. It is precisely for the achievement of stability that industry wants us to open negotiations to join the ERM. The hon. Gentleman knows that many of his hon. Friends support that policy but dare not speak up because of the policy being pursued by the Prime Minister.
§ Sir Peter Tapsell (East Lindsey)
The Labour party does not seem to have grasped the point. Since the ERM was established, the Italian lira has devalued against the deutschmark six times and the French franc has devalued four times. The idea that joining the ERM by itself provides monetary stability is abolute nonsense.
§ Mr. Brown
France has 3 per cent. growth and 3 per cent. inflation and does not have the problems that we have as a result of the policies that have been pursued by Her Majesty's Government.
We needed a Budget that would deal with the problems of investment and training, that would begin the negotiations to enter the EMS, that would do something about the problems of investment, that reflected the new consensus in Britain that is led by the Labour party, but which the Government are unable to join. We have had instead a Budget containing a series of small measures—on small business debts, on the poll tax, on football and on nurseries—about which we have been pressing the Government for some time.
At the heart of the Budget is a yawning gap, a massive failure to address the central problems that the economy faces. What is left when we strip away from the Budget the measures that were pre-announced for the Budget of 1991, the measures that were re-announced from the Budgets of 1988 and 1989 and the measures that the Chancellor announced but which would have been better announced by the Secretary of State for the Environment, the Secretary of State for Wales and the Secretary of State for Scotland?
The Budget was dressed up to sound good on Tuesday, it drew scepticism on Wednesday, and today, Thursday, its hollow reality is being exposed. It contains nothing to bring interest rates down, nothing to raise investment this year and nothing to deal with our supply side problems.
What does the Secretary of State do in Budget week? What is his contribution? He goes to Cambridge—one of his few public engagements in the country. It was so 1263 important an engagement that it was worth the effort of an advance press release, a speech and, I gather, even a photo call. Did he go to Cambridge to open a factory, to encourage small businesses, visit a science park or talk about new technologies? No. The purpose of his visit to Cambridge was to launch his new insolvency service for British business. Is not it grimly symbolic that the most conspicuous event in his diary for this week was the opening of the insolvency service in its new status as an executive agency?
I have here a press release which says that the right hon. Gentleman launched the insolvency service as the Department of Trade and Industry's latest and biggest executive agency. This is what he said in Cambridge:In making the Insolvency Service one of the new Next Steps agencies, we recognise that the major part of its business is the execution of Government policy.Perhaps there could be no better commentary on this week than that the Secretary of State heard the Budget on Tuesday and, on the following day, opened the new insolvency service.
We have the highest interest rates in Europe, the biggest trade gap, the worst inflation, the slowest growth and the lowest investment.
I come first to the Government's promise to create zero inflation. They have pushed up water charges by up to 20 per cent., electricity by 7 per cent., rents by up to 50 per cent., prescription charges by nearly 9 per cent.—affecting everyone. At the same time, inflation in Japan is just 3 per cent., in Germany less than 3 per cent., in France just over 3 per cent., and in America 5 per cent., while the average in the EEC is 5 per cent. Here it is 7.7 per cent. and rising.
It is not international economic factors, it is not the Organisation of Petroleum Exporting Countries, it is not the oil sheikhs, it is not international situations and commodity prices beyond our control, and it is not the unions, as the Secretary of State tried to say. There is no one to blame for the inflation that has risen after 10 years but the Government themselves, through mistakes made in Downing street and mistakes that will continue throughout this year and even in the next few weeks as public sector rises continue.
§ Mr. David Nicholson (Taunton)
Would the hon. Gentleman care to tell us when a Labour Government last had inflation of 5 per cent. or below?
§ Mr. Brown
I can tell the hon. Gentleman that in the last full year of the Labour Government, 1978, inflation was at the European average and falling, even when massive oil problems throughout the world were affecting the economy. This year our inflation is well above the European average and the cause is problems created in the Treasury by Ministers themselves.
I come to interest rates. We hear business men throughout the country complaining about high interest rates and the impact they have on industry. Yesterday we heard the Engineering Employers Federation, the small businesses federation and various business federations throughout the country complaining about what the Government's Budget had not done. We heard the finance director of one of Britain's largest companies saying that interest rate policy is more applicable to a three-ball shop. How slowing down manufacturing industry is good for the country needs explaining.
What do the Government do? What is the Conservative party's policy? What do they say to these business men 1264 throughout the country about the impact of interest rate policy? I have here the Conservative party's own document, "The Economy: Questions and Answers". [Interruption.] Indeed, very useful and very interesting. We see on page 212:Don't higher interest rates increase the cost of borrowing thereby hitting industrial investment?[HON. MEMBERS: "Read the answer."] It goes on to say that, as the great majority of investment is funded from firms' own funds, the key to boosting investment is to create conditions to create profits. But, as the House knows, profits are not being sustained; businesses are having great problems. Then it says:British business is actually less exposed to high interest rates than it has been for a number of years.[Interruption.]The Financial Secretary says, "That's right," but there has been a doubling of interest rates over the last 18 months.
§ Mr. Ridley
The hon. Gentleman has totally missed the point. Is he not aware that, as British industry is making record profits, far higher than it ever made under a Labour Government, it can finance a very high proportion of its investment without borrowing at all? That is the point which the hon. Gentleman failed to give when quoting from that document. He does not seem to understand it.
§ Mr. Brown
I do not know whether the Secretary of State is aware of what is happening throughout the country. Bankruptcies are rising by 19 per cent. in the construction trade, 20 per cent. in food and drink, 30 per cent. in the furniture trades, 40 per cent. in clothing and textiles and more than 50 per cent. in services, according to the latest survey. Yet he says that there is nothing to worry about. Bankruptcies have been rising in every region of the country and particularly in the south, and this is industry supposedly less exposed to high interest rates than ever before.
§ Mr. Giles Radice (Durham, North)
Clearly, the Secretary of State is not aware that the business sector is now in massive deficit.
§ Mr. Brown
I thought that the Secretary of State would know that business borrowing has had to increase from £10 billion to £23 billion and that there has been a 67 per cent. increase in interest payments. But now he tells us that industries are less exposed to high interest rates than ever before. It is no wonder that all the business federations in this country are appalled at the failure of the Secretary of State for Trade and Industry to act.
Our complaint is that these are problems not just of the last two years but of the last 10 years. Our argument is not just that interest rates, inflation and the trade gap are the worst in Europe. It is that a consumer boom without adequate investment in training and technology was bound to be unsustainable and to lead to the problems that we face. Without the necessary investment in our future, the problems with which the Secretary of State now has to cope will remain.
§ Mr. Brown
I am not giving way again; I have already given way many times.
When the problems of the economy are not just problems of demand but problems of capacity, not just problems of consumption, but problems of investment, and not just problems of the short term, but problems of 1265 the long term, a Budget that fails to address the shortage of capacity, the downturn in investment and the challenges of training and technology is the wrong Budget for Britain, based on the wrong analysis and pursuing the wrong policies.
If the problem was only demand and not capacity and investment, if it was only consumption, as the Chancellor wanted us to believe yesterday, why has industrial production been falling? Why has manufacturing output fallen for four months? Why has investment fallen in the last three months? Why, this year, will investment be flat in this country, indeed declining, for many sectors of the economy but will rise in every other country—by 5 per cent. in Germany and France, 4 per cent. in Italy and more in many other countries? Why are we producing less in many of the important sectors of our economy than we produced even in 1979? Metal goods, mechanical engineering, motor vehicles, drink and tobacco, textiles, man-made fibres—these are all sectors in which we are now producing less than we did in 1979. Is not it true that, industry by industry, sector by sector, we have abandoned products and processes, leaving the field to foreign competitors, and that the Government have done nothing about it?
Faced with the worst trading start that Britain has had in any year in its trading history the Secretary of State for Trade and Industry might have been expected to take the trade deficit seriously. instead, he said that the trade deficit was good. Britain is now in deficit in high technology as well as in traditional industries; in deficit over the year with eastern as well as western Europe; in deficit in the last six months in invisible as well as visible goods. Yet this is barely worthy of a mention by the Secretary of State responsible for industry and trade in this country.
We used to be told not to worry about the manufacturing deficit because there was a large invisible surplus. That surplus has fallen from £9 billion in 1986, to £5 billion in 1988 and to just over £2 billion in 1989, and is predicted to fall to £1.5 billion in 1990. We have had a deficit in invisibles over the past six months of £700 million—a deficit not just in holidays and travel, but in aviation, shipping, services and consultancies. We have had a deterioration in City earnings and a deficit caused by the massive interest payments we are having to make for the hot money that must be brought into this country.
Ours is now an economy increasingly at the mercy of hot money flowing in from overseas. The trade figures published today, with the emphasis on the invisibles position and how it is deteriorating, show that this is not a "loadsamoney" economy benefiting the people of Britain: this is now the hot money economy of benefit to the speculators of the world. The problems on the invisible and visible side of our trading performance cannot be addressed by a Government who insist on cutting and cutting the industry budget and the training budget in the run-up to 1992.
Although we have all these problems—although we import 50 per cent. of our cars, 60 per cent. of our washing machines, 80 per cent. of our dishwashers and 90 per cent. of the most modern computer equipment; although we import massively, especially from the European 1266 Community countries—the only question that is asked of the Department of Trade and Industry is not what it will do, but what excuse it will give for doing nothing.
§ Dr. Hampson
I have much sympathy with the hon. Gentleman on his point about improving efficiency on the supply side, and especially with his point on training. However, does he recognise that there is a lead time in education and training of 10 to 15 years? Does the hon. Gentleman remember that the only Government since the war who cut the proportion of young people going into higher education were the Labour Government just over 10 years ago and that the only Government who cut the amount of money going into further education were the Labour Government? To deal with the unemployment of young people, the Labour Government had the youth opportunities programme, which created jobs counting lamp posts in Barnsley. That is the level of training with which they left this country, as the hon. Gentleman should know.
§ Mr. Brown
That is not the case, and it does not help to begin to solve the massive problems this country faces. If the hon. Gentleman believes that the problems are now urgent, why does not he persuade the Secretaries of State for Trade and Industry and for Employment to act on our present training difficulties and training shortages? The problem is that there are no lengths to which the Department of Trade and Industry is now not prepared to go to do nothing.
I make no apology for raising the matter of the Al-Fayeds. We know now from the accumulated evidence that they were guilty of proven and persistent misrepresentation. We know that they were found guilty by the inspectors of misinformation and deception, and that there were accusations of dishonesty. We know that the inspectors wanted them to be disqualified as directors and we know that, under section 8 of the Company Directors Disqualification Act 1986, at which the Secretary of State chose to look, provision is made for such disqualification. What did the Secretary of State do? Absolutely nothing. His Department is the do-nothing Department, where anything goes.
What had Ministers previously said about the importance of the disqualification of directors provisions in the legislation? The Secretary of State for Employment, when he was Under-Secretary of State for Trade and Industry—the City Minister— said:The Government confirms its determination to support the disqualification provisions as a major deterrent to unacceptable conduct by a minority of company directors.The Under-Secretary of State for Trade and Industry —the City and consumer Minister—who is now Minister of State, Foreign and Commonwealth Office, said:The Act poses a real deterrent. It demonstrates our commitment to ensure that the public and shareholders are protected against the small minority of directors who are tempted to abuse their position.He was explaining that the disqualification procedure was not only a punishment for those who erred, but a deterrent, to uphold the standards of the City.
Will the Secretary of State tell me what is left of the deterrent, when even proven wrongdoers go scot free without punishment? At what point is the public interest protected? Left with no possible means of acting to reinforce that deterrent, the Secretary of State does nothing. His is a do-nothing Department where anything goes. If it will not act where there is proven and persistent 1267 misrepresentation, in what circumstances will the Department act? How can the standards of the City be upheld by a Department that refuses to act when all the evidence is there?
What of the rest of the Department? There is the same do-nothing attitude where anything goes in the rest of the Department. The Secretary of State announced the abolition of the market sectors division a few weeks ago. It was set up only two years ago by his predecessor as a new initiative and as the interface between the Department's headquarters and industry. How is the abolition of that division represented in the press release? It says:The DTI given fresh focus…A more concentrated focus on long-term issues.If the abolition of the market division is described as a new focus, will abandoning regional policy be presented as a breakthrough for the north, or will cutting export services be described as winning the trade war? The Secretary of State appears determined to walk away from his responsibilities for the regions, for new technology, for standards, for consumer protection and for city regulations responsibilities that all other Governments accept as part of their duties. He is in the process of winding down the Department. It is a reworking of one of the best-known maxims in politics—"If you can't stand the heat, close down the kitchen."
I have just seen the Department of Trade and Industry advertisements, such as "Where are you?" and "Ouetes-vous?", and other advertisements in Spanish, French, Italian and German. At first I thought that "Where are you?" was the Secretary of State trying to get through to industry, but I now know that "Where are you?" was industry trying to get through to the Secretary of State. When we need a presence, there is a void. When industry needs an advocate, it does not even have an apology. Instead, we have a whole Department devoted to doing absolutely nothing.
I want to tell the Secretary of State what he should have said. When research and development, expenditure on the regions and incentives for investment are all behind what other countries can offer, when we spend a smaller proportion of our national income on those vital services, when market forces on their own have failed, when other countries with less to gain do more, but we with most to gain do least, and when even in America, the Government are considering an office of civilian research and a congressional report is demanding an industrial strategy, I urge the Secretary of State for Trade and Industry, in the interests of the trade and industry of Britain, to respond to the gap in research, in technology, in training and in investment. He should do so not by cutting the Department's budget further, as he plans to do, but by responding to the consensus that is developing throughout the country that we should invest for the long term, that we should tackle our supply side problems, that there should be a genuine partnership between Government and industry and that Britain works best when Britain works together.
The Budget does nothing for the vast majority of families whose child benefit has been frozen. The Budget does nothing for the vast majority of pensioners whose pension rise has already been wiped out.
The Budget does nothing for the vast majority of home owners who will have to live with high mortgage rates for many months. It does nothing for the crumbling and 1268 underfunded public services, because the Chancellor wants whatever Budget surplus he has left for tax cuts and not for public investment.
This Conservative Government do nothing for our industries and companies, which have looked to them and now feel betrayed again and again. The Budget offers nothing for the future. This is a Government not of economic miracles, but of missed opportunities, not of long-term resolution, but of short-term expedients. This Government have walked away from the central challenge of our industrial economy and the country will judge them harshly for it.
§ Mr. Ian Stewart (Hertfordshire, North)
We have just heard a remarkable speech from the hon. Member for Dunfermline, East (Mr. Brown). It was remarkable for its almost entire lack of serious content. The House and others will note that the only matter of substance that the hon. Gentleman vouchsafed about Labour party policy in this important Budget debate was that it was Labour policy to impose a tax on the payroll of British companies in the hope that that would in some way make them more efficient. The points that the hon. Gentleman tried to brush aside with a louder and more hectoring tone in response to inquiries from my hon. Friends about what the Labour party would do and about his understanding of the exchange rates, interest rates and inflation showed the emptiness of the Opposition's position on the Budget's central issue.
I want to deal with two matters arising from the Budget statement, which I thought was an extraordinarily skilful and successful presentation of the problems and the way in which the Government propose to tackle them. I was disappointed by the final remarks of the hon. Member for Dunfermline, East. As he approached his peroration, he said that he would tell us what needed to be done. but he then threw away the next half-dozen pages of his text. That demonstrated the nature of his approach to the problems.
The two points to which I want to refer have already been raised in this debate. The first relates to the exchange rate mechanism and membership of the European monetary system, and the second is about inflation.
I have listened to the debates and I believe that there has been a great deal of misunderstanding about the practical implications of what is involved in membership of the European monetary system. One of the arguments for early entry of sterling into the exchange rate mechanism is apparently that it would make life easier for industry. However, alongside that there is an assumption that somehow entry would provide a comfortable way out of high interest rates. I do not believe that that is possible. I want to explain why the practical reasons argue against an early entry of sterling into EMS, and why it is deceptive to suggest that entry is feasible under current circumstances.
The present exchange rate of the deutschmark, which is about 2.72 to the pound, is the current rate at which we can exchange pounds for deutschmarks today. However, let us consider what the exchange rate would be in this case. If we wanted to do a deal today to make an exchange transaction in 12 months' time, there would be a discount of about 15 pfennigs. That is a premium in favour of the deutschmark and a discount against sterling. The exchange rate would be not DM2.72, but about DM2.57. 1269 That is miles outside the band in which the currencies operate within the exchange rate mechanism. It is about 5 per cent. instead of 2.25 per cent., which is the normal band.
It would not be possible for the exchange rate mechanism to operate with sterling within it if the forward rates for six months out or a year out were not within the standard bands on which the mechanism is based. That is an overwhelming and decisive argument why my right hon. Friend the Chancellor of the Exchequer is correct to believe that we should not hasten to join the exchange rate mechanism until inflation and interest rates are lower. If we were to join now, interest rates would come down, but that would not assist the battle against inflation, as it would actually generate more expansionary economic and monetary conditions in this country, which would set off the inflationary spiral once again.
Those of my hon. Friends, such as my hon. Friend the Member for Harrow, East (Mr. Dykes) and others who feel attached—sometimes I believe for emotional reasons —to membership of the exchange rate mechanism are missing a central point. Until the mechanism was consistent with the proper conduct of monetary policy in this county and would contribute to the effective management of monetary conditions that would lead to a reduction in inflation, membership would be not only unwise but be positively counter-productive. It would be more difficult—if conditions eventually became suitable for our joining—for our entry to come about.
My right hon. Friend the Chancellor of the Exchequer was right to restate the Madrid conditions and to say that we need lower inflation and lower interest rates before such a major step can be taken. When the time comes and those conditions are fulfilled, that will be another matter. However, for the time being, it is misleading to suggest to industry that its problems can be solved by early entry into the mechanism.
§ Mr. Riddick
My right hon. Friend has suggested that there will still be a time for membership of the EMS, perhaps when inflation has come down. However, I have still not heard any convincing arguments in favour of joining the EMS. Why do we need to join even when the conditions are right?
§ Mr. Stewart
If the exchange rate for sterling could be kept more stable against European currencies, I concede that that would be an advantage. It remains an open question whether it will be consistent with the proper conduct of our domestic monetary and economic policy for sterling to belong to the exchange rate mechanism. However, I am willing to contemplate that possibility and it is only sensible to consider it seriously if the conditions laid down at Madrid are fulfilled. If we tried to enter too early, that would cause far more difficulties than we face now in organising suitable monetary conditions in the fight against inflation. It is deceptive to suggest that entry is possible now.
I should not consider it improper for sterling to join the exchange rate mechanism, if circumstances permit in due course, with a much wider band than the present 2.25 per cent., which applies to most of the currencies in the system. Over a considerable period, rather higher interest rates have been required in this country to keep the lid on 1270 inflationary pressures than in some other countries. No doubt in Germany that is because of the terrible experience of the inflationszeit a generation or two ago and the deep impact that that has had on the financial psychology of two or three generations of German citizens.
It is also partly due to the different structure of their financial institutions. We should have to see progress in removing artificial constraints to German institutions investing in British or foreign bonds as well as the dismantling of exchange controls by the countries that still have them. I have an open mind about the practicality of that in due course. However, I want to emphasise that it is not in the bounds of possibility for entry to happen in the immediate future and it is misleading for anyone to suggest that that is the case.
My second point relates to the inflation rate. My right hon. Friend the Chancellor referred in his Budget speech to retail price inflation, and there are references in the Red Book to retail prices index inflation. Like my right hon. Friend the Member for Blaby (Mr. Lawson), when he was Chancellor of the Exchequer, I have increasingly come to believe that the RPI is no longer a realistic basis for measuring the level of inflation. It should no longer be the key against which various benefits and other commitments are uprated.
Including mortgage interest rates in the RPI exaggerates the rate of inflation when interest rates are rising. It understates it when interest rates are falling. The RPI fluctuates far more violently than the underlying level of inflation. That has a practical as well as a psychological effect. When inflationary pressures develop, if the Government are wise—as this Government are—they will take corrective action by raising interest rates to tighten monetary conditions. However, that very act will add to the recorded figure for the retail prices index and will then appear to suggest that inflationary pressures are building up as a direct result of measures taken to cool down those inflationary pressures.
My right hon. Friend the Chancellor also referred to the effect of more than 1 per cent. on the RPI, which will come through in the next month or two as a result of increased expenditure by local government through raising the community charge. I wonder whether it makes sense to include local government expenditure—financed locally—in the RPI, but not to include central Government expenditure funded by central taxation. After all, if an increase in the rates or community charge to fund extra local Government expenditure represents an increase in the retail prices index, all that the Government would have to do would be to give local authorities £10 billion or £20 billion and fund the whole of education, the police service or whatever. The retail prices increase would fall to zero and might even be negative. But everyone would know that the extra money was merely being collected by the central Exchequer instead of town halls. It would not represent an actual change in the economy.
The distortion in the way in which the RPI is constructed means that we have a figure of almost 8 per cent. inflation at present, whereas the underlying level is only 6 per cent. If we add on a percentage point or more for changes in local government expenditure and further increases caused by rises in mortgage interest rates, we simply create an entirely artificial yardstick by which to measure inflation. We encourage unrealistic wage claims and slow down the process of change in employers' and 1271 consumers' understanding of what the inflation level is. Therefore, we make our task of using monetary measures to get on top of inflation harder.
I tabled a question some time ago to my right hon. Friend the Chief Secretary to the Treasury about the implications of the construction of the RPI. He told me that most public service pension schemes and allowances such as the principal Civil Service scheme, the local government superannuation scheme, the police pension scheme, the retirement pension, widows' benefits, attendance allowance, the invalidity pension and so on are all uprated by reference to the RPI. The artificial distortions in the retail prices index mean that in some years those items are uprated by more than the underlying rate of inflation and in other years by far less.
I wish to suggest to my right hon. Friend the Chancellor of the Exchequer through my hon. Friend the Economic Secretary that we should take the opportunity over the next 12 months to plan to switch to a different index of inflation that does not include the interest cost of acquiring the capital assets of houses, which by no stretch of the imagination can be described as retail expenditure, and a more sensible approach to the treatment of local government expenditure. We need an index of inflation which is realistic, which enables monetary and economic policy to be conducted in a more sensible fashion, and which does not produce such misleading swings in the RPI upwards and downwards, which do not represent changes in the underlying level of inflation.
The reason why I ask my hon. Friend the Economic Secretary to speak to my right hon. Friend the Chancellor of the Exchequer in good time is that during the next year or two there will be an excellent opportunity to make such a change. It should be made only at a time when those who receive upratings of pensions or allowances would do better as a result of the change than if we stuck with the RPI.
Just as the RPI goes up too far when interest rates rise, so it goes down too far when interest rates fall. When interest rates fall, the underlying inflation rate is higher than the retail prices index. The change could be made so that the beneficiaries of the various pensions and allowances upratings did better at the outset. Over time, it would even out and there would be no difference, but the adjustment would be more in line with the real level of inflation and not with a figure that is becoming increasingly artificial and unrepresentative of the rate of inflation.
During the coming months we shall have many debates about the inflation rate. Hon. Members will be referring not to the inflation rate but to the retail prices index, which is a misleading indicator. Over the next few months, I do not expect inflationary pressures to increase, but the RPI will increase. We can look forward to interest rates coming down in the next year or two. That will reduce the RPI artificially. We may see the same reaction to that in the media and the press as we see in headlines when inflation rises.
It is not healthy or sensible to conduct economic policy on the basis of an indicator that is so far removed from reality. The items that my right hon. Friend the Chancellor of the Exchequer included in his Budget speech have drawn attention to the fact that the index can rise or fall by 7 per cent. as a result of factors that are not related to inflation.
1272 As a footnote to what I consider a skilful and admirable Budget, on which my right hon. Friend the Chancellor should be congratulated, I ask him to look further at the presentation of the inflation rate. Also, he should riot hesitate to spell it out in discussions on the exchange rate that the Government do not have any political reason for being obstinate in not allowing sterling to join the exchange rate mechanism of the European monetary system, but that there are good practical reasons for not entering it and it would be against the interests of Britain to do so when conditions are not appropriate.
§ Mr. William McKelvey (Kilmarnock and Loudoun)
I shall try to be brief because many hon. Members wish to speak. I wish to highlight two areas of economic policy. First, as a Scot, I must mention again the way in which 1he Chancellor of the Exchequer announced that the amount of savings that people could have before being disqualified from a community charge rebate was to be raised from £8,000 to £16,000. The manner in which the House heard today of the change announced by the Secretary of State for Scotland was also most unsatisfactory. He should have come here to make a statement from the Dispatch Box because we have applied pressures not only on the Chancellor but on the Scottish Office.
First, I must put the record straight. One newspaper from the popular press said that the shadow Secretary of State for Scotland, my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) was among the first to rise to his feet to protest that the increase in the amount of savings allowed would not be retrospective in Scotland. He was not among the first he was the very first-and that is how it should have been reported. Those of us who know him well were somewhat surprised at the way in which he protested-it was completely out of character for him to interrupt the speech of the Chancellor of the Exchequer in such a fashion-but such was his anger and so greatly was he incensed at the manner in which the announcement was made that hon. Members, at least on this side of the House, owe him a debt.
I used to enjoy the verbal swordsmanship between my hon. Friend the Member for Garscadden and the Secretary of State for Scotland when both were on their mettle. It was something to see two trained advocates arguing the merits or demerits of legislation. It is extremely sad to see the demise of the Secretary of State for Scotland. He is not the man he was and he does not argue his case with the passion that he used to show. Clearly, his heart is not in the statements that he is forced to make. Sometimes he seems to be unaware of the statements prior to being handed them. Certainly he seems not to be well briefed on them. While the stature of my hon. Friend the shadow Secretary of State and others on the Opposition Front Bench grows daily, the Secretary of State for Scotland is sadly but a shadow of his former self.
Frankly, we in Scotland feel that, the sooner the right hon. and learned Gentleman packs up that job, the better for Scotland. I hope that he will read in Hansard what I have said about him in the Chamber. If I get the opportunity to do so in one of the Corridors, I shall tell him to his face, because that is how I think that people should hear such things. As the right hon. and learned 1273 Gentleman is not in the Chamber in person, however, and as I have not had time to change the address that I wish to give to the House, he may have to hear it this way.
Although there appears to have been a change of heart about the rebate which is supposed to be paid to people in Scotland, hon. Members should be aware that the subject is not closed just because a statement has been made. I remind the House that in October last year there were rumblings of discontent about the poll tax at the Conservative party conference. The rumblings then began to gather strength and out of the blue— perhaps one should say, "out of the true blue"—policy was change on the hoof. There then followed an announcement by the Secretary of State for Scotland that transitional payments would be made to those who had to lay out more than £3 extra per week. That was interesting and good news for those of us in Scotland trying to protect the poorer people in our society who could not afford to pay the poll tax.
Shortly after Christmas, I received a letter from the Secretary of State in response to a letter than I had sent to him asking when the scheme would be put into operation. The right hon. and learned Gentleman said that the scheme was still being finalised. To this day, it appears that the scheme has not yet been finalised. Not one person in Scotland is in receipt of the transitional payment.
I do not know when the scheme will be finalised, but I know that many people with small resources are greatly in need of transitional payments and are subject to abject poverty because the Scottish Office is unable to finalise the legislation and bring the scheme into being. I can advise the Scottish Office that when the legislation is finalised it will be almost impossible to put it into operation through the computer for at least another year. I have received representations to that effect from Strathclyde regional council.
I therefore advise the House that any further policy which is made on the hoof to placate some of the forthcoming poll tax payers here in England may take years to come into operation. I hope that, by then, the poll tax will have disappeared from the statute book, because people will understand the difficulties of implementing such an obnoxious, unwanted and unwarranted form of taxation.
§ Mr. Malcolm Bruce (Gordon)
Does the hon. Gentleman agree that many people are incensed because, although the Government announced that anybody paying more than £3 per week more in poll tax than in rates would receive a rebate, the rebate is to be based only on the notional poll tax, rather than on the real poll tax? The Government's explanations do not wash. People feel that they have been cheated—and, indeed, they have been cheated.
§ Mr. McKelvey
The hon. Gentleman makes a correct point. People are cheated not just once, but twice, if not thrice, because those provisions may never come to pass. If the Secretary of State is a man of honour, I trust that he will repair that anomaly before relinquishing his office, as I am sure that he will.
Having dealt with one pending resignation, I now press for another. I refer to the Chancellor of the Exchequer, whose treatment of the Scotch whisky industry is utterly unacceptable. I am sure that the anger of the Scots will be 1274 heightened even further when they hear of his sabotage of that industry. The deal that has been struck is incredible, as is the way in which the Chancellor has treated that industry.
§ Mr. Keith Raffan (Delyn)
Is the hon. Gentleman aware that there has been a fall of 30 per cent. in the real value of the duty on spirits, including whisky, in the past 10 years? The Scotch whisky industry has fared extremely well under the Government.
§ Mr. McKelvey
Perhaps the hon. Gentleman will accept that, of the £8, the price at which a bottle of whisky retails in the shops, £6 is tax. That is a whacking great tax. Perhaps the hon. Gentleman will also understand that, as we move towards 1992, when we hope that there will be an equalisation of measures such as the taxation and excise duty on spirits, we are not doing any favours to the Scotch whisky industry.
Incidentally, Scotch whisky is produced almost entirely from products which are themselves produced in Scotland. Apart from the cork in the bottle, everything else—including the bottle, the label and the contents—is produced in Scotland. The £1.5 billion that the Scotch whisky industry earns for this country in exports is therefore the true figure. It is not like the export of cars, for instance, half of which are produced from imported parts. The Chancellor should recognise the value of that true figure of £1.5 billion.
I notice from the press that the Revenue currently gives £350 million to the Treasury and that it is expecting a further £20 million as a result of the 10 per cent. rise in duty. I do not understand the way in which the Treasury works—the figures mystify me. From simple mathematics, I should have thought that 10 per cent. of £350 million worked out at roughly £31.5 million, so where is the missing £11.5 million? I can only assume that the Treasury is including in its calculations the assumption that, because the price is increased, customer resistance will also increase, which will reduce sales in the home market so that the Treasury takes less in tax.
The Scotch whisky industry is extremely important to the economy of Scotland. More than 8,000 people are directly employed in that industry. There is more than the possibility of a threat—there is a real threat—to some of the jobs of those workers, especially in the bottling sheds. The Government and Conservative Members cannot simply pass off what has happened as an increase which should have been made years ago and say that the relative value is the same as 10 years ago. All hon. Members should recognise that a tax of £6 on a £8 item is a colossal tax.
My main complaint about the Chancellor's activities in relation to duty relates to the increase of just 7p on a bottle of wine. Up in Banchory, workers at the distillery cannot understand why the Chancellor has imposed an additional tax on whisky. Those workers will not be dancing in the streets, although people will certainly be dancing in the streets of Bordeaux when they read what the Chancellor has done in relation to wine, which will be imported in ever-increasing quantities.
Kilmarnock in my constituency is the home of Johnnie Walker whisky. People in the bottling sheds there will be scratching their heads and asking, "Why on earth is the Chancellor increasing the revenue difference between spirits and wines?" I hope that that will be equalised in 1992. The workers in Kilmarnock may be wondering what 1275 it is all about, but at this very minute the workers in Koblenz are probably not just naming a holiday after the Chancellor but naming a whole festive season in his honour because of the way in which his Budget will increase imports of their wine.
What the Chancellor has done is absolutely inconveivable. I ask the Government to remember the value of the Scotch whisky industry, the number of people that it employs in this country and the prestige that Scotch whisky enjoys. All of that has been threatened by a Chancellor who has been so ill advised that he does not even begin to understand the difficulties facing the Scotch whisky industry at the moment. It is inconceivable that this should happen at a time when, through the efforts of the Scotch whisky industry—with, I grant, some assistance from the Government—Scotch whisky is managing to penetrate the Japanese market when for years we could not break down the Japanese tariff barriers.
With some help, we have also managed to persuade the South Korean president to remove his country's barriers so that our whisky can penetrate the South Korean market. We now have an opportunity to penetrate the Taiwan market. That increase in exports is extremely welcome and is bringing more and more money into this country as we try to balance our trade deficiencies. Yet the Chancellor kicks the Scotch whicky industry in the teeth by imposing a whacking great increase of 10 per cent. in excise duty.
Like other hon. Members, I must ask, why 10 per cent.? If inflation is running at 7.5, 7.9 or even 8 per cent., why choose 10 per cent.? The answer came when the Chancellor himself said that inflation would go up before it goes down. He has probably chosen the figure of 10 per cent. because he thinks that inflation will increase to 10 per cent. shortly. The Government must then explain why their policies have produced a 10 per cent. inflation rate, which is greater than the figure that they inherited in 1979.
The Government's policies are not working—the House knows it, the voters in Mid-Staffordshire know it and people throughout the country know it. At the next election, which for me cannot come too soon, their voices will be heard. In the meantime, it would benefit the country if not only the Chancellor but the whole Cabinet resigned. I was about to suggest that the Prime Minister should also resign, but I do not actually want that—I want her to stay where she is, because she is our best guarantee that Labour will win the next general election.
§ Mr. Keith Raffan (Delyn)
I apologise to the House for the fact that I cannot remain for the reply to the debate as I am still recovering from a back problem. I am delighted to follow my fellow Scot, the hon. Member for Kilmarnock and Loudoun (Mr. McKelvey). Even though I am a Scot sitting for a Welsh seat, I am well aware of the importance of the Scotch whisky industry. However, methinks he doth protest too much. There is no doubt that the industry has fared very well under this Government. Indeed, during the past 10 years the Treasury has been too susceptible to the industry's persuasive powers.
As I shall explain later, there is a strong argument for a greater over-indexing of spirits than that introduced by my right hon. Friend the Chancellor on Tuesday. I am sorry to note that that makes the hon. Gentleman gasp. It 1276 appears that the whole of the population of Kilmarnock is employed in the Scotch whisky industry, something of which I was not aware.
The hon. Gentleman will appreciate that I am being objective, because Wales also produces whisky. As a Scot, I must tell my fellow Scots on the Benches opposite that they have protested too much about the whole question of the community charge and the change in the capital rule. I am glad to note that my near parliamentary neighbour, the hon. Member for Wrexham (Dr. Marek), is sitting on the Opposition Front Bench. Being a wise man, he has kept a respectable silence during the past 48 hours—as, indeed, have all Welsh Members.
We are aware that the community charge in Wales covers only 15 per cent. of local authority revenue. We do not shout that loudly in the House, especially when so many English Members are present. In Scotland, the community charge covers 18 per cent. of local authority revenue and in England it covers 23 or 24 per cent. That is substantially more. The Scots and the Welsh have done extremely well.
I do not deny that there are good reasons for that, but Scottish Labour Members should be careful. If they ask for Budget favours, everything will be open to examination and analysis. Difficult questions might be put to Scottish Ministers about the very favourable budgetary circumstances and public spending for Scotland. Similar difficult questions are occasionally raised with Ministers during Welsh questions, even though we try to keep out English Members, especially when good news is about to be announced.
I join in the congratulations extended to my right hon. Friend the Chancellor, which came even from the Leader of the Opposition, who was generous and fair. My right hon. Friend's first Budget was an "excellent maiden sortie". The vast majority of Conservative Members thought that it was excellent not only in style but in substance—notwithstanding the short-term reaction from the City. The late lain Macleod once said that the reputation of a Budget that faced immediate adverse reaction invariably fared better six months later, whereas one that found favour seldom looked so good with hindsight.
In the Budget statement, my right hon. Friend rightly emphasised the high level of business confidence and the underlying strength of the economy. He mentioned the 1,500 new businesses created every week, the rising level of employment and investment and the growth in exports. That strength is evident in my constituency and, indeed, in the constituency of the hon. Member for Wrexham. I am sure that he would agree with that. Our constituencies, together with the constituency of Alyn and Deeside, which is wedged in between, have led the economy in north-east Wales, and in Wales as a whole, out of recession.
There have been substantial reductions in the unemployment rates—52 per cent. cut in my constituency during the past two years. The new jobs created in my constituency have been predominantly male, predominantly full-time and predominantly in manufacturing. Formerly, our jobs were concentrated in just two industries—textiles and steel. Now there is a far more diversified industrial base, resulting in a much stronger local economy which is much more capable of withstanding periods of economic adversity.
§ Dr. John Marek (Wrexham)
I congratulate the hon. Gentleman on his good fortune in his constituency, but in mine many of the new jobs are predominantly female. There is nothing wrong in that, but they are low-paid and, in the main, part-time.
§ Mr. Raffan
The old cry from the Opposition is that the new jobs are low-paid. Unemployment has been high in our constituencies. Indeed, four years ago male unemployment stood at 42 per cent. in two of my towns. If we can dramatically reduce the unemployment levels even further, wage levels will automatically rise as demand for labour exceeds supply. That is what will happen, and there is evidence of that already in our constituencies and throughout north-east Wales. We must question whether the Opposition are in favour of jobs, albeit relatively low-paid, or whether they would rather not have any jobs. Are they advocating unemployment?
The hon. Member for Wrexham should be more generous about the Government. We on this side are fond of the hon. Gentleman, and the Government have introduced a great deal of industry to his constituency. He knows that he has done extremely well, especially with the Japanese. His constituency is one of the focal points of Japanese inward investment. We have 70 per cent. of Japanese United Kingdom investment in Wales, a great deal of it in the hon. Gentleman's constituency. He prefers to keep quiet about that. The reason why Wales is attracting so much inward investment, especially from the Japanese—who are known to be rather discriminating—is that they believe in the underlying strength of our economy. The hon. Gentleman and his constituents are benefiting from that.
As my right hon. Friend the Chancellor said, all the evidence from high street sales, the housing market and imports shows that demand is slowing, but it is not yet slowing quickly enough to curb inflation. In a flexible economy, the slowing of demand should contribute to a reduction in inflation by keeping wages in check. However, it is clear that wage levels are not yet responding to weaker demand. Action is needed to slow the economy further, to take away the demand granted by wage increases and to keep a tight lid on the growth in real disposable incomes. Taxation is obviously an instrument for doing that.
I am glad that my right hon. Friend did not fulfil media predictions that he would not fully index personal tax allowances. That would have hit the better-off, but it would have borne especially hard on those with low incomes as they would have been drawn up, through inflation, into the tax net.
On the question of indirect taxation—this will no doubt cause another gasp and sigh from the hon. Member for Kilmarnock and Loudoun—some have argued for a standstill in excise duties to keep down the recorded rate of inflation. But there is a strong case for over-indexing cigarettes and alcohol, in particular, more than proposed in the Budget. There is no surer way to deflate demand. Of course, the higher recorded rates of inflation that will occur in the summer as a result—the hon. Member for Kilmarnock and Loudoun was right about that—will help my right hon. Friend, albeit indirectly, to maintain the high interest rates squeeze.
Over-indexation this year will allow under-indexation next year and so bring a sharp fall in the published inflation rate. That is the reverse of what usually happens—
§ Mr. Raffan
Perhaps my hon. Friend says that because of experience in his previous incarnation when there were standstills in excise duties. When a Chancellor begins to index again and to increase taxes in line with inflation, having not done so for two years, he will produce a marked inflationary bulge. We do not want that to happen again.
There has been a drop of one third in the real value of duty on spirits during the 10 years of this Government. My right hon. Friend the Chancellor of the Exchequer could have raised duties even more on spirits and alcohol. There are good health reasons for doing so. Sooner or later we shall have to resolve the conflict between the Treasury's eagerness for revenue from the sale of alcohol and cigarettes and their consequent reluctance to impose penal taxation on either, and the massive National Health Service bill that we have to pick up as a result of smoking and alcohol abuse. Sooner or later, the Government must face that conflict.
I strongly support the various measures brought in to encourage savings, such as the abolition of the composite rate tax and the introduction of TESSA. They will help "the culture of thrift", to use one of the memorable sound bites of the Budget, to replace the current epidemic of overborrowing. However, I strongly agree that interest rates must remain the main and most flexible weapon against inflation because they both discourage personal borrowing and reward personal savings.
Like all hon. Members, I want rates to come down as soon as possible, but I want them to do so without dramatically reducing the exchange rate, because that not only increases the cost of imports but weakens British producers' resolve not to give in to inflationary wage claims. We do not want to trigger a wage spiral. That is what poses the greatest danger to the economy at present.
My right hon. Friend the Chancellor said that inflation had proved far more stubborn than anybody had expected. He said, rightly, that the largest factor in that was the increase in local authority spending. I do not know whether the hon. Member for Wrexham is winding up the debate for the Opposition.
§ Mr. Raffan
I am glad to see that the hon. Gentleman is nodding. I shall read his speech with great care. I am only sorry that I shall not be here. I am sure that he will want to respond to this point. The Labour-controlled county council in Clwyd, covering my constituency and that of the hon. Gentleman, is greatly increasing projected spending. The hon. Gentleman may well look down at the floor of the Chamber, because the council is increasing spending by £28.5 million or 18 per cent. That is unjustifiable and inexcusable.
Is that a foretaste of what the Labour party would do at national level should the nightmare occur and it got into government? There are so many questions on their policies that the Opposition have left unanswered. As my right hon. Friend the Secretary of State for Trade and Industry rightly said, how would a Labour Government effectively control inflation? How much would they add to public spending? I see that the shadow Chief Secretary is present. We read some interesting quotes from her in the press, particularly when she is cornered in television interviews. It is more difficult to corner her effectively here; she is not 1279 subjected to repeated questioning here. She always gives vague answers to questions about spending plans and how far the Opposition would raise taxation to pay for those plans.
Any Opposition attacks on Government economic policy will be blunted and rendered ineffective by their inability and reluctance to answer such questions, and their evasiveness and ambiguity when forced to do so. As the months go by and we draw closer to a general election, that will become increasingly apparent.
The trouble with the Labour party is that it is far more concerned to tell us how it would distribute wealth than how it would create it in the first place. We suffered some bad experiences, albeit 10 years ago. Ten years is not a lifetime: it is only a generation ago. We will remind those who have had the good fortune not to live under a Labour Government in this country exactly what happened under the last Labour Government. They promised the earth. They told us how they would distribute wealth, but they could not create it. Ultimately they had to go begging to the International Monetary Fund for the largest loan which that organisation has ever given to any country, banana republics included.
The Labour party has failed to advance a credible policy on interest rates, exchange rates, inflation and spending or to answer the questions, about its spending plans. It promises so much to so many but few believe it can deliver. That is what ultimately undermines its credibility. That is why it will not win the country's confidence at the next general election.
§ 6.5 pm
§ Miss Kate Hoey (Vauxhall)
I am pleased to make my contribution today—definitely for the last time as the newest Member and almost definitely, I hope, for the last time as the newest woman Member. I shall be brief, taking note of what the Father of the House told me when I first came to the House—that it is better to be brief than to be boring.
I shall mention a couple of issues in the Budget about which I feel particularly strongly and which I believe should be brought to the attention of the House. There has been much talk about this being a Budget for savers and for women. I shall concentrate on why the vast majority of women have not gained from the Budget. Many women, particularly the low-paid, have lost as a result of Government policies over the past 10 years.
The Budget has done absolutely nothing to help women home owners. who are still saddled with high mortgage interest payments—as well as having to pay the poll tax. It has also done nothing for the low-paid, two thirds of whom are women, or for mothers, particularly those whose child benefit has been frozen since 1987.
There has been just one move forward for women and we all welcome it—the change for women whose children are in workplace nurseries. The Chancellor of the Exchequer finally gave in to pressure from the Labour party and from women throughout the country to go back on a previous Conservative measure. We should not forget that the tax was introduced in 1985 by a Conservative Government. Now they have turned around and flown in the face of what the Chancellor himself said when he was Chief Secretary to the Treasury. Last year he said that the Government would not change that tax, and that its 1280 removal would have little effect on creating conditions to enable mothers who wished to work to have access to affordable means of child care.
We welcome that change, but it will affect very few women. Only 3 per cent. of employers' organisations provide workplace nurseries. Not one new child care place will be created by that move. The women who have benefited from workplace nurseries since 1985 have, to date, paid an average of £4,500 in tax as a result. That money will not be refundable. The Budget does nothing for the millions of women who have to make difficult decisions about where and how they will work, whether they can afford to go back to work and how their children will be looked after.
As recently as 26 October, in answer to a question during Prime Minister's Question Time about whether t he tax on workplace nurseries would be abolished, the Prime Minister replied categorically:No. Workplace nurseries are treated just as other extra facilities are—as benefits in kind for those earning over a certain salary. It would be quite wrong if those who have nurseries available at work were not to regard that as a benefit in kind while other people who had to make their own arrangements had to pay out of net taxed income."—[Official Report, 26 October 1989; Vol. 158 c. 1041.]The Chancellor of the Exchequer has changed that policy, so presumably the Prime Minister has changed her mind—if not, according to the logic of her argument, she will have to come forward with measures to allow all women tax relief on child care. I hope that the Chancellor will bear that in mind.
The second issue that I wish to mention relates to the reduction in tax on football pools and the way in which that money is to go back into football. That is very welcome, and something that Labour and the football industry have been recommending for some time. At last we have a Chancellor who takes a little more interest in sport even than the Minister for Sport. It is very important that that money should be spent correctly, and I am very pleased that it will go to the Football Trust—a body set up by my right hon. Friend the Member for Birmingham, Small Heath (Mr. Howell), who was a member of the then Labour Government. The trust has shown that it can spend money wisely, and the Chancellor's decision was an admission that football has been starved of the funds needed if grounds are to be made safe. The Government have been pushed by the Taylor report into taking that action and of course we welcome it. We need to move towards the provision of all-seater stadiums.
The money provided will help to improve ground safety, but we must not forget other aspects of the game. For instance, it is crucial that entrances to grounds and particularly the number and type of turnstiles should be taken into consideration.
§ Mr. Doug Hoyle (Warrington, North)
Because of my hon. Friend's expertise in football, I am listening with great interest to her remarks. Does she agree that other sports will also need assistance? I am thinking particularly of cricket and rugby league, which face the same problems.
§ Miss Hoey
It was my intention to deal with that very point and my hon. Friend's question reinforces that intention.
If it is necessary to provide seating in order to save lives, can we afford to wait so long for action by individual clubs? The estimated total cost of making all football grounds safe is up to £200 million. Surely all works should 1281 begin simultaneously. The money could be made available to the football clubs and paid back over a period from the money generated from the extra pools revenue. Where safety is involved, it is not good enough to carry out work gradually—all schemes should be undertaken immediately. Financial arrangements such as I have described could be made.
The Taylor report has had a knock-on effect on sport in general. I am thinking, for instance, of cricket, rugby league and rugby union. Clubs involved in all those sports will have to spend very large amounts of money on their grounds. Where will that money come from? In the case of designated cricket grounds, a huge amount of work will be needed. In the case of cricket grounds, such as the Oval in my constituency, clubs will have to spend at least £1 million in the very short term to satisfy the requirements of the Taylor report.
Sport generates an enormous amount of income for the Government. It is time for the Government to step in and find ways to provide the necessary finance. That is what happens in other countries when safety considerations are involved. The Chancellor gets up to £1 million per year in VAT on the sale of tickets at cricket grounds. That money could immediately be returned to cricket clubs to enable them to bring their grounds up to proper safety standards. I hope that the present Chancellor, who is interested in sport, will take my suggestion on board.
Very few people in my constituency will have been celebrating on the streets following the Budget. The greatest need in my area, just the other side of the river, is for housing, but the Budget contains not one suggestion, not one mention, not one proposal, to alleviate the housing problems in my borough and does nothing for the 15,000 people on the housing waiting lists there. It does nothing to help the many hundreds of families in the borough who are in bed-and-breakfast accommodation. It also does nothing to help people—particularly young people—wishing to move out of the family home, to get married and to set up family life in an independent situation. The Chancellor, in his Budget, seems to have forgotten that this country faces a housing crisis.
As I have said, the Budget does nothing to bring more women back into work, although there are the first signs of recognition that women are needed in the work force and that women want to work. In my constituency, however, many young single parents are sitting in their flats all day because they cannot afford the cost of child care. In those circumstances, it is nonsense for a single parent to go out looking for a job, especially one of the low-paid jobs available in my area. Having taken the first step in respect of workplace nurseries, the Prime Minister must stand by what she said in the House in October.
§ Mr. Nigel Forman (Carshalton and Wallington)
I welcome the Budget as a prudent and responsible package of measures—notably the encouragement to savings in the form of the TESSA scheme and the abolition of the composite rate tax. I am particularly pleased that the Chancellor has introduced measures to encourage still further the process of wealth creation and dispersion. As an honorary director of Job Ownership Ltd., I am delighted with the small but important change in the 1282 treatment of capital gains tax—the roll-over relief for ESOPs, the employee share ownership plans. Wider share ownership is an excellent move in the right direction.
The Budget will be seen as having adopted the appropriate fiscal stance for the current stage of the economic cycle. The Chancellor was absolutely right to place himself slightly on the tough side of neutral at a time when the relevant statistics still point in contradictory directions. In macro-economics and in politics it is always a good rule that, if one is not absolutely sure about the side on which one should lean, it is best to remain upright and to maintain broadly the existing policy stance.
My right hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) was absolutely right when, in his excellent speech, he said that Labour's policy alternative, so far as one can divine it from the party's policy review and elsewhere, is either vacuous or, in some cases, outright dishonest. As The Independent put it in a recent editorial, Labour policy is really a combination ofwarmed-over coporatism"—dating from the 1960s and the 1970s—and vindictively higher taxation.The British public have already begun to see through that particular aspect of Labour's policy. According to a poll conducted recently for the BBC, the results of which were published in The Independent, nearly twice as many people still think that the economy would be weaker, and prices would rise faster, under Labour than under the Conservatives. More than twice as many people believe that, for the average family, taxes would be higher. These are potent public anxieties that reflect the common sense of the British electorate.
Looking to the future, and regarding this excellent Budget as the first in a series of what I hope will be winning Budgets from my right hon. Friend the Chancellor, I hope that the Government will work towards two further institutional changes, which together would give them an even better chance not just of reducing but actually of eliminating altogether the scourge of inflation.
Let me digress for a moment. I heard the compelling speech of my right hon. Friend the Member for Hertfordshire, North (Mr. Stewart). I should like to place on record my strong agreement with his view on the RPI and the distortions that it can reflect. I hope that, when we come to a quieter period of lower inflation, it will be possible for the Government and the RPI Advisory Committee to look again at this matter. My right hon. Friend's arguments were very persuasive.
In relation to institutional changes, my first and foremost point relates to the statutory position of the Bank of England. I agree entirely with my right hon. Friend the Member for Blaby (Mr. Lawson), for whom I was proud to work for two and a half years at the Treasury, that a new basis of statutory accountability to Parliament for the Bank of England would be in the national interest and in the interests of the British people. There are several reasons why I say that, but there are three principal reasons why the change would be beneficial which are worth putting on record.
The first reason is that it would give undoubted added market credibility to the use of monetary policy as the principal anti-inflationary instrument of the Government and any other responsible Administration. Furthermore, it would assist the Bank of England, as the relevant body, in the administration of monetary policy. It would be the equivalent of good corporate management in a company 1283 where a division, or a part of the company, is given clear responsibility for an overriding task—in this instance, the elimination of inflation—and is allowed to get on with the job, with the requirement only that it should report back and be accountable. In this instance, I suggest that the Bank of England should be accountable to Parliament rather than to Ministers.
The second reason why the idea is so attractive is that it would help to entrench a thoroughly non-inflationary approach to monetary policy within our political system. It would thereby help greatly to safeguard what Mr. Enoch Powell used to describe, rightly, as honest money against the temptations of the political cycle.
The third reason—it is probably the least important of the three—is that it would equip us with an institutional framework which would be usefully compatible with the framework that operates already in the countries of our European Community partners, with which, no doubt, we shall be co-operating even more closely in the years ahead within an embryonic system of European central banks.
I do not believe that at this stage in the economic development of the Community we should hasten too precipitately in the direction of a single central hank. Nor do I believe that it is necessary for the co-ordination of fiscal policy to be a vital accompaniment of the co-ordination of monetary policy. If we start from the angle of monetary policy, I think that we shall find that some virtuous consequences in fiscal policy flow automatically in market terms from that.
I say to my hon. Friend the Under-Secretary of State for Industry and Consumer Affairs, who I know is listening carefully to the debate, that the statutory accountability of our central bank would be an important buttress to the success of our counter-inflationary policy over the next few years. I hope that it will receive careful attention.
The other institutional change that I would urge upon my right hon. Friend the Chancellor of the Exchequer when he comes to consider these matters again at the appropriate time is something which I regret has become something of a King Charles's head, although it is none the less important for that. I refer to entry at the appropriate time into the exchange rate mechanism of the European monetary system. I know that my right hon. Friend the Member for Hertfordshire, North has already spoken about the matter and arrived at a different conclusion from the one at which I shall arrive.
It seems from the evidence that I have seen, from the French and Italian experience in particular—in many ways, they started with a more difficult inflationary situation than our own—that, after an initial period of undoubted interest rate volatility, we would see the interest rate premium that we have to pay of 6 or 7 per cent. vis-a-vis West Germany diminish over time to the point where we would not have to pay it at all. We would find that in consequence the financial markets would have greater confidence in the rigour and discipline of our monetary policy. Ultimately, that would greatly reduce the exchange rate fluctuations. That would be a valuable development.
Any senior industrialist or person in financial services will say that, of all the various non-tariff barriers which British industry and commerce are facing, none is more significant than exchange rate fluctuations and volatility. There is no doubt that the nations that have been within the ERM over the past few years and have managed to 1284 pursue the necessary monetary discipline to buttress the exchange rate mechanism have found considerable benefit for themselves and their export sector from being within the mechanism. I have no doubt that it would be one of the best ways in which we could take full advantage of the single European market.
Now that most of the external conditions that were set by the Government at Madrid for our full participation in the ERM have been met, I trust that it is only a matter of economic and political judgment before my right hon. Friend the Chancellor of the Exchequer decides that the time is ripe to take Britain into the mechanism.
With the firm foundation of this sensible Budget and the prospect of the institutional changes which I have recommended, we shall defeat inflation, promote the revival of our economy from the present temporarily difficult phase and bring about still further improvements in the prosperity and living standards of the British people.
§ Mr. John Garrett (Norwich, South)
With inflation due to rise to nearly 10 per cent. in the next few months, with a rate of economic growth down to a miserable 1 per cent. for the year and a forecast balance of payments deficit of £15 billion—the Government are usually optimistic in such forecasts—in earlier times our economic condition would have been characterised as stagflation, the constant problem of the vilified economic management of the 1960s and 1970s. The Government seem to be trying to give the impression that we face merely a temporary pause in our economic miracle, but we have only to read the forecasts in the Red Book to appreciate that the condition is far more serious than that.
The major indicators show that we are in a worse position than that which we faced at the beginning of the great economic experiment a decade ago. The need for a neutral Budget is clear enough when we are about to face the deflationary effect of poll tax—equivalent to 2p on the standard rate of income tax—as well as an unprecedented rise in council rents of 50 per cent. to 60 per cent. in some areas—and high interest rates. It is clear why the Chancellor of the Exchequer felt unable to take more purchasing power out of the economy.
The growth rate of I per cent. includes a significant increase in North sea oil output. That means that non-domestic oil output will increase by an amount so small as to be virtually unmeasurable, and certainly not a reliable figure. It must be a long time since the growth in manufacturing output was forecast as nil for the coming year. In anyone else's language, that means that we are heading for a recession, if not already in it.
A significant increase in unemployment is inevitable regardless of the behaviour of wage bargainers, but there is no forecast in the Red Book or in any of the statements by Ministers of the level to which unemployment is expected to rise. The idea that inflation will fall from well over 9 per cent.—probably nearer 10 per cent.—in the spring to 7 per cent. in the autumn is hard to believe, let alone the notion that it will decrease to 5 per cent. next year. Of course, the Government always forecast that it will fall to 3 per cent. in the year after next, but we never manage to achieve that.
The support that the Chancellor of the Exchequer has given to guidelines or a code of practice for credit lending institutions is unlikely to have much effect. It is false to 1285 argue that credit controls cannot work in a deregulated financial system. Most non-housing lending is undertaken by banks and building societies which are licensed. A Bundesbank research paper issued this week states:Reserve requirements help control liquidity in the money markets as well as automatically acting as a brake on the creation of money.One of the advisers to the Treasury and Civil Service Select Committee put the case for direct credit controls clearly when he said:Whichever of the monetary policies the Chancellor might choose, his task in making it work would be easier were a minimum reserve asset system restored. The ability to limit money growth with lower interest rates than are at present required would also have a longer-term beneficial effect on inflation by reducing the extent to which capital investment plans are aborted. Indeed the Bank of England can still call for special deposits, and it might be advisable for it to do so.On other key indicators, fixed investment is likely to fall by 1.25 per cent. this year compared with an increase of 1.25 per cent. forecast as recently as last November. Manufacturing output, which will show no growth in 1990, will enjoy a recovery to only 0.75 per cent. in 1991—far below the rate of growth in other European economies and far below the rate of growth in East European economies, let alone those of our direct competitors. It is very hard to see how such a level of recession will prepare us for the increase in competition in 1992.
British industry will continue to be under-invested, under-trained and inadequately supported by research and development in the next two years, and as far ahead as we can see. The Budget did nothing to meet those inadequacies in British industry which mark us out from our competitors—inadequate investment in new plant and machinery, in training, in research and innovation and in energy conservation. Those should be central concerns for the future.
It is hard to see the tax relief for company contributions to training and enterprise councils as anything more than a gesture. No wonder the proposal has had a lukewarm response from business. It is Government's job to promote and fully fund training for industry—it is not for industry to make donations to training institutions. In any case, funding for the training and enterprise councils has been reduced, despite loud complaints from industry.
Nor has there been a warm response to the ending of tax on workplace nurseries. There are only 3,000 places in workplace nurseries, mostly in hospitals, health authorities and local authorities. Working mothers need a network of nurseries provided by local authorities, or there should be a levy on employers to provide for public child care. In this country, 40 per cent. of three to five-year-olds attend nurseries compared with 95 per cent. in France. Working mothers will gain very little from the Chancellor's proposals.
In this context, it is also right to mention child benefit, which after all partly replaced the tax allowance. It is a scandal that child benefit continues to be frozen, as there is no more effective device for the relief of family poverty.
I welcome the differential tax on unleaded petrol, but I believe that much more could be done to limit environmental pollution by way of taxation or tax relief. A whole range of innovations is taking place throughout Europe using taxation or tax relief to promote 1286 environmental protection. In Sweden, there are taxes on sulphur emissions and there will be a tax on carbon dioxide and nitrous oxide emissions, in Norway a tax on emission of CFCs, and in Finland a tax on phosphate fertilisers. In West Germany, motor taxation is being switched from engine size to classification by exhaust emission and noise, and in Italy there are taxes on sulphur dioxide, plastic products and herbicides.
All those means could be used to set the tone for environmental protection, to show that the Government intend to discourage the use of pollutants. A variety of tax penalties and incentives could be used to give signals to industry about the need to reduce pollution or to invest in environmental equipment or energy conservation. The Budget could have provided an opportunity to set the direction for a programme of inducements to reduce pollution, but in that regard, as in most others, the Budget misses the opportunity. It could have addressed the long-term needs of the economy for productive and environmental investment, but in fact it is little more than window dressing by a Chancellor left no room for manoeuvre by his predecessor.
§ Mr. Matthew Carrington (Fulham)
I greatly welcome the Budget. It is doing what the economy requires at present. In particular, I regard the strong commitment expressed by the Chancellor to bear down on inflation and to continue the fight against it as one of the most important aspects of the Budget. Its fiscal stance is about right: fiscal tightness in the economy is at about the right level, just as monetary tightness is at about the right level.
In particular, interest rates are probably about as high as they need to go, because one runs into a law of diminishing returns fairly soon: the higher interest rates go, the less effective they become. This is partly because of the political effects of interest rates, which need not be spelled out, given that we are a nation of home owners, but also partly because of the economic effects of high interest rates on wage rises and so forth. If, however, we accept that interest rates are as high as they need to go, we must also accept a degree of volatility and of uncertainty in the exchange rate which might be difficult to tolerate but which ought to be tolerated until such time as the interest rates have done their work and inflation starts to come down.
The other side of this—also addressed in the Budget and also very welcome—is an emphasis on increasing savings and enabling people to transfer their money into the savings sector. The abolition of composite rate tax is one of the most exciting innovations in the Budget and one which will do a great deal of good, particularly for small savers and especially for the elderly and for young people who, on the whole, will not be taxpayers. It will boost savings and be of considerable benefit to the economy as a whole. Nevertheless, we must wait for the economic medicine to work, and we must try not to get upset about the economic problems that we undoubtedly face in the short term.
It is often said that there are no alternatives to high interest rates, but this is incorrect. There are many alternatives to high interest rates. The great problem is that, on the whole, they do not work. The hon. Member for Norwich, South (Mr. Garrett) spoke about credit controls. Such remarks are often made about the beneficial 1287 aspects of credit controls—the trouble is that they often come from theoretical economists rather than from people who have practical experience of how our banking system currently operates. It is not hard to see how many banks and financial institutions could get round any credit controls that Government imposed.
§ Mr. John Garrett
I was quoting from a paper by the Bundesbank on the effectiveness of reserve asset ratios and other forms of control. West Germany happens to enjoy an inflation rate of 3 per cent. at the moment, so the West Germans may know quite a lot about the usefulness of such instruments.
§ Mr. Carrington
The hon. Member anticipates me slightly—I was going to come on to reserve deposits in a moment. The Bundesbank report referred to the German economy and banking system, which are very different from our own and which have different regulatory frameworks, for reasons which I will come to in a moment.
Going back to credit controls, because it is important to realise how mechanisms for getting round them would operate in practice, if a borrower was denied credit by a bank because the bank. for whatever reason, felt constrained not to lend by Government regulations, either that borrower would go to other financial institutions which would not be limited by the regulations imposed by the Government—thus creating an artificial impediment to competition and efficiency in the lending market—or, if that failed, and he could not borrow domestically inside the United Kingdom, in the absence of exchange controls, any borrower of any size—not necessarily a large size—could borrow offshore without problems.
Nor would he have to borrow offshore from an institution which had no presence in the United Kingdom; he could do so from any subsidiary of any institution which was not under Bank of England control. An understanding of the way in which banking control works in the G7 countries and increasingly in the OECD countries means that any bank with its headquarters under the regulatory control of another central bank is controlled by that central bank and not by the Bank of England. Consequently, the ability of the Bank of England to stop a foreign institution lending to British nationals is severely limited. It would not be practical to control it even at that basic level. One has only to look back to the time before exchange controls were lifted to see how inefficient they were in preventing people from borrowing overseas.
Reserve deposits are a little more complicated because they do not have an immediate and direct effect on the lender. They effectively make it more costly for banks to lend, which in turn pushes up the margin or spread that bankers charge on their loans, as happened last time we had reserve deposits, when they pushed up the cost to the borrower, which had the net effect of pushing up interest rates. In addition, there is intermediation from institutions not affected by the reserve deposits. It is difficult to devise a system which catches all the quasi-banks that are capable of lending. One has only to look at the various commercial organisations in the business of providing credit in one form or another to see that, and one has only to look overseas to see the people who would come in to get round the reserve deposit requirements.
German markets still have reserve deposits, but they are being wound down and there is a great argument in Germany about how long they will survive. However, they 1288 work in Germany because the German economy is much more closed than ours. German banks maintain a tight control on the availability of the deutschmark, partly through tradition and partly because the German banks own so much of German industry.
§ Mr. Tony Banks
The hon. Gentleman has given us the key to the problem. The Prime Minister boasts from the Dispatch Box that Britain has the most open economy in Europe, but is that not the problem rather than a measure of our success? If we adopted the German model, we might have a more successful economy.
§ Mr. Carrington
The hon. Gentleman is right, except that the German economy is moving towards us rather than away from us and it is becoming more open. It is not more open, because the German banks still have a stranglehold, which they are slowly being forced to loosen as they start to conform with EC directives arid regulations.
One reason why German banks have managed to maintain the stranglehold on the German economy for so long is that it is difficult to do business in Germany unless one speaks the language. I speak from experience, having done a considerable amount of banking in Germany at various times in my career as a banker before coming to this place. It is difficult to do business with middle-sized German companies unless one is a German speaker. The linguistic barriers to entry into the German market for foreign banks are substantial.
§ Mr. John Garrett
I am greatly enjoying the hon. Gentleman's mini-lecture on banking for undergraduates. It is most instructive, but I took that course almost 30 years ago. Is he telling the House that the 80 per cent. of lending made by banks and building societies to private individuals for non-housing purposes cannot be controlled?
§ Mr. Carrington
I am sorry that the hon. Gentleman finds my speech too elementary. It is a shame that he did not adjust his remarks to take account of the fact that what he was saying was wrong, which would have relieved me of the necessity of having to teach the hon. Gentleman a thing or two.
Intermediation and the ability to borrow overseas is no longer largely dependent on the size of borrowing. In fact, it can be done at low levels for a variety of straightforward technical reasons, but they mean that most individuals, even with small amounts of borrowings, can have access to overseas funds without too much trouble.
The third factor that is also mentioned is the exchange rate mechanism of the European monetary system. It is said that if we join, it will bear down on interest rates arid so assist our economy. The commitment in the Budget to join the ERM at some stage in the future when circumstances are right is vital. I am strongly in favour of joining the ERM. Currency stability with our major European trading partners is an eminently desirable goal which would be good for industry.
The only problem that we face at the moment is the straightforward practical one that there is not much to join.
§ Mr. Carrington
If my hon. Friend listens to my speech for a few more moments, he may find that his intervention is less pressing than he thought.
There is not much to join in the ERM at the moment, because we are in for a nasty shock on the ability of European currencies to hold together, particularly now that the Germans are proposing to merge with East Germany at the rate of one ostmark for one deutschmark, which will throw serious pressures on to the German economy. No one at this stage can foretell the effect of those pressures, partly because we do not know how the Germans are proposing to fund it. However, given the way in which Germans have funded things in the past, the likelihood is that German interest rates will rise.
Another consequence is that the deutschmark will become volatile in terms of its historic volatility, and that will not necessarily bear any relationship to the inherent instability and volatility of sterling that we have seen over recent years. Therefore, the ability to hold our currency in the short and even the medium term in relation to the deutschmark within any currency band would be severely constrained.
But that is just a start. The instability of the deutschmark which will be caused by the reconstruction of East Germany is only one aspect of what is happening in Europe at the moment. The European Community will be faced with the major responsibility of ensuring the restructuring of the economies of Czechoslovakia, Hungary and, eventually, Poland. There will be a massive demand on Europe to support those fledgling economies. If we do not, the political risk of those countries ending up in chaos with internal disputes and major border disputes will be serious. That will have major financial consequences for Europe, for ERM and the EMS and it will cause a major rethinking in Europe on how monetary co-operation, let alone union, is to be tackled. At this stage, we cannot foretell how that will come out.
Far from joining the ERM at the moment, we should seek an opportunity, particularly with the French and the Italians, who will be most adversely affected by the immediate changes in the deutschmark, to discuss ways to restructure European monetary co-operation in such a way that we can all co-operate on a basis which will not throw so much dependency on to the monetary control exercised by the Bundesbank as the ERM does at present.
Abolishing the tax on workplace nurseries is a major move in the right direction. To some extent I agree with the hon. Member for Vauxhall (Ms. Hoey) that that is only the start of a major rethink of the way in which we provide support to working women who need or wish to go out to work and want their children cared for during the day. There will always be relatively few children for whom a workplace nursery will be appropriate because of the nature of the mother's work, or the father's work—let us not be sexist about it. I know of a number of instances in which it is more appropriate for the father to take the child to the workplace nursery.
There will be times however, when such nurseries are not appropriate, either for the work or for the child. Many people say that, because of their association with the place of employment, it is not necessarily beneficial for the child to identify itself with being taken by mother or father to the place of work and then being placed in care there. We will need to expand the tax relief to cover other types of nursery provision.
1290 We must also address the question of self-employed women. Almost as much as any other women, they need to be able to afford child care so that their children can be looked after while they are working. At present, child care is not allowed as a business expense for self-employed women, and under no likely arrangement of tax deductibility for child care in nurseries would that be appropriate. I can envisage a position where we will have to allow that expense as a deductible business expense.
My solution would be to raise the higher earnings limit from £8,500, as that would take many people out of taxation and benefits in kind, and would mean that we would save not only the considerable administrative burden in processing all the P11Ds, but ensure that the tax relief went to the least well-off, rather than going, as it will at present—if we expand it—to those who need it less with high marginal tax rates. We should raise the £8,500 higher earnings limit to something more realistic—perhaps close to £15,000.
The Budget is greatly to be welcomed. It is a cautious Budget, but one which keeps the pressure on in the battle against inflation in a highly desirable way that will pay dividends as long as we have the patience to wait for the medicine to work and bring down inflation.
§ Mr. Pat Wall (Bradford, North)
I took a calculated risk in submitting my name for this debate, as I have suffered from voice problems for a couple of months—probably to the pleasure of Conservative Members, and perhaps occasionally that of some of my hon. Friends. Certainly the chances of my voice fully recovering are somewhat better than the chances of the Government recovering from the economic mess that they have inflicted on the country.
We are told—and it is largely agreed—that this is a neutral Budget. It does nothing to address the gross inequalities in British society, nothing for the 9.4 million people who live on or below the poverty line, including 2.75 million children, nothing for the mass of pensioner couples who, by April this year, will have lost £20 per week in their pensions because of the severing of the link with average earnings, and nothing to make up the loss of child benefit, which has not been increased for the past three years. If anything, the Budget has marginally increased the trend away from direct taxation to indirect taxation and the consequent problems of the poorer sections of society.
The Secretary of State for Trade and Industry said that the average couple with the average two children were better off than they had been 10 years ago. However, they now pay 5 per cent. of their incomes in value added tax, as opposed to 2.7 per cent. when the Government came to office.
The Chancellor's attitude to the country's enormous balance of payments problem is certainly less cavalier than that of his predecessor, the right hon. Member for Blaby (Mr. Lawson), but he advances similar arguments. The former Chancellor gave three reasons why the trade deficit of £20 billion could largely be ignored. First, he believed that the deficit could be financed by inward investment, as has happened with the trade deficit in the United States in recent years. Secondly, many of the imports that led to that deficit were for capital equipment, which was only a 1291 sign of the enormous investment and productive boom in Britain. Thirdly, Government cash reserves were high and could meet any contingencies.
We should look at the sheer volume of the deficit—£20 billion. It is greater still in manufacturing industry. Travelling here this morning, I listened to a city expert talking about the Budget and the general economic position. He said that, even if the Chancellor achieved a reduction in the trade deficit to £15 billion next year, had there been a Labour Government the press and the City would be screaming for the International Monetary Fund to come in and take over the British economy.
The trade deficit can no longer be matched either by invisibles, which for the first time have gone into deficit—another Government record—or by the £80 billion from North sea oil, which has been largely wasted under the present Government. There is no net investment into Britain. In 1989, net capital outflow was £14.5 billion. Combined with the current account deficit, that amounts to a total deficit of some £35 billion, which has to be financed largely by hot money from abroad. That sum amounts to 3.9 per cent. of gross domestic product to cover the current account deficit, and 2.8 per cent. to cover the capital deficit. That is a total of 6.7 per cent.—again a Government record, and the highest figure in British history.
The United States has a deficit for those combined two figures of only 1.6 per cent. Many of the so-called capital goods imports are classed by economists as intermediate goods, which could be better described as semi-consumer goods rather than capital goods. Britain used to have an export surplus in capital goods. The fact that it is now in deficit is a sign not of the strength of the British economy, but of its inherent weakness.
The right hon. Member for Blaby (Mr. Lawson), when he was Chancellor, talked of the official reserves. He should know a great deal about them—in one day under his Chancellorship those reserves fell by $1 billion. Since 1988, the reserves have fallen from £50 billion to £30 billion. That is why it is necessary to attract hot money into Britain, leading to a constant raising of interest rates and all the consequent damage to the economy and manufacturing production in Britain. That poses an awkward dilemma for the Government. There is a possibility of a recession. We are experiencing that already in Yorkshire and elsewhere in the textile industry, which is the fourth biggest industry in Britain. Once again it is suffering from redundancies, short-time working and lay-offs. In that much-vaunted sector of the economy, the service industries, there have been lay-offs in banking, in the City of London and in other sections of the economy.
§ Mr. Janman
If we extrapolate from the hon. Gentleman's observations about the economy, it is clear that he is making a case for his party, if it returned to government, to reintroduce the exchange and import controls that the Conservative Government abolished in 1979, and which virtually every economy in eastern Europe is turning away from. If the Labour party won the next election, does the hon. Gentleman think it should reintroduce import controls, exchange controls and capital controls in the British economy?
§ Mr. Wall
The last thing I have ever been is an import controller. If controls on finance and trade are introduced, they will be a result of what is happening in the world 1292 economy, which is now in the seventh year of the longest boom in post-war history. However, it has also been the weakest boom, with the lowest levels of growth and profitability. It is now coming to an end, especially in Britain because of the under-investment and under-capitalisation in the British economy.
Our economy will face the dangers of recession far more sharply than those of our competitors in the Group of Seven. It is in those circumstances that trade wars and restrictions on the export of capital, finance and goods will arise. The conflict between Japan and America that is developing now reflects the difference between a surplus nation—Japan—and its interests, and a deficit nation—America—and its interests. That has nothing to do with political dogma; it has to do with world markets, and it explains why these conflicts will develop.
I should like to give a few more illustrations of the nonsense of the so-called economic miracle. We are told that production has grown enormously, but growth in production in the 1930s was just as great as it has been in the past 10 years. Ignoring oil, which did not exist then, it stood at about 19 per cent. in both decades. Manufacturing output only reached the 1973 level in 1987, following the recession of 1979–81. It is now about 8 per cent. higher, but in the same period manufacturing production in West Germany rose by 40 per cent., in America by 70 per cent. and in Japan by 80 per cent.
It is reckoned that British investment per head is only 60 per cent. of that in Japan and 80 per cent. of that in West Germany, while investment as a percentage of gross domestic product has risen over the past two years from 13.7 per cent. to 17.7 per cent. Virtually all that increase was in the service sector of the economy. Wynn Godley and Ken Coutts in The Political Quarterly reckon that investment in new plant and equipment and in replacing obsolete equipment, compared with the years 1971 to 1979, has fallen by 63 per cent. in real terms.
This morning and yesterday a much vaunted increase in exports was announced, but I would argue that most of that increase has taken place because of the 10 per cent. devaluation of the pound since the present Chancellor came to office. Most capital investment is in banking and finance. As announced in the City today, in industries such as chemicals and metals, important to future exports, capital investment has virtually ceased and most of what is left is in banking, which does not bring in much export wealth to the country.
PA Consultants brought out a report on 400 major international companies. The report showed that only 25 per cent. of United Kingdom manufacturers spend more than 5 per cent. of turnover on training and development; the comparable figures for West Germany and Japan are 71 per cent. and 35 per cent. respectively.
The only aspect of the British economy—and its only attraction—of which the Government can boast are the low wages that British workers are paid, as I well know as I come from the town of Bradford, which has the lowest wages of any town in the British isles. The Budget gave concessions and advantages to savers, which no one would oppose, but Conservative Members may not be aware that many of my constituents who receive their benefits or wages on Thursdays and who work in the mills and foundries will have spent the lot by the end of the weekend and have to eke out Tuesday and Wednesday on virtually no money. The attraction of savings therefore has little 1293 meaning for them. The Budget, and the Government and their policies, have done nothing to advance the interests of many of my constituents.
We have heard today about eastern Europe. The Secretary of State talked about the attractions and superiority of the market economy. What the events in eastern Europe have marked more than anything else is the fact that any society which cannot improve its economy within a fairly short period is a society in crisis. That was clearly shown in eastern Europe by the bureaucratic regimes, with all their corruption, nepotism and rottenness and their failure to advance the economies of Russia and eastern Europe. That failure caused divisions.
The British Government face the same problem, albeit on a lesser scale. They can no longer advance the economy of Britain, so what took place in eastern Europe will happen here. Divisions will begin to widen in the leadership of the Conservative party, just as they have developed among the leaderships of Russia and other eastern European countries in the past few months.
Last year there was a leadership contest in the Conservative party in which, for the first time since the Roman emperor Caligula, a group of politicians sought leadership from a quadruped, however well meaning he was at the time. The Tory party now faces a different type of horse—a Trojan horse being prepared within its ranks, probably in Henley-on-Thames. The Conservative party cannot solve the problems of advancing the British economy. It does not matter who leads the Conservatives after the general election, whether it be a horse or someone swinging through the trees, because the Conservatives will be defeated at the election. Then at least we can begin to solve the problems which face working people in this country and to advance the interests of the mass of the population, not just those of a few spivs.
§ 7.8 pm
§ Mr. Anthony Coombs (Wyre Forest)
In my relatively short time in the House I have heard quite a few examples of hypocrisy but I have never seen such a display of brass-neckedness as we just heard from the hon. Member for Bradford, North (Mr. Wall). The hon. Gentleman is virtually synonymous with corporatism, high taxation and Government intervention——
§ Mr. Coombs
That is my hon. Friend's word, not mine. The hon. Member for Bradford, North argued about the benefits of the sort of revolutions that have taken place in eastern Europe. But the Czechs, Hungarians and Poles are all coming to Britain wanting to learn about the policies that this Government have championed——
§ Mr. Janman
I should like to clarify the terminology for my hon. Friend. It is my right hon. Friend the Member for Henley (Mr. Heseltine) who is the corporatist; the hon. Member for Bradford, North (Mr. Wall) is the Stalinist.
§ Mr. Coombs
That sounds accurate.
These countries have been coming here because they want to learn about privatisation, the free market, free enterprise and low taxation, all of which have been championed by the Government. So when the hon. 1294 Member for Bradford, North tries to argue that these revolutions support his dirigiste, socialist philosophy he is guilty of brass neck of the worst possible sort.
As many of my hon. Friends have said, the Chancellor deserves our congratulations on introducing a balanced, sensible and cautious Budget. It is properly restrictive in monetary and fiscal terms and will produce the proper balance between controlling inflation and avoiding the potential danger of recession. It is in the reforming tradition of my right hon. Friend the Member for Blaby (Mr. Lawson).
It makes several supply side improvements, particularly in the taxation of husband and wife, in savings, in training and in access to the work force by women. As the hon. Member for Vauxhall (Miss Hoey), who is not here now, said, it rightly targets the football industry as in need of specific aid to implement the Taylor recommendations.
It is good to see the markets taking a more sanguine and intelligent view of the effects of the Budget today than they did yesterday. One should not become too worried about what the markets say. I recall that, in 1981, the last time we produced a fiscally restrictive Budget, 365 so-called experts wrote to The Times saying that the Government would preside over an economy that would go into slump and depression, whereupon there followed eight years of unprecedented growth.
So the fact that some commentators are saying that the Budget is not deflationary enough, while others are saying that the Chancellor has been unduly pessimistic about the possibility of controlling inflation, means that he has probably got it about right. He has maintained a consistent philosophy involving low rates of taxation, proper monetary control and improvements on the supply side, a policy that has resulted in eight years of consistent growth.
I represent a manufacturing area, involved mainly in consumer durables, particularly the carpet industry. Although there has obviously been a slowdown in the consumer durables and carpet sector in recent months—as should have been the case, with higher interest rates; they were designed to achieve that end—industry bears in mind the economic background against which the changes are taking place.
Companies recognise that they have been making better profits than at any time in the past 20 years. Indeed, when I visited a company in the traditional metal-bashing industry last week, I was told that the firm made 12 per cent. on turnover before tax, which is an extremely good example of some record profits that have been achieved in recent years.
Investment has improved in my area, as it has throughout the economy. Companies are employing more people, and between December 1988 and December 1989, unemployment in my area dropped by over a third, to only 4.2 per cent., compared with about 16 per cent. seven years ago. That has been due to the massively improved performance of companies in the area.
I believe that companies would not expect an athlete to go on breaking records year after year. There must be a time to slow down, take stock and draw breath. That is what 1990 will prove to be. There is no doubt that the Chancellor's deflationary measures are working. Consumer spending is slowing and there is a fall in orders and some retrenchment.
The difference between the present fall in orders and retrenchment and other such movements in the past is that 1295 industry is today far better equipped to deal with that type of mini-recession. It is leaner and more efficient. The stock against output figures have dropped dramatically recently as destocking has taken place.
The growth in world trade is healthier, more firms are turning to export markets and our exports are increasing twice as fast as world trade as a whole. Indeed, a carpet company in my area, Brintons Carpets Ltd., probably the biggest, increased its exports last year by no less than 50 per cent. Businesses are better prepared on this occasion in terms of their financial ratios and gearing for the downturn that we are currently experiencing.
With imports flat and exports growing fast, the Chancellor may have erred on the side of pessimism in estimating that the trade balance will improve to only £15 billion this year. I estimate that there is a good chance of it improving much more quickly.
The British Textile Confederation is prepared to see the multi-fibre arrangement wither on the vine, provided that GATT is adequately reformed to achieve a level playing field for exports. But it is concerned lest the Government and the European Commission do not take tough enough action against countries such as Turkey, which are effectively subsidised by their Governments and are dumping goods into this country.
Turkey is now the largest exporter of textile goods to Europe. There are effectively no duties on its imports to us, yet when we try to export to Turkey, the duties average 200 per cent., including a contribution to that country's national housing fund. That is a particularly virulent form of protectionism, which must be addressed quickly by the British Government and the European Commission.
Continued progress in improving our trade balance will depend on our competitiveness. While last year our unit wage costs increased by only 4 per cent.—although in many countries they did not increase at all—if productivity begins to slacken this year as capacity restraints are reached and as investment growth levels off, our competitive edge may be blunted unless there is a significant restraint on wages. That is crucial for our strategy, and I hope that groups such as the Engineering Employers Federation recognise it.
We cannot take seriously the Labour party's regard for wage costs. Between 1974 and 1979, when Labour was in office, unit wage costs in Britain increased 50 per cent. faster than in any other European country, which inevitably damaged our competitiveness. Labour now proposes a payroll tax of 0.5 per cent. of turnover, which would cost industry £1.25 billion a year, and which again would damage our competitiveness.
Even the Labour party's advisers have estimated that Labour's proposals for a minimum wage—half annual industrial wages working up to two thirds on hourly earnings—would cost, because of reduced competitiveness, about 750,000 jobs once that policy had been fully implemented. How the Labour party can have any credibility, bearing in mind its industrial strategy and proposals for improving competitiveness, is beyond belief.
With industrial profit margins being reduced, there is a chance that industry will hold the line and that unit wage costs will be held down. That will be made more difficult because the labour market everywhere is extremely tight. I pointed out that in my constituency unemployment had fallen by a third in the past year. Skilled people are at a 1296 premium and every day one hears of companies, particularly smaller ones, poaching skilled people from their larger competitors.
With that in mind, I urge on the Government two sets of policies which I believe still to be crucial if we are to improve the supply side of the economy. The first set concerns training. There is no doubt that the new training and enterprise councils—one has been set up in Wyre Forest entitled CETEC, the Central England training and enterprise council—will do an enormous amount to ensure that the £18 billion spent by private industry and the £3.5 billion spent by the Government on training will be devolved to where it will be used best and more efficiently.
Equally, the improvements made by the Education Reform Act 1988, devolving more power to colleges and polytechnics, which can thereby improve their links with industry, will result in them providing courses that are more in tune with the needs of industry. Equally, it is good to see that the Government are still committed to doubling—albeit the figure has improved dramatically over the past 10 years, with 1 million people in higher education—the participation rate in higher education, when it fell under the previous Labour Government. All those things are very important.
The one area in which training seems to be missing out is the small business sector. It is good that 1,200 new companies are formed every week. The problem is that those companies need skilled labour and they are often not training themselves but poaching from other companies. Ninety per cent. of training is done by firms with more than 10 employees, while firms with fewer than 10 employees account for one third of industrial output. So we must do something to ensure that smaller companies have an incentive to do the training audits and the training and therefore produce their own skilled people. I believe that a form of accelerated tax relief might well be in order.
The second set of policies that is extremely important as has been recognised in the Budget—concerns increased participation of women in the work force. Already in this country we are extremely well developed—if I may use the expression—with regard to the number of women in the work force; 44 per cent. of the work force are women. Indeed, I am told that between 1987 and 1988 there was a net addition of 474,000 women to the work force, 81,000 of whom were part-time, so the vast majority were full time. Between 1988 and 1989, 516,000 women were added to the work force, and the number is going up all the time.
The contribution of women is vital; there is no doubt about that. By 1995 there will be 1 million fewer 18 to 25-year-olds than there were in 1985, so we need all the skilled labour, whether women or men, that we can lay our hands on. Separate taxation will be an encouragement to women to come into the work force, and flexible working and home working are things that the companies can arrange in their own interest.
In that regard, the proposal for workplace nurseries is excellent but, like my hon. Friend the Member for Fulham (Mr. Carrington), I do not think that it goes far enough. Only 2 per cent. of working mothers—about 2,000 at present—can take advantage of workplace nurseries. The proposal set out by the Treasury in the Budget militates against small firms that cannot organise their own workplace nurseries. It discriminates against women who are not provided with a workplace nursery by their own firm but who send their children to private nurseries. As 1297 my hon. Friend the Member for Fulham said, it also discriminates against self-employed women, who are becoming a more important part of the work force.
I appreciate that there is a delicate balance between encouraging parental responsibility, encouraging women to look after their own children and making sure that delinquency is minimised as a result, and improving the supply of women to the work force and therefore the efficiency of the work force. But I believe that the Government would not err, especially given that the arrangement that they are at present considering would cost only £10 million a year, according to the Budget details, if they gave tax assistance for direct payments by firms to private nurseries on behalf of their employees. In addition, I believe that expenses up to a certain limit per child for self-employed women should be regarded as deductible.
Both sets of policies, concerning training and increased access for women, will be crucial in improving the non-inflationary growth potential of the economy. The only disappointing part of the Red Book was that it talked about a maximum non-inflationary growth potential for our economy of 2.75 per cent. We have just been told that the economy has been growing at 3 per cent. a year over the past eight years, on average. I think that we ought to be able to grow considerably faster than that. It is only by supply side measures of this type that that will be achieved.
In the long term, the most imaginative schemes in the Budget are those for savings. Labour Front-Bench Members talk about support for savings, but the Labour Government diminished the real value of savings by an inflation rate that touched 27 per cent. in their last year in power. They imposed an investment income surcharge and hiked up taxes so that people could not save out of their disposable income. But now, pretending that they have changed their spots, Labour Members are proposing further taxation of investment income, in terms of national insurance contributions being levied on investment income. That is hypocritial nonsense.
The new scheme is radical. It goes far beyond any suggestions that I have seen in the past for tax advantages for savings. Indeed, the only suggestion that I have seen, which was worth thinking about, was by Professor Mervyn King of the London school of economics, who talked about tax-free retirement accounts, where one would not be able to get one's hands on the capital after five years, as in the Government scheme, but not until one was 60. So the scheme is radical, it will be very popular and I believe that it will be economically useful. Indeed, it is very good value for the taxpayer at £200 million a year.
This is a fair, sensible and intelligent Budget, based upon the sound economic achievements of the past 10 years. The blather, huff and puff and political sleight of hand that we heard from the hon. Member for Dunfermline, East (Mr. Brown) are not worth talking about in the same breath. Unlike him, this Budget takes up the economic challenges facing this country properly and seriously, and we commend it to the House.
§ Mr. Doug Hoyle (Warrington, North)
I shall not detain the House as long as the hon. Member for Wyre Forest (Mr. Coombs) did; I am sure that a lot of his hon. Friends will be very pleased about that.
Tory Members have been whistling in the dark, keeping their fingers crossed and hoping that everything will turn out all right. The euphoric days of the past are well behind them now and they are in some kind of trouble. The Budget was not designed to solve the problems of the country. It was designed for the Mid-Staffordshire election today and for the local elections, in the hope that it would keep up the morale of the party and somehow or other get people who are deserting the party in droves to vote for the Conservatives. It will not have any lasting effects at all. Nowhere does it face up to the problems. It is a tinsel Budget, tinsel in the shop window, with no substance.
If we were a European football team playing in the European League, we should be at the bottom. The goals against us would be remarkable—the highest level of inflation, the highest deficit and the lowest level of growth. The directors would by now be saying that they have every confidence in the manager, and we all know what that means. It is what the Tory grandees have been saying about the Prime Minister, and it usually means that it is time for the person to go.
We can well understand why that in happening. As the Chancellor of the Exchequer said, inflation is starting to go up. It will go up to 9 per cent., which was almost its level when the Government came to power, so what have all the sacrifices of the past 10 years been for? Inflation is going up again[Interruption.] I know that the hon. Member for Epping Forest (Mr. Norris) likes to mumble from behind, but what have the sacrifices been for? We are now facing all the problems that we were assured time after time that various Tory Chancellors would solve. None of the problems has been solved, and we are no nearer a solution than we were before.
It was remarkable today that the Prime Minister claimed as a success story a £1.4 billion deficit for last month. She claimed it as a success story because the figure had come down from £2 billion. Even on the Chancellor's own figures—he talked about a £15 billion deficit for the whole year—that month's deficit would lead to an annual deficit of £16.8 billion if it were repeated throughout the year. Where is the success story there?
We now know that there will be very little growth in the economy. The Chancellor said that growth would be about 1 per cent. overall, yet to listen to the Secretary of State for Trade and Industry today, one would think that we had a remarkable growth record and that we were doing better than most of our competitors. Here again, we are bottom of the league.
The Chancellor talked about the manufacture of television sets as a success story and said that we did not have a deficit in them. He was really talking about Japanese-manufactured television sets. From time to time, Conservative members wax eloquent about how the Japanese companies that have settled here in the motor industry will get rid of our deficit in European trade. They fail to say that we destroyed our own British television set industry just as we have largely destroyed our indigenous motor manufacturing industry. In research and development, we are dependent on other nations.
1299 We have been hearing about employment prospects all afternoon from Conservative Members. An article in The Times today says:Bubble 'may burst on work prospects soon'".According to a survey carried out by Manpower,only one in four employers intend taking on staff in the next three months.The economy is starting to run down. That was the Chancellor's fear when he worked out the Budget. If he did too much, he would have pushed us into recession, which is a real problem. He has preferred to do nothing, which will not lead to economic growth.
Conservative Members often talk about the Japanese. I wish that they would study the way in which the Japanese do things. At present, there is an upturn in shipbuilding, for example. However, we cannot take advantage of it. We are still closing two of our most modern yards. I am sorry that the Minister for Industry has gone because he is trying to pick up the pieces in Sunderland. What is happening in Japan? The Japanese have put their yards into mothballs and now that there is a pick-up in shipbuilding——
§ Mr. Barry Field (Isle of Wight)
Does the hon. Gentleman realise that there is no spare capacity in the Japanese shipyards for an order before 1993 and that, in South Korea, inflation is running so high that the yards there have priced themselves out of the shipping market?
§ Mr. Hoyle
I am pleased that the hon. Gentleman makes my case for me. Instead of closing the shipyards in Sunderland, we should be bringing them back into production to take advantage of the upturn in the market about which the hon. Gentleman is talking. The South Koreans are, of course, now having to charge more sensible prices. That is why the Japanese have benefited and why their shipyards are working to capacity. We cannot do that. We are left with Harland and Wolff and one yard in Scotland. Those are the only places where we can make the vessels now in demand in the world market, yet we could have used the two yards in Sunderland. It is a pity that we did not put them in mothballs. It would have have been better if we had put the Trade and Industry Front Bench—especially the Secretary of State after his performance this afternoon—into mothballs.
§ Mr. Hoyle
I bow to my hon. Friend's superior knowledge of the Secretary of State's anatomy, but I know that British industry is not safe in the Secretary of State's hands or in those of his ministerial team. We are in a mess.
The Chancellor recognised on Tuesday that he is striking a fine balance. To be successful, he not only needs a fair wind, but the world economic policies must be right. He is dealing with matters over which he has no control. Yet listening to the Secretary of State for Trade and Industry, one would have thought that everything in the garden was blooming. He never learns anything. All that I can say for him is that even when one thinks that he has given a truly awful performance one can guarantee that the next one will be even worse. That is the problem.
Time is short for us. There is more than 50 per cent. import penetration in important sectors of industry. Not long ago, we heard from Conservative Members that the electronics industry was one of the sunrise industries which would save our economy. Now we have a large and increasing deficit in electronics. I have already mentioned the motor industry, in which there is more than 50 percent. 1300 import penetration. We are now trying to ensure the survival of the last British company in the motor car industry.
The hon. Member for Wyre Forest has a great interest in the textile industry. He knows that that industry is facing more than 50 per cent. import penetration as well. Is the hon. Gentleman waiting for me to give way?
§ Mr. Hoyle
He needs no encouraging. He had a fair crack earlier. Like me, he is concerned about what will happen to the textile industry and he mentioned the unfair competition in relation to Turkey and other countries. It would be a tragedy if we destroyed the last remnant of the textile industry because of high imports.
Our record on training in Britain is abysmal, as we provide almost no training and much of it is not real training. The Government take people off the unemployed lists, but those people turn up again months later having had no real training. There is a contrast between school leavers in this country and school leavers in West Germany. In West Germany, 90 per cent. find a job. Most of them obtain apprenticeships which lead to qualifications. It is no wonder that we are falling behind.
The hon. Member for Wyre Forest talked about small firms and said that they do not provide training, but poach skilled employees from other firms. If they will not play their part, we should make them pay something towards real training. The Government are giving up their training role and relying on the voluntary sector, but we know that the private sector will not train people. The good firms which train people lose them to small firms which attract them by offering slightly higher wages.
We have also heard about the invisibles today. We used to depend on the invisibles. Not long ago Conservative Members used to say that it does not matter about manufacturing because we have the invisibles.
§ Mr. Hoyle
I wonder whether the hon. Gentleman is talking in his sleep again. It will not be very long before he can have a long sleep. I am afraid that his seat is in some jeopardy, but we will miss him in this place, if only for his remarks which none of us can understand.
Invisibles were supposed to save the present Government and, presumably, future Conservative Governments, but they have vanished. We have not yet faced the rigours of the single market and what might happen to our insurance or banking systems. Frankfurt may even bid to take over from the City of London.
One would not have known from any of the Conservative speeches today that the country faced a. crisis. We are on the threshold of the single European market which offers great challenges. If we had the right. training and the right enterprise in which help is provided 1301 for industry, and if we had the right transport system, we could meet those challenges. Unfortunately, we are getting none of those from the Government.
The Government will blunder into 1992 and the single European market and we shall be decimated because we are not providing the training. We are also providing no research. If we want to compete with West Germany and Japan on research for civilian purposes, we must spend 50 times as much as we are spending now. Similarly, we need 50 times as many industrial research scientists as we have now.
I rather surprised the Minister for Industry by explaining that Siemens of Germany trains more qualified graduate electrical engineers than are trained in the whole of the United Kingdom. That is a sorry story. We are not prepared for the single European market. The Germans, French and Italians are far better prepared and their industries are in better shape than ours. We must also face the Japanese and the Americans. However, there is complacency on the Government Benches about the problems that will beset us when we enter the single European market. We should be able to welcome that market just as we should be able to welcome the fact that eastern Europe is opening up. There are great opportunities for British industry in that area if we are equipped to enter it. Unfortunately, we are not so equipped.
Manufacturing industry, is being crippled by high interest rates. It will be investing less, when it should be investing more. We are not providing the training required for a modern industrialised society. The balance of trade will not come right for the Conservative Government, although they have had the advantage of oil, which the Labour Government did not have.
§ Mr. Hoyle
I know that the Chief Secretary to the Treasury likes a fight—that has been well recorded. He has to say, "Nonsense," because he is on the Treasury Bench, but he must be aware that we are ill prepared to meet the challenges in Europe. If the Chief Secretary says "nonsense" again, he is more short-sighted than I believed him to be. He knows that I am right and that he has presided over the decline of British industry. In the early 1980s, the Government destroyed industry and we lost one third of our manufacturing industry. When the Government refer to a boom, they have very little basis for such a claim.
There is not much hope so long as the Government remain in power. Their ideas and policies belong to the 1980s, not to the 1990s. The sooner we have a general election the better, even though we shall lose some of the familiar faces on the Conservative Benches. The sooner we elect a Government who will be responsible and believe in industry and training and will meet the challenges the better—and that Government, of course, will be a Labour Government.
§ Mr. Roger Gale (Thanet, North)
Some hours ago, my hon. Friend the Member for Carshalton and Wallington (Mr. Forman) reminded me of a parliamentary truism by 1302 telling me that the best way to keep a secret in the House is to include it in a Back-Bench speech during the Budget debate. Listening to the hon. Member for Warrington, North (Mr. Hoyle) it became abundantly clear that by this time in the Budget debate just about everything that can be said has probably been said by hon. Members on both sides of the House. That is probably why the Press Gallery is empty. Nevertheless, I want to raise several points on behalf of my constituents.
I thank my right hon. Friends the Chief Secretary to the Treasury, the Chancellor of the Exchequer and the First Lord of the Treasury for listening to our representations and for increasing the capital allowed against community charge rebate claims.
Many of my constituents are retired and have sold family homes and invested in smaller homes, houses, bungalows or flats. They prudently put the remainder of their money aside as savings to provide for their old age in the certain expectation that they will have bills to meet over many years. They have found it offensive that their prudence has been reflected in the amount that they have been required to pay in the past while others, some of them couples living together, have been allowed much larger capital sums in the bank.
The measures in the Budget on savings will be extremely welcome to many of the people in that category. I am delighted that the Government have recognised the need for prudence and thrift and have tried to recognise and encourage the culture of thrift.
I wish only that my right hon. Friends had gone further and, while reconsidering, had looked again at the uniform business rate and in particular at its effect on mixed hereditaments. Many small hotel and guest house owners and shopkeepers in my constituency own or live in mixed hereditaments. They will bear a disproportionate burden of increased taxation because they will have to pay increased business charges as well as community charges. I hope and believe that as the regulations and legislation are reviewed, my right hon. and hon. Friends in the Treasury will find it possible to take account of the genuine needs of a relatively small, but significant, number of business people.
§ Mr. Allen McKay (Barnsley, West and Penistone)
I agree with the hon. Gentleman about the increase from £8,000 to £16,000 of capital. The change will benefit a few of my constituents. More would benefit if the Government also reconsidered the taper between £3,000 and £16,000. Many people who think that they will receive help will not receive it. Is not it also a fact that the more that we alter the position, the more the people who do pay will have to contribute unless there is help from the Treasury?
§ Mr. Gale
I hear what the hon. Gentleman says. The Treasury has considered the matter. I believe that the concessions in the Budget will affect a significant number of people positively. Above all, the concessions will send out the right signal. In the past we have said to perhaps too many people that it is no longer worth saving or, if one sells one's house, putting the money aside. It was better to some extent to spend the money and rely on benefit. The message that is now being sent is a Conservative message and the right one. It is the message that it is worth providing for one's old age by putting a capital sum aside, that people will benefit fully from doing so and will not be 1303 penalised for having a relatively small sum of money in the bank. I hear what the hon. Gentleman says, but I believe that the Treasury has got the balance right.
My last point is a matter already raised by my hon. Friends the Members for Fulham (Mr. Carrington) and for Wyre Forest (Mr. Coombs). Tax concessions have been offered on workplace nurseries and playgroups provided by the employer. It is a particularly welcome step in the right direction. I have many constituents who have children and would like to return to work. I have several employers in my constituency who would like to entice married ladies with children back to part-time or full-time work, depending on the ladies' personal circumstances. Employers have found that those ladies have been dissuaded from returning to work because of the additional burden of taxation that they will face.
I agree with my hon. Friends the Members for Fulham and for Wyre Forest that we have not gone far enough. As I understand the new regulations, and as they have been explained to me by Inland Revenue officials, we shall remove from personal taxation t he benefits of workplace nurseries and playgroups provided by an employer or a group of employers who have joined together to provide a communal creche facility. The relevant factor in that equation appears to be that the employer must have a stake in the workplace provisions.
In my constituency, we hope that, in the near future, a 170-acre business park will be constructed. It strikes me that it would make eminent sense for the developer to include in the heart of the business park a workplace creche. Under the proposed regulations, unless each and every employer has a stake in that creche, it will not qualify for tax relief. That seems to be an oversight.
I agree entirely with my hon. Friend the Member for Fulham, who took the matter a stage further. He said that a significant number of ladies, sometimes single ladies, would dearly like to set up in business and be self-employed. They find it impossible to do so because they cannot provide care for their children while they work. I hope that the Government will reconsider the matter and at the least permit employers, and particularly small business men who might not have the resources or space to provide creche facilities, to contract out child care for the children of their employees while they are at work.
I entirely accept the potential dangers of allowing tax relief to the employee on money paid for the purpose of buying child care, but I can see no reason why it is not possible to extend the scheme further so that the small business man can buy care from a private child minder or nursery. That would make a significant difference and bring into this new pool of people to whom we wish to give opportunities, the employees of small business men as well as those of larger companies that may take advantage of the concessions.
My hon. Friend the Member for Wyre Valley was right to highlight the potential dangers of encouraging too many ladies to return to work too soon. A delicate balance needs to be struck between encouraging ladies to return to work and make the most of the opportunities that will be available in coming years, and creating a generation of child-minded or latch-key children. We all accept that that is a delicate balance, but there are social advantages, particularly for lone parents—male and female—in extending the opportunity to go out to work to those who find that their entire lives are spent at home. We should offer them not only the financial but the social advantage 1304 of getting out of the house for a few hours a day, perhaps in part-time work, in the knowledge that not all the money that they earn will be eaten up in providing care for the children whom they have to place in either a nursery or creche while they are at work.
I welcome the announcement. I believe that it will be positive. I ask my right hon. Friend the Chancellor of the Exchequer to re-examine the possibility of extending the facility further to enable small businesses and the self-employed to take advantage of a worthwhile concession.
§ Mr. John Battle (Leeds, West)
One point that has not been made so far in the Budget debate is that at the heart of the Budget there is a huge silence about the real problems of increasing low pay in Britain.
In the concluding statement of his Budget speech, the Chancellor said:this is a saver's Budget…It helps the less well-off. It sets the right course for the '90s."—[Official Report, 20 March 1990; Vol. 169, c. 1026.]I confront that claim with two facts. First, the figure for average weekly savings in west Yorkshire is one of the highest in the country, at £5.84 a week. That is higher than any other region in Britain, apart from the north-west. It is a strange irony that the areas that save the most and give the most in charitable donations receive some of the lowest pay in Britain. West Yorkshire is one of the lowest-paid regions. Only 28 per cent. of the people have an income of over £245 a week, and that is after 10 years of this Conservative Government.
I challenge the Chancellor's notion that his Budget helps the less well-off. It is not a Budget for social justice. It does nothing to root out endemic poverty, particularly among those in low-paid work. The minor alterations to the capital rules for access to social security benefit are no big deal for the poor.
The detailed measures in the Budget simply tinker at the margins. They go no way towards tackling the structural factors underlying the British economy as a result of the Government's policies of the past decade. If anything, they reinforce the current trend towards a two-tier economy, with those in relatively secure, full-time work, with rising incomes, in one tier and those in temporary, part-time, low-paid work, trapped in the low-wage economy, in the bottom tier. The long-tern structural trend towards part-time work in the service sector is directly linked to the decline and erosion of the manufacturing base to which my hon. Friend the Member for Dunfermline, East (Mr. Brown) referred.
We are therefore entitled to ask, "What does the Budget do for the those on low pay?" The short answer is that, after 10 years, the better-off have become even better off as a result of the Government's tax-cutting policies. This is the 1990 start-of-the-decade Budget that offers absolutely no help to the 7 million people in Britain who are on low pay and who pay taxes. This start-of-the-decade Budget contains tax cuts for companies, charitable donors, savers and the City, but it does nothing to assist the poorest wage earners to meet the extra costs of higher rents; higher mortgages; higher gas, electric and water charges; higher prescription charges; or the cost of the poll tax. The Government and their policies are directly responsible for 1305 all those increases. This start-of-the-decade Budget ensures that the 1990s will be the decade of the low-paid if the Government remain in office.
The Budget is tough, but it is particularly tough on those in low-paid work who pay taxes. As a result of the Budget and the poll tax combined, the direct tax burden on a family of four on half average earnings is proportionately three times as big as it was in the financial year 1978–79. When the poll tax bites in April, a family on half average earnings will be about £1.80 a week worse off because of the Budget. Overall, two out of three households will lose and nearly 60 per cent. of households earning less than £75 a week will lose money.
Many more people will be drawn down into dependence on means-tested benefits. About 5,000 will be drawn into income support, and 1.19 million people will be drawn into housing benefit as a result of the high poll tax charges that the Government are imposing. As tax allowances have not kept pace with earnings, 85,000 more people will be drawn up into the tax net, which means that they will be caught hard in the poverty trap.
What did the Chancellor do to ease the burden on the low-paid or to help the less well-off, as he claimed? He made matters worse, The poor will not be better off, because the changes in the Budget have to be coupled with the effect of the poll tax. The London School of Economics has a computer model—TAX MOD—which has been used by the Low Pay Unit to analyse the combination of the Budget changes and the introduction of the poll tax in terms of the gainers and losers in our society as from 1 April this year. It shows that those on a weekly income range of between £150 and £175 a week—on an average income of, say, £162.50 a week—will lose the most because of the Budget. On average, they will lose £2.54 a week. All those on wages between £75 and £275 a week will lose between £1 and £2.50 a week. In other words, a family on about half average earnings will lose £1.80 a week. A household with earnings equivalent to the Council of Europe's decency threshold of £160 a week will lose £2.54 a week on average.
Such is the crushing burden of the introduction of the poll tax that, coupled with the effect of the Budget, 64 per cent. of households in Britain will lose as much as £15 a week from 1 April 1990. Nearly 60 per cent. of households earning below £75 will lose; nearly 60 per cent. of home owners will lose and 56 per cent. of tenants will lose. For heads of households who earn £157 per week, the changes will mean a weekly loss of £10.
However, worse even than the effect on individual incomes is the effect of the Budget when a combination of incomes is taken into account. Hon. Members should bear it in mind that the loss to a married couple will be £2.07 per week and that households with children will lose £2.35 per week. In other words, married couples with children will lose the most.
A detailed analysis of the effects of the Budget and the poll tax combined shows that this is tantamount to an anti-family Budget for those in poverty or on low pay. In real terms, there is a heavy tax burden increase on those with children, who also have increasing prices to pay, not least as a result of the loss to families because of the freeze 1306 in child benefit. In Yorkshire alone, 1,090,000 children will lose out as a result of the Government's failure to uprate child benefit.
Before we are told about workplace nursery tax—welcome though the concession is—let us make it absolutely clear that four in five couples where the wife works will lose an average of £2.79 a week anyway, which will begin to eat into that concession.
During his speech, the Chancellor stated:we tax people on low incomes who should not be taxed",and that following the removal of composite rate tax for non-payers with savings,tax will fall on those who should pay it, and will not fall on those who should not pay it."—[Official Report, 20 March 1990; Vol. 169, c. 1023.]Although the Chancellor made that statement, he did absolutely nothing about it in the Budget itself. The Budget retains the Government's built-in bias against the low-paid. In case some may think that that is an overstatement of the Government's policy, I remind the house of the Government's policy as stated in their White Paper, "Employment for the 1990s", which was published in December 1988. Chapter 3 was entitled "Barriers to Employment: Pay". Pay is obviously, therefore, regarded as a barrier to employment. The Government are pricing people into work, regardless of whether those people can afford to live on the rate that they are offered. That is part of the Government's deliberate policy to manufacture low pay.
That policy was made even more explicit in a recent speech by the Under-Secretary of State for Industry and Consumer Affairs. In his address to the February conference of the Confederation of British Industry on the subject of "the Japanese electronics industry in Britain", the Minister declared that one of the great advantages for Japanese industrialists investing in Britain was thelow cost of the workforce".He said:Britain has one of the lowest labour costs in the EC—one half of the costs in Germany and one third of the costs in France or Italy. Only Greece, Portugal and Spain are cheaper. The workforce is also skilled and flexible since it is not limited by rigid labour laws. For example, women are permitted to work the same hours as men including—unlike in some countries, including Japan—a night shift.It is not the welcome that we are worried about; it is the terms of that welcome to the Japanese. The Minister welcomed them to a low-wage economy in which women are allowed to work a night shift although that is not allowed in Japan. So much for family values. Boasting about low wages is an insult to many of the people whom I represent and to hon. Members who represent other constituencies in west Yorkshire.
In my constituency, some home workers earn £4.50 for knitting a sweater that can take about 30 hours, while others pack cards for catalogue companies and earn 50p an hour or less. According to the Yorkshire and Humberside Low Pay Unit, although the average male adult full-time earnings are £269.05 a week, the average female adult full-time earnings are only £182.03 a week. In Leeds, 12,000 men and women earn below £100 per week; 54,000 men and women earn less than £140 a week, and if the overtime earnings are excluded, the figure rises to 68,000 people.
About 6,000 women in Leeds work part-time for less than £2.20 an hour; 15,000 work for less than £2.50 an hour and 30,000 work for less than £3 an hour. That is a damn sight less than hon. Members earn per hour. In other 1307 words, the structural shift from manufacturing to service work has a parallel shift from full-time to part-time work, and concomitant with that shift is an increase in low-paid work and family poverty.
On 14 November 1989, I tabled a parliamentary question asking for a breakdown of the employment trends in Leeds during the 1980s, based on the standard industrial classification. The figures clearly show that between 1981 and 1987 the total number of jobs fell by about 7,000—full-time jobs fell by 8,600 and part-time jobs increased by 1,400. The number of manufacturing jobs fell by 13,900, and there was no increase in the number of full-time jobs for men in the service sector. Of the 10,000 new jobs in that sector, 7,000 were full-time jobs for women—paid at a lower rate than men—and a further 2,000 were part-time jobs for men, with the final 1,000 being part-time jobs for women. Therefore, there was no overall increase in employment. Indeed, there was no real increase in part-time employment for women. The new jobs in the service sector simply replaced those lost in manufacturing.
There is a switch from men to women, but with that has come a reduction in pay because women generally are paid less than men. The Government might claim that the vacancy columns show that there are hard-to-fill vacancies, but that is because those jobs are extremely low paid. Despite the doctored unemployment figures, the figure for my constituency is 7.8 per cent., with pockets within that standing at 20 per cent. Some 10,583 people—16 per cent. of my constituents—are on income support; 2,800—4 per cent.—are on family credit. What are their prospects under the Budget?
Paragraph 3.48 of the Red Book states:With output growth expected to be low in 1990, the sharp rise in employment of the last few years is likely to tail off and unemployment may rise. But the employment and unemployment outlook depends crucially on wage settlements.The message is absolutely clear—that there is more unemployment to come, so cut wages; women's work and work in the service sector will be all. It is a return to the classic Tory message.
A survey in The Sunday Times covering the top 250 companies in Britain showed that their directors had pay rises of 28 per cent. during the past year, and that their average pay was £221,000 a year. That is a startling contrast to the average pay of £10,206 for their employees. We are entitled to ask why the poor and those with low wages are kept down and effectively priced out of our society while the rich are encouraged to become richer.
Since 1979, the bottom 50 per cent. of British society have lost £8..50 per family because of the Government's tax changes, while the top 10 per cent. have gained £40 per family. That is not a version of trickle-down economics; it is more a direct redistribution from the poorest to the richest. We must not forget that the Social Security Act 1989 put in place the very mechanism that will cause people to accept jobs whatever the low wage offered. If this Government's so-called economic miracle is to be measured by anything, it should be by their exclusion of the poor and the low-paid in society.
The Budget reinforces the Government's deliberate policy to push down wages and to shift from the one-nation approach, involving a jobs-for-all social democracy, to a two-nations approach in which there is a clear structural rift between the rich and the poor. The 1308 Budget underlines the fact that the 1990s will be the decade of low pay. It is too late for the Government to change their economic strategy. The only option for the people of Britain is to change the Government.
§ 8 14pm
§ Mr. Michael Irvine (Ipswich)
Page 16 of the Red Book shows a chart which sets out the course of house price inflation since 1983. There was an acceleration in prices towards the latter part of 1987, and in 1988 there was a significant surge. I believe that that significant surge in house prices had a great deal to do with our present difficulties, acting almost as an engine for inflation in other parts of the economy.
Home owners, as holders of rapidly appreciating assets, realised that they could borrow against those assets, and they also felt more inclined to borrow. The growth of credit then fed upon itself. House prices were driven up beyond the reach of first-time buyers. People mortgaged themselves to the hilt to buy homes and, having done so, then felt the need to press for greater wage increases. Again, that meant inflationary pressure.
There were other effects. Companies in my constituency and throughout the south and south-east found themselves short of skilled labour. They tried to recruit from other parts of the country where the labour market was less tight, but found that the high cost of housing in the south and south-east was a great deterrent to such recruitment—and so the rigidity of the labour market was reinforced.
Part of the reason for the tendency towards house price inflation—which has been a feature of past economic booms, including the economic boom of the past three years—is the incentives for home ownership. I am all in favour of retaining existing incentives, because home ownership is excellent and should be encouraged, but we must face the fact that there has been an imbalance.
For too long, the incentives, the advantages and the tax breaks have been excessively loaded towards home ownership. A redress of that imbalance is badly needed. That is why my right hon. Friend the Chancellor was so right to shift the emphasis to other forms of personal saving, giving them the incentives and tax benefits that have been enjoyed by home owners. That is a significant move, which will benefit the economy, and perhaps, when the economy booms again will reduce the risk of house price inflation taking off as it did in the last boom.
My right hon. Friend's theme of thrift fitted in well with his announcement of the capital limit for community charge benefit being raised from £8,000 to £16,000. If my correspondence and my experience of my constituency surgery are anything to go by, the original £8,000 limit was a source of great grievance and resentment. People thought of it as a tax on thrift and a penalty levied on those who had worked hard and saved for their old age, whereas those who had blown it, those who had spent their income rather than saving, benefited from rebates.
§ Madam Deputy Speaker
Order. The hon. Member for Ogmore (Mr. Powell) is in the Chamber and he should take his seat.
§ Mr. Irvine
The level at which the community charge benefit cut-off was fixed was widely seen as unfair, and I am glad that the Government were wise enough to listen to the representations made to them by many hon. Members and to act accordingly.
1309 Another group of people are affected by the community charge in conjunction with high mortgage interest rates. I am concerned about young couples where the wife has stopped work to look after the children. Mortgage interest rate increases hit such couples hard and the community charge reinforces the impact of that, particularly when the husband is the only earner in a family with an income just above the cut-off point at which he would be entitled to a rebate.
There is a good deal of force in the argument that wives and mothers in such families have made to me—that the Government are moving towards independent income tax for women but that, when it comes to qualifying for community charge rebates, the women's income is not considered in isolation but is taken together with her husband's. There is a risk of such couples facing considerable hardship. I hope that the Treasury Ministers and my right hon. Friend the Secretary of State for the Environment will take account of that.
In my constituency, the community charge is £440, and it will be no surprise to hon. Members to learn that there is a Labour borough council. It is true that the county council is Conservative, but the county council's budget is only 9 per cent. above the standard spending assessment. Yet Labour-run Ipswich borough council's budget is 96 per cent. above the standard spending assessment—the second largest percentage overspend in the country.
§ Mr. Irvine
I am afraid that I do not have time to give way.
Although that degree of overspend is very much the fault of the local authority, it does not mitigate the hardship that families such as I have mentioned may suffer.
One welcome item of news in my right hon. Friend's Budget and one which will certainly receive great praise in Ipswich was the generous and well judged financial boost to the game of football. The Taylor report and its implications were bound to put heavy burdens on the finances of football. I know that my hon. Friend the Economic Secretary to the Treasury was also a supporter of Ipswich Town football club, and perhaps he still is, despite his move to the constituency of Mid-Norfolk. It is important that the Government have listened to the representations on behalf of the game of football, because that welcome boost of what is calculated over the next five years to be £100 million will make a significant difference to the game's well being.
By and large, I share the view that the Budget has the balance about right. My right hon. Friend the Chancellor confronted dangers from both sides. There was the danger of being too easy on inflation. Some of the financial markets yesterday showed that they thought that he had fallen into that trap, but they were wrong and, judging from their much steadier performance today, it looks as though they have altered their judgment.
My right hon. Friend could also have fallen into the trap of overkill. Not only are interest rates high, but he is also running a pretty tight fiscal policy. The combination of those two factors is already beginning to work its proper and intended effect.
1310 The magnificent surge in investment by British industry during past years is beginning to show in the immensely encouraging export figures—[Interruption.] Contrary to the jibes and jests of Opposition Members, there are definite and significant signs that things are coming right. My right hon. Friend the Chancellor has got it about right—the balance is correct—and in the coming months and years we shall see the benefit of his wisdom and the correctness of his fine tuning.
§ Mr. Tony Banks (Newham, North-West)
It is interesting to follow the hon. Member for Ipswich (Mr. Irvine), who is another Conservative Member who has suddenly discovered that the impact of the poll tax is not all good when examined against the detailed problems in a particular constituency. He was right to express concern about those families he described, but he should also realise that the Government have got the facts and figures wrong in their peculiar standard spending assessment system. The idea of blaming the local authority because it has spent over and above the Government's recommended expenditure is to miss the target. The real target should be those in Marsham street who got the SSA wrong in the first place.
I wonder how much longer we shall have debates like this, when we go though an annual parliamentary ritual. The Budget is largely irrelevant in terms of setting the economic scene for the year ahead. We then have three and a half days, after the Budget has already been analysed to death by the commentators, in which to debate it in Parliament. I wonder whether that is the best use of our parliamentary time. On a night such as this, I begin to feel like one of the last few guests left at a boring party. The days have gone when Mr. Gladstone used to stand at the Dispatch Box and speak for seven hours, often without notes. The sort of things he said then would clearly affect the economy in the next 12 months and influence future events.
When I heard the Chancellor of the Exchequer speak, I thought that he was delivering his speech with his fingers crossed. He would have to do that, because what happens in the British economy is determined far more by what happens in Tokyo, Frankfurt, Washington and other capital cities around the world than what is said in the Budget speech at the Dispatch Box. Budgets are becoming rather like yesterday's newspapers—forgotten almost as soon as the Chancellor utters the last words.
I was amused by the right hon. Member for Blaby (Mr. Lawson), the former Chancellor, sitting during the Budget speech like the ghost of Christmas past. He had given the present Chancellor many of his problems by virtue of the enormous tax cuts that he handed out to the rich in 1989. He had a bit of a cheek to turn up to see his successor clear up the mess.
It would be churlish not to congratulate the present Chancellor, who is a former distinguished member of Lambeth borough council. Indeed, he is one of a group of ex-Lambeth councillors in the House, including myself, my hon. Friend the Member for Brent, East (Mr. Livingstone) and my hon. Friend the Member for Stoke-on-Trent, North (Ms. Walley). Of those Members, the Chancellor has done the best—so far. The rest of us 1311 stand around with our fingers crossed, just as the Chancellor did when he was making his speech on Tuesday.
What the Chancellor presented was a Budget for the party. His purpose was to stimulate the party, to try to do something about the depression that now sits on Government Members. That is why they were all waving their Order Papers at the end. It was a Budget for the party, not a Budget for the country. Most Conservative Members are grateful just to wake up in the morning and find that they are still Members of Parliament. So long as that is the case, they will remain cheerful. But they are living very much on borrowed time, just like the Chancellor of the Exchequer and the economy. As has been said, the Chancellor tinkered with the problems of the British economy; deserves to be called Tinkerbell.
The Budget did not address the underlying structural weaknesses of the economy. The skids are under this Government. It is obvious to everybody, inside and outside the House, that they are out of touch with reality. When a Government get totally out of touch with the outside world, one knows that they are finished. They start to believe their own propaganda. In the speeches that we have heard tonight, there has perhaps been more realism, but some things that Ministers have said, and certainly what the Secretary of State for Trade and Industry said today, might lead one to believe that we have an economic miracle on our hands, that our problems are the problems of success. A £21 billion balance of trade deficit, including a deficit of £16 billion on manufactured goods, is some miracle.
There was a time when this country, decade after decade, ran a surplus in manufactured goods. In fact, it was a Conservative Government who took us into deficit for the first time since the Napoleonic wars. In the past, people would say, "Never mind—the invisibles are saving us." But the invisibles, too, are now disappearing. The situation is going from bad to worse. Our inflation rate of 7.7 per cent. is double that in the major countries with which we compete, and there is talk of a dramatic increase of up to as much as 10 per cent. We have the highest interest rates in Europe. We have heard the litany many times, but what we have heard is true; these are all facts. If this is what the Tories call a miracle, I urge caution on any of them before they attempt to walk on water.
The only miracle that I can see is the disappearance, over the past 10 years, of £84 billion of North sea oil revenues, £27 billion of privatisation receipts, and £24 billion from land sales—a massive total of £135 billion. In exchange for that, after 10 years, we have one of the worst economies in the EEC. We have seen poverty and homeless double. We have transport chaos all around us, particularly in London; we have a crumbling infrastructure in the country as a whole; and we have stunning growth in social and economic division. It takes enormous skill for a Government to take in such resources and squander them. Without North sea oil revenue, the continuing crisis in the British economy would have become a calamity of proportions not seen in Europe since the 1930s.
I take no pleasure in saying these things. People involved in party politics experience some warmth from seeing their political opponents in real trouble, but I think about the impact that all these problems—the problems that these statistics reveal—create for the people in the London borough of Newham, which I represent. It is not 1312 the Chancellor who will have to live with the consequences of his Budget decisions; it is the people in the country. He has been getting it wrong in the same way as the Government have been getting it wrong almost every year since 1979.
The Secretary of State for Trade and Industry claimed that we had a success story in achieving last month a balance of payments deficit of £1.4 billion. That is now success for this Government. The figure has gone down from £2 billion to £1.4 billion. Anywhere else in the EEC, figures of that sort would be considered absolutely disastrous, but in Britain in 1990 a Tory Government claim that they are somehow a mark of success. The whole economic language has been totally distorted by this Government. It is "Maggie in Wonderland": words mean exactly what she wants them to mean. That is the reality of our economy in 1990.
The City did not like the Budget very much. But, of course, I do not like the City very much. I have never been particularly keen on people who simply make money out of money. There is no patriotism in capitalism. Hot money follows the highest returns. The Government have had to make sure that in this country the highest returns can be obtained through high interest rates.
The Chancellor and other Ministers claim that the purpose of high interest rates is to control inflation, but high interest rates themselves create inflation by putting up prices, especially for industry. High interest rates are really needed to prop up the pound. Our economy does not have the structural strength to entice people with money to invest it here on the grounds that they will get a good return. Money is here only to earn high interest, and as soon as interest rates come down, the money goes elsewhere. There is more certainty in the economic strength of other European economies.
The hon. Member for Fulham (Mr. Carrington) referred to the more restrictive nature of the German economy. He talked in particular about the banking system in Germany. It is certainly true that the system there is far more restrictive than the system in this country, but that is also true of the Japanese economy and banking system. The hon. Gentleman knows far more about banking than I do, but I should think that the same is probably true of virtually every other European economy also. The Prime Minister has made it a boast that we have the most open economy in Europe, but because of all the structural weaknesses, an open economy, as she describes it, is a source of difficulty. It is rather like having a patient on a life support system and leaving all the windows open and hoping that somehow the patient will recover.
§ Mr. Carrington
Do the hon. Gentleman's remarks imply that he would advocate the return by his party to exchange controls?
§ Mr. Banks
Straight away I say yes, but the party does not say yes. That is the big difference. I want to give an honest answer to the question. The leadership of the Labour party must think about what will happen when there is freedom to move money out. I did not see the centre pages of the Daily Express, but I heard something about them on the radio. Apparently the Daily Express said that, had there been a Labour Government, even more billions would have gone out of the country because of the freedom of exchange. That is a problem that we must address.
1313 I am quite sure that the leadership of my party is as acutely aware of it as are the leader writers of the Daily Express, and far more aware of it than I am, and I am quite sure that they will address it in terms of their preparedness to act when we win the next election. But I say again that my answer is that I should support a return to exchange controls.
In Newham last night, I did a bit of research into reaction to the Budget. I must confess that my methodology was not based on scientific sampling techniques; actually, it was based on some discussions in a snug at my local pub, the Builder's Arms. The Budget did not go down very well in the Builder's Arms. The beer did, but the Budget did not. The Chancellor said—and it has been repeated—that this is a savers' Budget, but the point that was made to me in the pub last night is that we do not have very much in the way of savings. Fares have gone up by 15 per cent.; rents are going up by about 27 per cent. as a result of the provisions of the Local Government Act 1988; gas, electricity and water charges have gone up. Mortgage repayments have gone up by £153 a month on average since June 1988. Poll tax, of course, will add about 0.75 per cent. to I per cent. to the retail prices index.
Those are all Government own goals in the stoking up of inflation. They all represent charges on people's income or supplementary benefit moneys, for example. People do not have money left at the end of the week, or month, to put into new and fancy forms of saving. Will the Budget measures tempt people to save or will they merely encourage savers to switch their savings from one form of savings to another.
The people in Newham do not choose between expenditure and savings. They do not say at the end of the week or the month, "We have this amount of money left over so we shall put it into savings." They will not examine all the savings plans that are available before opting for the one which the Chancellor of the Exchequer says offers the best return. Instead, they have used their savings to finance day-to-day expenditure. Most of them do not have any money left at the end of the week or the month to put into savings.
The Chancellor of the Exchequer presented a tinkering Budget. It has been described as neutral, but I would say that it is largely irrelevant to the real problems of the economy. It seems that Britain is heading pell mell towards the status of a banana monarchy but without the benefit of bananas. I suppose that a banana monarchy would be the best description of a country that is led by a semi-demented petty tyrant in No. 10 Downing street. Fortunately, the skids are under her, and that started tonight.
§ Mr. James Cran (Beverley)
It is a stated truism that it would not have made any difference what Budget the Government had introduced. Like Pavlov's dogs, the Opposition would have done entirely the predictable. They have attacked the Budget, and they would have attacked any other Budget that my right hon. Friend the Chancellor of the Exchequer had introduced. We all know why that is so. It is clear that some Opposition Members do not like the Budget, but the Opposition's profession is to run down the United Kingdom's economy. That sort of cynicism in 1314 British politics has been punished before, and I have a suspicion that it will be punished yet again. We all know that what we have heard over the past two days from the Opposition has been uttered merely for electoral reasons.
My right hon. Friend the Chancellor of the Exchequer was correct when he said:During the last year, business confidence in Britain has remained a good deal stronger than many expected."—[Official Report, 20 March 1990; Vol. 169, c. 1010.]It is certainly a good deal stronger than the Opposition wanted it to be. The economic facts of life have been blithely ignored by every Opposition Member whom I have heard this evening. The technique of politics would appear to be to ignore facts and to pour out unsubstantiated opinions.
§ Mr. Cran
No. I know that some of my hon. Friends wish to contribute to the debate.
My right hon. Friend the Chancellor of the Exchequer was correct to underline the fact—it has been ignored by the Opposition this evening—that new business formation is at a record level. The number of those who are in employment is, again, at a record level. It is astonishing that 27 million men and women are employed.
I was astonished when I heard the hon. Member for Warrington, North (Mr. Hoyle), who is a member of the Select Committee on Trade and Industry, as I am, say that business investment is low. In fact, it is at a record level. So is company profitability, but I must say to my hon. Friend the Financial Secretary to the Treasury that although it may be at a 20-year high, it is not high enough by international standards. We would want to see it improved.
I am prepared to be lectured by those who have done better than the record that the Government can present, but I must stress that that does not include the Opposition. When they had the opportunity, they failed dismally and entirely. I see no reason to suppose that they would do anything different if they ever had responsibility in future, although I doubt very much that they will have.
Opposition Members have ignored what is happening in the regions, especially in the northern regions. They know as well as I do that we have seen something which has not been evident before in post-war years. The northern economies have been recovering far faster than anyone expected, and in some instances faster than the southern regions. That includes, definitely, Yorkshire and Humberside, the region which I come from.
§ Mr. Cran
No. Some of my hon. Friends wish to speak, and I wish to allow them to do so.
I do not expect Opposition Members to accept what I say. That being so, I am happy for them to adopt that approach. Let us remember, however, what was said at the Yorkshire and Humberside council of the CBI, which was reported on 14 March 1990, which means that the quotation is entirely up to date:the general picture is of employment prospects and investment holding up well. From its current firm base, the Yorkshire and Humberside economy can now be expected to begin to grow more quickly.That runs contrary to the rubbish which I have been hearing all evening from Opposition Members. They say what they do because they want to win the next general election. That is why they ignore the facts.
§ Mr. Cran
No. Sit down and listen to some of the truth, for a change.
Opposition Members might believe what is said by the Labour leader of the Humberside county council. At the end of last year, he said:Humberside continues to receive record levels of investment enquiries, many from overseas companies…For example, planning applications for industrial and commercial floorspace are up on last year's total by 20 per cent.For the purpose of my argument, he neatly added:And it should be remembered that we are building upon a record year in 1988.Let us examine what the largest company in my constituency, British Aerospace, is doing. A news release from 14 March 1990, says that 1989 has beenanother record year for profits and turnover…During 1989, 60 per cent. of British Aerospace sales were overseas and in the last 10 years the direct contribution to the UK balance of payments…was over £20 billion.That is the proper argument, not the nonsense that I have heard from Opposition Members about the rundown of British manufacturing. The progress that we are seeing in the country generally, and especially in Yorkshire and Humberside, would go out of the window if inflationary pressures were allowed to get out of hand.
I am clear in my mind, as my right hon. Friend the Chancellor of the Exchequer is in his, that inflation is public enemy No. 1. When I was the northern director of the CBI, based at Newcastle from 1979 onwards, I saw at first hand what inflation does to a regional economy, to the companies in that economy and, unfortunately, to the work force. Jobs were like snow on a spring day—here today and gone tomorrow. I left an extremely demoralised region. That is not the position now. Opposition Members should go to the north-east to see what is happening there now.
My right hon. Friend the Chancellor is absolutely correct to put the control of inflation at the top of his list of priorities. It is therefore axiomatic that high interest rates are indispensable. I do not need lectures from Opposition Members or anyone else to tell me that high interest rates are unpopular; my mail tells me so. Mortgagors do not like the present level of mortgages, and I understand that. It is understandable that small businesses do not like high interest rates because of the money they have to borrow.
I am afraid that I must tell them quite simply that it is better for their budget to be stretched now than for them to have no budget at all in the future, because that is what would happen if inflation were allowed to get out of control. Opposition Members are experts at allowing inflation to get out of control; their record on that is second to none, and we should lose no opportunity of reminding them and the British people of that.
I entirely accept that fiscal policy has a supporting role. I also accept that the stance that my right hon. Friend the Chancellor has adopted is a tight one. I just wonder whether it is tight enough, and I slightly reserve my position. Having said that, I echo the words of other Conservative Members: the reaction of the City yesterday was histrionic and totally unjustified. Happily, that has been rectified today, and I think that it will continue to be so.
On the subject of business taxation, I have one carp—I could go on a lot longer, but I know that other Government Members would like to speak—which is a 1316 question mark over corporation tax. In 1983–84, corporation tax was under £8 billion; in 1988–89, it was £18 billion. The Financial Secretary would say—indeed I will do it for him—that that reflects growing profitability. So it does. Under this Government, companies have actually been allowed to make profits to invest, and that is why we have 27 million people in work.
The Opposition totally failed to do any of those things. Nevertheless, when the opportunity occurs, I think that the business community is looking for those rates to be re-examined because, as a proportion of GDP, our corporation tax levels are the highest in Europe. I do not think that they should remain there.
The Budget has been innovative in the encouragement of savings, but I am cynical about whether it will have the desired effect. I am a cross between a Scotsman and a Yorkshireman, a devastating combination as far as the saving ethic is concerned. I have been saving since I was so high because it was inculcated in me; my parents insisted that I save threepenny Post Office savings stamps. That has all gone, for reasons that I am not sure I entirely understand. My savings ratio is such that, if it were repeated by everybody else, we would have very high levels of unemployment—so I do not suggest that others follow in my footsteps.
While I wholly accept what the Chancellor says about the need to encourage saving, I am bound to say that, if one cannot persuade people to save at present high levels of interest, I wonder if they will be encouraged to save by the introduction of the TESSA scheme. I hope that it will work, but I just wonder whether it will.
With those few caveats, I am very supportive of my right hon. Friend's Budget and I congratulate him on it. Yesterday, the shadow Chancellor appeared to me rather like a Church of Scotland minister, giving a sermon which was rather too trite for me and rather too trite for the British people. There was a smirk on his face which I have a feeling he will regret when the Budget bears fruit in coming years and we win the next general election.
§ Mr. Malcolm Bruce (Gordon)
I notice that the hon. Member for Beverley (Mr. Cran) has not lost his combative style, which I first encountered when we were candidates for our respective parties in 1983. It is appropriate that I speak after him because, not surprisingly, being the leader of my party in Scotland I cannot speak on this Budget without making some reference to the poll tax. In my constituency, Conservative councillors will have some difficulty in resigning because there is only one left—and the hon. Member for Beverley may soon find himself in the same situation, the way things are moving.
The statement on Tuesday was extraordinary, but what is even more extraordinary was that the Chancellor, who admittedly is always cool and impassive, seemed totally oblivious of the reason why heat was being generated on the Opposition Benches and north of the border. The idea that there should be some increase in the capital exemption below which people qualify for benefits was trailed in the press and generally acknowledged as something that the Government were planning to do, so it cannot have been a surprise. I even had letters from constituents last week, saying that, if such a relief were brought in, they hoped that I would do my best to ensure that the Scots were 1317 treated equally with the English, and I did—the tragedy for the Conservative party is that the Secretary of State for Scotland did not.
In consequence, the Secretary of State for Scotland has a considerable amount of egg on his face. He failed to defend Scottish interests in the Cabinet. He then compounded the felony, having apparently—although it is not clear—been hauled over the coals by the Prime Minister, by insisting yesterday that it was quite impossible for any retrospective measure to be introduced in Scotland. Then, at half-past two this afternoon he tells a packed press conference that he has found the money and is going to introduce a retrospective scheme.
Interestingly, the right hon. Gentleman found the money because his colleagues in the Cabinet had abandoned him to his fate; they had decided that on this occasion the Secretary of State for Scotland would not have the support of the Cabinet and that he must get out of a mess of which he had failed to warn them in advance. Consequently, although it is welcome news for up to 20,000 people in Scotland who will benefit from the change, the fact remains that these social security benefits will have to be financed out of the Scottish Office budget. That is extraordinary when, in England and Wales, the benefits will effectively be financed out of the Department of Social Security budget. Such a precedent will create problems in future.
The shambolic consequences of the poll tax, of which this is just the latest twist, only reinforce my view that it will eventually have to be swept away because it is so inefficient, ultimately to be replaced by a local income tax which is a much simpler administrative system and also takes proper account of ability to pay. But that will have to await even more shocks for the Government and, I suspect, the annihilation of the Conservative party north of the border.
Today's debate, at least as far as the Front Bench spokesmen are concerned, relates to trade and industry. The Secretary of State had the audacity to come to the Dispatch Box and announce a £1.4 billion deficit as good news. He is the only member of the Cabinet who could have done that, completely insensitive to the reactions of everyone around him.
Despite the best endeavours of Conservative Members, it cannot be claimed, and the Government do not claim, that the economy is in the best shape. The Government maintain that they have it under control and that it will all come right, but they cannot blame our current problems on the Labour Government. It is not my task to defend the Labour party, but after 11 years in office the Government must explain the current position in terms of their own record.
There are one or two points that the country should address in greater detail and to which all parties should give more thought. I welcome the Chancellor's positive measures to encourage savings and thrift. No one disputes that they are desirable. We have an open, free market system with a minimum of regulation and control, in which companies can sell and be sold, be broken up, bought, amalgamated or merged with far greater freedom than in other countries.
The only other major economy to operate in that way is the United States, and it is interesting to note that the 1318 United Kingdom and the United States both operate major balance of payments deficits. In contrast, West Germany and Japan, which operate on an institutional basis with a high savings ratio and a high degree of thrift and long-term commitment, have the strongest balance of payments surpluses.
It is all very well for Conservative Members to denounce what they regard as the rigid stranglehold of the banks on the German economy, but one of the beneficial effects of the structure of the German and Japanese economies is that it creates a climate in which long-term investment is positively encouraged and financiers and the financial backers of industry share that commitment because they are part of the process and are locked into the system. They are usually major shareholders and they usually participate in the board and its decision making.
That is the fundamental difference between our economy and the German economy. We are driven by short-termism, which often undermines investment generally and investment in training and in research and development in a way that the German system does not. If Germany is moving in our direction, we should also be moving in its direction if we are to ensure that in the long term we have the necessary savings, investment and long term commitment.
It is important that we see workplace nurseries not just as a benefit to women as individuals but as a vital first step in enabling the British economy to continue to operate effectively. We shall have to have more women in the work force so that we can make full use of their skills. However, there is a case for going much further than the Chancellor has done. For example, vouchers for workplace nurseries might be a way forward. That would ensure that all women would benefit, either by enabling employers to group together to provide nurseries, for example on an industrial estate, or by enabling small businesses to provide a voucher which will enable women to take advantage of it.
The hon. Member for Kilmarnock and Loudoun (Mr. McKelvey) made a lengthy point about the implications of the increased duty on spirits. However, whisky is different from all other spirits, since it is a statutory requirement that it should mature for three years before it can be marketed as Scotch. Since the abolition of stock relief, it has been the constant complaint of the industry that it has been at a disadvantage compared with its competitors. In those circumstances, the case for a statutory maturation allowance, for which the industry has been campaigning, has been strengthened by the Chancellor's determination to index the duty on spirits by more than the current rate of inflation. Whisky's contribution to the United Kingdom economy is of such importance and its importance in Scotland is so great, that it is time that serious consideration was given to that.
There is a major gap in the Budget—the omission of taxation measures designed to have a beneficial environmental impact. The absence of such measures shows that the Government are in considerable trouble in terms of reconciling the Prime Minister's rhetoric on environmental matters with their record on environmental matters. That reinforces something that I have noticed in the past year—that the Secretary of State for the Environment does not carry the Cabinet with him and is not getting his message across to his Cabinet colleagues so that they understand how pervasive environmentalism has to be if it is to be effective.
1319 The Chancellor made no acknowledgment of his potential to influence things in a positive direction. He could, for instance, have introduced changes in vehicle excise duty to take account of the size of engines. That would encourage people to use more efficient engines, and would benefit people on low incomes in rural areas, who could switch to lower-taxed smaller cars from higher-taxed large cars. He should also have proceeded rapidly with the abolition of company car privileges, which are one of the main reasons why London's roads are choked. That would have resolved two problems in one.
The Chancellor should also have introduced tax incentives for catalytic converters, and he should have heralded grants for specific environmental projects—for example, grants to recover chlorofluorocarbons, both in industry and privately, and grants for energy efficiency. One thing that my party believes that he should have done was to introduce emission ceiling licences for toxic emissions. That must be implemented if we are to achieve real reductions in carbon dioxide and sulphur dioxide emissions. We cannot wait for the White Paper, or for next year's Budget. Plainly, although the Secretary of State for the Environment makes good speeches, his Cabinet colleagues do not listen to them.
§ 9.6 pm
§ Mr. Tim Janman (Thurrock)
It would be tempting to go over some of the empty rhetoric and lectures that we have heard from Opposition Members tonight about how to run an economy. The Leader of the Opposition seems to think that he can run a capitalist economy better than the party that believes in capitalism. Sincere though they may be in their views on the current position, the Opposition Members who have spoken tonight came into politics not because of their commitment to capitalism or free markets but to try to disrupt that mechanism and to drag the country in exactly the direction from which the Soviet Union, East Germany, Hungary, Romania and others are running away as quickly as they can. That will become extremely obvious to the electorate at the time of the next general election.
I want to concentrate on the monetary policy in the Budget. I agree with my hon. Friend the Member for Beverley (Mr. Cran)—although he was talking about the fiscal aspects, and I believe that the monetary aspects are more important—in that I share his slight scepticism as to whether the Budget is tight enough.
On page 12 of the Red Book, under the section on monetary policy, there is a nice little graph that charts narrow money and broad money growth from 1974 to 1989. It is noticeable that the narrow money line is in dark ink, whereas broad money is represented by a much fainter dotted line. That tells the reader how much importance the Treasury attaches to the two measures. The graph is rather meaningless, because it does not contain the line that it should have to show what the retail prices index was doing over a similar period. Anyone looking at the graph cannot see the relationship between narrow and broad money and what is happening to inflation.
If we were to plot the retail prices index on an annual basis for that period, and draw it on the graph, it would be clear that there is a firm relationship not only between narrow money—M0—and inflation, but between broad 1320 money and inflation—allowing for the 18 to 24 months time lag that inevitably occurs between what is happening to broad money and what is happening to inflation.
Dividing the graph into five periods shows that the excessive broad money growth between 1972 and 1973—the period of history just before the graph starts—caused the high inflation of 1974–75. A tighter broad money policy between 1974 and 1975 led to much lower inflation in 1976–78. Given the shambles that the Labour Government of the time had got the economy into, we then had one of the most hard-line monetarist Budgets of the past 15 to 20 years, which succeeded in bringing inflation down.
With the general election of the late 1970s approaching, broad money growth was relaxed again in late 1977. That led to much higher inflation from late 1979 through to early 1981. Then broad money was tightened again, and between 1979 and 1985 a fairly firm grip on broad money was kept in the United Kingdom. It produced quite a long period of low inflation, from 1981 to 1986.
Since 1985, an ever more relaxed attitude to broad money growth in the United Kingdom's economy has been adopted. As a result, since 1986 we have once again had higher inflation than we had in the early and middle 1980s.
Contrary to what the Treasury says, it is therefore clear that there is a relationship between narrow money and inflation and between broad money and inflation. That means that the Chancellor is absolutely right to set a target of between 1 and 5 per cent. annual growth for narrow money and to reduce that target range from 1 to 5 per cent. to zero to 4 per cent. in the years ahead. How can my right hon. Friend the Chancellor, however, be so confident that with an annual growth in broad money of about 18 per cent. we can reach the sort of inflation targets that our party wants to reach?
Furthermore, given that the broad money supply is important and related to inflation, why cannot we have some reduction in the standard rate of income tax? A cut in tax merely transfers money, and hence spending power, from the state to the individual. I hope that the Minister will address that point when he winds up the debate and that he will explain why that transfer is inflationary. After all, it is not only the notes and coins in circulation that are important for future inflationary trends; it is the total amount of money in the economy as measured by M4 or any other broad money measure.
This has been a good and responsible Budget, which will steer the economy through the present fairly choppy waters back into the calm sea of the growth of the past few years. I ask my right hon. Friend the Chancellor once again to examine the importance of broad money and determine that there is a relationship between it and inflation. If broad money continues to grow at an annual rate of 18 per cent., my right hon. Friend will not meet the important inflation targets that he gave the House two days ago.
§ Mr. Allen McKay (Barnsley, West and Penistone)
The hon. Member for Thurrock (Mr. Janman) began by talking about Socialists and Socialism, and it sounded as though he had lifted his remarks straight from a Conservative Central Office publication. I will explain to him why I became a Socialist many years ago. I saw people clearing snow because they had no alternative—they were 1321 obliged to do it or they would not receive any unemployment or other benefit. I saw people going without food, children without shoes and youngsters without trousers. I discovered that Tories, Tory politics and Tory policies had caused that situation, and I determined to do something about it when I could.
I looked for the best party to help me to ameliorate those conditions. I examined the Communist party, but resolved that it was too rigid. The Labour party, I thought, had the right policies, attitudes and sensitivity. It was clearly the right party for me and for the people whom I later represented.
I fear that those days would return. I am not referring to the precise circumstances that I saw all those years ago, but to a return to the type of Tory philosophy which caused that state of affairs to arise. I accept that people are not in those dire straits, although in some areas they are getting close to it.
The hon. Member for Beverley (Mr. Cran) talked about Yorkshire and Humberside, when he should have talked about his constituency in that whole area. He should not have included my constituency by lumping the region under the title of Yorkshire and Humberside. I say that because my constituency has 14.1 per cent. male unemployment and 5.9 per cent. female unemployment. The unemployment rate among females is rising, against the national trend. If the hon. Gentleman studies the statistics for the whole area, he will see that the situation in south Yorkshire is totally different from the rest of Yorkshire. That is why he should not lump Yorkshire and Humberside together.
The Government have got the poll tax issue all wrong. To begin with, the standard spending assessment is calculated on figures that were used for the rate support grant, and those figures were wrong in many respects. Two years ago, I told my constituents what the rate of poll tax would be and I was only £7 out, although I was £122 out, according to the Government.
If we have to abide by the standard spending assessment that has been laid down, we shall have to close every nursery school, dismiss every home help, serve no meals on wheels and get rid of every non-statutory obligation that we are undertaking.
§ Mr. McKay
It is no use the hon. Gentleman shaking his head. What I say is true. If he doubts it, I will provide him with the facts and figures. I fear that, by dissenting in that way, he wishes to return to the days and events which led me to become a Socialist. He does not know what he is talking about, and by dissenting in that way he is showing his insensitivity. That is typical of the Tories, and the people are fed up with them.
The hon. Gentleman will recall that, when we first started to discuss the poll tax, my hon. Friends and I offered—because we knew that the Government were wrong—to have discussions about alternatives to the rating system, but our suggestion was turned down.
The Chancellor has raised the savings limit up to which benefit can be received to £16,000, and I am grateful for that. But he omitted to tell people that, because of the way in which the taper will work between £3,000 and £16,000, 1322 a person with the maximum sum allowable in the bank with additional income of £52 on top of the pension will not receive benefit.
§ Mr. McKay
I want the Government to take note of what is happening with Yorkshire Water. Water charges in the area have increased on average by 11 per cent., the standing charge has increased by 100 per cent., the connection charge for a new single dwelling has increased by 900 per cent. and there are proposals to add that amount of increase to each dwelling in a multiple-dwelling development, thus creating an impossible situation.
Then there is the situation with regard to the sale of council houses. People come to me who are homeless and ask for help because they can no longer afford the council houses that they bought in good faith and which at the time seemed a good buy. We want local authorities to be able to buy those houses back, so that people will not be turned out but will be able to remain in their homes as tenants.
§ Dr. John Marek (Wrexham)
My hon. Friend the Member for Barnsley, West and Penistone (Mr. McKay) should not worry too much about the hon. Member for Thanet, North (Mr. Gale), who is clearly quite in error if he thinks that one has to go to Russia to see privation and people who do not have enough money for a decent standard of living. One has only to go to the arches under Charing Cross station or anywhere along the Embankment to see young people begging. That was never seen under a Labour Government, but it is seen under this Conservative Government.
The Budget and the Chancellor's Budget statement on Tuesday are set against the bleakest economic prospects that I can remember. Despite the once-for-all benefit of North sea oil revenues of £83 billion over the last 11 years, we are on the brink of a recession. Last year saw the biggest ever balance of payments deficit, £20.;4 billion, and in the final quarter of 1989, for the first time ever, our invisible earnings were in the red to the tune of £713 million. The Government have brought this situation about.
That is not something which Government Members can spirit away; they cannot say that it is nothing to do with them, that it is the fickle British public borrowing more than they should and bringing in imports, and that the situation will eventually right itself. That cannot be the 1323 excuse. Inflation and a run on the pound will be the consequences of such a hands-off policy and in the long run no Government could hope to win any battle without addressing themselves to the crucial question of the balance of payments or of economic and monetary union.
Since the possibility of economic and monetary union is not on the agenda, I looked for something in the Budget that would help our exports, or at least generate import substitution. But I looked in vain.
I must thank all my hon. Friends for their contributions, including my hon. Friend the Member for Kilmarnock and Loudoun (Mr. McKelvey). I am concerned about the health of the whisky industry. It is important to this country, and I hope that the increases will not place unacceptable limits on its operation.
My hon. Friend the Member for Vauxhall (Miss Hoey) made good points about football and the pools betting duty. My hon. Friend the Member for Norwich, South (Mr. Garrett) made the valid point that the number of nurseries—[Interruption.] I wish that the hon. Member for Croydon. South (Sir W. Clark) would not keep interrupting. It does not do either him or this debate and good. For the benefit of his Back Benchers, the winding up started 20 minutes late, so if he would allow me to get through what I have to say I should be very grateful.
My hon. Friend the Member for Norwich, South made a number of points about nurseries and said that the Government's concession would not benefit as many people as had been hoped. He has apologised to the House because he has had to leave on an urgent matter, but I have to say to him—I am sure that he will read the record of the debate—that I hope that, as a result of the Government's concession on workplace nurseries, many more employers will set up nurseries.
My hon. Friends the Members for Bradford, North (Mr. Wall) and Newham, North-West (Mr. Banks) made very good points about low pay, as indeed did my hon. Friend the Member for Leeds, West (Mr. Battle). My hon. Friend the Member for Warrington, North (Mr. Hoyle) made pertinent points about training and, finally, my hon. Friend for Barnsley, West and Penistone made the real point that there is poverty and privation in this country and that the Government have done nothing about it.
I looked in vain in the Budget for measures that would change the depressing economic situation we face. Since then, there have been changes. The Government have been forced to rewrite bits of the Budget and they are still rewriting them. I expect that there are many civil servants working out how they can do something about Scotland over the weekend before the Secretary of State has to make an announcement to the House next Monday or Tuesday.
There are measures in the Budget that are not only acceptable to us, but to which we give a general welcome. An example is the proposed removal of workplace nurseries from the tax net. We opposed the introduction of such taxation while the right hon. Member for Blaby (Mr. Lawson) was Chancellor of the Exchequer. We said then that, although we recognised and agreed with the Government's aim of removing unwarranted and unjustified tax breaks for privileged groups, workplace nurseries were not in that category. We said that they were essential to working women with children and not a luxury.
I well remember well our debates in Committee on this subject—which were of no avail until now—so I welcome the Government's change of mind. The Government have 1324 gone about it in the right way by taking workplace nurseries out of the tax net. The reintroduction of a tax allowance would have created tax breaks which, for many, would have been unjustified and unnecessary. The hon. Member for Thanet, North (Mr. Gale) made some points that deserve further consideration and which may have some validity.
We also welcome the announcement of a scheme whereby VAT-registered traders will not have to pay VAT on bad debts. It has always been highly iniquitous that traders have had to pay VAT on outputs even though inputs could not eventually be recovered and a bad debt had virtually to be written off. However, I must give a word of caution. I hope that the scheme, when it is detailed in the Finance Bill, will be administratively good and that it will not lead to an increase in VAT evasion. I hope that the Economic Secretary will say a few words on that in his reply.
We also welcome the help for charities. Reliefs for water ambulances and certain medical equipment are rightly being provided, but there are other possibilities on items such as advertising and building that could be explored. There was near-consensus on these matters last year in Committee, and I hope that the same will happen again this year. The Opposition will be tabling amendments on charities when the Finance Bill is in Committee.
We are worried about the effects of the petrol price rise on the disabled who participate in the mobility scheme and who opt to give up the whole of the Department of Social Security disability allowance for the three-year lease or hire period. We wonder whether any compensatory effect could be introduced for that scheme. If the Economic Secretary cannot answer that point immediately, I hope that he will at least consider it. Again, it is a matter to which we can return when the Finance Bill is published.
The help for football is especially welcome. I am worried that the first and second divisions of the Football League will gain most of the money and that the third and fourth divisions, as a result of their lower attendances and lesser needs for safety, may have nothing. The Economic Secretary is shaking his head. I am pleased at that, because every football club in the league needs at least a reasonable proportion of this money to make its ground safer. The question about money for other sports has not been addressed, and it needs to be addressed at some point.
We are not so pleased about the way of increasing the company car scales. For many people, a company car is an extremely good perk and the present taxation is not sufficient. In the London area, far too many business executives drive their company cars with one passenger per car. That makes life a misery for commuters and the rest of the travelling public and the wife is often left stranded at home for the working day.
There is also the problem of evasion. Some executives who should know better regularly allow their accountants to file tax returns that they know to be false. That cannot be good, and greater action—
§ Dr. Marek
It is true. Greater action needs to be taken by the Inland Revenue. The other side of the coin is that, for many occupations, a car is a tool of the trade and a 1325 necessity. We therefore believe that the taxation system should do more to differentiate between that category of user and others.
Yesterday, I went to a Budget briefing by Price Waterhouse. After what I am about to say, I do not know whether it will invite me to another. Many learned experts appeared on the television screen. They said that three things would appear on the next boardroom agenda. They were summarised as cars, creches and training. In some ways, it is a sad commentary on companies in this country that the first item to appear on boardroom agendas will be cars. That is a pity. I also hope that the unions will ensure that employers do not escape their responsibilities about creches as a result of any concessions.
In that briefing, Price Waterhouse believed that company cars remain an excellent perk. I should like to know what Price Waterhouse told the Economic Secretary to the Treasury. Was he told that company cars were an excellent perk, or was he told something different on behalf of Price Waterhouse clients? Price Waterhouse also said that directors will consider themselves lucky to have got away with £5 or so a week for running the biggest executive cars such as large Volvos, BMWs and Rolls-Royces. Price Waterhouse said that the 20 per cent. increase was 10 per cent. less than expected, and that people with company cars have done very well.
The Government clearly have some way to go. We ask them to bear in mind the tool-of-the-trade car user for whom the use of a car is essential. However, company cars are an excellent perk and they must be taxed. We expect the Government to do something about that.
The Budget, as I have said, will not solve the economy's major problems. The Government must play a vital part in providing conditions for proper training. However, they are set on reducing spending on employment training by £350 million over the next three years. The Budget's proposal that contributions to training and enterprise councils should be made tax-deductible will not compensate for those cuts in training. There can be no substitute for a proper training scheme to harness the latent skills of our people.
An efficient and effective transport system is also vital. Industry needs to transport is goods, and people need to get to work. The roads are overcrowded and inadequate. British Rail, in its already underfunded state, will have its direct grants cut by one third to £345 million over the next three years. People who work in London will continue to have to put up with unacceptable conditions when they travel to and from work and they will be made to pay more for the privilege. Rail fare increases of between 9 and 15 per cent. have been announced. That is surely a good example of a Government inflationary own goal.
A proper transport structure is essential; spending money on one need not be inflationary, and may even be counter-inflationary. As the Government are bearing down on inflation, why have they insisted that BR should raise its prices by between 9 and 15 per cent.? Was that an unintentional inflationary own goal? Not on your life. There have been other Government inflationary own goals. Energy prices are set to continue to increase well above inflation. The London electricity board has just announced plans to increase domestic tariffs by 9.5 per cent. and that will mean an extra £52 on the average bill of 1326 a domestic customer. Of course, the industry is being fattened up for privatisation, but those tariff increases will increase inflation.
Council house rents are also rising. Tenants in Canterbury will pay an extra £12.29 a week. Redbridge tenants will pay an extra £15 a week—
Mr. Gale: One third of the area of Canterbury city council area is in my constituency. Council tenants in Canterbury were offered the opportunity of housing association guaranteed rent rises of inflation plus 2 per cent. over five years. It was bad advice from the local Labour party that led them to the pass in which they now find themselves.
§ Dr. Marek
They are in their present predicament because of the Government's policies, not for any other reason. They wanted to remain council tenants and that was their right. They did not want the ownership of their council houses transferred to an arbitrary body. They have kept that right, but at the expense of crippling increases in their council rents.
§ Dr. Marek
I have no need to do that.
Water charges are increasing by well over the rate of inflation and will continue to do so if the Government remain in office. The average increase will be 13.5 per cent. All those increases are inflationary own goals by the Government, when inflation in other countries is much lower than it is here. The Government, the Chancellor of the Exchequer and Conservative Back Benchers continue to tell us that they are firm in their intent to bear down on inflation. They had better start by tidying up their own back yard. All the measures that the Government have introduced relating to public utilities contribute to inflation, yet we are told that the Government are bearing down on inflation. They are bearing down in inflation by insisting on crippling interest rates which crucify anyone who has a mortgage.
As the Secretary of State for Trade and Industry is in his place, may I quote from a speech that he made on 19 March 1982 when he was Financial Secretary to the Treasury? He said:They argued that if the Government were to spend more money, we would get more business activity, more jobs, and with no adverse side effects.Presumably he was talking about Labour Members. He added:We always argued that the adverse side effects of doing so would be higher interest rates; that the less the Government spent, the less it had to borrow, the lower interest rates would be.That was in 1982. Many years have gone by since then. Where are interest rates now? We have interest rates of 15 per cent.
§ Mr. Ridley
Is not it truer than ever now that, if we were spending at the levels that the Labour party wants—the hon. Gentleman has put in his plea for extra spending in the past 10 minutes—we would have to have even higher interest rates than now?
§ Dr. Marek
I have not put in any quantified plea for extra spending, but the speech of the Secretary of State stands on the record. After eight years, instead of lower 1327 interest rates, we have the highest interest rates, which crucify everyone in the United Kingdom who has a mortgage.
In another speech, this time on 11 July 1980—going back a little further—the Secretary of State said:Viewed from abroad, where spend much time,"— the only pity is that he does not spend more time there—"the admiration of our friends for the Government's policies is unbounded…Why is there such interest and such admiration overseas? I think the answer is that many people think that Britain has an economic sickness…What is the sickness, and what is the cure— The sickness is inflation.What inflation rate do we have now— It is 7.7 per cent. and predicted to rise to over 9 per cent. It could touch 10 per cent. by the end of the year.
In his opening speech, the Secretary of State said that what had been the sick man of Europe was now doing well. I do not follow the logic of that. If we were sick in 1980, we are sick now. After 10 years of Tory rule, we have not improved. The most that the Conservative Government have done is bandage up the victim and leave him unattended in the hospital. Until we get rid of this Government, we shall not be able to employ any curative policies.
§ Mr. Ridley
What is sick about an increase of one third in the net standard of living in real terms for the man on the average wage? Can the hon. Gentleman tell us of another country that has done so well in 10 years? When did the Labour party ever achieve anything like that? What is sick about that?
§ Dr. Marek
The standard of living has been increasing in the developed world. There is no doubt about that. It has increased in other countries a great deal more than it has in Britain. My criticism is that, although some people in employment in Britain have done well, people who have not been in employment, such as old-age pensioners and the unemployed, have not done well by comparison with those in employment.
§ Mr. Ridley
Does the hon. Gentleman realise that there are more people in employment than ever before—almost 27 million? Does he realise that the figures I quoted were for the average wage? Does he realise that we have gained ground against the Germans, the French and all other countries in Europe, and even the United States in terms of net standard of living? Where does the hon. Gentleman get all his gloom from? One would have thought that he had never left Czechoslovakia.
§ Dr. Marek
The Secretary of State should listen to what the Prime Minister has said. We still have to catch up with the French. The right hon. Gentleman will have to make his excuses to his hon. Friend the Economic Secretary to the Treasury, because I shall take one minute of his time. I hope that the hon. Gentleman does not mind, but tonight's performance has been the greatest bout of activity from the Secretary of State for Trade and Industry that I have witnessed for a long time.
The country has been split. It is true that some people have done well, but not if they have been unemployed, not if they are old-age pensioners and certainly not if they have a mortgage. The monthly mortgage increase for existing home buyers is £134.29—[Interruption.] No, that is a clear figure. No amount of tax cuts could make up for that increase.
1328 We can fight our way out of this terrible situation only if the Government recognise our position as a trading nation and as a creator of wealth. Manufacturing industry's growth rate has fallen from 8 per cent. to 1 per cent. Although manufacturing output rose by 4.75 per cent. in 1989, it is expected to stand still in 1990, and the Chancellor now predicts a fall in fixed investment of 1.25 per cent.
We need measures to dampen the explosion in credit without using the one-club policy of interest rates. Negotiations about entering the ERM are necessary, as are incentives for manufacturing industry, but we looked in vain for them in the Budget. Any fiscal tightening that is necessary could have been achieved by reversing some of the huge tax cuts that were given to the super-rich in the infamous Budget of 1988. Opposition Members looked in vain for any measures that would benefit the country and all its people. We saw nothing in the Budget except some tinkering with which I have no argument. There was nothing in the Budget about the necessity for a sound economy.
As the electors of Mid-Staffordshire are now demonstrating, the public agree with us and yearn for the day of the general election so that we can turf out this Government.
§ The Economic Secretary to the Treasury (Mr. Richard Ryder)
May I begin by saying how sorry I was to hear earlier today about the death of the hon. Member for Bootle, Mr. Alan Roberts? He played an active role in the House and was an expert on many aspects of environmental policy. The condolences of the entire House go out to his family and friends.
My hon. Friends the Members for Wyre Forest (Mr. Coombs) and for Delyn (Mr. Raffan), who have spoken, have expressed their apologies for not being present for the wind-up speeches.
It is easy to forget—it has certainly been easy to forget this today while listening to some Opposition Members—that, over the past 10 years, the British people have achieved far, far more than the gloom merchants, such as the hon. Member for Wrexham (Dr. Marek), thought possible in 1980. Output, manufacturing productivity, investment, jobs and prosperity increased at rates unwitnessed for decades. We only have to look around us in our constituencies to see new offices, new factories, new shopping centres, new homes and millions of new shareholders—all signs of Britain's new prosperity.
We want to build on those successes in the 1990s—and we can do so as long as we control inflation. It penalises thrift and destroys savings. At present, inflation is too high. Interest rates may appear to some people to make it worse in the short term. To start with, of course, they do, but they also cure it. Once inflation is on a sustained downward path, interest and mortgage rates will follow. That will relieve the pressure on mortgage payers, especially young married couples, who find life difficult at present.
This Budget is a tough Budget. It raises taxes for the first time since 1981, by nearly £500 million this year and £1 billion next year. It also means that we shall enjoy a fourth successive year of substantial debt repayment. No 1329 other major industrial country, except Japan, has a budget surplus. Ours is £7 billion. So it clearly flies in the face of the facts to argue that fiscal policy is not tight.
This Budget is also a tough Budget because my right hon. Friend the Chancellor has made it quite clear that interest rates will remain high for some time to come. There can be no relaxation in monetary policy—the battle against inflation is too important for that, as my hon. Friends the Members for Fulham (Mr. Carrington) and for Beverley (Mr. Cran) have argued so forcibly and effectively.
As my hon. Friends know, the Budget reinforces our strong stand against inflation and our determination to reduce it. Indeed, inflation is forecast to fall to less than 5 per cent. during next year. The Government's policies are tackling the root of the problem, as I am sure the hon. Member for Newham, North-West (Mr. Banks) knows in his heart of hearts. Retail sales are now only 2 per cent. up on the year, which is significantly below the rate of growth in 1988 and early 1989. The housing market has slowed markedly and new car sales are also down.
During the past few days there have been suggestions that my right hon. Friend the Chancellor should have done more with fiscal policy, as if fiscal policy could somehow take precedence over monetary policy in the fight against inflation. Fiscal policy has a clear role to play in supporting monetary policy; they act together. Using fiscal policy to try to manage demand in the short term would be impractical and inflexible. What is more, it would run counter to all that we have achieved over the past 10 years in getting down tax rates and creating a stable, consistent environment for businesses, earners and savers. At the same time, those lower tax rates have actually produced more revenue than did the high rates that we inherited from Labour in 1979.
The Government are not in the habit of raising direct taxation, unlike Opposition Members—who, although they do not care to admit it, would like to return to the bad old days of penal tax rates and low incentives. They do not appear to have noticed the moves throughout the world to follow our lead in cutting taxes and broadening the tax base. Even the Socialist Governments of France, Sweden, Spain, Australia and New Zealand have all reduced their direct tax rates—yet the Opposition still want to raise taxes. They are far removed from reality.
I wish to deal briefly with excise duties, which were raised not only by the hon. Member for Gordon (Mr. Bruce) in the latter stages of the debate, but by the hon. Member for Kilmarnock and Loudoun (Mr. McKelvey), who must have left to catch the sleeper. However, I want to answer his points.
When setting excise duties, we need to take account of a number of factors, including inflation, health and revenue considerations. All those matters are borne in mind in reaching a judgment on the right level. We must also remember that the Budget will keep the real costs of some products on which Excise duties are paid at the same level as they were last year. For example, although the duties on petrol and DERV have gone up by more than the statutory indexation figure, the difference covers an unchanged vehicle excise duty—or road tax—for cars, buses, coaches, taxis and many lorries. The real cost of motoring will be the same as last year.
1330 The same is true of wine and beer. On cigarettes and spirits—the hon. Member for Gordon was especially interested in spirits—we are increasing duties above the rate of inflation, but only slightly so. It is just a little over 2p a packet more for cigarettes than would have been the case if we had simply indexed the duty, and 12p to 13p more for a bottle of spirits. The real level of duty on both those items has fallen during the past few years. Indeed, excise duties on spirits have not increased since 1985. Those points were made effectively by my hon. Friends the Members for Delyn and for Ipswich (Mr. Irvine).
§ Mr. Malcolm Bruce
Does not the Minister accept that whisky is in a special category? Its three-year maturation period means that it costs more than other spirits with which it has to compete.
§ Mr. Ryder
No one underestimates the immense success and efficiency of the Scotch whisky industry. Spirit duties on whisky have not been raised since 1985. During that time, there has been about a 25 per cent. increase in the retail prices index. On that basis, no one can say that the Government have been unfair to the Scotch whisky industry.
The hon. Member for Kilmarnock and Loudon is a member of the Amalgamated Union of Engineering Workers, and it was the Trades Union Congress that made Budget representations to the Government recommending that excise duties should be double-indexed. I advise the hon. Member for Kilmarnock and Loudon that, next year, he should have a word with his friends on the AUEW and the TUC to see whether they can review the Budget representations that they make to my right hon. Friend the Chancellor of the Exchequer.
As the House knows, and as the hon. Member for Dunfermline, East (Mr. Brown) acknowledged, there are some important changes to business taxation in the Budget, some of which have been referred to in the debate and all of which have been widely welcomed. The extension of bad debt relief, referred to by the hon. Member for Wrexham (Dr. Marek), should be of particular benefit to growing businesses. The simplification of VAT registration requirements removes a long-standing irritant from smaller firms. Instead of having to undergo four different turnover tests, they will be subject to just one simple test, based on turnover in the preceding 12 months.
The increase in the small companies' corporation tax thresholds will mean that those limits have been doubled in two years, and will benefit 20,000 small and medium-sized companies. Our tax regime for small and medium-sized businesses is the best and most generous among major industrial countries. What a contrast that is to the structure that we inherited from Labour. Then, the small companies rate of corporation tax was 42 per cent., and now it is just 25 per cent. The main rate has fallen from 52 to 35 per cent. The small companies' threshold is now two thirds higher than it was under Labour in real terms. The upper limit, after which the main rate of CT is payable, has increased nearly fivefold.
Arguments on investment were raised during today's and yesterday's debates. The rapid growth of investment is a clear sign that British firms have confidence in the future, and are prepared to make the commitment necessary to take advantage of the opportunities opening up in western 1331 and eastern Europe, which my right hon. Friend the Chancellor of the Exchequer highlighted at the start if his Budget speech.
Business investment grew by almost 9 per cent. last year, bringing the increase over the past three years to more than 40 per cent. and total investment in 1987–88 showed the largest two-year increase since the war. The increase in investment is not just a short-term phenomenon. Even going all the way back to 1979, total investment has grown faster than total consumption. Total investment in the United Kingdom during the 1980s grew faster than in any other western European country and among the major non-EC countries has been exceeded by only Japan.
We have heard some speeches from the Opposition about research and development expenditure. From what they have been saying, one could almost get the impression that the United Kingdom undertook no significant research and development. That is not correct. Britain is the fourth largest spender on research and development in the western world. British firms are not complacent. Expenditure on research and development by industry, as a percentage of its contribution to GDP, is about the same in the United Kingdom as that in both Japan and the United States, and is ahead of that in France and Italy. Of the major nations, only Germany does more, but not that much more.
A number of hon. Members, including the hon. Members for Norwich, South (Mr. Garrett) and for Gordon, emphasised the importance of environmental factors. As the hon. Member for Gordon knows, the Government are fully conscious of the importance of the environment and have already taken action on a number of fronts to benefit the environment and prevent pollution. Indeed, that is why the United Kingdom was a party to the EC agreement in Brussels a year ago that catalytic converters should be compulsory for most new cars by the end of 1992. That agreement makes it unnecessary for there to be any additional fiscal incentive at the moment. It is very encouraging that many manufacturers are already responding by including converters in new models, as we all know from the new advertising campaigns on television.
Several hon. Members, including the hon. Member for Vauxhall (Miss Hoey) and my hon. Friend the Member for Ipswich, referred to my right hon. Friend's measures concerning football. I am glad that my right hon. Friend's proposal has attracted a good response, not least from the hon. Lady and my hon. Friend. My hon. Friend is an avid supporter of football; he and I both support Ipswich Town.
It was not just the hon. Members for Bradford constituencies, two of whom are in the Chamber at the moment, or my hon. Friend the Member for Sheffield, Hallam (Mr. Patnick), who were appalled by the incidents at the Sheffield and Bradford stadiums. Football is our national sport, and we must improve the quality and safety of football grounds. We want to see stands filled with people who formerly supported football and with families, and we hope and expect that our prompt and positive response to Lord Justice Taylor's recommendations will help to achieve that aim.
1332 I can assure the hon. Member for Vauxhall that we are acting straight away——
§ Mr. Ryder
I cannot give way.
We are acting straight away. Officials will be meeting the pools promoters and the Football Trust next Tuesday. Let us all hope that agreement will be reached quickly, so that football clubs can start to reap the benefits of the change that my right hon. Friend the Chancellor has made.
Some people have suggested that what we have done for football is not enough, but we are offering £100 million over five years, which, together with the £75 million that the Football Trust has already promised, is a considerable amount of money. Our discussions with the Football Trust will aim to ensure that the money saved from the cut in pool betting duty is distributed among clubs according to need. At the same time, I think that the House will agree that at least some of the money needed should be provided by the clubs themselves. The first reaction from the clubs has been positive, and I hope that they will respond favourably in the next few weeks.
As hon. Members know, this measure is designed to help football. It is a sign of our strong concern that the football safety recommendations in the Taylor report should be carried out as quickly as possible. The money saved from pool betting duty arises almost wholly from betting on football, and it is right that those proceeds should go to the game to improve the lot of the fans. I think that that answers the point raised by the hon. Member for Vauxhall.
It would be inappropriate not to end the debate today with a brief reference to the lack of alternatives from the Labour party. The Opposition have failed consistently to answer the key questions on the economy. What would the standard rate of income tax be under Labour? Which taxes would Labour raise? How much would people lose as a result of Labour's national insurance plans? Would Labour reintroduce exchange controls or import controls? Would Labour introduce mortgage controls?
Those are the questions that the Labour party has repeatedly failed to answer during the debate. They are key questions, and we shall return to them time and again, until we get real answers from the Labour Front Bench. By its evasions this week, the Labour party has discarded any openness. The party, including the hon. Member for Newham, North-West, shrank from principle and dodged its duty to the electorate to explain its alternatives. Labour's daily veneration of verbosity at the expense of substance will be seen as exactly what it is—dishonest and discreditable.
Contrary to the futile claims of the Labour party, Britain enjoyed a decade of unmatched prosperity in the 1980s. I am confident that my right hon. Friend's Budget will set a launch pad for another decade of success for Britain. This savers' Budget took no risks with inflation, helped the less well-off, gave women a fairer deal, assisted small businesses and provided a large boost to charities and sport.
§ Debate adjourned—[Mr. Patnick.]
§ Debate to be resumed tomorrow.