Motion made, and Question proposed,
That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
§ [Relevant document: European Community document No. 4433/91 on the Annual Economic Report 1990–91.]4.49 pm
§ Mr. Neil Kinnock (Islwyn)
As is customary and traditional, I begin by congratulating the Chancellor of the Exchequer on the way in which he delivered his Budget speech. My congratulations are even warmer than they would otherwise have been because he has provided us with what must be the biggest climb-down in modern political history. After two years of wasting £10 billion on the misery, injustice and inefficiency of the poll tax, we find the Government backing off that which was, but less than a year ago, their flagship. There will, however, be less rejoicing over the fact that the right hon. Gentleman proposes to collect more in VAT; despite his protestations, that is not a fair way to collect additional taxation. By definition, the tax is regressive—for people on average incomes and low incomes.—[HON. MEMBERS: "No, it is not."] Oh yes it is. It takes a disproportionate amount from those on average and lower incomes, and everybody knows it.
Not content with a debate over whether we were to have a head tax or a granny tax or a bedroom tax, the right hon. Gentleman introduces a system of raising taxation to pay for local government services which will tax even children's sweets. It is hard to imagine a tax with a broader scoop—and all to try to bail the Government out of the stupidity of the poll tax mess that they have created.
That is not to mention all the disasters that will be inflicted—this is not an overstatement—on the cash flow of local government as it tries to cope with an entirely different system of providing the revenue to pay for local services. We shall watch the system and examine it in close detail, and we shall be amazed if the Chancellor gets from the British public the response that he seeks. They hated the poll tax and they will hate this con just as much.
There are elements in the Budget that we have cause to welcome. As my right hon. Friends remarked during the speech, there will be dancing in the streets of Islwyn, Sparkbrook and Monklands, East in the wake of the imposition of taxes on mobile phones—which the Chancellor described as attacking what he called one of the greatest scourges of modern times. He must have a peculiar perspective; when he said that I imagined he was about to deal with all the iniquities of the poll tax.
183 Nevertheless, there is much agreement on, for instance, the assistance to be given to small businesses. We called last year for the VAT relief on bad debts of more than a year, and we give it all the warmer a welcome for that. Raising the VAT threshold to £35,000 for small businesses is also welcome. The Opposition have joined small businesses and many Conservative Members in urging that. The simplification and reduction of small firms' corporation tax liabilities are sensible.
The only problem with the other changes that the Chancellor proposes to make in the corporation tax of firms of a variety of sizes is that, although they certainly need relief because of the difficulties that they have experienced in recent years—it amounts to £380 million this year, says the Chancellor, and £800 million in future years—we must make the point that if the Chancellor had such resources they could have been better used on capital allowances which would in turn encourage the movement of more investment into manufacturing industry. That point will be the subject of further debate between the two sides of the House.
We warmly welcome the announced limitation of mortgage tax relief to the basic rate of income tax. That has been our policy for several years now, and the Chancellor—inadvertently, I am sure—has made our job much easier when we form the Government after the next general election.
By way of a final immediate response to the Budget I must mention the changes announced in respect of child benefit. Judging from the hype, I had thought that the right hon. Gentleman would perform another spectacular somersault in this area and that he would roll back the years of the former Prime Minister and previous Chancellors during which the value of child benefit was significantly reduced. I had expected from a family man some understanding of just how significant child benefit is to large numbers of families on average and below average incomes. Instead we are given the postponed payment of an extra £1 for the first child and 25p for other children. I wonder that the right hon. Gentleman had the gall to come and announce 25p. He must have some idea, even on his income, of the expenses involved in bringing up children. His failure to recognise what those expenses mean for working families and families without jobs shows a contempt for their interests.
To restore child benefit to its level when the Government froze it, the Government would have had to increase it by £2.30 for children other than the first child and by £1.30 for the first child. Their failure to do that shows that they are continuing their bias of 12 years' standing against people on modest incomes and in favour of the best-off people in the country.
This is the Chancellor's first Budget and it is also the first since Britain became an exchange rate mechanism economy. This Budget is presented just 21 months before the completion of the single market in the European Community. It is also being presented in a recession. Given those dominating factors, it was only reasonable to expect that the Chancellor would deal with them directly in the Budget. We expected him to face up squarely to the challenges posed by the conditions that our economy faces. He did not. Instead, he dodged; he gave us a short-term Budget—a tinkering Budget. It will not stop 184 the slump. It will not help to build strength for the future. It will do nothing to enhance the competitiveness of British industry.
As the completion of the single market draws nearer, we see in the economies of our competitors economic growth and investment performance that vastly exceed those of this country, under this Government. The Chancellor spoke of recession everywhere, but let us put that into perspective. In Italy, growth is running at 2.4 per cent. and investment at 4.1 per cent. In France, growth is at 2 per cent. and investment at 3 per cent. In Germany, growth is running at 4.8 per cent. and investment at 5 per cent. In Britain, after 12 years under this Government, growth is minus 2 per cent. and overall investment is minus 3.4 per cent. In a country that used to be the workshop of the world, manufacturing investment essential to any future success of our economy is falling by 15 per cent. year on year. Yesterday's figures on manufacturing output showed a fall of 8 per cent. this year.
The Chancellor should have made a statement of shame about such figures and such a performance. Nothing like that is occurring in any comparable economy. Other countries are building up their economies in the approach to 1992 whereas the Government are running down the British economy. The Budget will not help to get Britain back to the growth or investment levels of our competitors before the single market is completed.
Last week, the Prime Minister said that he wants Britain to bewhere we belong, at the very heart of Europe".It is a commendable aspiration, which is shared by many of us. The trouble is that, after these Tory years, we shall be not at the heart of Europe, where we belong, but at the tail of Europe, where the Government have put us. The Budget will not stop that occurring.
In the wake of the Budget, unemployment will continue to rise, firms will continue to close and businesses will continue to fail. The cut in interest rates that we expect today, before the end of the week or some time next week, should help to mitigate all the pressure of the slump. However, although the cut is necessary and welcome, it will not be enough to stop the recession spreading and deepening. The damage that the Government's policies have done to the economy, to industry and to services is so deep and wide that the effects of a slump made in Downing street will continue for a long time to come.
In Britain now, 3,000 jobs are being lost and a hundred businesses fail every day. But industries and firms that go out of production today are unlikely to reappear tomorrow. There is a permanent loss of industrial capacity. Since the second world war, Britain has been through that experience only once before—in the last Tory slump, less than 10 years ago.
The Chancellor said that recessions are always painful. Our only experience of recessions is under Governments whom he supports. It is no accident. The genuine worldwide slump in the wake of oil price rises in the mid-1970s hit every industrial country—indeed, every country. It is more than a coincidence that the only two other recessions that we have experienced since 1945 have been under Conservative Governments. The difference between the last recession and this one is that this time the Government's policies are even killing off the survivors. Companies that managed to pull through the last recession have been unable to beat this one, and enterprises formed and built since the last recession have been wiped out.
185 Firms of all sizes are burdened by debt, including so-called distress borrowing, which now runs at over £20 billion—some say as much as £25 billion. Companies are borrowing to survive, not for investment, development or expansion. Redundancy notices and bankruptcy lists are not confined to the so-called old or traditional industries, but have affected electronics and aerospace, machine tools and textiles, software, construction and engineering industries. Well-managed, progressive and forward-looking companies are going down. Unemployment is gripping the south and the midlands, just as it is going up, yet again, in Scotland, Wales and the north of England.
So many of the people who are victims of the recession were promised an economic miracle. The Government encouraged them to borrow and spend and told them that they were part of an "enterprise society". Those people testify daily to the fact that they have been deceived and betrayed by a Government for which many of them voted.
In his economic survey this afternoon—his Budget retrospective—the Chancellor hardly gave a word or a thought to those people or to their jobs, industries or futures. If he had made a n extensive reference to them and their difficulties, he would have had to say how deep the recession really was and where it came from. If he had done that, he would have had to condemn the ex-Chancellor, his right hon. Friend the Prime Minister.
That is not simply my judgment. An experienced commentator recently reported:The Chancellor … is …tightly boxed in by factors not so much of his own making, but that of his predecessor—and his predecessor but one".That was said by the right hon. Member for Chingford (Mr. Tebbit), who was reporting—and no doubt earning a few bob in the course of doing so—in the Daily Express. No one could describe him as unfavourable to the Prime Minister because he was among the first to say that the present Prime Minister was the most natural successor to the right hon. Member for Finchley (Mrs. Thatcher).
I suppose that the Chancellor, the Prime Minister and the rest of the Government would like to be remembered as the people who took on rising inflation and pushed it down, but there are two big blemishes in their record. First, they brought the inflation in the first place. Secondly, the very same policies that they used to squeeze demand and inflation are also the policies that are crushing firms, industries and jobs. If the Government want to claim credit for combating inflation, they must also take the blame for causing the slump. No one else deserves the blame.
The right hon. Member for Shropshire, North (Mr. Biffen) said two weeks ago:After 12 years in office there are no Conservative alibis".That is certainly true, but it is also true that, if the Government were to have more time in power, they would continue to do the same thing. They would eventually float the economy out of a slump simply by relying on a rise in credit-financed consumption, and would try to tackle the resulting inflationary pressures in the economy with high interest rates. They have no other policies for a recovery; as they have shown before. That would push up prices, debts and wage claims, push down investment and output and wipe out industrial capacity, yet again. They have done that not just once in the past decade, but twice. They have not changed their policies, and they have still not learnt.
186 Last night I watched the "Panorama" programme—I suspect that many other hon. Members also watched it—on the slump and the way in which it is spreading. I saw the Secretary of State for Trade and Industry say that he was certain thatindustry is poised to respond to a growth in demand".How can he say that? It did not happen last time. When the Government's policies wiped out 20 per cent. of Britain's manufacturing capacity in the early 1980s and then let credit rip in the mid-1980s, British industry could not respond to the rise in demand. The result was, as the Secretary of State for Trade and Industry should understand, that Britain had its first ever deficit in manufactured trade, a huge balance of trade deficit and then, of course, a gigantic balance of payments deficit—so big that it remains at the figure that the Chancellor gave us this afternoon, despite two years of pressing deflationary policy. We still have a balance of payments deficit that would have been utterly unacceptable in any previous period—although in previous periods our economy never had the benefit of North sea oil and self-sufficiency.
Yet again today the Chancellor did nothing to stop history repeating itself as tragedy. There is no strategy to this Budget—merely expediency. There is no effort in this Budget—or in any other of the Government's policies—to help to create an environment in which productive industry can thrive and become more competitive.
There was no sign—not so much as a hint—of any significant policy for promoting industrial investment in research and development and technology transfer. The best that we got was a way—a welcome way—of trying to help companies that have hit particular difficulties as a result of the Government's policies. There was no commitment to—and certainly no practical means were proposed for—maintaining macro-economic stability. In 12 years the Government have never managed to achieve the sustained low interest rates that are essential to that. The only way in which they have ever got inflation down is by throttling the economy with high interest rates—the opposite of stability.
In 12 years, the other critical ingredients of competitiveness and of combating inflation—sustained improvements in the transport system, training and education—have never been afforded the necessary priority by the Government. They were certainly given scant attention today. It appears that education—the cause of great anxiety among parents, the public and industry—is now made into a poll tax plaything, and the cuts go on. Let me give an example. Last week, 17 Conservative-controlled local education authorities announced £54 million-worth of additional cuts in education—the only reason being that they wanted to try to stay within the limits set down by the Government, who are supposed to have education close to their heart.
Now, if the Government have their way, education is to be balkanised into a tangle of opted-out schools and underfunded colleges as the chaotic experiments of the 1980s are extended into the 1990s. Now we know what the Prime Minister really meant when he told The Times a few weeks ago that, although education was "closest to his heart", his thoughts were not yet "fully worked up".I approach this issue,said the right hon. Gentleman,with an instinct that something needs to be done and we are trying to determine exactly what it is.187 While the Prime Minister is "trying to determine" exactly what he wants for education—while the Prime Minister is dithering—millions of other British people with children approaching school age and of school and college age are worrying. Industrialists and potential employers are urging a new scale of provision and performance and investment in education. All are looking at our neighbours who are making the proper investment in education and training so that their people reap the rewards of new skills and their economies reap the rewards of extra strength and competitiveness.
The Chancellor of the Duchy of Lancaster seems to think this funny. He is going to have to explain how it is that, after 12 years of Tory Government, Britain still has skill shortages in the middle of a deep slump. He will have to explain why numerous industrialists and employers—people who are his political allies—hotly condemn the Government's absolutely miserable record over all these years. From this Government and in this Budget, we get no commitment comparable to that made in our neighbouring competitive countries. There never will be that commitment.
In 12 years of power, with £100 billion-worth of oil revenues, £62 billion-worth of assets sales and the highest tax burden in British history, the Government have never made the necessary investment. Just last week, we heard the Prime Minister say:We have been going in a particular direction for 12 years and we shall continue to go in that direction".I suppose that that was intended to reassure the Finchley matriarch and her remaining followers. The Prime Minister's words are a warning to all those who, during these 12 years, have been engulfed by spreading poverty. It is a warning to the victims—those who have had security and success snatched from them by unemployment, high interest rates, business failure and high mortgage rates. It is the victims of industrial decline, and decay in the essential community and welfare services, who should be warned. The Prime Minister's words are a warning that the Government, who aregoing in the same directionas they have been for the past 12 years, will take Britain and the British people further behind.
In the depth of recession, we needed a Budget to build out of recession. We needed a Budget that helped to lay foundations for future economic strength. Instead, we got a Budget from a Government who will not learn from their own failures and—even worse—will not learn from the success of others. The British people know that that is true. They know, too, that this Government ruled over the wasted decade of the 1980s. When the Government call the general election and give them the chance, the British people will stop them wasting the 1990s.
§ Mr. John Biffen (Shropshire, North)
The Leader of the Opposition has an enviable record as a Welsh rugby union coach, but as I watched him at the Dispatch Box this afternoon it was more in the discipline of cricket that I judged him. He resembled nothing so much as the batsman who had found that the wicket had turned overnight. He has discovered—and it is much to his distress—that the Conservative party does not intend to limp across the election battlefield with the ball and chain of the 188 community charge. To the right hon. Gentleman's discomfort, the Conservative party has taken a radical way out of the dilemma and met the challenge.
§ Mr. Biffen
I do not think that the Leader of the Opposition has ever been on a horse in his life—and if he has been on a horse, he has certainly never been hunting, so we can now return to the more relevant analogy afforded by the cricket field to describe the proposals for changes in the financing of local government.
The right hon. Gentleman showed his irritation because the debate has shown the striking reality that so much of local government is conducted at the behest and under the control of central Government. From my study of the life of Aneurin Bevan I have always judged that to be the case. It was Aneurin Bevan who told the story of his pilgrimage from the meanest local authority in Monmouthshire up to Westminster—always looking to discover where the reality of power lay. I say that for the benefit of Welsh Labour Members, who know in their hearts that it is true.
What has been adduced today is an attempt to bring about a better balance between the forces of finance and authority. Anyone who has any doubts about where authority has always sought to be in this matter need only think of Shirley Williams who, as Secretary of State for Education and Science, tried to require universal comprehensive education throughout England and Wales. That is an indication of the underlying realities.
The Chancellor's remarks about the future financing of local authorities will form the basis of a very relevant debate, and I believe that the balance of judgment will conclude that wise decisions have been made. Given the way in which the judgment has been presented, one could suppose that it involves a hypothecated increase in value added tax for the replacement of the community charge or part thereof. Of course, that cannot be so—it is merely the point at which the debate opens. We are talking about the use of the wider resources of central Government taxation for the financing of local authorities, not about any particular aspect of central Government taxation.
§ Mr. Kevin Barron (Rother Valley)
Why did the right hon. Gentleman serve in a Government who reduced the percentage of money provided for local government by central Government?
§ Mr. Biffen
Yes, it was a mistake. I am prepared to appear before any audience with the hon. Gentleman: I will plead my mistakes and he will plead his certainty, and I know who will get the vote.
The issue of the public sector borrowing requirement has returned to our Budget debate after an absence of some time. I feel no joy at it once again being part of the Budget debate, but I accept that, with the general state of the economic cycle, it is reasonable to budget for a certain amount of borrowing. That also places a restraint on our rhetoric about and our objectives for income tax. From now on income tax, with other central Government taxation, will have to bear its responsibility in the financing of local government. That does not mean that we 189 cannot have as our objective an income tax rate of 20p in the pound, but it will be a considerably more difficult objective to secure, and our rhetoric must adjust to that.
I wish to touch on just two or three points because many other hon. Members wish to take the great debate forward. I do not pretend that there is a great theme running through my speech. I cannot deny my initial appreciation that the right hon. Member for Islwyn (Mr. Kinnock) should be so discomforted about the replacement of the community charge.
My right hon. Friend the Chancellor rightly laid great emphasis on the need for a business revival. I declare an interest, and my business interests are listed in the Register of Members' Interests. I hope that when the Finance Bill goes into Committee, some thought will be given to the current levels of investment allowances. I did not hear that matter feature in my right hon. Friend's speech, but I hope that it is not out of his mind.
I do not think that any hon. Member expected interest rates to feature in my right hon. Friend's statement. I can remember Budgets, even from this Government, which concealed interest rate changes. I see the author of one—my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe)—sitting not so far from me. There have been other diversions this afternoon, but continuing and substantial reductions in interest rates would be most advantageous of all to the business community.
It is obvious that we are under the shadow of a general election. We should not be too sensitive about that—it is expected that we should so react. I have noted a certain reticence by Opposition spokesmen. I do not say that the Labour party has a hidden agenda, but there are certain aspects of the development of economic policy that it would prefer to elaborate beyond the electoral chasm——
§ Mr. Biffen
It is a process of education—a sharing of knowledge with the hon. Gentleman. I have a document——
§ Mr. Biffen
I assure the right hon. Gentleman that it is much better than that. It comes from the Institute for Public and Policy Research—a recently furbished intellectual hothouse that is part of the redesigning of the Labour party to make it fit for alliance with the Liberal Democrats. It is presided over by Lady Blackstone and Lord Donoughue, the aristocrats of Labour. They have commissioned a Mr. John Grieve-Smith who worked in the economic section of the Cabinet Office arid the Treasury—what a lineage.
With that background, the document has been presented by that body, which moves so closely with the Leader of the Opposition and his Front Bench——
§ Mr. Biffen
The hon. Gentleman should not deny it—that would upset Lord Donoughue's day.
The Times said:A report by the Institute for Public and Policy Research says that … Britain's entry into the exchange rate mechanism has made the case for a co-ordinated pay strategy even more urgent … Mr. Grieve-Smith says that the government must reach agreement on pay policy with the CBI and the TUC not as a short-term expedient but as part of a long-term strategy for economic management.190 Well, there are none like the old ones. Those of us who recollect the 1960s and 1970s will feel a certain nostalgia about that.
I hope that I am giving a little good-natured guidance to the Leader of the Opposition. I promise him that I will be a better friend to him than most of those who sit around and about him. I want to know why those distinguished academics were scooped out of the Treasury and put under the wing of Lady Blackstone. The process is intellectual beyond belief. It is dotty. They want the TUC to carry out an incomes policy backed by Government statute. Yet only 38 per cent. of employees belong to trade unions. There has been a remarkable fall of about 25 per cent. in the unionised work force since 1979. The very forces which could not deliver in the 1960s and 1970s are being invoked now by the intelligentsia who flank the Leader of the Opposition. This time, they offer the prospect of success from an even more rickety machine.
I tell the Leader of the Opposition that that is not part of the hidden agenda—it will be part of the open debate at the coming election. There will be a growing interest, especially among the Liberal Democrats, to know where the right hon. Gentleman stands on these issues. He has had a comparatively easy time with endless good-natured discourse across all the affairs of the nation and the world without ever having to reveal very much. I must tell him that his salad days are over. We are approaching an election and a debate, and I look forward to that.
§ Mr. Deputy Speaker (Mr. Harold Walker)
Order. A large number of hon. Members who have sat through the debate so far want to take part. Brief speeches would be appreciated.
§ Mr. Stuart Bell (Middlesbrough)
Thank you, Mr. Deputy Speaker, for calling me so early in the debate.
My right hon. Friend the Member for Islwyn (Mr. Kinnock) was right to draw the attention of the House to the fact that 3,000 jobs are being lost and 100 businesses being liquidated every day. That contrasts with the Chancellor's speech, which lasted one and a quarter hours, but did not once use the word "unemployment". The right hon. Gentleman said that his Budget was intended to assist business to recover from the recession in the short term and to invest in the long term. The Government have had 12 years to provide such a Budget, but they have not done so, and they did not do so today.
We hear a great deal from the Tory party about recessions being due to economic cycles. We know all about the cycles of the Tory party. We can go back to Anthony Eden in 1957, who introduced a Budget in the April that reduced income tax by half a crown, and another in the autumn, after an election, that increased it. We can go back to the great dash for growth by Anthony Barber in the early 1970s, which gave us the inflation that Labour inherited in 1974.
The Chancellor heaped great praise on his predecessor, the right hon. Member for Blaby (Mr. Lawson). He talked of economic miracles. He was proud of the fact that there were economic miracles. At the Dispatch Box, he read press cuttings from Germany, the United States and Japan showing how Britain was having an economic miracle. Today, we have had some of the truth from the new 191 Chancellor of the Exchequer who said that he did not believe in miracles. It has taken us 12 years to get such an admission.
The Chancellor said that inflation would be down to about 4 per cent. in the autumn, and no doubt there is a plan to bring interest rates down as well so that by the autumn they are about 10 per cent. We see how the Government and the Chancellor have lost control of the economy, to such an extent that the Chancellor was unable today to announce a reduction in interest rates. We will have to wait until tomorrow in this three-instalment plan—the Budget today, a cut in interest rates tomorrow and the abolition of the poll tax on Thursday. It is not surprising that the Prime Minister is tired. I have every sympathy with him. To have to preside over such a week must be trying for him.
We know all about the cycles of this Government. The first cycle from 1979–81 gave us inflation of 21.9 per cent. We have been here before. In 1981–83, unemployment was 3 million. Again, we have been here before. We see the simple equation between high interest rates, lowering inflation and unemployment. Again, the unemployed are taking the full strain. Only recently, Barclays bank announced 4,000 lay-offs countrywide, and the Midland bank announced 5,000 lay-offs during the year. Years ago, joining the bank meant a job for life. That is no longer the case. One of the consequences of the past 12 years of Thatcherism has been the end of the security of a job for life in the service industry, just as happened in the early days in manufacturing industry.
Those of us who try to speak early in the Budget debate each year have argued all along that the consequences of a single club policy would be high interest rates. We said that jobs would be destroyed, and jobs have been destroyed. We said that firms would be destroyed, and firms have been destroyed. We said that tax receipts would be reduced, and we have seen that again in today's Budget. We said that social security payments would be increased, and we have seen that again in today's Budget.
It is hardly surprising that falling receipts and rising social security payments mean that the public sector surplus, of which the Government were so proud for so long, is now on the increase, and we have a PSBR of £8 billion. The Chancellor did not tell us from the Dispatch Box what the PSBR was forecast to be in the year ahead. No doubt that again is a consequence of the fact that we shall have to wait until Thursday to discover the true consequences of the abolition of the poll tax.
Opposition Members have consistently said that squeezing inflation out of the economy cannot be the only goal of an economic policy. There has been no industrial strategy, no training strategy and no planning for the future. All we have had is the encouragement of a never-never land of gearing and credit which reminds me of Oscar Wilde who, when he died in Paris, said that he was dying as he had lived—beyond his means.
The British consumer has, for the past 12 years under the Tory Government, been living beyond his means, encouraged by a Government who do not believe in planning, in intervention or in steering the economy towards manufacturing. On the one hand, they said that the citizen must cut excess borrowing and spending, but on 192 the other they encouraged him to borrow more and to spend more, to live for today as if there were no tomorrow. Such a policy can clearly be described as short-termism.
The medium-term financial strategy, the Government's great strength in the early years, their great policy on which everything was based, gave us short-termism. We have heard nothing today about soft landings. We have had a variety of definitions of a recession. One was that a recession occurs when economic growth falls for two quarters in succession. Dr. John Bridge, chief executive of the Northern Development company, has described it as negative growth. I prefer the more mundane and earthly description of a former President of the United States, President Truman, who said:It's a recession when the man next door loses his job. It's a slump when you lose yours.There is no prospect, Mr. Deputy Speaker, of you losing your job, but we can see clearly where the Government have taken us.
Between 1979 and 1981, Teesside lost so many jobs that the unemployed could have filled Ayresoine Park football stadium twice over. As my right hon. Friend the Leader of the Opposition said, the recession is in the south and in the midlands, but it is creeping into the north. We have seen that over the past few weeks. British Steel has told the public on Teesside that it will be shedding 360 jobs in the next financial year. The unions claim that the figure is more likely to be between 500 and 600. Smaller firms are going into liquidation–50 jobs here and another 50 jobs there.
The Chancellor said today that the car industry was growing in strength, but Minories is closing a garage with a loss of 25 jobs. Even ICI, the great provider of work in our area, is introducing local working arrangements which will reduce jobs. This is a recession by 1,000 cuts.
§ Mr. Richard Holt (Langbaurgh)
The hon. Gentleman likes to give the downside on Teesside, but perhaps he would like to give the upbeat side with the number of new jobs that have been provided by MTM, a growing and expanding chemical company. Our local chamber of commerce has said that the real problem is that we will not have enough skilled people in future rather than a shortage now. I understand that the hon. Gentleman has unemployment problems in his constituency, but my constituency has not, and that is in Teesside as well.
§ Mr. Bell
I anticipated the hon. Gentleman's question, and I have the unemployment statistics for his constituency of Langbaurgh, where 4,532 people, or 6 per cent. of the work force, are out of work. In Stockton, South, another constituency close to mine, 4,507 people, or 10 per cent. of the work force, are out of work. The hon. Gentleman might soon have to address the question of those 4,532 people who are out of work. When he says that there is a shortage of skills, he must ask who, after 12 years of a Tory Government, is responsible for that. I shall be glad to give him the Labour party's programme, worked out by my right hon. and learned Friend the Member for Monklands, East (Mr. Smith), which shows clearly the Labour party's training policy so that those skills will be provided in future.
The Chancellor mentioned some benefit to football last season and some new scheme for sport in his Budget today. He reminded me somewhat of the super-sub who had been brought on to the field with only 10 minutes to go, whose aim was to score the spectacular goal. There he 193 was, hovering on the touchline. There he was down by the corner flag. There he was afraid to be caught offside. There he was running away from the ball—anywhere but where the action was.
This is the Chancellor's first Budget but it may well be his last. We have had a one-club policy, and it may be that we shall have a one-term Chancellor. He was timid and unimaginative. He did not produce a Budget for jobs or for people. He has lost control of the economy. As I said, he could not even tell us whether interest rates would be reduced tomorrow. He will be relieved of his job as soon as the referee blows the whistle and ends the game, when we have a general election. Then, and only then, will he and the rest of his team be put out of their misery.
§ Mr. David Knox (Staffordshire, Moorlands)
In the Budget debate last year I followed the hon. Member for Middlesbrough (Mr. Bell) and it is my good fortune to do so again today. The factual bases of the hon. Gentleman's speeches are usually accurate, but I detected two inaccuracies today. First, he said that the Chancellor did not refer to unemployment, when he did. Secondly, he suggested that R. A. Butler had reduced income tax by 2s 6d in the pound in 1955; in fact, it was only 6d, which is a fifth of 2s 6cl. We tend to forget those values now that we are on a different system.
I congratulate my right hon. Friend the Chancellor on his Budget—the first, I hope, of many. His two predecessors set high standards with their Budget speeches which were well constructed, to the point and commendably brief, and my right hon. Friend maintained those standards.
At this stage in a Parliament it is inevitable that the Budget will be judged on its likely electoral consequences rather than on its economic consequences. My right hon. Friend got it right on both scores. It is an extraordinarily good Budget.
I agree with my right hon. Friend the Member for Shropshire, North (Mr. Biffen) about the increased proportion of local government expenditure which is to be met in future by central Government. That is long overdue. Taxes raised locally have been contributing far too much to local government revenue for too long, because most of the real decisions about local government expenditure are taken in the House rather than locally.
The reduction of £140 in the poll tax—I call it the poll tax although I appreciate that my right hon. and hon. Friends on the Treasury Bench have to use the term "community charge"—will be very welcome in my constituency, as it will be throughout the country.
It is unpleasant that VAT will have to go up by 2.5 per cent. to finance the reduction in the poll tax. The Labour party has been criticising the Government for some time because too much local government expenditure has been met locally. rf it is to beinet centrally; the tonsequence is that it has to be paid for, either by increasing taxation or by reducing expenditure on other things. The Opposition outburst when my right hon. Friend the Chancellor announced the 2.5 per cent. increase in VAT suggested to me that they were dodging the task of facing the real issues and the hard decisions that have to be taken by any Government.
§ Mr. Knox
I am not giving way—Mr. Deputy Speaker asked us to be brief.
I welcome the changes announced concerning child benefit. The initial changes are small but, most important, the Chancellor intimated that child benefit will be index-linked to inflation from next year. Some of us have been very concerned about child benefit for some time. We are delighted that in future we shall not have to rebel against the Government to show our opposition to their failure to uprate it.
I also welcome the changes in company taxation. We need only consider the state of industry to realise the necessity for a better cash flow if much of industry is to survive. Therefore, it is particularly important that the Chancellor should have proposed changes in corporation tax, an increase in the VAT threshold and the other measures. Those should be helpful in strengthening our industrial base.
On the general state of the economy, a year ago the main economic problems facing the country were inflation and the balance of payments. Now the problem that looms above all others is the recession, although the balance of payments is still a cause for concern. As a result of Government policies over the past couple of years, inflation has been largely brought under control. It has fallen in recent months and it is likely to fall to about 4 per cent. by the end of the year, as my right hon. Friend the Chancellor pointed out.
Unfortunately, the policies of high interest rates and tight credit that have been so successful in curbing inflation are the same policies that have forced us into recession. Output is falling, profits are falling, investment is falling and, alas, unemployment is rising. That is not a happy position, and action must be taken to reverse those trends. There is urgency about it because of the time lag between taking action and the action becoming effective.
The economy desperately needs the stimulation to growth which only lower interest rates can bring. I welcome the action that the Chancellor has already taken in that respect. I urge him to continue the process over coming months. Lower interest rates are essential if we are to avoid a more serious recession than that of 1980–82 when the manufacturing sector was particularly hard hit; already there are signs that it is being badly affected again.
I often wonder if the importance of manufacturing industry is fully appreciated. Obviously, it has to try to meet the domestic demand for manufactured goods and to keep imports to a minimum, but it is also important in relation to our export performance. Government figures show that, whereas about 80 per cent. of manufactured output is internationally tradeable, only about 20 per cent. of the service sector is, sp if we are to have a healthy international payments position we must have a strong competitive manufacturing sector.
Alas, the recent history of manufacturing gives little cause for comfort. Between December 1973 and December 1990—a period of 17 years—output in manufacturing industry rose by only 3.5 per cent. The House will note that that period covers the terms of office of the last Labour Government and of the present Conservative Government. There is, therefore, no party political capital to be made from that poor performance.
It is worth recalling that the increase of about 3.5 per cent. in manufacturing output in the last 17 years compares with an increase of about 70 per cent. in the 195 previous 17 years. Of course, that sorry tale is not just the fault of the Government. The conduct of management and of trade unions has left a great deal to be desired.
The Government can and must contribute to the strength of the manufacturing sector, particularly by improving the economic environment in which it operates. In that respect, as I mentioned earlier, lower interest rates are essential for three main reasons. First, they would help to increase demand for goods produced by manufacturing industry. Secondly, they would encourage higher investment in new plant and machinery, which would improve efficiency and increase capacity. Thirdly, they would ensure that the owners of capital received a higher return from investment in manufacturing industry than from fixed-interest securities.
I mentioned earlier that we still have a balance of payments problem, although it is less serious than it was a year ago. It is pleasing to note that the figures for 1990 showed that the deficit had declined by a third compared with the previous year. But we must remember that economic growth has been held back in the past year. When that happens, the balance of payments tends to improve. The great worry is that when the economy starts to expand again, the deficit will increase once more. When we consider that we have been in deficit to a fairly substantial extent over the last four years, the worry is that we shall face very large deficits again in a year or two.
The only conclusion to be drawn is that there is something fundamentally wrong with the exchange rate of sterling and that an adjustment is needed. We are now in the exchange rate mechanism of the European monetary system. Membership of the ERM is important and stable exchange rates are important for the manufacturing sector in particular. I believe in the disciplinary effect on inflation of British membership of the ERM, and I have no desire to undermine our membership, but it would be strange if we had got the value of sterling right when we joined—indeed, it seems that we did not. I believe an early adjustment should be made, but it should be made clear that it is a one-off adjustment, so that we in no way undermine the disciplinary effects of membership of the exchange rate mechanism. It should be made clear to foreigners, and to those who are worried about confidence in sterling, that it is a one-off move and that we strongly believe in the discipline of the ERM.
I believe that it is very important that we should be in the exchange rate mechanism, but at the correct level for sterling, because in that way the current account of our balance of payments can be in balance over the years. It also provides price stability to importers and exporters and anti-inflationary discipline. Moreover, if we adjusted the value of sterling within the mechanism on a one-off basis it would be possible to lower interest rates because it would not be necessary to keep them at their present high level to maintain the present value of sterling.
§ Dr. David Owen (Plymouth, Devonport)
The House has listened to what will probably be viewed as the first social market budget. I wish that it had been produced by a Social Democrat Chancellor, but since the Conservative 196 party seems to be joining the Christian Democrats, perhaps we may agree that we are now witnessing social market economics in this country.
The social priorities spelled out in the Budget are welcome and totally new for this Government. They have not been demonstrated for eleven and a half years. For example, the emphasis upon mortgage tax relief being confined to the standard rate taxpayer is thoroughly welcome and socially correct.
The decision to increase child benefit by 12 per cent.—after its real value has fallen during the past eleven and a half years—although modest, is extremely welcome and seems to mark a major shift in social priorities because the Chancellor accompanied it with a commitment that child benefit would go up in line with inflation in future, as with all other basic benefits. We welcome that strongly.
The third social element in the Budget which is extremely important is the 15 per cent. increase on cigarettes, which are a killer drug and have been treated with kid gloves for far too long by this Government. That is the right social priority, as was the courageous decision to increase petrol by 15 per cent. because, in social terms, cars are an expensive element in the transport infrastructure.
I would not welcome those social changes were they not also accompanied by some worthwhile changes on the supply side of the economy, aimed at improving efficiency and competitiveness of the market economy, which is necessary for a social market to operate effectively, as one cannot finance some of the social concerns unless the market is operating efficiently.
That leads me to the crucial test of the Budget—has the Chancellor played fast and loose with inflation and with consumer spending? I acquit him of the charge of doing so. People will say that this is an election Budget, and the decks are certainly cleared for an election in June, October or next year, but given the circumstances, it is not an electoral-bribing budget. It is not as irresponsible as some of the Budgets that the right hon. Member for Blaby (Mr. Lawson) triggered off, particularly before the 1987 election, which caused a flagrant consumer boom. However, the Budget will have its electoral payback, because I would not be surprised if the international market were not prepared for a substantial cut now in interest rates. That is also the core priority.
By emphasising business, the Chancellor has chosen the right medium-term priority. My only anxiety is that by relaxing corporation tax and reducing it—although in many ways that is welcome, especially as it will give extra liquidity to companies that are being severely squeezed, which will get worse in the next few months—the corporate sector will act as it has so often done before when there has been a little relaxation, and will take the pressure off the wages front.
I only hope that it does not do so, because the one fundamental that must come from the squeeze is a permanent reduction in our tendency to pay ourselves more than we earn. If we are to stay within the exchange rate mechanism—especially at present exchange rates—unit costs have to be reduced, and our competitiveness has to improve. That means wage increases at a level of 4 or 5 per cent. That is why I also welcome the incentives for more profit-related pay, which also has a social market connotation. That is also why I welcome the principle of shares for all employees and the carrot to introduce that. I welcome the Chancellor's implicit statement that he 197 would not hesitate to use the stick to introduce that—and he may well have to carry that out. It has been scandalous that top executives have given themselves share options at attractive rates but have not provided similar options throughout the firm. Again, that is another welcome switch towards the social market economy.
The fundamental requirement is to be bold over interest rates. If I was Chancellor, I would give the world a little time to absorb this Budget. Because of the changes in local government financing, it is more complex than it appears at first sight, but when the world has absorbed it, people will realise that the Chancellor has not taken risks with the economy, and he will be fully justified in taking 1 per cent. off interest rates now and a further I per cent.—perhaps in two tranches of 0.5 per cent.—during the next few weeks. If there are risks to be taken on the back of this Budget, it is urgent that that should be done by cutting interest rates quickly. For a variety of reasons, it was not easy to reduce interest rates in the late autumn last year and in the early part of this year, although the situation demanded and necessitated it. Now the room has been found for a substantial cut.
As regards the ingenious—in my view, wholly correct—massive shift in local government finance, people who think that this is a boring Budget have not yet realised the full impact of that shift. The Budget will transform local government finance and it is high time that that happened. The crucial decision by the Chancellor—which any Chancellor would make given the total mess that local government finance is in—was to raise compensating revenue by a mechanism that he knows will deliver it, by raising value added tax by 2.5 per cent. That was the right way to claw back that money.
In my judgment, increasing VAT was right in any case, as our VAT rate has been well below the average in the European Community. Although it is not necessary that everyone has exactly the same VAT rate for the proper functioning of a European common internal market, it is a distortion if there are marked discrepancies. Therefore, it was logical and inevitable that we would raise our VAT rates. Doing so at this time, with inflation decreasing fast for other reasons, is wise. It has the added advantage that the poll tax fed through to the retail prices index in a dramatic fashion, and the Chancellor has assured us that the increase in VAT will be covered by the cuts in poll tax.
The next logical step, which I imagine will be announced in the next few days, is to take three elements out of local government finances. The first two are the fire service and the police, both of which are carefully monitored and are effectively agency-run by local government at the moment, with the Home Office operating strict manpower controls, and also inspectorates. The third element has to be education. That has already been advocated by the Social Democrat party to the Secretary of State for the Environment's present review. Increasingly, SDP policy seems to be followed by the Government with a rapidity exceeding that of the Labour party.
If education comes out of local government spending—as is right—it will not be as much of a centralising measure as some people imagine, because of the greater degree of self-management in schools. It is also extremely important that that change is accompanied by a considerable strengthening of Her Majesty's inspectorate of schools. Also. a greater measure of independence, radicalism and toughness on education policy will have to 198 be brought into the inspectorate. I hope that the inspectorate will not continue as a mutual support agency for the Department of Education and Science. If it had a measure of outside independence, such as through the Audit Commission, it would be greatly improved.
Such a change would alter the whole structure of local government. It is logical that there should be single-tier authorities, but they should be flexible. They do not automatically have to be the same—the units of local government vary in different parts of the United Kingdom, with considerable benefit. That would lead to the question of how to raise the money. We and the Liberal Democrats would prefer a local income tax as the way of raising the revenue for the smaller number of local government services.
I believe that as far as possible local government should raise the revenue for the services that it provides with the exception of the needs element, with the extra provided by central Government to compensate for areas of low pay, where people cannot raise all the revenue themselves.
I should prefer a local income tax, but it seems that there will be a property tax. I urge the Front Benches of the Labour and Conservative parties to get together, at least informally, to introduce a property tax that they could both support. After the fiasco of the poll tax, a new property tax should not be introduced which would be subject to massive change.
Before people think about that with mock horror, they should remember that there was a moment when the Government were about to change the state earnings-related pension scheme. However, they drew back from that idea—prudently, in my view. There are a few matters which must stick across the political divide and which must not be subject to massive change before a general election. State pensions is one such matter, and the basic structure of tax is another.
It is no good the Government introducing a new property tax that is not supported. Therefore, although the Conservatives may want the element of head tax to be built into the property tax, because it means that they should not have to eat so many of their words on the poll tax, I beg the Government not to introduce it. It is clear that the Labour party will not support it, and neither shall we. Not many people believe that it would be a sensible way of introducing a property tax.
The Government should opt for the pure property tax without the add-on factor, which is merely a face-saving device. It will not lose them much, as they have had to eat nearly every word about the poll tax. They will not be able to recoup everything by this extra add-on. Definite benefits will accrue to a political party that admits that it has made a complete foul-up and has changed its policy.
I say that without any particular interest. I and my party attacked the poll tax from the moment it was introduced. It was the wrong tax. It was unfair, and it was an administrative nightmare. It seems that it will fall because of its administrative costs and because of the inability to collect it rather than because of any other factor. However, it also deserved to fall because of its unfairness.
The Budget matches the difficult and strained circumstances. Nobody can be certain that we shall come out of this recession in the rather optimistic time scale mentioned by the Chancellor. Much will depend on the international economy, for which the signs are reasonably optimistic. There seems to be an upturn in the United 199 States economy, but there is considerable concern about the Federal Republic of Germany. The costs of bringing the east German economy into balance with that of the Federal Republic are considerable.
It is necessary to live within the disciplines of the exchange rate mechanism. That is why I believe that any talk of using a realignment of currencies as a way of devaluing would be a major mistake. Therefore, I do not quite share the views of the hon. Member for Staffordshire, Moorlands (Mr. Knox). I believe that the exchange rate mechanism is a flexible mechanism which allows member countries to change their exchange rate if they get out of kilter with the rest of their economic management.
That is why I still retain a considerable scepticism about a fixed exchange rate system that is a single currency. I wish that we would stop using the term "single currency", because people equate it with a common currency. For the European Community, a common currency is a thoroughly desirable development, but a fixed exchange rate system in the European Community is open to serious objection. It would be rare for the 12 members of the Community to be able to live within a fixed exchange rate system and to accept that draconian discipline. Bretton Woods was never a fixed exchange rate system. One had the freedom to choose to devalue, even if with considerable difficulty.
I do not want it to be easy to change the exchange rate system. An exchange rate system that is too flexible allows politicians to escape some of the necessary internal disciplines. The ERM is an effective and rather subtle discipline within which we can live. There will come a time when we should opt for the narrow band. At the moment, the odds are against that because, if we did, there would be a tendency to revalue upwards, or at least the risk of doing so. The pound is not so competitive that we can afford to disadvantage ourselves further at this stage. I should go for the narrow band, but not quite yet.
There are considerable uncertainties elsewhere in the Budget, but the Chancellor has made some worthwhile judgments, not least in freezing the married tax allowance to give him greater freedom in future reform. My main objection is that he has not been generous enough with child benefit. To catch up the 12 per cent. deficit, it will be necessary—next year and the year after—not just to inflation-proof child benefit, but to increase it.
All the statistics still show that poverty is confined mostly to families which have many children under the age of 16. We need to do more for them, because, even though value added tax—because of its zero rating of many key items—is not as regressive as the Leader of the Opposition tried to make out, nor is it a progressive tax, we need contervailing balances, one of which would be a generous child benefit system.
§ 6.6 pm
§ Sir Anthony Grant (Cambridgeshire, South-West)
I find myself in the pleasant position of agreeing broadly with nearly all that the right hon. Member for Plymouth, Devonport (Dr. Owen) said. I am pleased that the SDP embraces some of the ideas that I recommended a quarter of a century ago, but I shall refer to that later.
200 I was interested to hear the hon. Member for Middlesbrough (Mr. Bell) quote Oscar Wilde. I was reminded that, as Oscar Wilde was dying in Paris, the last thing he did was turn and look at the wallpaper in his dingy hotel and say, "One of us has got to go". That is probably the Government's attitude—one can relate Oscar Wilde to the community charge, and the wallpaper to the Government. I think that the wallpaper—the Government—will survive without the community charge.
Since I entered the House many years ago, I have been a strong advocate of three main issues—small firms, wider share ownership and the need to switch from direct to indirect taxation. Therefore, I can safely say that I am as pleased with this Budget as I was with last year's.
I shall deal first with small firms. There is no doubt that they have suffered probably more than the rest of industry, because they have been less able to bear the difficulties of the recession. Therefore, I welcome the concessions made on corporation tax and on the collection of bad debts.
I should like to draw attention to one point in particular., I have lost count of the number of times that I have leapt up when Treasury Ministers were answering questions and asked whether they would please do something to raise the level at which VAT is imposed on small firms. It was far too low. It was ludicrous that somebody whose earnings were just within the £20,000 rate and who was struggling to get work should have to go through all the pantomime and suffer the rigours of the draconian Customs and Excise. I can say with absolute delight that the Chancellor has done the right thing. It will be welcomed not only by me, but by many small and growing firms.
I referred earlier to wider share ownership. With that as with small firms, when I was an enthusiast 100 years ago, no one was interested. The Government were not especially interested, and the Opposition did not want to know. Small firms and wider share ownership are now fashionable, and I am delighted. There is more joy in heaven …
With the late Maurice Macmillan and others, I was a founder member of the wider share ownership movement before I came to the House. We strongly advocated employee share schemes and we produced many schemes. As the right hon. Member for Devonport emphasised, the schemes were not intended to be only for top cosseted directors and high executives of large public companies. We intended the idea to spread down to the work force, and our dream was that the man who worked on the factory floor would, instead of reading the Daily Mirror or a comic, ask for the Financial Times.
We have not quite reached that stage, but the Chancellor has taken a step in the right direction. Share ownership will spread. As with the spread of ownership of property, the spread of ownership of shares is a bulwark against dictatorship and the intruding powers of the state.
We also advocated that there should be an easier system through which people could acquire shares. Nobody is more fond of the stock exchange and of stockbrokers than I am. They are a marvellous professional body, but they are not and never have been geared to the needs of the very small investor. Such investors cannot afford stockbrokers, because they are too expensive. Other methods had to be found. The unit trust movement and, to an extent, investment trusts were a start in that direction. We advocated what I believe to be necessary—that we should enable people to buy shares over the counter in high street 201 shops. The Chancellor must have looked at some of our ideas of 25 years ago. We are delighted that he has taken them on board after all this time.
I warn my right hon. Friend that strong pressure will have to be brought to bear. The stock exchange and financial institutions are not geared to our ideas. If the Chancellor and his team can show determination that there should be an opportunity for people to go into shops—not necessarily Woolworth—and banks in the high street to acquire small blocks of shares, there will be a dramatic spread of share ownership. I welcome the measures that my right hon. Friend has proposed.
I am sorry to keep saying, "I told you so," but I have been in the House for quite a long time, and it is 25 years since I first recommended that teachers' salaries should be a charge on the Exchequer. I did so because teachers' salaries are negotiated nationally. They are the biggest item of local authority education expenditure, and by statute since 1944, the Secretary of State for Education and Science has had a duty to maintain a supply of teachers. That was never taken seriously. It was frowned upon by bureaucrats and other Pooh-Bahs in county councils and education authorities, so nothing was done. We do not know yet, but such a change may be announced on Wednesday or Thursday.
I agree strongly with the right hon. Member for Devonport that one should not give the impression that the necessary switch from local to national finance can be carried out painlessly. There is no such thing as a free lunch, and there is no such thing as free education, free health, free police or free fire services. It all has to be paid for. I am glad that those services are being paid for by an increase in VAT.
The Government came to office determined that there should be a switch from direct to indirect taxation. We advocated that switch because direct tax—income tax—is a tax on work, which everyone has to do, on effort and on initiative. Indirect taxation, whether VAT or the old purchase tax, is a tax on spending. If people desire to be thrifty and to control their own spending, indirect taxation is the right choice. A shift has been necessary, arid the Budget contains a further shift, which is right.
We are in recession. I have said several times in the House how much I hate the interest rate policy. My right hon. Friend the Prime Minister, when he was Chancellor, heard me pontificating on the subject. He always responded courteously and thoughtfully, although he did not always agree with me. I hate high interest rates, because they afflict the people who are least able to bear them. They benefit the haves, but they severely hurt the have-nots.
There are two sectors in the have-nots. Small firms have to borrow. No firm ever developed unless it borrowed, and one cannot get an industry going without borrowing. That is why I disagree so strongly with the sanctimonious puritans who hint that borrowing is wicked. Of course it is not. The same is true of home owners. How many people ever bought a house without borrowing? Only a handful of rich people could do that. Most home owners and most small firms have to borrow money, so I reject the puritanism that says that borrowing is wrong. People who have to borrow have been the most heavily hit.
All Governments—and perhaps Conservative Governments more than others—suffer from a disease that I call accountantitis. The disease operates as follows. If a firm overstretches itself, accountants are called in. The 202 accountant sorts out the books and says, "I have cleared everything. There is nought on both sides of the ledger." Suddenly, no one is making shoes, ships or boots. A country can suffer from the same danger if the clamps are put on too ferociously.
As I interpret the Budget, in macro-economic terms, it is intended in the recession to get Britain and British industry on the move again. It is a Budget for business, and that is why it has my wholehearted support. Provided that it is accompanied by a steady reduction in interest rates, there will be a steady reduction in inflation. My right hon. Friend the Prime Minister's forecast last year that there would be a steady trend downwards of inflation which would lead to a steady trend downwards of interest rates will come true. If the Budget, which is a step in the right direction, is later accompanied by a steady reduction in interest rates, the confidence so necessary if our country is to thrive in the 1990s, and which my right hon. Friend the Prime Minister wants so much, will be achieved.
§ Mrs. Alice Mahon (Halifax)
I wish that I could agree with the hon. Member for Cambridgeshire, South-West (Sir. A. Grant). I wish that it was a Budget for manufacturing industry and for industry as a whole. I am afraid that the Budget will go down in history as the poll tax Budget. Given the great hardship caused to millions by the poll tax, given the Prime Minister's and the Chancellor's support for it, and given the fact that the Prime Minister now says that the tax is uncollectable, it would have been nice to see proposals for reparations for the victims of that tax in the Budget. However, the Prime Minister and the Chancellor will no doubt plead that they were only obeying orders for the past five years.
The Budget has not addressed the real problems facing the country. Commenting on the task facing the Chancellor this week, The Sunday Times said:The economy is in the middle of what could be the deepest recession since the war. Unemployment has been rising for a year and is heading back towards 3 million. Company failures are at record levels. Many of the high-flying business successes of the 1980s have crashed spectacularly. Company profits have slumped. Young people given positive encouragement by the Government to buy their own homes, have found their dream has turned into a nightmare. Inflation remains unacceptably high … Interest rates are 13 per cent.I make no apology for quoting at such length from a newspaper which normally supports the Government and is often reluctant to criticise Government policy. We should consider the Budget in the context of that damning indictment of the present state of the economy.
The fact that the country is in the deepest recession since the last war is nowhere more evident than in my constituency—and, no doubt, those of many of my hon. Friends. In the past few months, job losses have averaged 210 per month; in the travel-to-work area of my constituency and the neighbouring constituency of Calder Valley, more than 3,000 jobs have been lost in the past 12 months—good, highly skilled jobs that will not be easily brought back. In almost every instance, the employers who had to announce job losses or factory closures blamed the Government's policies, especially those that have led to high interest rates.
People should be reminded constantly that the present Prime Minister—as Chancellor and as a Treasury Minister—and the present Chancellor are responsible for the scale of the present recession, and for the mess in which we now 203 find ourselves. I do not accept the Chancellor's argument that we should blame high wage increases. The Government always fall back on that argument, but the public are increasingly aware of the identity of the guilty people—guilty men, in this case.
I am sorry that the Prime Minister has left the Chamber, because last week I received a letter from a constituent—an employer—that was addressed to him.
The letter began:Dear Mr. Prime Minister,
THIS COUNTRY IS GOING DOWN THE DRAIN. It continued:In 1983 due to the recession, I was in the unfortunate position of being made redundant from a large Machine Tool Manufacturer in Halifax, as the Company ceased to manufacture in the U.K.Due to difficulty in finding employment, I decided to form my own company and therefore capitalise on the skills which I had acquired through working for 22 years in the machine tool industry. I would like to think that this was a successful move and until recently I employed 25 people".
The letter went on to describe the success of the venture, and how hard the staff had worked. It continued:I along with many other small companies am facing difficult financial times and possible bankruptcy.When will someone in government realise that without a manufacturing base Britain's economy cannot and will not survive. After all, we cannot become a nation of shopkeepers relying solely on banking and the service industries. Without a manufacturing base, the import situation becomes more predominant which in turn increases the balance of payment problems.Over the past few months, I have been trying to widen my customer base, but have constantly been met by a doom and gloom syndrome from the major manufacturers in industry as many companies are on short time and are facing forced redundancy programmes or even closure.Someone in your government made a statement in the recent past that with regard to inflation 'If it isn't hurting it isn't working', well Mr. Prime Minister it definitely is hurting, because more and more people are not working, not if I may comment, the best way to cure inflation.
We have had 11 years of Tory misrule, and have been warned many times that we would find ourselves in our present position. In 1985, the House of Lords produced an excellent report on overseas trade which warned of the consequence of neglecting manufacturing industry. I quoted from that report at some length in my first speech in the House. The report stated:Cheaper money would lead to more investment. The Government should have more regard to the needs of industry as a borrower when they take a view on interest rates.It seems that that plea has been completely ignored.
Many other warnings and recommendations have been ignored over the years. Earlier this year, the CBI president, Sir Brian Corby, launched a fierce attack on the Government's economic policies, accusing them of interest rate overkill. He also warned that high electricity prices would deal a savage blow to major manufacturers; none the less, prices have been increased excessively.
The newly privatised water companies have also increased their bills. Yorkshire Water has introduced an increase of 12.7 per cent., 3 per cent. more than inflation. That has proved very damaging to industry, especially the textile industry. I make no apology for mentioning the industries which operate in my area. Textile production requires the use of a good deal of water, and the increased costs have helped to damage the chances that the industry might have had of making a recovery.
204 Although the small amount of assistance that the Budget will give to businesses may help a little on the margins, the Chancellor's speculations that it would achieve anything dramatic were, in my view, wildly optimistic. It will do nothing to help the crippled house building and construction industries, or to help young people who are desperate to learn a skill. Recently, I told the House about a 17-year-old in my constituency who had been made redundant twice. In the local paper, he pleaded for the chance to become a joiner. That is a skill that we shall need in the future. I hope that there will be a happy ending for that young man because of the publicity given to his case, but thousands like him have been neglected and thrown on the scrap heap by the Government. The Budget does nothing to address training needs, and I know that my hon. Friends will have more to say about that.
The Government have not yet responded to the latest disturbing report from the House of Lords. Entitled, "Innovation in Manufacturing Industry", the report told the Government what they should be doing. It pointed out that there wasno net investment in manufacturing industry during the 1980s",and thatif market forces alone are to determine the course of events it is conceivable we will end up with no significant British owned manufacturing industry in the U.K.The same report found that the United Kingdom was the only country in which gross domestic expenditure on research and development had declined as a percentage of gross domestic product between 1981 and 1989, and that that decline had been largely the result of a reduction in Government support for research and development.
Such a serious and irresponsible neglect of research and development during the oil-rich years is unforgivable. The Government have thrown away the chance to invest in this country's future with the ease and abandon of Mississippi gamblers, without showing any remorse—certainly the Chancellor's complacent Budget speech showed none.
When hon. Members raised the recession and the consequent problems in their areas with Ministers, as I did recently, the response was a deliberate misquotation of a CBI report on Yorkshire and Humberside. That was an attempt to cover up the Government's neglect of the manfacturing industry. I have a copy of the report. The Minister concerned clung to the straw provided by the observation:Against the national trend, business optimism actually fell by less in January. On balance though respondents were still heavily pessimistic about the business situation compared with a year ago.The Minister seemed to think that that allowed people to feel proud of how well their areas were doing. That is nonsense—Orwellian doublespeak of the worst order.
The same report said that the food, drink and tobacco industries were not doing too badly; but the Chancellor now proposes to increase VAT by 2.5 per cent., which will harm some of those industries. It will hit the largest factory in my constituency—Nestle, previously Rowntree Mackintosh—which has been very successful. In the United Kingdom, manufacturers of chocolate and sugar confectionery and chocolate-coated biscuits pay the standard rate of VAT, while all other foods are zero-rated. They are therefore already at a disadvantage. Surely a KitKat is part and parcel of a snack meal nowadays, and 205 I do not believe that VAT should be charged. The proposed increase will make it more difficult for successful companies to compete and to sell.
The Budget contains no measures to help the low paid, and only a pittance for recipients of child benefit to be paid in October. Anyone who has studied the subject of child benefit, or has read any of the excellent reports from the Child Poverty Action Group, will know that child benefit constitutes investment in the next generation. It will benefit future generations. The Government have behaved disgracefully, first by freezing child benefit and then by increasing it by only a small amount. It is ludicrous to suggest that VAT is a fair form of taxation. Like the poll tax, it takes no account of income and is deeply regressive. Everyone pays the same amount of VAT.
The Budget is timid and lacks vision, reflecting the leadership of the Conservative party, and I am certain that it will be the present Chancellor's first and last Budget.
§ Mr. Richard Page (Hertfordshire, South-West)
The two-inch or three-inch wadge of Treasury notes, briefing papers, departmental press releases and other documents provided by the Vote Office to flesh out the Budget fills me with apprehension about taking part in the first day's debate on the Budget. In the middle of that wadge of papers there may be a statement that would destroy the raison d'étre for my speech. However, the Budget sends a clear message that the Government are their own Government, with their own style, that they are interested in enterprise and that they are pointing the way towards economic recovery.
I do not intend to indulge in speculation about the community charge. I want to see how it is to be reformed before passing any verdict. Nevertheless, the Chancellor's statement appears effectively to have shot the Opposition's fox. To judge from their faces, they did not welcome it with smiles and glee. They seemed to be extremely miserable. The Budget statement appears to be a substantial stride in the right direction and it ought to ensure that the Conservative party forms the Government after the election.
I intend to confine my remarks to businesses, particularly small businesses, and to consider the effect that the Budget will have on investment in manufacturing and research and development and on our attempts to defeat what is now called short-termisim. The move towards helping businesses is most welcome. It proves that the Government want to support and encourage small businesses. I hope that as a result of the Budget businesses will invest more in manufacturing and in research and development. That is the basis on which this country will go forward.
The Budget gives the lie to all those newspaper pundits who said that it would be a dull and boring Budget and that very little would come out of it. Indeed, it has been one of the most exciting and complex Budgets ever presented. It will be some time before all its ramifications are appreciated by the pundits. Over the years, the Government have set an excellent example by promoting the interests of small businesses. The Budget solidly reinforces their commitment.
The Chancellor mentioned a formidable list of items. To go through each one in detail would be unfair and would take up too much of the time at my disposal, but the 206 problem of bad debts has been recognised. In the past, if people did not pay their debts, small businesses still had to pay VAT on whatever had been sold. It is a significant improvement that that liability has been reduced to one year.
Cash accounting schemes are to be promoted. Small businesses—particularly small small businesses—do not keep fully up to date with the latest management methods. People have their noses too near to the grindstone and are too busy working away to worry about intricate financial opportunities. I am delighted, therefore, that Customs and Excise is to introduce a promotional scheme to increase the number of firms using the scheme from 100,000 to 300,000.
The Chancellor has announced that the VAT threshold is to be increased to £35,000. If I could be given £1 for every minute of debating time in the House during which I have pleaded with the Treasury to argue strongly that the European Community ought to increase the threshold, I should retire a very rich man. I am delighted that my right hon. Friend has been able to persuade the Community of the rightness of his argument. Many small businesses will be delighted at what he has achieved. It is a sensible proposal. It cannot make economic sense for Customs and Excise to run around trying to collect VAT from companies with turnovers between £20,000 and £25,000. The proposal is very much a step in the right direction. The same is true of PAYE collection. Quarterly collections will save Customs and Excise and in turn the Treasury high administration costs.
The easing of corporation tax will provide substantial support for both large and small businesses. Entrepreneurs will be encouraged by the capital gains tax proposals. The fact that the amount of relief is to be increased if they decide to come out of a business is also to be welcomed.
When further national assets are disposed of, I hope that use will be made of retail outlets in the high street. I hope that share shops will be set up so that people will be able to buy small numbers of shares through such outlets without having to flog up to the stock exchange and work their way through that expensive system. Small is beautiful. That could be a means by which people would be able to use the local marketplace to move into share ownership.
My right hon. Friend has done a magnificent job for the small business sector. He has presented an excellent Budget in tight circumstances. However, I intend to amplify the point made by my hon. Friend the Member for Staffordshire, Moorlands (Mr. Knox) who pleaded for more investment in manufacturing and in research and development. This country's manufacturing base will provide for our future growth and development. To those who wave the service sector flag vigorously, I say, "Well done—good luck to you." However, we must never forget that 80 per cent. of our manufactures can be exported, compared with only 20 per cent. of the service sector.
In view of the limited time at my disposal, I must resist the impulse to repeat, word for word, all that I have said in the past four years about the need to invest in manufacturing and to defeat short-termism. However, we must not run away from the fact that as a percentage of our gross national product we, among all the G7 countries, invest the least in manufacturing. Is it a coincidence that Japan invests 50 per cent. more than the average invested by all the G7 countries? Furthermore, is it a coincidence that Japan has a balance of trade surplus, low inflation and low interest rates?
207 Our manufacturing investment has increased in the past few years. but the message of the past year or so is that it is tailing off. I sincerely hope that those who make the decisions about manufacturing investment will reverse that trend and invest money in the future of this country. The same is true of investment in research and development. The Government invests just as much as our competitor countries in research and development, but our companies do not match that investment. The arguments relate to short-termism. Financial institutions are obsessed with league tables, percentage returns and the failure of any company to hold its position, which means that its stock is automatically sold and it is at risk from a predatory attack.
I hope that the Budget will encourage our manufacturing industries and the companies which create the wealth of this country to take a longer-term view and to start to invest in our future. The past has not been encouraging for them. I do not often quote from newspapers, but I agree with the words of David Smith in The Sunday Times earlier this month, when he stated:The well-publicised manufacturing revival of the later 1980s was from far too small a base and failed to keep pace with the much stronger rise in consumer demand.That has to be reversed and investment made—only in that way can we stay ahead and provide the services that the Conservatives, as a caring Government, would like to provide for this country.
In conclusion, my right hon. Friend the Chancellor has made a substantial commitment to business, and especially to small business. He has given relief to companies to help with cash flow problems. It is up to companies to use that. I hope that the financial institutions will not be too long in providing the same sort of support and encouragement. As I have said, the Budget sends a clear message to the country—that the Government are their own Government. They have their own style. They are interested in enterprise and in business, and point the way to recovery for the future.
§ Mr. Simon Hughes (Southwark and Bermondsey)
People will have wanted above all to hear announcements from the Chancellor about two things in today's Budget—the poll tax and income tax. They have certainly heard something new about the first, but have not yet heard anything new about the second. People also wanted to hear that interest rates would come down. I guess that they will come down pretty soon, and the economy will not recover until they do——
§ Mr. Hughes
As the hon. Member for Middlesbrough (Mr. Bell) rightly says, that may be as soon as tomorrow. A reduction in interest rates is the precondition for many of the other things that everybody wishes to see.
Many things were not in the Budget which should have been. My hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) will address those issues more widely tomorrow. The money allocated to education is a minimal concession that does not go in the right direction. Money should have been put back into training, instead of 208 massive cuts being made that affect especially inner-city areas all over the country. Money should also have been announced for public transport.
Of course, there were some good things in the Budget. I refer to the rightful extra taxation on alcohol and tobacco, the second because it is bad for our health. There were also the rightful decisions to reduce mortgage interest tax relief for higher-rate tax payers, and to increase the amount of child benefit and index it in the future, which should have been done in the past.
Above all, there is one thing that the Budget was and one thing that it was not. The hon. Member for Halifax (Mrs. Mahon) said that it was the "poll-tax Budget". The hon. Lady did not get it quite right. This was the "end-of-the-poll-tax Budget" or the "after-the-poll-tax Budget". It was a blue Budget, because it was an electorally populist Budget, but it was also a red Budget—red with embarrassment about the poll tax mistakes of the past.
The hon. Member for Hertfordshire, South-West (Mr. Page) used one word many times in his speech"short-termism". I normally accuse the Government of short-termism, but on this occasion I applaud them for this one exception. If ever there was a short-term tax, it must be the poll tax. It will probably turn out to be the most short-term tax in British history. Within a year of its existence in England and Wales, and within two years of its introduction in Scotland, the Government realised that it needed to go. The electors of Ribble Valley, and my hon. Friend the Member for Ribble Valley (Mr. Carr), made certain of that.
§ Mr. Hughes
The hon. Gentleman asks where my hon. Friend is. He is here now. He was in his place throughout the Budget statement. He will be a Member of the House throughout this Parliament and, I am sure, for many Parliaments to come. Any hon. Member who can bring down the poll tax deserves to be re-elected until he decides to retire.
The one thing that the Budget was not was a green Budget, although the Government hinted that it would be. They said that there would be all sorts of green things in it, but that was a hollow sham. In terms of the environment, it was a grey Budget, because that was the one missing subject. It was hardly mentioned. The Budget confirms even more clearly than the White Paper produced by the Department of the Environment last year that that Department regularly loses its battle with the Treasury.
In his Budget statement last year, the then Chancellor—now the Prime Minister—claimed that one of the objectives of the Government's economic policy was to enable this country to take the opportunities of the 1990s. One of those opportunities is to deal with the environmental problems in this country and far beyond our seas. However, even the pale green policies in last autumn's Green Paper have not been followed through. The White Paper last autumn foreshadowed a series of measures to introduce new economic instruments. This Budget was the first opportunity—the unique opportunity—to do that. It was the test of the Government's green commitment—and a test which the Government have failed.
209 Where were the environmental measures in the Budget? Yes, there was the 15 per cent. on excise duty on fuel. There was an additional almost 1p differential between unleaded and diesel, and leaded fuel. Yes, there was the additional and very much delayed disadvantage to company car owners, which should have been introduced some time ago. However, that was all.
There was deafening silence on a charge to make polluters pay and on the use of market mechanisms as a means of controlling pollution. There was deafening silence on ensuring that new economic measures would be brought into the centre of this country's environmental policy.
We have proposed—this has been proposed in other European countries also—a pollution-added tax on activities that create pollution, with grants and subsidies to those whose activities are environmentally friendly. On transport, there should have been tax incentives for catalytic converters. The Government should have graduated vehicle excise duty to ensure that fuel-efficient cars attract less tax. The Government could have introduced zero VAT ratings for energy-efficient appliances, such as some heating appliances and home insulation materials. They could have reduced stamp duty for conservation measures in the home.
The Chancellor could have done many things in this Budget if he was committed to the environment as well as to the economy. However, there were only one or two environmental sweeteners in it—a little bit of green wrapping around one or two proposals, but there was nothing green at its centre. The Chancellor had the opportunity; he did not take it, so he failed. We shall have to await a different Government, a more committed Government——
§ Mr. Hughes
No, certainly not a Labour Government, if we are talking about environmental issues. We must await a different Government to ensure that we have a Budget that combines economic and environmentally sound policies. Sadly, we have not seen such policies today, and the Labour party could not provide them either.
§ Mr. John Lee (Pendle)
One learns that it is unwise to give instant reactions to any Budget and one must be even more circumspect than normal with this Budget. However, the one thing that must be clear to the whole House is that we have today seen act I of "The Abolition of the Poll Tax". I hope that we shall see act II on Thursday.
Today's substantial shift from local to central taxation paves the way for the abolition of the poll tax and its replacement with what I hope will be a more sensitive and intelligent property-based tax, which would be well received in my constituency of Pendle and, I suspect, in Ribble Valley also. In a lighter vein, may I suggest that if the poll tax is abolished, the Government should consider announcing a public holiday to celebrate that event. Perhaps we would see street parties and people waving and cheering up and down the country.
In a more serious vein, however, the Budget must be judged primarily as a backdrop to further reductions in interest rates. This essentially broadly neutral Budget can 210 only have helped in that regard. I would not be so cavalier as the right hon. Member for Plymouth, Devonport (Dr. Owen) but the Budget should pave the way for further step-by-step reductions.
Among the detailed measures in the Budget, I particularly welcome the measures to help the liquidity of businesses, including the changes in the VAT regulations and the delayed payment of PAYE and national insurance and the reductions in corporation tax rates. I also welcome the new personal training allowance and the measures to encourage further investment by employees in their own firms.
I was delighted that measures were announced to tackle tax avoidance through overseas trusts. They were long overdue. I also welcome the limiting of mortgage tax relief to the basic rather than the higher rates of taxation. While we all believe in owner-occupancy, one must question the huge amounts given over the years in tax relief to home owners, which contrast with the relative lack of investment in manufacturing industry. I was particularly disappointed in the lack of specific measures to help manufacturing industry.
Too many investment portfolios have become ossified by high rates of capital gains tax. Surely it is time to consider restoring the differential between short-term and long-term capital gains. Perhaps short-term capital gains should be taxed at the top rates and long-term capital gains at reduced rates.
I was particularly disappointed that there was no announcement in today's Budget about a national lottery, which has widespread support in the House. Useful as the football trusts will be, they will provide only petty cash compared to the amount that a properly constructed, organised and Government-backed national lottery could produce. I hope that before too long the Government will bite the bullet and announce a national lottery.
I wonder whether the introduction of the treatment of mobile phones as benefits in kind is worth all the administrative effort.
In conclusion, I congratulate my right hon. Friend on his first Budget. He compared himself with Desert Orchid. Desert Orchid recently fell in his last race. I regard my right hon. Friend's contribution as——
§ Mr. Eric Martlew (Carlisle)
On a point of order, Mr. Deputy Speaker. The hon. Gentleman is misleading the House. Desert Orchid came third.
§ Mr. David Madel (Bedfordshire, South-West)
I am conscious that I must get a move on. I welcome the content and delivery of my right hon. Friend the Chancellor's speech. I am delighted with the change in philosophy on child benefit, which will be increased. I am delighted with what I think will be the introduction of share shops in Britain, which will make it much easier for the man in the street to buy shares.
The hon. Member for Southwark and Bermondsey (Mr. Hughes) mentioned the 10 per cent. car tax. I went some way with him but we should remember that on 1 January 1993 all new cars throughout the EC will have to 211 have catalytic converters fitted by law. That will raise the price of cars to the man in the street, so there is a case for getting rid of the 10 per cent. car tax next year to take account of the increase, brought about by necessary environmental change.
I strongly support my right hon. Friend's announcement about changing the financing of local government. To increase VAT and reduce community charge bills is the correct way to do it. Naturally, I hope that my right hon. Friend will soon be able to follow up his measures with a reduction in interest rates.
I am glad to see that the vehicle excise duty has been frozen again. If there is to be any change in that, it should certainly favour smaller cars, which use less fuel. I welcome the reduction in corporation tax for businesses, which will make it easier for companies to improve their cash flow and bring about a tax system that will encourage business to invest more in equipment, research and development, and training, for we look to the manufacturing base to finance future prosperity. After all, we are in the business of changing from a net exporter of oil and a net importer of manufactured goods to a net importer of oil and, I hope, a net exporter of manufactured goods.
I am also delighted that my right hon. Friend the Chancellor of the Exchequer has tilted his business policy to encouraging British industry to be absolutely ready by way of training and investment for the single market in 1992 which will be upon us so soon.
In his Budget speech last year the then Chancellor said:growth should return in 1991 towards its sustainable rate of around 2.75 per cent."—[Official Report, 20 March 1990; Vol. 169, c. 1013.]I appreciate that there is a temporary standstill, but, from what my right hon. Friend said in his Budget last year and from what was said this afternoon, it is hoped that we shall resume growth later this year and, thereby, begin to reverse the unwelcome increase in unemployment. As I said, in the 1990s we shall see a transformation of the economy in Britain and we simply must be more conscious of the need to improve our manufacturing base.
I also welcome the tax changes on training. I have a specific point to make on the new benefits that employees will be able to claim as tax relief. As I understand it, the fees to the providers of the education or training will attract tax relief. Will that also apply to examination 212 certification fees the travel, subsistence and accommodation costs incurred when people go for training and the cost of books and equipment? There has been a welcome change to encourage employees to better themselves by going in for more training. I welcome what my right hon. Friend the Chancellor announced this afternoon, but I hope that it will be an all-embracing change that will mean that individuals who take the trouble to retrain themselves can claim tax relief on the costs which are inevitable if one retrains, as manufacturing industry changes and greater opportunities arise.
Of course, there is an important role for the public sector in what my right hon. Friend the Chancellor rightly referred to as his anti-recession, anti-inflation Budget. In the public sector we need more performance-related pay and more locally determined pay and conditions. The public sector must adapt and bring in the best practices of industry in the way in which it settles pay and conditions. There is not yet enough performance-related pay in the public sector. There is no reason why the public sector should not quickly adopt the best practice in industry throughout Britain.
The public services include the much-improved services that have been announced for retraining unemployed people. Several changes have been made in the past 10 years in the way in which we manage our training and employment services. I hope that the training and enterprise councils, which are organised on a county basis, will be effective in delivering quality training at the local level. It is only by responding to the needs of local industry and satisfying its training needs that we shall be ready to take advantage of the single market and improve the quality of goods in Britain and the quality of training of those who produce them.
The measures in the Budget need time to take effect. His measures on business taxation and corporation tax, his change in philosophy in child benefit and his reorganisation of local government finance all need time. There is absolutely no need to rush to the country and ask for a mandate. The Chancellor of the Exchequer needs at least 12 months for the wise, progressive and imaginative proposals in his Budget to take effect and to take root in the country. When he has given us a second Budget we can go and talk nicely and politely to the electorate and, I am sure, enter a fourth term of office.
§ Debate adjourned.—[ Mr. Neil Hamilton.]
§ Debate to be resumed tomorrow.