Budget Resolutions and Economic Situation

§ Mr. Speaker

Before I call Mr. Secretary Lilley, I should say that a large number of right hon. and hon. Members wish to participate on the last day of the Budget debate. [Interruption.] They have indicated their wish to participate. That being so, I propose to put a limit of 10 minutes on speeches between 7 and 9 o'clock.

§ The Secretary of State for Trade and Industry and President of the Board of Trade (Mr. Peter Lilley)

I congratulate my right hon. Friend the Chancellor of the Exchequer on a Budget for enterprise. It is a Budget which has rightly been welcomed by businesses throughout the country.

The president of the CBI has hailed it as a budget for soundly based recovery, for savings and for investment. He went on: The Chancellor has listened to those who create the nation's wealth". The president of the British Chambers of Commerce said that the Chancellor really listened to everything we had to say. Chambers are delighted at the practical measures of support to help business during a difficult time. This was the Budget for business we needed. Even The Guardian applauded the Chancellor's cascade of measures to help industry big and small". I welcome the Budget because the Chancellor targeted his measures to help small firms, to ease cash flow pressures on those hardest hit by the recession, and to strengthen the incentive to invest. Small firms will benefit particularly from the halving of the wait for bad debt relief, from the dramatic increase in the small firms profit limit, and from the 38 per cent. increase in VAT thresholds. I particularly pay tribute to my right hon. Friend's forceful advocacy in finally persuading the 614 European Commission to permit that increase. It will take 150,000 firms out of VAT entirely, relieving them of the compliance burden as well as the cost of the tax.

It is always particularly difficult to use the tax system to ease the position of companies which may be making no profits this year and so paying no tax. I applaud my right hon. Friend's ingenuity in finding ways of doing that: 700,000 businesses will be allowed to pay their employee's PAYE quarterly, thus enabling them to keep the cash longer; firms will be able to carry back losses against profits in any of the past three years; and the corporation tax rate on last year's profits has been reduced retrospectively.

The objective of all our industrial reforms over the past 12 years has been to make Britain the most attractive place in Europe for industry to invest in. Even before the Budget, we had achieved that.

§ Mr. James Wallace (Orkney and Shetland)

Many of the measures introduced by the Chancellor of the Exchequer are advantageous to business. However, does the Secretary of State accept that, if we add up the benefit to businesses as a result of the various tax changes announced in the Budget, that is still not as much as the additional £1.6 billion that will be taken by local authorities in the forthcoming year in respect of non-domestic rates as a result of the 10.9 per cent. increase in the uniform business rate announced for the next financial year?

§ Mr. Lilley

The purpose of introducing the business rate and the assurance it gives was to guarantee that the business rate would not rise unpredictably and capriciously in Labour-held areas, but by an amount governed by the rate of inflation.

The clearest proof that we have provided the environment that makes Britain the most attractive area for investment in Europe is the fact that Britain is now the No. 1 choice for inward investment. We attract over four times as much investment from Japan as France does and more than six times as much Japanese investment as Germany. Forty per cent. of all American investment into the Common Market comes into Britain, and German companies put more of their foreign investment into Britain than into any other EC country. Those inward investments are not bribed by discriminatory subsidies; they come here because our overall business environment is attractive.

Moreover, not a single grant or scheme is made available to inward investors that is not just as readily available to indigenous firms. Everything that makes Britain an attractive place for foreign companies to invest in also makes it an attractive place for British companies to invest in.

The Opposition, and some of our competitors, believe that the best way to attract inward investment is by outbidding each other with subsidies, nursing firms with quangos, and offering special tax reliefs. A recent study by Strathclyde university shows that they are mistaken. The majority of foreign investors studied were not interested in higher subsidies. They were not looking for quangos. They were not even looking for cheap loans.

The most important single factor was lower taxation. A major reason that the United Kingdom has been such an attractive place to invest is that the tax burden on companies here is significantly lower than in our main 615 competitors. The sum of corporate and payroll taxes was 17.2 per cent. of national income in France, 10.5 per cent. in Germany—but only 8.9 per cent. in the United Kingdom. Our lead will be even greater as a result of this Budget.

§ Mr. Gordon Brown (Dunfermline, East)

Despite a 11 the measures that the Secretary of State has publicised today, and despite all his boasts about inward investment, why is investment this year to fall by 9.75 per cent.?

§ Mr. Lilley

Investment is about 75 per cent. up on the bottom of the recession. It is slowing this year, and that is not surprising, because it usually does so in recessions. However, the hon. Gentleman always ignores the rise in investment that has already taken place.

§ Mr. Brown

rose——

§ Mr. Lilley

If the hon. Gentleman is not content with a 75 per cent. increase, nothing will make him content.

We can now claim the lowest rate of corporation tax, not just in Europe, but lower than the United States or any other major industrial country.

§ Mr. Brown

Will the Secretary of State simply explain why, if the record he is describing is so successful, business investment is to fall by 9.75 per cent. this year?

§ Mr. Lilley

I have just explained that business investment is falling from a record level in a short-term recession. The hon. Gentleman is obsessively short-termist; I shall return to that.

It is instructive to compare the Chancellor's Budget with the taxation changes that the Labour party proposed before the Budget. The Labour party offered nothing targeted to help small firms, to help cash flows or to reduce tax rates. Instead, it offered a proliferation of tax distortions. Some were vague—for example, an enhanced allowance for certain categories of plant and machinery. Unfortunately, nothing about that proposal was certain. The Labour party did not specify which categories of plant and machinery would benefit, who would decide which would benefit, by how much or for how long.

Other proposals are unworkable, for example that genuinely innovative investments will be eligible for up to 100 per cent. write off''. Just imagine if the Inland Revenue had to determine for each and every investment—£100 billion-worth every year—which were "genuinely innovative" and which were not. It would be a nightmare. Far from encouraging investment, it would cause huge delays and damaging uncertainty to industry. Other proposals are demonstrably ineffective.

§ Mr. Robert Sheldon (Ashton-under-Lyne)

Does the Secretary of State recall that, for about eight years, plant and machinery were defined clearly, and that the system worked without any particular disadvantage to the Inland Revenue, which allocated capital allowances based on that definition?

§ Mr. Lilley

The right hon. Gentleman is absolutely right, but the Labour party's proposal was that certain categories of plant and machinery should be given different reliefs from others, without defining which those certain categories were. I noticed that the hon. Member for Dunfermline, East (Mr. Brown) had to lean across to the Shadow Chancellor of the Exchequer to find out.

§ Mr. Gordon Brown

When?

§ Mr. Lilley

Just when I was making the point. Far from encouraging investment, the Labour party's proposal would cause huge delays and damaging uncertainty.

Almost every published study of tax credits for research and development shows that the costs far exceed the benefits, usually by a multiple of between two and five. Moreover, the apparent benefits often seem to be largely illusory.

§ Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

Does my right hon. Friend accept that, although there are many excellent measures in the Budget and that we on the Conservative Benches are not concerned with the Opposition, who are likely to remain in opposition for some years to come, this should be the last Budget in which the motor industry is singled out to be clobbered? At present, £1.5 billion of extra taxation is levied from one of our greatest employers. If we believe in Rolls-Royce, Jaguar, Bentley and Range Rover, is it not time that we stopped clobbering the motor industry at every turn? Without it, a great deal of engineering would disappear. Let this be the last Budget in which we clobber the motor industry above all other industries.

§ Mr. Lilley

I do not accept that a tax on personal benefits in kind constitutes clobbering an industry. It is only right that people should pay tax on the benefits in kind that they receive.

The Labour party proposed a tax credit for research and development, but ignored the evidence that it has been ineffective in other countries where it has been applied, that the costs exceed the benefits, often fivefold, and that the benefits are often thought to be illusory, as all that happens is that accountants reclassify expenditures as research and development in order to gain the tax break.

If we had accepted the Labour party's pre-Budget proposals, we would have given accountants a field day. We would have made the life of the production manager more complex and less certain. Labour's Budget proposals would have produced a Budget for creative accountancy. By contrast, our approach of cutting tax rates and pruning reliefs reduces the reward and scope for accounting ingenuity. It also increases the incentive for profitable investment. That is why, following our tax reforms in 1984, the amount of business investment has increased by 50 per cent. Even more important, the quality of investment has improved as well.

All too often, it used to be the finance director who made the investment decisions, simply to reduce the tax charge. Now it is the production engineer and the marketing director who make the decisions, on genuine business grounds. I believe that it would be the height of folly to reverse the 1984 changes, and I am delighted that my right hon. Friend the Chancellor took them further by again cutting tax rates and reducing reliefs.

§ Mr. Dennis Skinner (Bolsover)

Further to what the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) has just said, is the Secretary of State aware that there has just been an announcement that 1,800 more workers at Lucas Industries Ltd. will lose their jobs? Does the right hon. Gentleman accept that one characteristic of the Government's past 12 years in office has been that there are more and more building societies and estate agencies littered along every high street, but the factories 617 that used to be located behind them and which used to employ our workers in every town and city in Britain have now been closed? Does the Secretary of State accept that our manufacturing economy has been almost wiped out by the Government, and that the casino economy has flourished?

§ Mr. Lilley

Manufacturing output fell under the previous Labour Government, but it has risen under this Government. We still have not heard from the Opposition what priority they will attach to inflation; nor have we heard any credible strategy from them for defeating inflation.

The right hon. and learned Member for Monklands, East (Mr. Smith) has recently been talking about "credit management"—his latest euphemism for credit controls—as an alternative to high interest rates. He and his hon. Friends continue to peddle the notion that other countries in Europe somehow keep interest rates down by intervening in credit markets. The fact is, they do exactly the opposite. The special deposits and reserve ratios imposed by central banks are not designed to reduce interest rates; they are to keep commercial bank interest rates above the central bank discount rate.

I challenge the right hon. and learned Gentleman to name a single European country which uses credit controls to ration credit and keep interest rates below the market clearing level. He does not respond, because he cannot respond.

On this side of the House, we do not pretend that there is any soft option to curb inflation; nor do we deny the pain which high interest rates and weak demand cause. But as a nation we have two great failings: we tend to take a short-term view, and we tend to focus on gloom. Now we can indulge both failings simultaneously, and many people are wallowing in short-term gloom. As I said earlier, nobody is more obsessively short-termist or more indulgently gloomy than the hon. Member for Dumfermline, East. I am sure that we shall soon hear him say that the end is nigh.

But we ought to take a long-term view, both about the changes over the last decade and about the prospects for this decade. Then we would see a big difference between this recession and that of the early 1980s. Demand now is certainly weak, but industry is strong.

In the last recession, demand was weak and industry was weak too—crippled by five years of Labour Government, by 10 years of inflation and by a generation of excessive union power.

§ Mr. D. N. Campbell-Savours (Workington)

rose——

§ Mr. Lilley

If the hon. Gentleman will forgive me, I shall carry on.

In a recent study by Investors in Industry, 80 per cent. of the firms interviewed said that industry was better able to cope with recession now than in the early 1980s, and they are right. Industry has been transformed over the last decade. During the 1980s, manufacturing productivity increased by 58 per cent.—faster than in any other major country, including Japan. Manufactured exports rose by 60 per cent. in volume. The seemingly inexorable decline in our share of world trade since the war came to an end in the early 1980s, since when our share has held its own.

618 That is all the more remarkable, given that, over the last 10 years, Italy, France, Germany, the United States and even Japan have all lost some of their share of world trade to the newly industrialised countries. But we have maintained our share over that period.

§ Mr. Campbell-Savours

This weekend, I talked to an industrialist in my constituency who drew my attention to a factor which may have escaped the Secretary of State. He said that he recalled that, in every Budget statement since 1979, when the Government were originally elected—12 years ago—the Chancellor of the day had committed himself to defeating and reducing inflation. He could not understand why, after all these years, the Government had not succeeded. He asked me to ask the Secretary of State for Trade and Industry why the Government were planning for a 5 per cent. reduction in manufacturing output this year. He could not understand how the Government could plan for a recession.

§ Mr. Lilley

The hon. Gentleman should have been able to tell him that the inflationary problem from which we are suffering dates back to the measures taken after the collapse of the world stock market in October 1987. At that time, the Labour party urged us to take even more inflationary action. If we had followed its advice, the problems that we face, and the downturn, would have been much more serious. I hope that the hon. Gentleman told his friend that.

The key to competitiveness is quality. Total quality management was an idea born in America, developed in Japan, but now adopted by Britain, which is in the vanguard of implementation in Europe. The British standard for total quality management has, over the past decade, effectively become the European and international standard. Already, some 12,000 British companies have gained certification for quality, compared with just 200 in France and a negligible number so far in Germany. Our lead on this front will give our companies a vital edge in the years to come, amusing though the shadow Chancellor and his colleagues may find quality.

Although the Opposition make great play of the predicted short-term fall in investment this year, they ignore the strong growth in investment to record levels in recent years. On last Monday's "Panorama" programme, the hon. Member for Dunfermline, East claimed that our current problems arose because, since the last recession, the Government had failed to ensure that any consumer demand increase be accompanied and preceded by industrial investment". He could not be more wrong. Between 1981 and 1989, investment grew almost twice as fast as consumer spending. That is a marked contrast with the recovery from the 1975 recession under Labour, when consumption grew almost twice as fast as investment. That has been completely reversed this time around.

The improved performance of the British economy over the decade has been the result of a series of reforms, but three key elements have been competition, privatisation, and wider share ownership. Nowhere is the contrast between our policies and those of the Opposition more clearly highlighted than in the Chancellor's decision to sell off more British Telecom shares. We believe in privatisation. Labour is committed to renationalising British Telecom, not to mention the water industry and the national grid. Our programme of privatisation is being 619 copied around the world. By contrast, the Labour party is the only major party east or west of the old iron curtain which still plans to extend state ownership.

We believe in spreading share ownership more widely and more deeply. Hence my right hon. Friend's plans to encourage high street share shops and to introduce other imaginative methods of spreading share ownership more widely and deeply when he sells more of BT. By contrast, Labour would threaten the value of the investments of 1.2 million people, many of them employees, by taking control of BT and requiring it to make £20 billion-worth of uncommercial investment in cable.

§ Mr. Gordon Brown

When was that statement made?

§ Mr. Lilley

The hon. Gentleman said it in his last but one policy document. The phrase used was: We shall require British Telecom to make investments.

§ Mr. Brown

rose——

§ Mr. Lilley

Does the hon. Gentleman wish to withdraw or deny that?

§ Mr. Brown

rose——

Hon. Members

Give way.

§ Mr. Lilley

I shall set the timing of my own speech, and I shall give way to the hon. Gentleman if he proposes to respond to the point that I made.

§ Mr. Brown

The Secretary of State did not give way. Mr. Lilley: I am about to give way now.

§ Mr. Brown

Will the right hon. Gentleman point to the quotation in which I say that £20 billion of public money will be used for cabling Britain?

§ Mr. Lilley

The costing was done by ACOST. The Labour party has not costed its own pledge. It has said that it would require British Telecom to make those decisions and investments.

We on this side believe in greater competition. It is bringing cheaper calls, more choice, and better services in telecommunications. The Labour party could do little but sneer at competition when I announced on 5 March the end of the telecommunications duopoly.

I am very pleased with the interest that has already been expressed in obtaining new licences, so I am today publishing guidance notes for firms wishing to enter the market. We said that the consumer would benefit from lower prices. I am delighted to be able to tell the House that there will be a rolling programme of price reductions by British Telecom over the coming months.

On 2 April, the price of local and trunk telephone calls will fall by 4.5 per cent. and 7.3 per cent. respectively. On 10 June, British Telecom expects to reduce the cost of all international calls by 10 per cent. On 1 August, a new, tighter price cap will be imposed on British Telecom's charges, and they will fall by 6.25 per cent. in real terms. As the rate of inflation falls over the coming months, I expect that British Telecom's charges will fall not only in real terms, but in absolute terms as well. That is excellent news for the consumer.

I said that customers would benefit from increased choice. I can now announce two major steps to achieve that—one will liberalise satellite communications, putting us at the forefront in Europe; and the other will enable companies to install their own telecommunication 620 networks. Both schemes will be in place by July. I believe that both will be welcomed by industry, especially by the major companies, including the many that are coming to this country because we now have the most liberal regime for telecommunications.

When we last debated industrial policy, we did not have the benefit of Labour's long-heralded policy document "Modern Manufacturing Strength". The Labour party clearly did not feel that it would stand up to close examination, so it postponed publication until after a debate of its own calling. When it finally was published, all it contained was the same old policies repackaged and relaunched for the umpteenth time. I suppose we should not have been surprised—the one guarantee which we can be sure will be attached to the hon. Gentleman's policies is "Never knowingly under-launched".

The old familiars were all there. There was, as before; the same old mistrust of the market; the same old infatuation with state ownership, with the commitment to renationalise BT reaffirmed; and the same old reliance on quangos, subsidies and tax distortions.

The Independent newspaper—which is scarcely a friend of the Tory party—described the document as carefully crafted though philosophically confused-drafted to appeal to those worthies who enjoy sitting on joint working parties. It concluded that the Labour party's understanding of the proper relationship between government and the market remains intellectually muddled.

§ Mr. George Foulkes (Carrick, Cumnock and Doon Valley)

As we are discussing this year's Budget rather than next year's, can the Secretary of State please tell me precisely what measures in this year's Budget are designed to help the hard-pressed knitwear, textile and clothing industries, which form the bulk of employment in my constituency?

§ Mr. Lilley

I believe that all the measures that my right hon. Friend announced—especially those that I enumerated at the beginning of my speech—will benefit the hon. Gentleman's constituents.

§ Mr. Foulkes

rose——

§ Mr. Lilley

If the hon. Gentleman seriously believes that we should have a different tax regime for each industry, he should first tackle those on his own Front Bench, who do not appear to have such a policy.

The Economist was equally devastating about the Labour party's policy document: Sceptics still searching for firm evidence of a real anti-inflation policy … will find, when they scratch the shiny new industrial policy, that it is corporatism updated and resprayed". Nor were industrialists any more impressed, despite the Labour party's efforts to woo them. John Banham, the director of the Confederation of British Industry said: There remains, apparently a touching faith that the 'man in Whitehall knows best', and it is difficult to see how the proposals will be financed without levies on industry or raising personal taxes". Quangos, subsidies, tax distortions—that is Labour's relaunched policy in a nutshell. It did not impress the newspapers; it did not impress British industry, and I am sure that it will not impress ordinary British people.

§ Mrs. Alice Mahon (Halifax)

Would the Minister care to comment on the remarks by the boss of Rowntree Mackintosh, who says that the rise in VAT will affect jobs? 621 The boss of Cross Lee near my constituency says exactly the same, and all the employers in the clothing industry think that the move will damage jobs.

§ Mr. Lilley

The hon. Lady should realise that the change is neutral. It is a switch of £4.25 billion of taxation from one tax to another, and it leaves the amount of money in people's pockets exactly the same.

§ Mr. Bruce Grocott (The Wrekin)

Will the Secretary of State give way?

§ Mr. Lilley

I shall not give way to the hon. Gentleman.

The Labour party has recently been trying to present itself as the friend of industry. Its Front-Bench spokesmen have been out visiting industrial companies. One suspects that this is the first time that many of them have met industrialists outside their own constituencies, because as far as I can discover, despite the size of the Front-Bench team, not one of its members has ever worked in industrial management.

To demonstrate its love of industry, the Labour party has selected seven industrial virgins, unsullied by any experience of industrial management. There are two former lecturers, a trade union official, a welfare rights officer, a television producer and a psychiatrist. Those are the people, apparently, who are going to pick winners, intervene, take industries back into state ownership and lay down an industrial strategy. When Caligula made his horse a consul, the people of Rome knew what he thought of them. I am pretty sure that British industry knows what the Labour party think of it now that Labour proposes to put it under the control of a group of lecturers, psychiatrists and television producers.

I do not know whether hon. Members saw the recent party political broadcast by the Labour party. In many ways, it was quite a professional effort. It showed pictures of those on the Front Bench, interspersed with pictures of industrial processes and products. But it was wonderfully revealing. It showed how out of touch and out of date the Labour party really is. Almost every process and product shown was at least 20 years old, and nearly every one had piled up huge losses.

Far from living up to the title of its recent policy document, "Modern Manufacturing Strength", the Labour party showed us that it believes in traditional manufacturing weakness. We saw men in cloth caps hammering in rivets by hand, the Flying Scotsman chuffing through the night and seaplanes floating at anchor. That was the best that the Labour party could do to describe modern British industry. It was a history lecturer's view of our industrial past, because Labour has nothing to offer our industrial future.

By contrast, this year's Budget is a Budget for our present problems and our future opportunities. It is the Budget of a Government with faith in the future of our industry, not nostalgia for the past. It is a Budget for the small businesses of today, which will be the bigger businesses of tomorrow. It will lay the foundations of our economic recovery and the basis of a fourth election victory.

§ Mr. Gordon Brown (Dunfermline, East)

Since the "Budget for business" last Tuesday, 14,000 redundancies have been announced. Jobs have gone in Scotland, the north, the midlands and the south. They have gone in textiles, electronics, the retail trade and services. They have gone in every industry, service and occupation and, as I think Conservative Members will realise, they have gone in almost every constituency, too.

Companies are not going bankrupt because of bad management, indisciplined work forces or resistance to change, but because interest rates have been held too high for too long. In the face of the crisis confronting industry, the response of the Secretary of State today seems trivial, complacent and inadequate—a speech from a member of a Government who have failed.

Since the Budget, at least 300 companies have gone under, yet the Red Book admits—even if the Secretary of State refuses to do so—that, far from the recession drawing to a close, 1991 as a whole will see national income fall by 2 per cent.; manufacturing output by 5 per cent. and investment by almost 10 per cent. Unemployment will continue its inexorable rise beyond 2 million people. That shameful combination of events is not happening anywhere else in western Europe and it is rivalled in Britain by one post-war event only, the previous Tory recession.

I ask the Secretary of State to name any Chancellor facing a Budget in another country in western Europe where industrial output, investment, employment and exports are simultaneously falling by the same scale level. Can he name another country where the response would be a Budget that confirms a cut in the industry and training budgets?

Not once in the Secretary of State's speech did he mention the unemployed, the huge skill shortages that bedevil British industry—even in period of rapidly rising unemployment—or the sheer size and scale of the huge interest rate Bill that faces British industry, which is set at £20 billion this year, even after the 0.5 per cent cut. Yet we are told that we had a Budget for business. We were told that we had a Budget for business in 1979, and unemployment kept on rising. We were told that we had a Budget for business in 1980, but unemployment kept rising. Now we have another Budget for business, and I have news for the Secretary of State—as a result, unemployment will keep on rising. What is different about this Budget for business, except that it takes it for granted that thousands will go out of business?

As this Budget proves, there is one longer-running fiasco than the chaos over the poll tax of the past four years—the absence of a policy for industry throughout the 12 years of the Government. The tragedy is that, in this recession, growth is not giving way to slump on the road to the permanent elimination of inflation; growth has given way to recession on the road to the permanent elimination of much of our industrial capacity.

Our argument is clear: this Budget will do next to nothing for the unemployed; it will do little for training and, despite the corporation tax changes that we shall support, it will fail to prevent rising bankruptcies in industry. More than that, however, the Budget reveals that the Government now know that their flagship policies of the 1980s have failed and that they have no flagship policies for the 1990s to put in their place. That is revealed 623 not just in the Budget's attitude to industry, but by what has happened on the poll tax, the public sector deficit and social policy provision. They have no new flagship policies for the 1990s, other than to deal with the consequences of the policies that have failed.

What is the Government's response on the poll tax, on industry and on everything else? The first is to panic, then to dither, then to make a decision—any decision—as long as they think it will help to hold together the divided factions of the Conservative party. A brainstorming session here—it did not last long—a weekend retreat there, and, when the situation is more serious, a Monday morning retreat at Chequers. The Government have been in retreat because they are in retreat. Clearly the Prime Minister and his Ministers felt it safer to go off to the country and to talk to each other when they should have gone to the country to listen to the people.

What of the victims of the recession? Since the previous Budget, unemployment has risen by 60,000 in the north, 54,000 in the midlands and 173,000 men and women in the south and south-east. We have the fastest-rising unemployment in Europe—a 400,000 rise in a year—which is greater than that for the rest of western Europe combined.

What is the response of the Budget and of Ministers to the rising unemployment that they have created? That high unemployment, along with declining investment, should have led to a real Budget for business. Have the Government responded as they should have with the temporary work programme that Labour recommended in its Budget submission? Did they respond with a new skills programme for Britain, which we have advocated, so that Britain is ready with trained men and women to come out of the recession? Did they respond by following Labour's recommendation for a full 1 per cent. cut in interest rates? Did they respond with the manufacturing investment programme that we proposed? Did they respond, as common sense should have dictated, by reversing the £245 million cut in the training budget in the year in which we are supposedly beginning a training revolution and the £300 million cut in the industry budget, which will have an effect this year?

§ The Chancellor of the Exchequer (Mr. Norman Lamont)

The hon. Gentleman makes much of comparisons between this country's training budget and those of other countries. Will he explain the figures used in the shadow Chancellor's Budget broadcast? Is he aware that they appear to have been based on a survey commissioned by the EC from a variety of individual national bodies with no common supervision and no common definitions of skilled and unskilled? The results purported to show that the low-skilled countries had more skills than the high-skilled countries. Does the hon. Gentleman think that a survey that purports to show that Greece has a more skilled work force than Germany is accurate?

§ Mr. Brown

Is the Chancellor telling us that he can visit industries and companies and find that we are spending sufficient on training, investment and skills? Is he really telling us that skill shortages do not exist? We have not spent enough on training.

§ Mr. Lamont

Will the hon. Gentleman answer the question? How can he maintain that those statistics which were broadcast to millions of people are remotely accurate? They are not.

§ Mr. Brown

My right hon. and learned Friend the shadow Chancellor was referring to a European Community survey on training. His point is proved by surveys by not only the European Community but the Organisation for Economic Co-operation and Development. If people have any doubts about the training crisis that this country faces, they need not read Labour party or Trades Union Congress documents; they need only read the report published by the CBI a few months ago which said that £800 million more had to be spent on training and which drew attention to the training crisis which has developed as a result of the Government's policies. What are the Government doing?

§ Mr. Robert Hayward (Kingswood)

The hon. Gentleman referred to possible expenditure of £800 million more on training. Is he committing the Labour party to spending that sum immediately in the first year of Government?

§ Mr. Brown

The hon. Gentleman did not listen to my remarks. I said that the CBI drew attention to the fact that £800 million more had to be spent. If the hon. Gentleman had read the report, he would know that the CBI said that industry had to spend £800 million more. If the hon. Gentleman had been here on the first day of the Budget debate, he would have heard my right hon. and learned Friend the shadow Chancellor draw attention to our training and skill proposals—the temporary employment scheme and the skills programme which add up to additional public expenditure of £900 million. We are committed to that.

§ Mr. Patrick Nicholls (Teignbridge)

I accept what the hon. Gentleman said about industry possibly paying more, but he talked about additional expenditure by a Labour Government. Will that money be spent at once or will it be spent as resources allow? If the hon. Gentleman does not know the answer, perhaps he will again have a word with the right hon. and learned Member for Monklands, East (Mr. Smith), who said that the money would be spent as resources allowed.

§ Mr. Brown

The hon. Gentleman is a former Minister with responsibility in these matters. If he reads our Budget submission, as the Chancellor undoubtedly has, he will see that we are committed to investing more in training and skills.

§ Mr. Nicholls

Will the money be spent immediately or as resources allow? We are talking not about what industry will spend but about the Labour party's proposals. For the third time, will that money be spent at once or as resources allow?

§ Mr. Brown

My right hon. and learned Friend the shadow Chancellor made it clear in a press conference held during the first debate on the Budget that Labour would have entered into that commitment if it had introduced the Budget last week. No one believes that the £25 million put towards training—not this year but next year—by the Government in the Budget is in any way adequate to deal with the skills crisis that this country faces.

§ Mr. Nicholls

The hon. Gentleman does not know the answer.

§ Mr. Brown

The hon. Gentleman says that I do not know the answer. I have made it clear that this is a commitment by the Labour party to invest in training and skills.

§ Mr. Nicholls

rose——

§ Mr. Brown

I do not know why the hon. Gentleman gets so excited when I speak in the House. I have made clear the Labour party's commitment to investment in training and skills. That commitment is welcomed not just by people in the Labour party but by people throughout the country.

People find it astonishing not just that the Government have failed to act on training and skills, but that their main contribution over the past few months towards dealing with the problems of the unemployed has been to provide not jobs for the jobless but billboards for advertisements about the jobless. No one can have failed to notice the huge poster campaign ordered by the Government and directed at the unemployed. The posters contain slogans such as: I can work, I will work, I am going to work, I will get a job. That campaign was commissioned from an advertising agency. There is not much in it for the jobless, but a great deal for Saatchi and Saatchi.

The hidden message of all those advertisements is dishonourable. It suggests that all that stands between the unemployed and a job is the determination to find one. Firms are going out of business not because the commitment, flexibility and competence of workers or management are too low but because interest rates are too high. What do Ministers intend to tell their constituents who have been made redundant because of high interest rates? Those people have been made redundant through no fault of their own and they include shop workers, small business men and business women, the self-employed, engineers and building workers. Will Ministers tell them that it is due to their personal failure that they are unemployed, as though attaching to the unemployed the blame that should be attached to the Government?

Is it not disgraceful to stigmatise the unemployed as uncertain, irresolute, incompetent and, as the advertisements suggest, dithering? It is not the unemployed but the Government who are guilty of those moral failings. The people at whom the advertisements are directed believed the Government when they said at the beginning of the 1980s that they would bring about an economic transformation. Those people made sacrifices for the Government and they were told to believe that an economic miracle had resulted. Now they find that the Government who made them unemployed are implying that somehow the unemployed are to blame. It is not the unemployed who have let down the Government, it is the Government who have let down the unemployed.

The British Textile Confederation predicts job losses of 25,000 this year. That is 500 a week. The Engineering Employers Federation says that 100,000 jobs will be lost, and that is 2,000 a week. The Building Employers Confederation predicts job losses of nearly 100,000 this year. Let us look at predictions, which even the Chancellor must accept, for our industrial future. Growth is rising by over 2 per cent. in France and Italy and by 3 per cent. in Germany, but in Britain it is falling by 2 per cent. 626 Manufacturing output is rising by nearly 1 per cent. in Italy, 2.5 per cent. in Spain and 4 per cent. in Germany, but it is falling by 5 per cent. in Britain.

The Budget simply assumes that, having entered the downturn first in Europe, we will not be the first to leave it but almost certainly the last. On Tuesday, the Chancellor told us that this was all part of the ordinary economic cycle and that it was inevitable in a market economy. In other economies, the economic cycle means higher growth giving way to lower growth on the road to higher growth again. In Britain under the Tories, the economic cycle is growth giving way to slump on the road to a permanent loss of industrial capacity.

I shall give the Secretary of State for Trade and Industry the real position of British industry after 12 years of this Government. He said that we should look at the record as a whole. The real position is that, when the Budget predictions for 1991 are taken into account, manufacturing output in Britain will have grown over the past twelve and a half years slower than any country in the EEC, any of the G7 countries or any of the 20 top countries in the OECD. We will be at the bottom of the manufacturing league.

In 12 years manufacturing output in France has risen by 50 per cent. It has risen by 66 per cent. in Germany and by almost 150 per cent. in Belgium, but in Britain by the end of this year the figure for output will be only 6 per cent. In those 12 years we have had North sea oil and Government promises of miracles. We are entitled now to judge the Government not on their promises but on their performance. They have put Britain at the bottom of the manufacturing growth league, so what credibility do Ministers have left? They received warnings throughout the 1980s, including the House of Lords report in 1985, and subsequently received further warnings even from their own advisers.

What is the Secretary of State's explanation for the Government's neglect? Earlier, the right hon. Gentleman referred to his "Panorama" interview, when he was asked what had gone wrong with manufacturing industry since the House of Lords' famous report. He was asked why the Government had failed to act and ignored the warning signals. Did he stand up for the principles of the free market? Did he show resolution and say that industry must stand on its own feet? Did he defend the record of the two Chancellors of the Exchequer whom he so loyally served, including the right hon. Member for Blaby (Mr. Lawson)? Did the Secretary of State continue to fly the colours of the previous Prime Minister and to protect her reputation? When asked the vital question of whether, in the mid- 1980s, the Government had taken manufacturing industry seriously enough—yes or no—the Secretary of State paused, hesitated, dare I say dithered, and replied, "Maybe not."

The right hon. Gentleman went on to qualify that assertion with an astonishing excuse. He said: I certainly wasn't a Minister. I was a bag carrier at the time. So much for collective responsibility. So much for ideological resolution. In other words, "It wasn't me. I was a bag carrier at the time." They were all bag carriers at the time.

Why did not the right hon. Gentleman defend his free market philosophy and say that his No Turning Back group philosophy was the best way forward? Why did he not assert that problems are far better solved by industry 627 itself without Government intervention? Was it because the right hon. Gentleman is trapped, as are the other members of the Government, between the ideology in which they still believe and the knowledge that it has failed?

The reaction today of all Ministers faced with problems in respect of industry, the poll tax, or anything else, is to say anything, as long as they think that they can sell it to all the factions of a divided Conservative party. What credibility do any of them have now? They said that manufacturing industry was merely an obsession with the Labour party and that the trade deficit was of little consequence.

The same Ministers basked briefly in the glory of the 1988 Budget, when they said that Britain was top of the league of manufacturing industry growth in terms of competitiveness, and that the supply side of the economy had been transformed. They claimed that the Government had revitalised the economy and had restored national pride and that no policy for industry was needed.

What credibility do the Government have left when they try to tell us now that manufacturing matters, that the trade deficit is important after all, and that there should be a policy for industry? The right hon. Gentleman may have been carrying the bags in 1985, but his failures since then mean that he must now carry the can.

Only a few days ago the House of Lords Select Committee on manufacturing industry reported that our share of world markets in manufacturing is too small; the implications for our future prosperity are grave; if market forces alone are to determine the course of events, it is conceivable that we will end up with no significant British-owned manufacturing industry in the United Kingdom; and that the Government must abandon their neglect of manufacturing industry. Confronted by the fact that manufacturing growth is falling this year by 5 per cent., investment in manufacturing industry is set to fall, and overall business investment is set to fall by 9.75 per cent., and given the fact that, with 1992 in view, investment in France is increasing by 4 per cent., in Germany by 5 per cent., and in Italy by 4 per cent.—but is falling in Britain by 9.75 per cent.——

§ Mr. Lamont

A few minutes ago, in giving figures for industrial production, the hon. Gentleman gave the impression, within the hearing of everyone in the House, that industrial production is growing everywhere in Europe except in this country. Leaving aside the fact that industrial production in the United States and Canada has also fallen compared with one year ago, will the hon. Gentleman explain why industrial production in France and Italy is lower than it was a year ago?

§ Mr. Brown

I have the figures produced by the OECD. The economic outlook produced in December 1990 shows industrial production in Italy rising by 0.6 per cent. in 1991 and that is a fact. It is also rising in France. [Interruption.] I am not prepared to take the Chancellor's word for it, when the figures that he produces continually turn out to be inaccurate.

§ Mr. Lamont

Will the hon. Gentleman table a written question and accept my word?

§ Mr. Brown

I shall be happy to table a written question to the Chancellor, but the right hon. Gentleman will agree 628 that I should go on the information produced by the OECD and by the EC and that it is quite fair for me to listen to them in advance of listening to the Chancellor.

§ Mr. Jacques Arnold (Gravesham)

rose——

§ Mr. Giles Radice (Durham, North)

If the Chancellor looked at his own Red Book, which he was not very good at quoting from in his Budget speech, he would find this: In France and Italy growth in 1991 is expected to be around l½ per cent.".

§ Mr. Brown

I am grateful to my hon. Friend. Not only is that figure recorded in the Red Book, but I have the OECD forecasts for France and Italy in 1991. I am afraid that I prefer to listen to the EC and the OECD on these matters than to listen to this Chancellor.

What is the Government's response to what the House of Lords said about manufacturing industry? What is their response to the recommendations made by the House of Lords which are similar to the policy proposals that the Labour party has published over the past few months?

Although the House of Lords Select Committee recommended that support for industrial research and development should be increased, and although the Minister responsible says that he is in sympathy with that, supply estimates for the past few years show that, in 1989–90, support for industrial research and development was planned at £152 million, in 1990–91 it was planned at £125 million and now it is planned at only £104 million for the coming year. Equally, when the House of Lords Select Committee says that it wants more support for research and development in small companies, and when Ministers say that with the new spur scheme they are doing far more than ever before, what do the Government's own spending estimates reveal other than that they planned to spend £24 million last year, they plan to spend £12.8 million this year and they plan to spend only £12 million next year?

When the Secretary of State and the Select Committee are agreed on the need for regional technology organisations to be expanded, when the House of Lords wants development agencies for England to be considered—something that the Labour party has long advocated—and when the report says that the activities of the development agencies in Scotland and Wales should be taken as a model for exploiting more effectively the technological and industrial potential of other areas of the United Kingdom, what does the Secretary of State do? He does nothing but cut regional and general industrial support from a planned £309 million last year to a planned £250 million this year to only £157 million for next year—a cut of almost 40 per cent. over two years.

§ Mr. Jacques Arnold

Will the hon. Gentleman give way?

§ Mr. Brown

I have given way quite enough.

When the House of Lords calls for new support for innovation, for genuine programmes which are not simply for the sake of gaining political kudos and for a new initiative and demands tax credits for additional research, corporation tax allowances for new investments and what the Labour party has been asking for in its recent document, "Modern Manufacturing Strength", what is the Government's reaction? They propose to cut the industry budget for the coming year by £245 million. They have even cut the consulting initiative in science and technology by 10 per cent. and cut regional innovation grants. The 629 Chancellor's reaction to the House of Lords report on manufacturing industry is to cut support in all those areas—to cut the industry budget as a whole.

One of the few things for which the Budget shows support is bureaucracy and administration in the Exchequer. The Government have no industrial policy worth the name. Their policy is simply to cut and cut. The Labour party stands for industrial opportunity for Britain, whereas the Conservative party stands only for opportunism in the run-up to the next general election.

The centrepiece of the Chancellor's Budget strategy was the retreat from the poll tax via the new surcharge on VAT. That is the sad consequence of the flagship policy, which, unfortunately, not only poisons local government finance but contaminates the whole of public finance. The poll tax has swallowed £175 million in start-up costs, £500 million in additional running costs and £300 million in rebate administration. It will cost £65 million to sort out the chaos of this year's bills. In other words, the first £1 billion will have gone simply on administration of the tax, with not one additional service provided—not one home help, teacher or policeman to show for the first £1 billion. The industry budget has been cut by £350 million, and the training budget has been reduced by £245 million—all to cover up the first £1 billion-worth of the Government's poll tax mistakes.

There are four contradictions at the heart of the Budget. First, Ministers tell us that they will reduce household bills by cutting the poll tax; in fact, the VAT increase—the poll tax surcharge—added to other tax increases, will push household bills up. Secondly, Ministers tell us that the poll tax will be abolished at the earliest opportunity; in fact, it is being kept for two more years, and the Government are determined, even then, to retain a central part of it. Thirdly, the Government tell us that they are helping business; far from stemming the tide of business bankruptcies, the Budget is based on the assumption that more bankruptcies are on the way. The most cruel deception of all is the Government's contention that they are creating a classless society. How will the creation of a classless society be helped when, in their first 100 days in office, the Government have made more than 100,000 men and women unemployed? How can they claim to be encouraging opportunity for all when, for 2 million unemployed people, opportunity does not exist?

The Government now know that the poll tax is wrong, but they have no clear policy to put local government finance right. They now know that they have got training policy wrong, but their ideology prevents them from implementing a programme to put it right. They now know that neglect of industry is wrong, but their crude free market ideology prevents them from adopting any policy that would help.

Trapped between the ideology that they alone support and the fact that the country is now rejecting them, what do they do? When Labour demands a child benefit rise of £2.30 for all children, the Government dispense to most children 25p—the price of a pint of milk. When Labour demands fairness for pensioners 52 weeks of the year—as we did earlier this year—the Government grudgingly give heating allowances, for two weeks only, to those who are lucky. When Labour demands a policy for training in industry, the Government offer a fraction of what is 630 needed, because they have no concept of what could be gained. When Labour demands properly funded, high-quality public services, we get yet more promises. It happened again at the weekend. We have had 12 years of promises.

What will the public remember about the present Government? They will remember them as the Government who brought the chaos of the poll tax; pushed thousands of people into unemployment, and hundreds of thousands more into poverty; made high unemployment, along with high interest rates, the main instrument of economic policy; and, by their neglect of industry over the period of North sea oil revenues, dissipated a unique opportunity to prepare Britain for the 1990s.

What Britain needed was a Budget that would not only take us out of recession but prepare the whole country for the long-term challenges that we face. The Government have given us, instead, a short-term Budget—at best, short-term palliatives from a Government dominated by short-termism and, thank goodness, with only a short term to go.

§ Mr. Nigel Lawson (Blaby)

We have just heard from the hon. Member for Dumfermline, East (Mr. Brown) a speech bearing a very close resemblance to other speeches that he has made in this House. Fortunately, as I do not attend frequently nowadays, I am not obliged to hear many of them. The mixture is very well known. The phrases bear the smell of midnight oil, but the hon. Gentleman's figures are made up as he goes along, and collapse as soon as they are challenged. I will give the hon. Gentleman a word of friendly advice. If he were to spend only half as much time checking his figures as he spends polishing his phrases, his speeches might improve.

The other characteristic of the hon. Gentleman's speech was a characteristic of many speeches before he was on the Opposition Front Bench—perhaps before he was even a Member of this House. I refer to the period of the last recession—1980 and 1981. At that time, the Opposition not only pointed out that the country was in recession— something that was well known, and that the Government made no effort to hide—but implied that the recession would go on for ever. As the House and the country now know, that recession was relatively short-lived, and was followed by the most vigorous and longest period of expansion that this country has known in recent years. The same will happen again.

Once more, the hon. Member for Dumfermline, East has tried to suggest that a recession, which will not be so severe as the last one—he himself has said so—will go on for ever. It will not go on for ever, and it is important to demonstrate that fact. It can be demonstrated only by deeds rather than words and, I would add to my right hon. Friends on the Government front bench, it seems to me that that is not wholly ungermane to the timing of the next general election.

I congratulate my right hon. Friend on his Budget. It is not merely because of the very kind words he addressed to me at the beginning of his speech, for which I thank him, that I say that it is a very good Budget.

In the Budget debate last year, I argued the case for early entry into the exchange rate mechanism of the European monetary system—initially within the wider 631 band. Happily, that took place. It seems that I may have more influence as a Back Bencher than I did as Chancellor of the Exchequer. This now provides the framework for the Government's economic policy. But the Chancellor of the day still has to exercise, within that framework, a Budget judgment. To my mind, my right hon. Friend has got the judgment right—a neutral Budget, allowing the economic stabilisers full play, but with no nonsense about some discretionary, counter-cyclical fiscal policy. And this is all in the context of a commitment to a balanced budget over the economic cycle as a whole, which is absolutely right.

§ Mr. John Maxton (Glasgow, Cathcart)

The right hon. Gentleman, from the Back 13enches, is claiming credit for this country's entry into the ERM. Why did he fail so dismally to persuade his former Cabinet colleagues to go back to the old rating system, which he regarded as so desirable?

§ Mr. Lawson

All will be revealed when I publish my memoirs.

If I have a concern about the overall fiscal aggregates, it lies not on the tax side but on the public expenditure side. In 1979, we inherited a desperately weak fiscal position. Over the years since then, we have made our fiscal position one of the strongest in the world. We have had a public sector surplus for a number of years. This was not solely, or even chiefly, a cyclical phenomenon. One has only to look at other countries, some of which also had a period of vigorous growth in the 1980s. None of them has achieved the strong fiscal position that we have secured. It was not the result of cyclical movements.

It stemmed in part from tax reform—the switch from high rates of tax, which in many instances were effectively voluntary, to lower rates of tax which companies and individuals had to pay. It stemmed even more from the firm control of public expenditure. Over the whole of the six years from 1983–84 to 1989–90, general Government expenditure, excluding privatisation proceeds, rose by a total of 4 per cent. That was an extremely small increase. Over the next three years, however—only half of the period to which I have just referred—from 1989–90 to 1992–93, general Government expenditure is planned, according to the Red Book, to rise by 5 per cent. It is planned to rise by more over the next three years than over the whole of the six years to 1989–90. And as we all know, public expenditure has a tendency to outrun what is planned for it. I have quoted what was achieved compared with what is now planned.

Again, table 1.2 in the Red Book shows that about two thirds of the deterioration in this year's public sector borrowing requirement, compared with what was envisaged at the time of the Budget, is due to a public expenditure overrun, even though public expenditure is less affected—it is affected to some extent—by the economic cycle than are tax revenues.

I know that my right hon. Friend the Chancellor of the Exchequer is absolutely firm in his resolve to maintain control of public expenditure. It is vital, however, that he enjoys the support of the entire Cabinet, and especially that of the Prime Minister.

As for the economy as a whole, inflation is clearly coming down. That is thanks to the so-called one-club policy of high interest rates, which was so derided in some quarters. I share my right hon. Friend the Chancellor's 632 view that the recession will end and that the economy will start to pick up again later this year. As I said earlier, the recession, although difficult and unpleasant, will prove to be less severe in terms of loss of output than the recession of a decade ago.

I shall not detain the House by going through all the individual measures in the Budget, most of which I applaud. I shall, however, mention one or two things that my right hon. Friend the Chancellor of the Exchequer did not do. First, he did not abolish a tax. I rather regret that. It was a good tradition to abolish a tax in every Budget. I realise, of course, that my right hon. Friend was constrained by the Budget arithmetic. I would, however, gently draw his attention to petroleum revenue tax, of which I have many memories as a former Secretary of State for Energy. Petroleum revenue tax is one of the most complicated and extraordinary taxes on the statute book. An entire division of the Inland Revenue—the oil taxation office—is almost wholly dedicated to looking after it. The Red Book tells us that the expected yield for the coming year is precisely zero. It is a tax that my right hon. Friend could possibly do away with without distorting his Budget judgment.

I realise that there are always those—my right hon. Friend's officials and, even more so, officials in the Department of Energy—who say, "You never know, there might be a sudden explosion of oil prices in future, and then the tax will come into its own again." We have heard predictions of an explosion of oil prices for a long time. For example, in the first debate on the Gulf, the right hon. Member for Leeds, East (Mr. Healey) gave the most extraordinary Cassandra-like warnings. Included among them was the prediction that the price of oil would be $100 a barrel should there be a Gulf war. The price now is about $18 a barrel. An explosion in the price of oil is about as credible as the right hon. Member for Leeds, East. As I have said, PRT is a tax that could be dispensed with.

Secondly, my right hon. Friend the Chancellor of the Exchequer did not yield to the clamour to bring back 100 per cent. first-year capital allowances or other forms of special allowances for business and industry. Instead, he chose to reduce corporation tax. He was absolutely right to do that, and I commend him for it. He has avoided the distortions that would otherwise have been incurred, and the reduction in corporation tax will attract overseas investment into this country far more effectively than anything else.

It is important always to bear in mind—my right hon. Friend the Chancellor of the Exchequer did not make this point in his Budget speech but I know that he did not want to make the speech too long, and I thought that it was just about the right length—the difference between the main corporation tax rate and the basic rate of income tax. That really determines the incentive for debt finance of industry as against equity finance. Ideally there should be no distortion at all—the rates should be the same.

One of the reasons why I reduced the rate of corporation tax from 52 per cent. to 35 per cent.—it was not the main reason—was that corporation tax of 52 per cent. was offsettable against the cost of loan capital or borrowing, whereas only a 30 per cent. deduction was allowed under the imputation system for dividends. That meant that the incentive to engage in debt finance was very strong. It was and is desirable to narrow the gap as much as possible, and I narrowed it substantially. As my right hon. Friend the Chancellor of the Exchequer recalled, the 633 gap then widened somewhat as a result of reductions in the basic rate of income tax. It is right that he should be narrowing it again.

§ Mr. Sheldon

Is the right hon. Gentleman aware that there is a distortion in the corporation tax capital allowances? Only 25 per cent. is given in tax allowances in the first year. Many items of plant and machinery are worth less than 75 per cent. after the first year. That is the distortion, and capital allowances should be changed to accommodate it.

§ Mr. Lawson

It was the 100 per cent. first-year write-off which was the distortion. The 25 per cent. reducing balance is close to actual commercial depreciation for the vast majority of capital equipment. It is true that there are some items of capital equipment that depreciate more rapidly and I therefore introduced a special provision in the 1985 Finance Act to take account of short-life assets. The right hon. Gentleman should be reassured that this has already been catered for.

Thirdly, my right hon. Friend the Chancellor of the Exchequer did not yield to the clamour in some quarters for personal allowances to be increased by more than statutory indexation. Indeed, in some respects he did less than that, because he did not increase some allowances at all. My right hon. Friend was right to resist the clamour. The maxim that almost everyone should pay, although not decisive in all contexts, is relevant to income tax. My right hon. Friend is right to place emphasis—when the time comes for reductions in the burden of income tax—on a reduction in the basic rate. I was glad to hear that.

The concept that everyone should pay brings me to the measure which inevitably dominated this year's Budget, and that is the massive switch from local taxation in the shape of the community charge to an extra 2½ per cent. on value added tax. As a result, the yield of local tax—that is to say, the community charge—will fall from 20 per cent. of local authority revenues in the year that has now ended to an estimated 11 per cent. in the year which lies ahead of us. In itself, and judged apart from the background and the context, I believe that it was a retrograde step. If it was politically inescapable, it is yet further evidence of the damage that the poll tax has wrought.

In so far as an ideal system of local government finance exists in this wicked world, it would concentrate on bringing to an end the two muddles that have bedevilled local authority finance for as long as I can recall. The first of the two muddles is presented by the two tiers of local government so that no one is clear about which tier is responsible for which part of the single Bill received by local taxpayers. The second muddle is the confusion between local government and central Government responsibilities.

§ Mr. Michael Foot (Blaenau Gwent)

We are all fascinated by this part of the right hon. Gentleman's speech. Why, as he felt so strongly about the poll tax, did he not resign over that issue rather than over the much less important issue that he gave as his reason for resigning?

§ Mr. Lawson

I know that the right hon. Gentleman has held high office in his time and I suspect that he did not 634 agree with all his party's policies, but I do not recall him resigning. At least it cannot be said that I was not prepared to give up my office when I felt it necessary to do so.

If those two muddles could be resolved, we would come as close to accountability as possible. If a single tier of local authority wholly financed the services for which it was responsible, and if central Government financed 100 per cent. of those services for which they are responsible, we would at last achieve clarity and the possibility of more accountability. To achieve that, the Government of the day would have to transfer responsibility for certain functions from local to central Government. I believe that there is a strong case for so doing.

Whereas such a solution was thinkable before the Budget, I fear it is unthinkable now. I say that with some regret. Now that local authorities are to raise only 11 per cent. of their total revenues from local taxation—that is the forecast—it is no longer possible. The figure of 11 per cent. comes from table 6.7 of the Red Book and is clearly correct. The community charge rebates must be deducted to arrive at the true figure of what is being raised by local authority taxation. It is inconceivable that local government responsibilities should be shrunk to that extent.

We must dispose of the misconception that local taxation was carrying too large a share of the burden. That is manifestly absurd, as a moment's reflection will demonstrate. Local taxpayers and central Government taxpayers are the same people. The issue is the nature of the tax. For example, if my right hon. Friend the Chancellor of the Exchequer had decided to reduce the community charge by £140 a head and switch that amount to a central tax in the shape of a new poll tax levied nationally at £140 a head, would everyone have thrown their hats in the air and said, "What a tremendous improvement"? The problem has nothing to do with the balance, but everything to do with the nature of the tax.

Incidentally, there is no truth in the suggestion that, the Government were somehow mean with grants when the community charge was first introduced. The community charge was first introduced in England and Wales in 1990 and the increase in the total central Government grant to local authorities for that year was an unprecedented £2.6 billion—far in excess of the rate of inflation.

It is the nature of the poll tax that makes it unable to bear that burden. Although many people disliked rates, rates could bear such a burden. I recall the Government's Green Paper, published in December 1981, entitled "Alternatives to Domestic Rates", which came to the conclusion that there was no satisfactory alternative to domestic rates. That Green Paper was published and we did not do so badly in the 1983 general election. We continued with the rating system from 1983 to 1987 and did not do so badly in the 1987 general election either. Although we made a pledge in 1987 to go over to the community charge, if anyone believes that that was why we won the election with a large majority, they were not canvassing the same houses and visiting the same factories as I was.

§ Mr. John Townend (Bridlington)

Was not the reason why we did not suffer badly the fact that we did not have a revaluation for 17 years? When there was a revaluation in Scotland, we were nearly annihilated.

§ Mr. Lawson

I am glad that my hon. Friend raised that issue because, although it is an absurdity, it is believed by many people besides my hon. Friend, who understandably picks up things that he hears other people say. I do not blame my hon. Friend. The Scottish revaluation was a disaster because it was implemented overnight, from one year to the next. Even the 1983 revaluation, as my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) will recall, was phased in over a period. Everyone knows that any revaluation must be phased in gradually over a considerable period. If the change is made overnight, it is a total disaster. But it is quite unnecessary to do so, and no sensible Government would implement a revaluation in England and Wales on that basis.

§ Mr. Tim Raison