AMENDMENT OF THE LAW

§ Mr. John Smith (Monklands, East)

I am happy to offer the Chancellor the customary congratulations on the style and manner in which he delivered his Budget. As he noted, this will be the last spring Budget and he is the last Chancellor who will deliver the Budget in its traditional form.

I welcome the change to a unified Budget and public expenditure statement, a change which, after all, the Opposition proposed. May I suggest a further reform for the new arrangements later in the autumn? The Chancellor should consider abolishing the increasingly absurd purdah rule. I suggest that he makes an early announcement to that effect, perhaps the earlier the better, so that he and not someone else can take credit for an overdue reform.

Those who have listened to this debate will have been shocked beyond belief at the cynicism of the Conservative party which went into the last general election as the party committed to low taxation. [HON. MEMBERS: "We have done that."] Conservative Members say that they have done that. Some innocents on the Conservative Benches describe the Budget as a Budget of low taxation. Let me remind the House of what the Government said during the last election campaign—[Interruption.] I know that some Conservative Members do not want to hear this, but I think that the public do.

Let me start with VAT. On 28 January 1992, the Prime Minister said: There will be no VAT increase. Unlike the Labour party, we have published our spending plans and there is no need…to raise VAT to meet them. It is difficult to be more categoric than that. During the election campaign, the Conservative campaign guide stated—[Interruption.] I know that that is a matter for humour, but we are entitled to treat it seriously. The guide stated: Following a series of unfounded and irresponsible scares by the Labour party, the Prime Minister has confirmed that the Government has no intention of raising VAT further. To get precisely to the point, during the election campaign, at a press conference, Mr. Tony Bevins of The Independent asked the Prime Minister on 27 March 1993: Can you give the same pledge that Mrs. Thatcher gave in 1987 that you will not extend the scope of VAT to children's shoes and clothing, gas, electricity and food? The Prime Minister replied: 198 I've made the pledge in the past, I've made it clear. We have no need and no plans to extend the scope of VAT. I do not know how the right hon. Gentleman can sit there as Prime Minister of a Government who are capable of deceit on such a scale. The Conservative party went into the election and was pressed day after day about increases in VAT and still came back the answer, "Lies and scaremongering from the Labour party. The Conservative party wouldn't do anything like that." Those people make pledges as though they matter not a whit.

It is not just a question of VAT—and I will consider the effect of the VAT increase. The Prime Minister knows perfectly well that commitments were made on national insurance as well. On 28 January 1992, the Prime Minister stated: I have no plans to raise the top rate of tax or the level of national insurance contributions."—[Official Report, 28 January 1992; Vol. 202, c. 808.] However, the Government have proposed today a 1p increase in national insurance contributions. No doubt they will go to the country and say, "We haven't increased income tax. We have marginally increased the 20p band." People are not so foolish. They understand clearly that 1p on national insurance is, if anything, worse than 1p on income tax. Apart from anything else, it bites further down the scale. On tax on income and tax on spending, the Conservative party has cynically and ruthlessly betrayed the pledges which it gave to the people of this country. It will not be forgiven for that.

The Conservative party used to say that VAT was all right because, after all, people could choose whether they bought the goods on which VAT was levied. Will it tell us now that people can choose whether to have gas or electricity in their houses? The Government must know perfectly well that throughout the land a 17.5 per cent. increase in fuel bills will push many families who are just on the edge, wondering whether they will manage, to despair.

It is no good the Government saying that they will adjust income support levels. Millions of people in Britain are poor but do not qualify for income support and will be hit savagely by the 17.5 per cent. increase in the basic cost of living. The Chancellor says, "It is all right: I have extended the 20p band." But what does the extension of his band amount to? This year it amounts to about 25p a week and at best in future years it will amount to £1. How will that help people to meet the extra bills that they will have to pay as a result of all the other tax increases and reductions in allowances? Indeed, taken together, the tax increases announced in this Budget must be one of the highest hikes ever.

We have also seen the freezing of allowances. That means that more people will be brought into both the standard and higher rates of tax. All this from the party which said that it was the party of low taxation and paraded that all over the country during the general election campaign. There are hundreds of examples of that day after day.

The Government have betrayed their pledges and caused unnecessary increases in the cost of living. They should have been busy in this Budget looking for loopholes in taxation. The Chancellor may have discovered a few here and there, but there are massive loopholes in taxation by which people do not pay the proper amount of tax. Here we have the Government putting an even heavier burden on the ordinary people of 199 Britain. The Government must bear in mind that the public's conclusion about the Budget will be simple and clear: the Conservative party is a party without honour and without feeling.

The other question that people will ask about the Budget is whether it will bring down unemployment. [HON. MEMBERS: "It will."] There can surely be no doubt that unemployment is Britain's No. 1 problem. We shall see in the November Budget whether this Budget has brought down unemployment. If Conservative Members want that to be a test, we shall make it a test for the Government. The Government cannot simply wish away unemployment. The Chancellor announced inadequate measures on that front. The Government do not seem to understand how depressing and debilitating it is for our people to suffer unemployment of more than 3 million. It is economic madness as well as a social tragedy.

Ministers should bear it in mind that there is hardly a street in Britain in towns or villages, in the country or elsewhere, which the tentacles of corroding unemployment have not reached. It is also depressing to consider that, each time we plunge into another Tory slump, it gets longer than the one before. The last one lasted five quarters. We have already gone 10 quarters in the slump that we are suffering now—the longest since the 1930s.

What measures does the Budget contain to deal with the problem of unemployment? The Chancellor said that the Secretary of State for Employment would announce a few measures which would potentially affect 100,000 people. But 300,000 people have lost their job since the election alone. So even at his most optimistic, the best that he can touch is one third of the people who have become unemployed since the Conservative party was elected on a pledge to reduce unemployment. The measures are wholly inadequate to deal with the scale of Britain's jobs crisis.

There is some merit in the Chancellor's proposals. For example, he has removed the restriction on people on benefit taking up educational courses. Why do we have to wait so long for a simple and obvious change such as that to be introduced? Why does misery have to become desperately acute before the Government will take even minor measures to deal with it?

As we know, the Government's spending on training—one real way in which we could tackle unemployment—has fallen between 1991 and now by 14 per cent. in real terms. That is a reduction of £300 million. So the amount of training falls by 14 per cent. at the same time as unemployment increases by 87 per cent. That gives a clear idea of the Government's approach to the problem.

The Chancellor's proposals in the Budget hardly fill the hole that has been created by the Government's previous actions. Therefore, the Government cannot claim any credit for action on unemployment. That is hardly surprising because the Chancellor gives such a low priority to the unemployed. Who has been more callous and complacent than him? Both he and the Prime Minister want us to forget that it was the Chancellor who told us in the House that unemployment was a "price well worth paying." He said it; he meant it. He has never apologised for it. If nothing else, he might have done that today.

An apology is also due from the Chancellor for the failure of his last Budget—a failure which makes us, and indeed the whole country, cautious about believing anything that he says to us today. After all, his record undermines his credibility. Let me remind the House what he predicted a year ago. He said that the economy would 200 be growing by 3 per cent. and manufacturing output would be growing by 4 per cent. by this time. Let me remind the House of the sad reality—the outturn.

The economy shrank during the whole of 1992 and, even on the latest figures and giving the Government the benefit of the doubt, an increase of barely 1 per cent. per annum is likely. Manufacturing output, instead of growing at 4 per cent. as predicted last year, is not growing at all according to figures published yesterday. A year ago in the Budget the Chancellor predicted that the PSBR would be moving virtuously back towards balance. We know how absurd that was. We know how the Chancellor's management of the economy has thrown Britain deeper into debt, with a projected PSBR of £50 billion.

If the public had known what would be the outcome of the right hon. Gentleman's Budget last year in terms of constantly rising unemployment, deepening recession, rising bankruptcies and home repossessions, let alone the betrayal of election pledges, how many of them would have given the Tory party the benefit of the doubt on the night of 9 April last year? Precious few. We now know that their trust has been spectacularly betrayed.

The other vital question to which the country wants to know the answer is when action will be taken, in a Budget or otherwise, to halt the long, sad economic decline of Britain. Where are the measures of investment and training that will revive the British economy and, in particular, its vital manufacturing sector? The Government will not publish the report from the Department of Trade and Industry that tells us about our problems of weak investment and our skills problems and shows with chilling reality what is happening to British manufacturing industry.

The most important and worrying factor is that investment in manufacturing industry is 6 per cent. lower than it was in 1979 when the Conservative party took office. It appears that civil servants in the Department of Trade and Industry are guilty of the dreadful crime of talking Britain down. Any criticism of this incompetent and dishonest Government is regarded as talking the country down. People are more worried about who is pulling the country down—the Government. They are unable to face up to the scale of the challenge that Britain faces. We shall run into serious balance of payments deficits. We had another foretaste of that in the Chancellor's predictions today.

From the industrial revolution until 1983 we had a surplus in manufacturing trade. Under this incompetent Government we went into deficit for the first time in 1983 and we have remained there ever since. If we examine Conservative economic policy, we find that it will be extremely difficult for us ever to return to a surplus. We shall be able to set a course of sustainable economic recovery only when we begin to invest in industry, in the skills of our people and in the public infrastructure so crucial to our economic development.

On the infrastructure front, we got one reannounced real project and another one postponed. People are doubtful about this channel tunnel business. It appeared to me that the right hon. Gentleman was postponing it yet again. We may find that we have no proper connections on this side of the English channel, while the other side has excellent connections. As for the railways, the most intelligent step that the Government could take would be 201 to remove the threat of privatisation; that would be sensible, and would do a great deal of good to the morale of a beleaguered industry.

Let me briefly remind the House of the Conservative party's promises. It promised economic recovery following its election. Hon. Members may remember the slogan: "Vote Conservative on Thursday, and recovery will continue on Friday". That was 300,000 unemployed people ago. According to the Conservatives, the public expenditure programme set out for the future would be rigorously maintained. There would be no cuts in public expenditure; that was another scaremongering Labour story. What is happening now? The Chief Secretary to the Treasury is undertaking what may be the biggest review in this country's history to cut public expenditure.

§ Mr. Michael Fabricant (Mid-Staffordshire)

Very good.

§ Mr. Smith

The hon. Gentleman may say "Very good", but his party did not say that at the time of the general election. I am sure that, when voters asked the hon. Gentleman, "What about spending on schools, hospitals and training?", he replied, "Do not worry; all the programmes that the Conservative party has put in place are costed, and they will be fully maintained if you elect a Conservative Government." Did the hon. Gentleman tell those voters, "The Chief Secretary will slip in a few months later and undo all those promises"? That is yet another example of a blatantly broken promise. Worst of all, the Government promised that there would be no increase in taxes, direct or indirect.

This is a shameful Budget, presented by a cynical party, and I hope that the Conservatives live to regret it.

§ Mr. John Biffen (Shropshire, North)

I note the content of the Budget, and will refer to it in due course. First, however, let me congratulate my right hon. Friend the Chancellor of the Exchequer on the sheer stamina with which he made his powerful case. His was a valedictory speech—a valedictory Budget speech, that is, in the light of the reforms that will be implemented in the autumn, when the Chancellor must deliver a speech covering not only budgetary arrangements but public expenditure.

It occurs to me that the House must seriously consider the form that our proceedings will take. The Chancellor's audience is not confined to the House of Commons; he has an audience outside. He will face the difficult task of making a speech of reasonable duration without reverting to Gladstone's five hours of 1853—I have done a little homework to acquaint myself with the potential limits of such speeches. Determining the appropriate form of our debates once the Budget and public expenditure speeches have been combined will present the House with a serious problem.

I wish to make a few general observations about the speech of the right hon. and learned Member for Monklands, East (Mr. Smith). First, let me say how much I enjoyed it. The right hon. and learned Gentleman spoke from the heart about revenue and public spending issues; he did not touch excessively on the subject of borrowing, but it was there, just beneath the surface. He was speaking of the very matters that brought the House into being, and on which it has asserted its authority for generations. He 202 spoke as though he thought that that arrangement was permanent, but he knows very well that he must fight to ensure that the House remains master of these great areas of economic policy. He must partner his convincing rhetoric with the logic of his hon. Friend the Member for Dagenham (Mr. Gould): I offer him that dream-ticket prospect.

Of course we welcome the approaching debate between the two sides of the House, which will concern the social and economic priorities that we consider appropriate in regard to revenue and public spending and wise in regard to borrowing. That is what this place is all about. At least the words of the right hon. and learned Member for Monklands, East supported that proposition; I hope that his judgment does the same.

Before commenting more directly on the Budget, let me declare my interest. I am a non-executive director of Glynwed International plc and J. Bibby and Sons plc—both manufacturing companies—and I am therefore interested in the Budget's contribution to our manufacturing base. My right hon. Friend the Chancellor has made some valuable proposals for industry, and his advance corporation tax measures—he confessed that they were somewhat technical, which, in my view, showed a moderation of judgment—will be widely welcomed. Equally welcome will be the priority that my right hon. Friend has given, in a difficult time politically, to the industrial sector; that is matched by the proposals in respect of unemployment.

I shall confine my remarks to the central issue of the deficit. In a Times article on 3 March, just a few days before his death, Lord Ridley said: What has happened for years now is that fiscal policy has been too lax and monetary policy too tight. I am very happy to preface my comments with that quotation. I believe that, given his views and the manner in which he conducted his campaigns, Lord Ridley will long be remembered in the House as an example of the grit that provides the pearl in the parliamentary oyster. I have a deep personal affection for his memory, and I welcome this opportunity to place on record my esteem for such a personality.

I fear that the deficit is uncomfortably large. That is an anxiety that I share with my right hon. Friend the Chancellor—and, indeed, with almost every other Member of Parliament; certainly with every Conservative Member. Given that the deficit is perceived to be running at about £50 billion, what measures should be taken? I may be a little more anxious than some of my colleagues, because I do not accept the proposition that it will wind down easily with the recovery in the economy. There is now a discontinuity between output and employment; I think that output can recover, while unemployment will continue to lag behind that recovery. In that event, all the recessional costs of the deficit are likely to remain higher than those resulting from past practice.

My right hon. Friend says that he will try to deal with the deficit by means of substantial measures to increase revenue. I am happy to stand here, shamelessly, as a taxing Tory. I cannot believe that, in the present circumstances, the deficit can be seriously reduced other than by an increase in revenue, which means identifying taxes that can be raised to that end. I am not outraged in the least by the increases in national insurance, or by the increases in VAT in respect of fuel and power. We have a narrow tax base 203 in comparison with our major partners and competitors, and the proposed reforms are welcome. I will leave it at that.

I am not quite so happy about the timing. I understand the deep anxiety that is felt: the recovery from recession is tentative, and must not be subject to undue heavy-footedness on the part of the Government. However, I feel slightly uneasy about leaving the increases in taxation until so far in the future. Therefore, I would welcome it if the matter could be reconsidered in the November Budget.

In politics, there is a most powerful instinct—the Augustinian tendency—to say, Lord, make me perfect—but not yet awhile. I feel that the Budget contains all the right instincts, but the timing is a little cautious and too far into the future. I hope that my modicum of unease will not be validated. I should be delighted to discover that my right hon. Friend has made good judgments on both the measures and their timing. Above all, as my right hon. Friend needs luck, that is exactly what I shall wish him.

§ Mr. Malcolm Bruce (Gordon)

I recall being asked yesterday what I thought that the Chancellor might achieve in the Budget. I said that, if he were sensible, he would recognise that, after the disasters that he had inflicted on us, he could do very little good, but should be careful not to do harm.

Clearly, the Chancellor was not listening to me or anyone else. The Budget will be greeted with disappointment and despair in many quarters of the country. It gives a sharp rap over the knuckles to those who suggested that we were at the bottom of the recession and could expect things to get better. It is clear that the Government expect things to become worse, and we are all going to be dragged down with them next year and the year after.

As to the general background, I find it extraordinary that the Chancellor of the Exchequer can stand at the Dispatch Box and calmly state that the public sector borrowing requirement will be £50 billion next year. He did so having totally lambasted those people who suggested that, if he had taken a little more advice earlier and invested earlier, he might have avoided the situation in which he now finds himself. The Chancellor fails to understand the meaning of investment and the Government's role in ensuring that investment takes place. He is now borrowing to pay for failure, rather than investing to secure success.

The Chancellor's comments on the events of black Wednesday and our leaving the exchange rate mechanism were extraordinary. If one were to believe the right hon. Gentleman, that would have been the first national debacle to be masterminded in advance. He gave himself credit for the achievement, and failed to recognise that he has not left British industry and the British economy in a position to deal with the single market. For a Government who claim to believe in the single market, it is the height of embarrassment to enter that market on 1 January, having just left the mechanism that was designed to make it work with some stability and confidence.

As the right hon. and learned Member for Monklands, East (Mr. Smith), the Leader of the Opposition, powerfully and eloquently made clear, the reality is that the Government have been found to be political cheats who reached a position of power by sheer dishonesty and 204 defrauding the electorate. The Budget is a tax-raising Budget designed to tax, tax and tax again—it will tax this year, tax next year and tax even more the year after.

What a cheek for the Government to pretend that theirs is the tax-cutting party. They have consistently increased taxes year after year, but so far the public have believed them. One can only hope that today's Budget will finally make the public realise that the Tories can never be trusted to tell the truth, even about history, never mind about promises for the future.

The Budget contains taxes—not just income tax. As the right hon. and learned Member for Monklands, East said, the extension of the 20 per cent. band amounts to a difference of 50p a week. For most people on middle incomes, that money will be clawed back by the Budget's failure to index the general allowance. Therefore, most people will be £1.50 a month worse off as a result of those two measures.

The Budget increases excise duties by double the rate of inflation. The increases in tobacco prices are mischievous and malicious. I believe that increases in tobacco tax are desirable for the health of the nation, but why target people on lowest incomes, who buy the cheapest cigarettes? That seemed to be a vindictive little measure. The increase in car tax will be particularly condemned in rural regions, where there are no other means of getting about and the Government have not introduced measures to try to improve the existing means.

My right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) asked me what we could welcome in the Budget, as we should try to be even-handed as we are Liberal Democrats. I find precious little to welcome. I welcome one aspect: the Chancellor has listened to the arguments and recognised the importance of the Scotch whisky industry. As three distilleries in my constituency have recently had to reduce their labour, I hope that that proposal will at least prevent further job losses in that important industry.

There are some welcome measures for the small business sector, such as those relating to the loan guarantee scheme and to value added tax on cash accounting, although the increase could have been much more. I have no doubt that the voters of Newbury will be expected to welcome the changes in the bloodstock regime, but I doubt that they will be very much impressed by them when they look at the consequences for their electricity bills.

By freezing the increase in business rates, the Government have acknowledged the burden that the rates create. However, they have also acknowledged their total failure to create a viable system of business rates that does not require an annual fix.

The Budget will be desperately disappointing for the unemployed. The Chancellor referred to worries about the rise in unemployment and the difficulties that the unemployed face, but he showed little willingness to grasp the nettle. With respect to the community action programme, I suppose that it is refreshing to bring back something which worked, but which was abolished by the Government. However, that measure will help only a relatively small number of people.

The requirement for special measures for the long-term unemployed are welcome in principle. However, by limiting the measures to people who have been unemployed for two years, the Government have drawn 205 them far too tightly. I only hope that the pilot schemes will prove successful and the measure will be extended to people who have not been unemployed for that long.

When we look at the list of bad news we see a 1 per cent. increase in national insurance—a tax increase by any other name. We see the restriction on mortgage tax relief, which constitutes a real cost increase for domestic home owners. We see the freezing of tax thresholds and the appalling prospect of the introduction of full VAT on fuel in two years. That is the one measure for which the Chancellor will be universally condemned. It is breathtaking that the Chancellor can introduce such a measure in such a way without acknowledging the poverty and hardship that it will cause millions of people who are on low incomes but do not quality for benefit. Few people in the country will not find the 17.5 per cent. increase in fuel bills in two years anything other than a substantial burden.

The Budget is, effectively, a Budget of despair and a Budget of desperation which contains little for the unemployed and nothing for those struggling to cope with the recession. In it, the Chancellor merely exhorts those looking for hope and encouragement to hang on now. By God they will have to pay later.

§ Mr. David Howell (Guildford)

As my right hon. Friend said in his marathon Budget speech, of course recovery is coming. We know that from seeing what is happening in the United States, where the growth figures and indicators are rapidly improving. I see no reason why the progress should be aborted unless, having been started by George Bush—who received precious little thanks for it—President Clinton becomes too enthusiastic in his protectionist tendencies. If President Clinton does so, recovery will be damaged and improvements here will be correspondingly damaged. However, I do not believe that will necessarily happen. As long as we keep a maximum pressure on the Americans and everyone else to avoid protectionist measures, the recovery will come. My right hon. Friend was right to set the measures that he has announced in the context of that coming recovery, to ensure that it goes ahead and is not aborted and undermined by over-hasty measures or allowing the economy to overheat too soon.

Budget occasions—of which this will, mercifully, be the last—generate expectations that are far too high. Everyone looks to my right hon. Friend, or the Chancellor of the day, to achieve miracles when they cannot be achieved at any time, certainly not today. One forgets the European context in which my right hon. Friend is operating. Anyone who thinks that we have problems should look at the rest of Europe. Italy is going down into a black hole; France is about to experience a political earthquake, rather belatedly having the vestiges of socialism—all but President Mitterrand himself—swept away and finding itself in a completely new phase; the Swedish economy is drowning altogether; and the German economy is shrinking.

In those circumstances, it is indeed miraculous that my right hon. Friend has been able to produce a Budget of balance and prudence and to develop so many interesting, if not necessarily very dramatic, proposals to carry us forward into the recovery process—a process that the 206 United Kingdom will be the first European Community country to enjoy. We shall certainly have a higher rate of growth than Germany and many other continental European countries.

Like the very best Budgets, this one will mature. It will not result in immediate flag-waving and cheering, but neither does it justify rather splendid ranting such as we heard from the right hon. and learned Gentleman the Leader of the Opposition, who seems to have a basically erroneous concept of what my right hon. Friend is doing. My right hon. Friend says that he has gone this year for a Budget that is broadly neutral. That is a sensible but difficult stance. My right hon. Friend is building in, for coming years, a wedge of changes in the fiscal and monetary balance which will make sense against the background of rising economic activity. I recognise the skill of that approach, which I think is right.

I greatly enjoyed the speech of my right hon. Friend the Member for Shropshire, North (Mr. Biffen). Indeed, I always enjoy his speeches. I am a little less worried than he is about the timing of the Chancellor's proposals. Incidentally, I should like to associate myself most closely with my right hon. Friend's remarks about the late Lord Ridley—a marvellously non-conformist character who sometimes drove his friends, and certainly his opponents, to distraction, but who contributed mightily to the thinking part of our affairs. He will be sadly missed. My right hon. Friend the Member for Shropshire, North has said that Lord Ridley was the grit that generated the pearls in the parliamentary oyster. Indeed, my right hon. Friend himself is not a bad piece of grit. In any case, we shall certainly miss Nicholas Ridley very much indeed.

It is too soon to go into the minutiae of this very complex and interesting Budget, so I shall refer to three major issues. The first is the purdah that is associated with Budgets. I agree with the right hon. and learned Gentleman the Member for Monklands, East (Mr. Smith) that it is a very good thing that we may now be moving—I hope that we shall indeed move—away from this ridiculous convention, which guarantees that tax reforms are ill considered, ill prepared and dumped on an unsuspecting world in ways that have to be heavily revised, at great cost, afterwards.

I shall be very glad indeed if my right hon. Friend's bold reform—bringing the revenue and expenditure sides of the Budget together, starting this November—results in opening up the discussion of tax reforms, which we could have done with years ago. It is absolutely ridiculous that, at present, the Treasury policy-makers have to go into purdah, whereas many of their advisers, including the seven wise men, have no purdah at all. Indeed, they fill every column with contradictory views, and these are added to by a variety of people—assorted ex-Chancellors and other commentators of every kind.

In the case of this Budget, when there has been a vast surplus of advice, all we have lacked is additional comment from the Archbishop of Canterbury or the Chief Rabbi. We have had a swirl of outside advice, but the Treasury has been held in purdah, unable to participate in policy-making.

The House of Commons ought to be able to take a little more initiative, perhaps by organising hearings before the Select Committee on Treasury and Civil Service in advance of the Budget. There is nothing to prevent us from doing so. We might have difficulty in getting Treasury Ministers to answer, but we could certainly set the debate 207 going far more vigorously than happens at present. In this regard, the House has a role to play, in addition to my right hon. Friend's initiative of changing the whole timing of the Budget cycle—a move that my right hon. Friend will be remembered for being bold enough to make. Others will have to sit back and say that the officials never told them they could do that—as was said in the 1930s, when the Conservatives decided to go off the gold standard.

The second point on which I want to comment relates to capital and infrastructure. This is one area in which constant weakness has raised costs and accelerated the rate at which, in each cycle, the economy becomes overheated, increasing the volatility and management difficulty of the British economy. I want to see a very much greater impact from investment in the infrastructure of this nation. to cut costs and make us more competitive and to help to accelerate employment, as undoubtedly will happen.

I welcomed in the autumn statement, and I welcome now, the final sweeping away of the old Ryrie rules, which prevented adequate harnessing of private capital to the public sector. It is very exciting that new projects are coming forward and that we shall be able to do what the great cities of Asia have long since been doing: mobilise massive flows of private capital to bring infrastructure, particularly transport, into the 21st century—in our case, even into the 20th century. In expressing that welcome, I gladly declare my own interest as a non-executive director of Trafalgar House, which has a major interest and has had some success in developing privately financed public-sector projects.

Easing the advance corporation tax rules and improving the Export Credits Guarantee Department cover will also help very much in that direction. But that is not enough, so I must ask my right hon. Friend and his advisers in the Treasury to consider going further and starting to develop in this country what has been developed in many other countries—a separate capital budget for that part of the total budget which relates to public sector asset creation. The figures appear in the expenditure papers and, no doubt, in the Budget papers that are now being circulated, which I have not yet had time to examine.

We are told that, of the total Budget spend, about £30 billion is designated for public-sector asset creation. Our friends in Japan say that a Government deficit should be financed by operating on the basis of market psychology and bringing home the fact that much of the deficit arises precisely from capital spending. The Japanese therefore have infrastructure bonds and normal deficit bonds, which they put before the market.

That would not get round the problem of the market's attitude that this is all Government expenditure and should all be treated with the same scepticism when it comes to financing. However, we could make a major start in changing the psychology of the funding problem if it were possible to designate much more carefully and clearly the part of total Budget expenditure and the part of the total deficit to be funded that represented capital expenditure and public sector asset creation.

I ask my right hon. Friends in the Treasury to consider that idea much more carefully in the future. I believe that it would help us to get out of the bind that we have been in. Throughout the 1980s, we enjoyed great success in achieving rapid growth in the economy, but we did not see adequate growth in support and infrastructure—the true supply side of the economy—that many of us, from the 208 early 1980s, urged was necessary. We said that, if that course were not pursued, there would be serious bottlenecks, considerable cost increases and a slow-down in the general performance of the economy.

That is a very important area, and I was very glad to hear what my right hon. Friend the Chancellor had to say about it. However, more thinking, better presentation and a little more radicalism in respect of funding the capital side of the Budget are required.

I am glad that we are now thinking radically about proposals to give people the opportunity and the dignity of working part-time or doing voluntary work, or of going into full-time education or training without forfeiting the state payments—perhaps "benefit" is the wrong word.

I understand the joy for the Opposition of taking the figure of 3 million, or wherever we have got to, and using it as a rolling pin with which to hit the Government on the head. There are experienced Members on the Opposition Benches who have made proposals over the years for changing the nature of unemployment. They know that 3 million is a good figure with which to bash the Government but that it is not a real representation of the problem.

We have to unravel the larger figure, and understand that within it there is a vast variety of different conditions which require sensitive and varied remedies in order to remove the whole concept of the scrap heap of unemployment. We must create in every individual who wants work, and in some who may have given up hope of getting work, the feeling that they have a function and a dignity in society.

It is right to start with small schemes, and my right hon. Friend announced a few small schemes; indeed, some are not so small. They are interesting, and I hope that they will grow and develop, and that it will be possible, even in the adversarial politics which we operate in the House, to begin to do away for all time with the idea of the "scrap heap" of unemployment and the self-inflicted misery and undermining of confidence that that language creates. It should be made clear that everyone has a function, and the dignity which goes with that function.

On the monetary side, what my right hon. Friend is trying to do—again this is not the stuff of headlines—is achieve some rebalancing between the monetary and fiscal stances in the economy. We have had the welcome descent in interest rates which has been amazingly rapid, and monetary conditions are reasonably easy. If the Bundesbank cut interest rates again, it might be possible for us to go a point or two lower, although it would be unwise for my right hon. Friend to change the relative short-term interest rate posture of the British economy vis-a-vis the German economy.

Whenever we talk about monetary policy in the House, and whenever I hear my right hon. Friend talk about his plans for short-term interest rates, I feel that he is taking too much on his shoulders. The responsibility for short-term interest rate policy should be spread more widely and should be given more publicly to a central monetary authority, a reformed Bank of England, rather than left solely to the action and discretion of the Treasury, the Chancellor of the Exchequer and other Ministers.

People will say that monetary policy should not become unaccountable in the hands of bankers, but one does not need to go all that way. A sensible compromise would 209 ensure that day-to-day responsibility for setting short-term interest rates and handling short-term monetary policy could be in the hands of a central monetary authority, while there was appropriate consultation with the political masters and those accountable to the House. That is possible—it happens in other countries. The Bundesbank is not totally separate from the political influences in Bonn. It pays attention to them, but it controls monetary policy short term, and that gives monetary policy and the setting of short-term interest rates additional credibility, which our system lacks.

I should like to see a more independent Bank of England, without a total separation between the monetary authority and the Treasury. That would avoid the over-politicisation of interest rates and would enable that whole side of the budgetary balance to be managed in a more sophisticated way. It would give additional credibility to the currency and to the monetary judgments about short-term interest rates in relation to the currency. It would strengthen monetary policy generally. I hope to hear more constructive thoughts on that from my right hon. Friend in future; I believe that they will come.

Generally, this is obviously a Budget of consolidation for this year, but it also makes an important point and breaks with a restrictive stance of the past. The Treasury was a "one year only" organisation—it could think only one year ahead. All parties in the House have urged that Treasury policy should begin to evolve one, two or three years ahead, both on the revenue and on the expenditure sides. One day, it might be possible to get Treasury officials to agree to something that cost more in year one because it would produce savings in years two and three. I can think of many projects which fell at that hurdle when I was a Minister; if a project cost more in year one, it was dismissed out of hand.

With courage, which is his characteristic, and boldness, my right hon. Friend has started to raise our eyes to the length of the true budgetary cycle, which stretches over two or three years. It has taken courage, particularly at present, to do that and to drag the House into the modern world when not everything can be compressed within a one-year timetable.

So we have consolidation now, and radical change lying further ahead. Given that recovery is coming, and given that it has to be sensitively handled, not by the elephantine assaults of the right hon. and learned Member for Monklands, East but by the subtlety and patience of my right hon. Friend the Chancellor, I believe that we are on the right path, and that we should stay on that path and give him full support.

§ Mr. Roy Hughes (Newport, East)

It is customary to contratulate the Chancellor on the delivery of his Budget. That I readily do. I note that his two senior colleagues, the right hon. Members for Shropshire, North (Mr. Biffen) and for Guildford (Mr. Howell), have rallied to his support, but it has been one of the least inspiring Budgets that I have had the privilege of listening to in my years in the House. One could recognise the reluctance to pour weedkiller on those lingering green shoots; nevertheless, much damage has been done by the Budget and an opportunity has been missed.

210 We have heard the Chancellor's first Budget in 1993. There may be a second bite at the cherry in the late autumn, but there is wide speculation that the right hon. Gentleman will not be in office then. Indeed, as I see things, the future of the Government is in question. No party can remain in office unless it can command a majority in the House, particularly on the main plank of its programme—Maastricht.

In speaking in Budget debates in recent years I have repeatedly emphasised the terrible problem of heavy unemployment. I have indicated what a waste it is and the damage that it is doing to the very fabric of society. The Government never appeared to accept that concept. Even now, they seem to be paying only lip service to it.

Officially unemployment has topped the 3 million mark, but the real jobless figure is more than 4 million. Therefore, the complacency of the right hon. Member for Guildford amazed me. To illustrate the severity of the position, let me point out that there are 27 people chasing every vacancy. For people under 25 years of age, unemployment in January was nearly 900,000, and that figure is rising. What chance have those young people got? Their lives are stunted from the word go. As to the long-term unemployed, those out of work for one year or more total more than 1 million. What a tragedy for so many people; they are thoroughly demoralised.

The Government moan about their borrowing requirement, but do Ministers ever stop to consider that it costs £9,000 a year to keep an unemployed person, which, in turn, means that unemployment is costing the taxpayer £27 billion a year?

Unemployment has social effects. It creates poverty, breaks up families, creates homelessness and ill health and leads to suicide. We are all vividly conscious of the ever-escalating crime rate, which is a constant worry to all decent citizens. Much of that crime is directly due to unemployment. The devil has certainly found work for idle hands and we now have a large alienated underclass.

Another major factor in that increase in crime is the breakdown in family life. Government policies should aim to strengthen the family unit, which is the basis of an orderly society. Putting people back to work would certainly help, but now we have the lethal combination of mass unemployment and a soaring crime rate. No wonder the morale of the nation has never been at such a low ebb.

In that context, the Chancellor delivered his Budget today. All he did was to hand out a few breadcrumbs. I appreciate that he does not have a magic wand. We did not expect him to cure all our major evils overnight and he has a huge deficit to contend with. Nevertheless, he has great powers and he had a great opportunity. The question is whether he rose to the occasion. The answer must be no.

Imposing VAT on fuel, gas and electricity is simply criminal. It will have a highly detrimental effect on the poorest section of community—old people. The announcement was a complete negation of the Government's election and many other promises.

One of the Chancellor's measures seems to be to cane the motorist. We are essentially a road-based economy and one does not need to be a Cambridge economist to realise that increasing the cost of transport increases the cost of almost everything. Not many months ago, the Chancellor assisted the motor industry by getting rid of car tax. The industry has responded magnificently. The principal redeeming feature of the economy in recent months has been the resurgence of the motor industry. February's 211 figures show that sales are up 16 per cent. on the equivalent month last year. The industry needs encouragement, particularly to develop its export trade, which can be so advantageous to our present adverse balance of payments.

We do not have car assembly plants in Wales. Nevertheless, the Welsh economy is now heavily reliant on the components sector, and to penalise the industry only aggravates and increases unemployment in Wales and elsewhere. I say to the Government, back the car industry because it can do so much to stimulate the economy and build a sound trading base, as those two industrial giants, Germany and Japan, realised long ago.

The building industry could do much to rejuvenate the economy and put people back to work. In the past month, there has been, admittedly, a marginal improvement in this sector but, overall, the building and construction industry is in dire straits. Building employers reckon that a further 100,000 jobs are at risk. Last autumn, the Chancellor released the receipts from the new sales of council houses, but only for a limited period. Much more is required. I am sorry that he did not introduce such a measure this afternoon. We urgently need a phased release of all capital receipts from the sale of council houses and land. Such a measure to help increase housebuilding, besides putting people back to work, would help to meet the pent-up need for social housing. Providing bed-and-breakfast accommodation for homeless families is far more costly, and only political dogma prevents the necessary action from being taken.

Likewise, so many empty council housing association properties need renovation. Many school buildings are urgently in need of repair. We need to regenerate local areas affected by the decline in manufacturing and in the coal and defence industries. Such measures would be a boost for the building and construction industry. We did not, I am afraid, hear any such proposals from the Chancellor this afternoon.

Another important aspect is training. Skill, after all, is the key to national competitiveness, and as a nation we are being left behind. Training opportunities for all who need them should be given a high priority. The British people are resourceful and, with the necessary skill training, a start could be made in rebuilding our manufacturing industry, which has been neglected for so long. A report that was leaked in recent days revealed that our manufacturing industry is in a parlous condition.

My hon. Friend the shadow Chancellor has set out clearly how such measures as I have briefly mentioned could be paid for—by imposing a public dividend on the excess profits of the privatised utilities, by closing tax loopholes, which are costing the Exchequer millions, and by maintaining tax on share transactions. To achieve recovery, we need emergency investment in the industrial and manufacturing sectors of our economy. That could increase exports, reduce imports and help to provide for a lasting recovery. Even the CBI's pre-Budget message recognised that recovery should be given the highest possible priority. The Chancellor has not met the nation's needs in that sense. He should go without further delay before he does so much more damage.

§ Mr. David Knox (Staffordshire, Moorlands)

I join my right hon. Friends the Members for Shropshire, North (Mr. Biffen) and for Guildford (Mr. Howell) in 212 congratulating my right hon. Friend the Chancellor on his third Budget speech. His first two Budget speeches were well constructed and to the point and today he maintained the high standards that he established on those two previous occasions. His speech was rather longer today and I join my right hon. Friend the Member for Shropshire, North in paying tribute to the stamina that he showed.

The House is indebted to my right hon. Friend the Chancellor for the style with which he presented his Budget. It was a difficult Budget, but he produced a skilful Budget in extraordinarily difficult and tight circumstances. I congratulate him warmly on doing so and look forward to his fourth Budget towards the end of the year.

I enjoyed the speech of the Leader of the Opposition very much. I think that it could be best described, in the word that Mr. Matthew Parris frequently uses, as a rant.

For many years the debate on the first day of the Budget was marked by speeches from Sir John Stokes and Sir Alan Glyn. Both of those gentlemen retired at the last general election and I am afraid that this occasion will never be quite the same for me now that they are gone. Nevertheless, the hon. Member for Newport, East (Mr. Hughes) is—as indeed I am—a veteran of these occasions. Indeed, Mr. Deputy Speaker, I believe that in a former incarnation you were as well. No doubt the hon. Gentleman and I will continue the tradition and be joined by others, including my hon. Friend the Member for Cambridgeshire, South-West (Sir A. Grant), who has recently been joining us.

I welcome most of the proposals in the Budget. The measures which my right hon. Friend has introduced concerning industry, insurance and the environment will undoubtedly bring considerable benefits to this country. They are, however, very complicated and it would be wise to refrain from comment at this stage until one has had time to study them in rather more detail.

I welcome the further move towards the 20 per cent. basic income tax rate. Clearly, it was not possible to go very far in this respect today, but I am glad that my right hon. Friend was able to take another step in this direction. Whatever anyone may think, there is no doubt at all, as recent election results have shown, that a reduction in the basic rate of taxation is something that the people of this country want—and it is, after all, our task to respond to the wishes of our masters.

Despite the size of the public sector borrowing requirement, I am glad that my right hon. Friend introduced a neutral Budget today. It would have been very dangerous had he not done so, because it might have cut off expansion. I shall have more to say about this in a minute or two. It was rather ingenious the way in which my right hon. Friend managed to maintain a neutral Budget but nevertheless took steps which will ensure that the PSBR will be reduced in future years, by which time, we hope, economic growth will have restarted and the economy will be moving forward again. My right hon. Friend deserves considerable congratulations on the ingenuity which he showed in this respect.

I am glad that my right hon. Friend found it possible to introduce further measures to help the unemployed. As growth takes off, as my right hon. Friend very rightly pointed out, unemployment will continue to rise, and it is only right that measures should be taken, albeit of a 213 short-term nature, to try to ease the lot of those people who will be out of work over the next few months, and perhaps over the next year or two as well.

I was very glad that my right hon. Friend did not introduce value added tax on books and newspapers. Like most hon. Members, I have had considerable correspondence on this matter during the past few weeks. I am glad that at least in this respect I shall be moderately popular with my constituents for the next week or two.

I was rather less happy about the increase in the tax on petrol. I have a widespread rural constituency and my constituents rely on their motor cars. They will not be terribly happy, therefore, about having to pay an additional amount in petrol tax. On the other hand, I am pleased that my right hon. Friend has maintained the discrimination in favour of unleaded petrol as I feel that this makes a real contribution to improving the environment in which we live.

I was rather interested in my right hon. Friend's proposal concerning the self-assessment of income tax. This is an idea that was floated by the late Lain Macleod in the late 1960s. At that time there was a young man working in the Conservative research department. He later went on to become the Member for Kingston upon Thames and today is the Chancellor of the Exchequer. I wonder whether he got that particular idea from his days working with lain Macleod over a quarter of a century ago.

This Budget will not be judged in the medium or the long term by the specific measures that it contains, because they will be forgotten very soon. The Budget will be judged on the contribution that it makes to getting the economy out of a recession that has lasted for far too long and to reducing a level of unemployment that is far too high.

I thought that the measures that my right hon. Friend introduced in his 1991 Budget and again in his Budget last year were more than enough to generate growth and get us out of recession. Indeed, in the spring and summer of last year there was quite a lot of evidence, admittedly mainly anecdotal, that this was happening. Then everything came shuddering to a halt. The trouble was, and still is, a lack of confidence and I suspect that that owes a great deal to the uncertainty about the ratification of the Maastricht treaty.

Although I have no doubt that the European Communities (Amendment) Bill will eventually reach the statute book later this year, the delaying tactics of the Europhobes and others whose motives are purely party political are having a very damaging effect on the British economy. Their behaviour is creating grave doubts in the minds of our European partners and in other countries about our intentions and is undermining economic confidence and holding back our economic recovery. The early ratification of the Maastricht treaty would do more than anything else to restore economic confidence and enable us to move out of recession. And, of course, it would make my right hon. Friend the Chancellor's job much easier.

However, the ratification of the Maastricht treaty will not be enough on its own. If confidence is to be restored, there must be a certainty that the demand for goods and 214 services will increase and so lead to an increase in the demand for the labour to produce those goods and services.

That is why I was delighted that my right hon. Friend ignored the advice from some sources to increase taxation significantly in his Budget and to cut public expenditure. In the depths of a recession nothing would have been more foolish. Tax increases and public expenditure cuts would inevitably have resulted in a reduction in demand, which would have cut off the green shoots, pushed back the start of the recovery and made recovery much more difficult. The right time to increase taxes and cut public expenditure is when the economy is booming and looks like overheating. The wrong time is in the depths of a recession. Then, taxes should be cut, as the Chancellor cut them last year, and public expenditure should be increased, as it has been in the past two years.

The level of demand will be boosted over the next few years as a result of the devaluation of the pound during the past six months. British goods and services are now cheaper in export markets and foreign goods and services are now dearer in the British domestic market. This provides British industry and commerce with greater opportunities to export more and sell more at home and I hope that they are exploiting to the full the advantage that they now enjoy.

It will be some time before the beneficial effects of devaluation are reflected in the balance of payments figures; perhaps it may be as long as two years. But the effects on the level of demand in the United Kingdom should be apparent much sooner. I feel that the level of demand generated by my right hon. Friend's recent policies, including the Budget, should be sufficient to generate the necessary level of growth to enable us to move out of recession and to start growing once again.

I have already welcomed the measures announced by my right hon. Friend to tackle unemployment. They will help to ease the worst effects in the short term, but they will not deal with the fundamental problem. The long-term solution to the problem of unemployment lies in the demand management policies about which I have been speaking. Between February 1985 and January 1987, unemployment in this country exceeded 3 million. It then fell quite sharply, so that by 1990 it was slightly in excess of 1.5 million. Over the past three years, alas, it has risen again, and it is now just over 3 million. From 1945 until 1974 we had full employment. The level fluctuated a little, but unemployment exceeded I million only twice, and then only briefly. In 1955 and 1965, also very briefly, unemployment fell to the very low level of 1.1 per cent. of the working population, about one tenth of what it is today.

Unemployment did not start to rise when the present Government came into office. It began to rise in 1974, under the previous Labour Government, and has been at an unacceptably high level ever since. I do not think that the Labour Government or the present Government can be proud of their records on unemployment over the past 19 years.

In recent years, there has been a feeling that high unemployment is inevitable. It does no harm, therefore, to remind ourselves that for most of the post-war period the situation was very much better than it is now. The current level of unemployment shows how far we have moved from the high level of achievement of the 30 years 215 immediately after 1945. Nor does it do any harm to remind ourselves of the effects of unemployment, socially and economically.

Unemployment is socially divisive. It is difficult to have one nation, which is, after all, the principal domestic aim of my party, if 3 million people are out of work and if 1 million of those are long-term unemployed and have been out of work for more than a year. Lord Callaghan once said that the real division in our society is between those in work and those who cannot find work. Unemployment is also economically wasteful. If we are not using all the available labour, we are not maximising national output. It means that, as a nation, we are forgoing wealth which we could enjoy.

It is nonsense to suggest that demand has peaked and that there is no work available. We all know that we could consume more goods and services if we had the opportunity to do so. We also know that we could spend much more on social and public services. Potentially, there is plenty of additional demand for goods and services, public and private. The task facing us is to ensure that the level of demand is sufficient to utilise the potential supply of labour, capital and enterprise. That is the way back to full employment.

If a much lower level of unemployment is to be achieved and maintained, there must be pay restraint. In the past, there has been a strong tendency for the British economy to generate increases in earnings in excess of the increases in output, causing wage and salary cost inflation. The tendency has been especially powerful when the economy has been booming.

Until 1979, successive Governments tried to control excessive wage and salary increases by incomes policies. Since then, the determination of pay has been left to employers and employees and when the increases got out of hand and inflation rose the Government tried to brake those increases by demand deflationary policies.

Recently, although still too high, wage and salary settlements have fallen back sharply, almost certainly as a result of the recession. The Government rightly want a 1.5 per cent. limit on public sector pay this year and they hope that increases in the private sector will be of the same order. Few doubt that pay restraint is necessary at present but, if it is necessary now when increases are likely to be modest because of market conditions, surely it will be even more necessary when pay increases start to rise again as we move out of recession, as unemployment falls and as labour shortages reappear.

If we are to avoid having to brake back the recovery before full employment is reached, because wage and salary increases are out of control, consideration should be given to extending the attempts to restrain pay settlements to longer-term arrangements. If the Government are right to believe that low pay settlements in the public sector protect jobs—and they are—surely low pay settlements elsewhere in the economy will also protect jobs. Is not there a case for thinking again about incomes policies? Is not the right time now—in the depths of the recession—when the pressures for pay increases are at their weakest?

§ Mr. Bill Michie (Sheffield, Heeley)

I know that it is traditional to congratulate the Chancellor of the Exchequer. I shall do so because it is the tradition rather than because I believe that I should appreciate, or congratulate him on, what he has presented to the House.

The Chancellor made a very long speech—far too long. I was always told, in engineering research and certainly when I was a local government councillor, that if one did not have a good argument, one should make a long report. That is fair enough when dealing with reports: the way to get out of that is to do a fast reading course, get rid of all the rubbish and read only the facts. Unfortunately, a fast reading course does not help me when I listen to a long speech such as that which we heard this afternoon.

I shall not dwell on the speech for too long because much has already been said about it, but I am bitterly disappointed that there is to be value added tax on fuel, a fuel tax. That is perhaps the most cruel thing that the Government could do. I do not believe that everyone will be compensated through their benefits, as the Chancellor claimed. He knows very well that thousands of families will not qualify for such help with the fuel tax. In the past, we have discussed old people suffering from hypothermia and worried about whether they could keep warm and how we could help them. Now a dreadful tax burden is being placed on them, which will make matters even worse. I am very disappointed about that.

I am also disappointed about the fact that, despite some of the issues that the Chancellor raised, the message did not get across as to exactly why the country has been going downhill. The hon. Member for Staffordshire, Moorlands (Mr. Knox) said that it was due to the world recession, among other things. That is true, but it seems that it is never anyone's fault. I believe that it is partly the fault of the Government and partly the fault of the philosophy by which they live.

I do not believe that one can stand aside and let things happen; nor do I believe that high wages are the reason for depression and unemployment. There is a theory that high wages bring a nation to its knees, but I should like someone to explain to me why the countries of the third world, where people are paid peanuts for hard work, are not the richest nations in the world. It does not work that way. The problem is that we do not understand the difficulties that face us.

I started this week by visiting schools in my constituency and discussing further school closures, which are to take place because of a supposed lack of money or the standard spending assessment. The Government say that we must have training and a skilled work force. Schools are being closed, but the Government still expect to have a more skilled work force. Again, I do not understand the logic of that.

Local authority spending is being greatly reduced. The infrastructure around our towns and cities is falling apart, family life is disintegrating and crime is rising. What is the answer? The Government take more money out of the local economy, but I do not see the logic behind that.

More and more people are homeless, but, like many hon. Members, I receive letters from building companies who write to Back Benchers in sheer desperation asking us, for goodness sake, to ask the Government to do something because the industry is going to the wall. I did not hear much in the Budget which will help those people. The 217 Budget was a big disappointment on the local authority, education and housing fronts and, perhaps even worse, on the job front, which has already been mentioned. The Chancellor said that short-term prospects were not the answer. I fully understand what that means. One cannot throw money at a project and hope that jobs will be provided sooner or later and that new skills will suddenly appear. That has never been the case. I accept one or two points that the Chancellor made, including the fact that employers will get a subsidy if they employ someone who has been out of work for two years; in other words, one buys oneself a job with one's dole money. I welcome the proposal to help 100,000 people who are unemployed to start small businesses. That will be nice for the 100,000, but pretty poor for the 300,000 who have lost their jobs since the last election.

I welcome the proposal for 30,000 long-term unemployed people who may be able to go back into some form of education, but I am still worried about what sort of education they will get and what sort of training skills they will achieve.

I had a wry smile at another of the Chancellor's proposals, for a new community action programme for the voluntary sector which should help to provide jobs or opportunities for at least 60,000 people. I seem to remember that there was a very good community programme, created by this Government many years ago. It was so good that it was popular. It was not only popular but it created permanent jobs and good wages, but once it got to that level the Government scrapped it altogether because people were getting decent wages and decent training. I hope that the Government have learnt some lessons from the past and will create a community action programme that is beneficial, not just to the community but to the unemployed.

I come to the business of action for jobs and the reasons why our industry is in dire trouble. I echo the query raised by my right hon. and learned Friend the Leader of the Opposition: if there is such good news, why is it not published? Why have not the Government come out with a fanfare of trumpets to say that the whole of manufacturing industry is on the up? It has not been published and I assume that we have to suspect the worst: that the situation is not as good as the Government are claiming.

Skills cannot be introduced overnight. One problem that I have had over the past few years has been to explain to the Government and other hon. Members that one can shut a factory any day very quickly and disperse the skilled labour force on to the dole queues or elsewhere, but one cannot recreate a factory overnight. Once those skills have been lost they cannot be found among those standing on street corners. That is not the way in which engineering skill and technology work. Surely this Government must have got that message by now. We are talking about a 14 per cent. reduction in real training for jobs. Statistics that I have here show that Government spending on training, at constant prices, was £2.4 billion in 1990–91. It fell to £2.1 billion in 1991–92 and remains at the same level this year. It is planned to remain at £2.1 billion for 1993–94, but will fall to £2 billion in the two years after that. In real terms, spending this year has therefore been reduced by £300 million on 1990–91 levels, a reduction of 14 per cent., yet 218 the Goverment are still claiming in this Budget to be increasing training and education for the country's future prospects. While we have had this reduction in training, unemployment has risen by about 87 per cent.

I said at the beginning of my speech that I feel no enthusiasm about the Chancellor's speech. It strikes me that the Government are still slow in learning that, in order to have a nation that is wealthy, it has to be a nation that is working and is competing in the world in technology and new sciences. The only way in which the Government or the nation can achieve that is by long-term investment and long-term planning.

Our industrial base is in tatters. I walk through some parts of my constituency and see the places where I used to work and where my father used to work where there is nothing but dereliction. There is nothing in the Budget which will cure that either overnight or in the long term.

As a plug, Mr. Deputy Speaker, I draw the attention of the House to my early-day motion No. 1540 entitled "Technical and Engineering Capability and the Vulcan Bomber". Basically this expresses the hope that the last of the Vulcan bombers should stay in this country because it is a demonstration of the engineering and design skill of this nation in the past. Many of those designers and engineers are still alive today and some are still fairly active. I say that as one who had the privilege of being near a Vulcan bomber for many years, many years ago, and as one who has a soft spot for it. We should keep it, as I said in this early-day motion, to demonstrate to our future generations what skills we had in this nation and to inspire them and, I hope, this Government to invest in a proper diversification programme in order to retain and retrain skills for peaceful products.

It is no good saying that we have no cold war at present and therefore we cannot afford to invest in defence and that we have no idea of how to invest in peace.

It reminds me of the story I heard once about creating jobs in shipbuilding. An old man suggested that we should build luxury liners so that 4,000 old-age pensioners could be put on those luxury liners in the winter months—especially now that we are going to have a fuel tax—with 2,000 or 3,000 staff to look after them and let them go floating around to warm climates. The shock horror is that no nation can afford that sort of logic, but when one looks at it we have the Ark Royal and other large warships with thousands of highly paid, highly skilled and highly trained personnel floating around the world and we feel that to be a necessity. It may be a necessity, but if the will is there to do it for time of war, which we hope never comes, many of those ships would be lost in the first year. Surely with the right will we can create products for peace and protect our skills and our jobs for the future.

I must make one point on a subject on which I thought the Chancellor did not dwell: putting pressure on the banks. Many small businesses, as most hon. Members will know, have complained about the way in which banks have treated them in the past two or three years. I hope that sooner or later we shall have a Government who will get a grip on the banks and protect some of our small companies.

There is plenty of money in this nation and I hope there always will be. If one asks where one finds all this money, it is amazing how the Government can find money for their pet projects like defence; how they could find money on black Wednesday when billions of pounds went down the 219 pan because of the stupid ERM fiasco and also when billions were spent trying to prop up the poll tax system created by this Government and scrapped by them.

No one will convince the Opposition that there is not enough money to invest in the nation and bring it back to the top of the industrial nations ladder, where it rightly belongs. We should stop frittering away our taxpayers' money on stupid projects proposed by the Government which are built on bias and prejudice. We should instead invest in this nation, which I believe will once again be one of the best industrial nations in the world.

§ Sir Anthony Grant (Cambridgeshire, South-West)

The hon. Members for Sheffield, Heeley (Mr. Michie) and for Newport, East (Mr. Hughes) made what were from their point of view sincere speeches, even if they contained an excessive degree of gloom. I have no doubt that we shall hear persistently from the Opposition Benches tales of gloom and woe.

I am extremely fond of the hon. Member for Newport, East, with whom I have often crossed swords in debate. He is a splendid constituency Member who reminds me of another great Welshman, Lord Tonypandy, who once told me about a report that appeared in a local Welsh newspaper of a funeral. The noble Lord recalled that the report read, "As the coffin was being lowered, the vicar, the Reverend Eli Jones, slipped, fell into the grave and broke his leg. That cast a gloom over the whole proceedings." That reminds me of the gloom that can be spread by the speeches of Opposition Members, even though it is wholly inappropriate to our economic recovery.

The Chancellor has for a long time been unjustly maligned. I have no hesitation in congratulating him on the way in which he has resisted much unnecessary abuse and has introduced a skilful and relevant Budget. Let us not forget some of the difficulties that he faced when he took on the task, including a world recession and the need to deal with some mistakes in monetary policy that had been made since 1987.

§ Mr. Bill Michie

Nobody admits mistakes.

§ Sir Anthony Grant

I hear what the hon. Gentleman says. I assure him that I admit my mistakes. The mistakes of which I speak were egged on and connived at by the Opposition parties, which encouraged the sort of action which led to the difficulties that my right hon. Friend had to face. That in turn led to our needing an over-rigid monetary policy which resulted in great suffering among, in particular, two sections that were least able to deal with it. I refer to the construction industry and the housing market and small firms, about which I shall say more shortly.

I am particulary glad that, in terms of political correctness, it is now recognised that the economy cannot be dealt with purely by monetary means and that we must also adopt fiscal policies. I am glad that we have returned to that more sensible and flexible system. As a result of the severe problems that the Chancellor faced on taking office, there was a total lack of confidence in business.

§ Mr. Michael Spicer (Worcestershire, South)

My hon. Friend said that the Government's mistakes had resulted from monetary policy being too rigid.

§ Sir Anthony Grant

indicated dissent.

§ Mr. Spicer

I must have misunderstood my hon. Friend. The problem was that they abandoned monetary policy in favour of fixed interest rates. That was the mistake to which my hon. Friend should allude.

§ Sir Anthony Grant

Immediately after black Wednesday, when stock markets throughout the world seemed to collapse, there was over-reaction everywhere, particularly in this country. A few Conservatives of great financial rectitude—including perhaps my hon. Friend—did not take the same view, but the Opposition parties were in favour of interest rates being lowered unnecessarily. I, too, was guilty of favouring such a policy and I accept blame in that respect. We were obliged later to have an over-rigid, over-intense interest rate policy which reached as high as 15 per cent. before we entered the exchange rate mechanism.

I will not pursue that now, though I am sure that my hon. Friend the Member for Worcestershire, South (Mr. Spicer) will do so if he has an opportunity to speak in the debate. We now recognise that not just monetary policy but a mixture of monetary and fiscal policy is essential to run an economy such as ours. So I welcome the thrust of the Chancellor's strategy.

I am sufficiently long in the tooth to remember the time when, in 1967, the then Labour Government had to devalue. In the following Budget, introduced by the present Lord Jenkins of Hillhead, we had the biggest increase in taxation anybody could remember. He was cheered to the echo—I was in the Chamber at the time—for taking that action. So the Labour party cannot teach us anything about increases in taxation.

At that time, Lord Jenkins emphasised that recovery following devaluation should be export led. The principle holds good today. The difficulty is that, at a time when we require an export-led recovery, the countries of Europe and Japan are suffering from recession. That makes our export effort more difficult but even more vital.

I welcome the Chancellor's measures on export credit guarantees. I recall from the days when I had some responsibility for that issue how the credit game was played by other countries and we were easily deceived. I am glad that the Chancellor is aware of that and is introducing measures to improve credits for our exporting industries.

As Opposition Members are wholly committed to the Rio environmental decisions, perhaps they will explain how they would implement them. What measures would they introduce? We await with interest their answer in due course. They must not dodge the question. If they try to do so, my hon. Friends and I will persist in repeating it.

I agree with my hon. Friend the Member for Staffordshire, Moorlands (Mr. Knox) that unemployment is the gravest problem we face. It also represents a major burden on the public sector borrowing requirement. In the 1970s, about which my hon. Friend spoke, I had some humble responsibility in the then Government, when the unemployment total reached I million. The hon. Member for Bolsover (Mr. Skinner) thumped the Dispatch Box hysterically and created a disturbance of monumental levels.

My responsibility at the time was for the regions. When we were unceremoniously thrown out of office in 1974 by an ungrateful electorate, unemployment had come down 221 to about 700,000. Immediately Labour took over, it went up, and within a year it reached 1 million. There was then not a peep from the hon. Member for Bolsover and his hon. Friends. So we need no lessons from the Opposition about unemployment. Even so, it is a grave problem and I welcome the measures that have been announced to deal with it.

Only the revival of the small firms sector will have a true long-term impact. Large firms have already shed labour during the recession, and I fear that their labour forces will never return to their previous levels. Small firms have the resilience and flexibility, especially in the county of Cambridgeshire, to respond to the measures that the Chancellor has wisely introduced.

I was almost the first Minister to be responsible for small firms. The late lamented Lord Ridley had had that responsibility for about three weeks before I came to that office. In those days we clearly recognised that the future of the economy in a free market society lay with a healthy small firms sector. After we left office, the whole thing declined under Labour rule, and nothing was done to help small firms. The hon. Member for Bradford, South (Mr. Cryer) was the Minister responsible, and small firms languished under that regime. Later, when the Conservatives took office again, they were rediscovered, as it were, and I hope that we will retain that attitude.

It is essential to small firms—indeed, for the whole nation—that inflation is kept under control. The Chancellor and the Government can take pride in the way in which they have handled the problem of inflation. Small firms also want low interest rates. I have always wanted lower interest rates because I detest a high interest rate policy. Although I want pressure on them continually to be downwards, we have probably reached the stage when a degree of stability is justified. Small firms would now welcome stable inflation and stable interest rates. They wanted, and have now obtained, help with investment, and assistance with the corporation tax and VAT thresholds. They sought assistance with capital gains tax and inheritance tax and, above all, with the wretched uniform business rate. My right hon. Friend the Chancellor noted all that, and I congratulate him on his sensitivity in recognising the needs of the vital small business sector.

In particular, I am glad that he recognised the difficulties of small businesses in grappling with VAT and Customs and Excise. I have received endless numbers of letters about the ferocity with which the Customs and Excise administer their task. Small firms have described them as the Gestapo and the KGB. That is probably an exaggeration as they are worthy and honourable civil servants, but they have been over-zealous and draconian. I am pleased to see the changes that my right hon. Friend has announced.

One problem that has not been addressed is that small firms are greatly affected by the credit game—or indeed the credit racket. Large firms abuse smaller suppliers and contractors by taking their credit to the limit, causing considerabe cash flow problems. When I was in office I said that it was disgraceful, but larger firms were not prepared to admit anything until we found evidence that it was true. I was then thrown out of office and that was the 222 end of that. However, the problem still exists. It should be possible to find a legislative format to bring some sanctions to bear.

§ Mr. Mark Wolfson (Sevenoaks)

Does my hon. Friend agree that there can be a damaging and dangerous domino effect when large, principal contractors are slow to pay so that three or four sub-contractors down the line are all dependent on the money coming through?

§ Sir Anthony Grant

My hon. Friend is absolutely right. In the absence of legislation, will Treasury Ministers and my right hon. Friend the President of the Board of Trade think carefully about the problem and emphasise to the large industries with which they are always dealing that it is in the nation's interest that they should pay their bills on time and ensure that small firms, which they were once, have a reasonable cash flow?

Manufacturing industry has made remarkable strides since 1979 when we were bottom of the productivity league of G7 countries. We are now at the top. Output and investment have increased and are increasing. Progress in industrial relations has been quite remarkable. As my right hon. Friend the Chancellor pointed out, not since Victorian times or thereabouts have there been so few strikes. We can be justifiably proud of that. However, my right hon. Friend the Prime Minister was right to point out that industry requires more attention in the present economic climate and in future.

Compared with our partners in Europe and elsewhere, we have not paid much attention to manufacturing as we should. It is a matter of national culture rather than Government policy. If we were to ask anyone in the street in Britain what we meant by an engineer, most people would think of a grubby chap in overalls who repaired cars. However, the same term in Germany, Japan and elsewhere means someone who is held in high esteem and occupies an important position in industry and in the company. We have to move towards that attitude.

In the days when we were trying to encourage regional policy, I sought to encourage brighter people to run manufacturing industry in the north-east and the north-west. The difficulty was that the rewards, the prestige and the ease of work were greater for the brightest people if they went to the City of London to do no doubt very important paperwork in the service sector. We have to address that problem, and I would like to see the manufacturing sector in general and engineering in particular given a much higher profile.

My right hon. Friend the Chancellor has set the correct course for the future. He has tiptoed delicately between financial rectitude and the need not to damage the delicate flower of recovery. The small business sector will respond most vigorously, especially in East Anglia and Cambridgeshire.

§ Dame Elaine Kellett-Bowman (Lancaster)

And the north-west.

§ Sir Anthony Grant

And the north-west, as my hon. Friend says.

All that is needed now is that mythical word, confidence. Confidence can be achieved only by stability and, with great respect to my hon. Friend the Member for Worcestershire, South, small businesses want certainty. Therefore, I echo the remarks of my hon. Friend the Member for Staffordshire, Moorlands. The sooner we get 223 over the uncertainty about Maastricht and our situation in Europe, the better it will be for everyone. The CBI, the chambers of commerce and all the industrialists with whom I have spoken want it over and done with so that there is certainty for the future. I hope that that will soon be the case. If it is, I look forward with great confidence to the future of our economy, thanks to the wise management of my right hon. Friend the Chancellor.

§ Dr. Jeremy Bray (Motherwell, South)

The hon. Member for Cambridgeshire, South-West (Sir A. Grant) asked what the Opposition would do about the undertaking under the Rio convention to reduce carbon dioxide emissions. I offer one simple device off the cuff. If VAT on domestic fuel and power is considered the appropriate solution, it would be perfectly possible to make that revenue-neutral on VAT by reducing the average rate, so that there was no net increase in cost to the consumer but there was a switch in taxation to discourage people from using so much fuel and power. However, the Treasury do not think that way. They are concerned not with Rio but with the biggest single Budget measure—the £2,300 million that they are taking out of households by levying VAT on fuel and power.

The Chancellor faces a difficult situation, but he has only himself to blame. First, he is simply not believed by the market, by his colleagues in Government or by the House. We have seen a public facade building up in his defence, behind which his hon. Friends will be able quietly to knife him in the back. There were and still are good reasons why a Chancellor who trimmed his sails, changed course and abandoned his policies on the scale of black Wednesday should feel he had to go. The job has to be held by someone who is believed. No amount of special pleading about being overwhelmed by speculators will do—that is always the story. In any case, the Chancellor was maintaining that the economy was not vulnerable to the speculators.

Secondly, the Chancellor represents a Government who made the most colossal errors of judgment by unleashing the credit boom of the late 1980s. There were plenty of warnings, not least from within the Treasury, and even from that much maligned Treasury model, as I showed at the time, but they were ignored.

Thirdly, having suffered such wounds, the Chancellor is devoid of all principles. I mean principles not in any moral or high-minded sense, but simply in the sense of relating one day's improvisations to the next to avoid them cancelling each other out.

The Government used to have a medium-term financial strategy. It survives as monitoring ranges on a number of variables which do not include the most important one, which is the exchange rate. A target for the increase in tax yields three years ahead is offered up as a fetish to the markets of £10.5 billion, but elsewhere in the financial statement is the estimate that the error in forecasting the PSBR for the coming year is some £6.5 billion. For the error three years ahead, there is no estimate, but it must be far more than anything like the £10.5 billion that the Chancellor is offering up.

The Chancellor is unlikely to argue that no strategy is preferable to a wrong strategy, but others not saddled with the Chancellor's mistakes can stress the importance of having a workable strategy, and that is what I shall try to 224 set out. A workable strategy is a political necessity. People need some sense of where the economy is and where it is going if they are to behave sensibly in their personal interest and that of their families. People do not believe the Chancellor, so they are not prepared to train for the long-term, to invest or to plan for the future. Still less are they told by the Chancellor that their real incomes today have grown faster, and are now some 10 per cent. higher, than the economy can afford. We also need a strategy to get us out of the difficulties we are in and to keep us out.

I say to my right hon. and hon. Friends that there is no easy way out for us. The popular ideas of Keynesian demand management provided a workable rule for correcting small excursions from full employment in situations where there was a sheet anchor against inflation in the shape of Bretton Woods and a stable valued dollar. With the extreme imbalances that we have today of unemployment and the current account and public borrowing, we have to look deeper.

Nor, I say to my hon. Friend the shadow Chancellor through my hon. Friends on the Front Bench, is it sufficient for us simply to advocate the supply side measures of more investment and training, vital though they are. The arguments about the imbalances are not part of the detail that can be worked out only in the circumstances as we find them as we approach the next election. While politically it is right for us to point out that we are suffering from Tory errors and that it is a Tory responsibility to deal with them, we have to show that we know what the imbalances are and realise their full seriousness, and show ourselves more competent to deal with them when it comes to be our job to deal with them.

What, then, of the design of a viable strategy? What does it mean in terms of immediate policies? In general terms, the answer is obvious: it has to be aimed at restoring and maintaining the balances—unemployment, the current balance and public borrowing. It should be prepared to use all available instruments, down and up—direct and indirect taxes, interest rates, funding and public expenditure—recognising that they all have an economic and political cost. The strategy may express the policy priorities of the Government, but even with all the instruments, the freedom of movement for a Government to express their priorities is severely circumscribed, and the greater the imbalances, the less scope there is for indulging those Government priorities.

All that is so much waffle for politicians and economists educated in a purely verbal tradition, who have never been taught to add up, never mind multiply. What happens is that one verbal simplification is pitched against another, the one adopted inevitably meeting disaster, leaving the sponsors of the unadopted simplification claiming that they had the right answer and believing that they were right.

Despite the all-too-obvious weaknesses and failures of economics and economists, a great deal of progress has been made in technical analysis of economic management in the past 20 years. Technical analysis is a good servant but a poor master. It is in the interests of Ministers, journalists and gurus to rubbish it, because they find it difficult to master. It is difficult to master, but that is part of their job. What matters is whether it works. Does it point to practical policies that impress politically?

It is a measure of the Chancellor's stupidity that he has allowed the Treasury's capability for technical economic analysis to degenerate in recent years. Any half-sensible 225 Chancellor makes sure that he is as well equipped as anyone else in the game. I welcome the panel of independent forecasters, but behind the scenes it only shows up the increasing weakness of capability within the Treasury.

Of the three principal instruments that the Treasury should have, the main one is the characterisation of the national economy and its behaviour—the Treasury model. That model has been stagnant now for five years. It has grave, well-known errors within it, and nothing is done to correct them from year to year. There is no treatment within the Treasury of the global economy. The work that was once done there has now been farmed out to the National Institute of Economic and Social Research and to the London business school, and they run the international model used by the Treasury. Therefore, the Treasury inevitably does not fully understand all its characteristics.

Finally, when it comes to characterising the efficiency and performance of industry, the DTI may bleat until the cows come home and officials in its innovation unit may produce a report—only a few weeks ago, those officials told me that they expected it to be published—but it is useless them bleating in that way if they cannot characterise the impact of the dire situation of manufacting industry on the economy as a whole. The Treasury has no means of listening to such arguments.

Modern economics treats economic management as a game between different players, with different interests and capabilities. Monetarist doctrine was built around ideas of expectations. That gave way to concepts of commitment, learning and credibility. My favourite is a recent Federal Reserve Board working paper on "Rational Addiction with Learning and Regret". I am not too sure about the rational bit for the Government, but otherwise it is a strategy that I should have thought would appeal to them.

It is not necessary to go into the technical arguments. What is necessary and possible is to point to the broad nature of the conclusions. The imbalances are so large that, if they are not corrected, they will get worse. They are also so large that it is irrelevant to argue whether unemployment should be 2 or 4 per cent.: it should be a great deal less than 10 per cent. It is irrelevant to argue whether the current balance should be allowed to stray over 2 per cent. of GDP: it should be in surplus in the depths of the recession. It is irrelevant to argue whether public borrowing should exceed the 3 per cent. Maastricht criterion: it should not be heading over 8 per cent., even in the depths of a recession. Inflation is a scourge, and if it is not kept low, it runs the danger of becoming south American. However, low inflation has no virtue on its own if it is achieved at the cost of wrecking the other essential balances.

The trouble with arguing that we must deal with those structural imbalances, but not yet, is that they will get more difficult and painful to deal with later. They cannot be corrected overnight, nor even within five years. We can make a start now and, by being seen to make a serious start, set going the virtuous circles of increasing investment, confidence and stability.

For each instrument, we must ask how much it can contribute to improving one balance without damaging the others more. It is a matter of analysis. Let there be 226 argument about that, and let us hear the argument. The panel of independent forecasters could provide such material, and the Treasury could match it. However, having looked at the evidence, my judgment is that an increase in income tax on those in work would help public borrowing more than it would harm unemployment. A further reduction in interest rates would weaken the exchange rate, and the sheet anchor against south American inflation, more than it would help investment and employment. An increase in Government investment would help employment and competitiveness more than it would harm public borrowing.

Then the argument moves on to the detail of the instruments—whether they be tax rates or allowances, and what conjuncture of relative interest and inflation rates, and what kind of public investment, we should have. The dynamics of policy must be set out, showing how policies will adapt to changing circumstances while pursuing consistent objectives in a consistently maintained strategy. No such thinking goes on in the Treasury today. Treasury people do not even attend the conferences at which such policies are argued out.

At the same time, of course, vigorous supply side measures are needed—in the sense not of lower taxes but of greater skills, better quality, greater appeal and enhanced capacity. That is a matter not of subsidy and second-guessing, but of looking for the features of company finance, corporate control and competition that have so weakened British manufacturing, or have never allowed it fully to develop.

None of the tax measures that the Chancellor today announced to bolster the corporate sector, especially small firms, addresses the differences that are so inescapable when we compare the position of small and medium-sized manufacturing enterprises in this country with those in Germany.

The Select Committee on Science and Technology has just returned from an examination of industrial competitiveness in Germany—talking to the Government, and visiting firms and research institutions. The remarkable fact is that in Germany firms bearing names such as Bosch, Diesel, Zeppelin and so on are all still there today, but they are booming. They maintain high research budgets, and increase them when profits fall. In contrast, the Chancellor was trying to make it easier for the entrepreneur to sell out of his company. That is the last thing that a German industrialist would do; yet here we are facilitating precisely that weakening of control and commitment that underpins the strength of the German engineering industry.

§ Mr. Alan Duncan (Rutland and Melton)

Is the hon. Gentleman not taking an over-rosy view of the German economy at the moment? Mercedes Benz has just announced that