Budget Resolutions and Economic Situation

§ Madam Speaker

The Question is as on the Order Paper. I remind the House that the Budget debate continues on the motion entitled "Amendment of the law". Before I call the first speaker, may I plead for short speeches today, please? A number of Members are seeking to catch my eye and I should be much obliged if speeches could be rather shorter today.

§ Mr. Gordon Brown (Dunfermline, East)

Two years ago, we had a "Budget for business". Since then, 100,000 businesses have gone under. Last year, we had a Budget called a "Budget for the recovery". No recovery materialised. In November, we had an autumn statement "for investment". Public investment continued to fall. Now we have what is called a Budget for jobs, and I make one Budget forecast—that, after the Budget, unemployment will rise this month, next month and for months afterwards. This "Budget for jobs" is really a Budget with only one intention, to save one job—the Chancellor's own job. It was the Chancellor's last Budget to be held in March, and it should be his last.

The Budget makes it clear that taxes will rise not only this year but next year and the year after. There will be tax rises now, tax rises later and tax rises two years later. That is not only a double whammy but a triple Conservative tax whammy.

National insurance contributions, which the Conservatives said would not be increased, have risen. VAT, which they promised would not increase, is now to be imposed on fuel. As the President of the Board of Trade would say—

§ Mr. Jacques Arnold (Gravesham)

Will the hon. Gentleman give way?

§ Mr. Brown

I shall give way later.

290 As the President of the Board of Trade would say, "Taxes to the left, taxes to the right, taxes everywhere." For people paying VAT, there will be "tax rises before breakfast, before lunch and before dinner", and people will have to get up the next day and pay taxes yet again.

Before the general election, the Conservatives promised not to devalue—

§ Mr. Arnold

rose—

§ Madam Speaker

Order. Is the hon. Member for Dunfermline, East (Mr. Brown) giving way?

§ Mr. Brown

Yes.

§ Mr. Arnold

Bearing in mind the statement on the Labour party's green creditials made by the hon. Member for Islington, South and Finsbury (Mr. Smith), and the commitment to reduce CO₂ emissions by the end of the century, if the hon. Gentleman opposes the imposition of VAT on domestic energy, will he explain how the Labour party would honour the commitment?

§ Mr. Brown

The difference between us and the Conservative party is that we have a policy for the environment. We are not using the environment, as the Conservatives do, simply to raise taxes at the expense of the rest of the people.

At the general election, the Conservatives promised not to devalue. They did devalue. They promised a recovery that has not happened, and they promised to end repossessions, which continue at the rate of 1,000 a week. They promised and guaranteed young people jobs or training; hundreds still have none. They promised that they would not privatise Scottish water, and now there is a real fear that they plan to do so.

Most of all, the centrepiece of the Conservatives' election campaign was the promise that taxes would not rise—indeed, that taxes would fall. The Chancellor's Budget has been not a Budget for Britain but a betrayal of the people of Britain.

The central failure of the Budget is the failure to tackle unemployment and economic decline. The Budget deficit and the tax rise that will ensue result from the central failure to produce economic prosperity. A Government who tackle only the consequences and not the causes of economic and industrial decline will fail in the Budget, and they will fail Britain.

Reading the Budget statement, which makes it clear that unemployment will continue to rise and that little will be done about it, we realise that the only consistent view that the Chancellor has held over two years has been the view that, for him, unemployment is a price well worth paying.

I am sorry that the Chancellor is not in the Chamber. The first thing that Ministers must do is apologise to the House and to millions of people throughout the country. Two pounds a week is the price that will be paid in the fuel bills of elderly people and of many millions of others. That amounts to £100 a year and, as I noticed yesterday, there is no guarantee of full compensation in social security payments or in pensions.

§ Mr. David Shaw (Dover)

Is the hon. Gentleman actually denying the words that hon. Members heard the Chancellor say quite clearly, quite categorically—that those who are getting benefits through the social security 291 system will have those benefits made up to take full account of what is going to happen on the additional VAT?

§ Mr. Brown

I am grateful to the hon. Gentleman. I shall now give way to the Chief Secretary to the Treasury so that he can confirm what his hon. Friend said.

§ The Chief Secretary to the Treasury (Mr. Michael Portillo)

I intend to make a speech later.

§ Mr. Brown

That is the Tory party at work—the Tory party that never, ever tells a truth in answer to a simple and straightforward question.

Let us consider in precise detail what the Government have said about tax rises. During the election campaign, the Chancellor said on "Channel 4 News": We will not have to increase taxes. I cannot see any circumstances in which that will be necessary. Just to be sure, Jon Snow, the interviewer, pressed him and asked: Does that mean direct and indirect taxes? "Yes," said the Chancellor. The Chancellor and the Ministers who have betrayed promises made during the election campaign can never be trusted again.

The tax promises were not casual remarks or offhand, throwaway comments. They were not a peripheral element of the Conservative campaign. The Chancellor made it the centrepiece of his whole election strategy that taxes would not just not go up, but would go down under his leadership. I repeat that he said that he could not see any circumstances in which tax rises would be necessary.

Is that the same Chancellor who has raised taxes by £17 billion over two years, the same Chancellor who kept telling us during the election campaign that tax rises would destroy work incentives, the same Chancellor who has imposed tax rises amounting to £8 a week on the ordinary taxpayer from next April, and the same Chancellor who unveiled billboard poster after billboard poster saying that Labour's plans to raise taxes were a folly and a fraud on the people of this country? Is it the same Chancellor who has imposed—

§ Mr. John Townend (Bridlington)

Will the hon. Gentleman tell the House whether, if he is so opposed to dealing with the Budget deficit by increasing taxes, he accepts that inevitably he would have to introduce substantial cuts in public expenditure?

§ Mr. Brown

The hon. Gentleman fails to understand that it is the failure to solve the problems of unemployment and of economic decline that is forcing up the Budget deficit. The Budget's failure to deal with the causes of the problem and the fact that it deals only with the consequences mean that it is a Budget that fails Britain.

I should have thought more of the hon. Gentleman if he had told us that he would apologise to the voters in his constituency whom he told during the general election campaign that there would be no VAT rises and no national insurance rises. If he cannot point out the section of the election manifesto which warned of increased tax rises for the ordinary voter under a Conservative Government, he should be ashamed of himself.

§ Mr. Townend

If the hon. Gentleman looks at my election address, he will see that I talked about no increases in direct taxation.

§ Mr. Brown

The hon. Gentleman's comment is interesting. I presume that he meant that there would be no increase in national insurance. Was that the policy with which he went to the electors? Was that the policy? He cannot answer the question. National insurance is a tax that is paid by every worker, and by next year people will be paying £3 a week more.

There are only two explanations for what has happened since the election—either Ministers are incompetent on a scale that beggers belief or, with the access that they, uniquely, had to the Treasury papers before the election, knowing of the problems that their policies and their failures had created, they set out to deceive the people of Britain on a massive and unprecedented scale.

Let us remember that this is the Chancellor who told us that he would not devalue and did; who forecast that the recession would be shallow and short-lived; who told us that the recession would end two years ago, then one year ago; who told us that he had seen the green shoots of economic recovery—months before there is any sign that a recovery is happening. Can anyone ever believe anything that he says to the House or the people of this country again?

During the election campaign, the Tories put up billboards throughout the country saying that the country could not trust the Labour party. Now they should put up billboards in every town and city saying that the country can never trust the Conservative party again.

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

Is there not something far more sinister about these matters? Given that the Government have a majority of only 20 and that among those 20 are a number of marginal seats, is not it quite clear that, had it not been for the tax lie, there would probably have been a minority Labour Government today? Should not the wider public be told that?

§ Mr. Brown

If the truth had been told, there would have been a majority Labour Government.

What did the Prime Minister say? His reputation is clearly on the line in connection with all the promises that were made. Let us be absolutely clear that it was not just the Chancellor—who is taking the lion's share of the blame—but the Prime Minister who made the promises. The Prime Minister was asked about VAT. "We have no plans," he said, "to increase VAT. There will be no VAT increase."

Let me remind Conservative Members—who will have to live with this as these decisions come back to haunt them between now and the next general election—of what the Prime Minister said. Asked by The Independent on 27 March: 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, clothing, gas, electricity and food?", the Prime Minister replied, I have made the pledge in the past. I have made it clear that we have no plans…no need…no plans…to extend the scope of VAT. The Prime Minister was not content with that. He went further and promised tax cuts year on year: I have no doubt, he said, that we will be able to make further reductions in the rate of taxation. 293 Those were the words of a Prime Minister who put himself at the forefront of a manifesto that said that lower taxes were necessary to encourage people—they would make for "a more productive economy"; and would transfer power from the state to the people"— and that high taxes would kill the goose that lays the golden eggs". There is now no refuge for the Prime Minister in claiming that he did not know anything about the length of the recession. It was he who gave the unequivocal promise: "Vote Conservative on Thursday and the recovery will continue on Friday." They were calculated, cold-blooded and cynical statements, made simply to win the election. The result is that the Conservative party, under the Prime Minister's leadership, will never be trusted again.

Let us just remember that, to win an election, President George Bush said, "Read my lips—no more taxes," then put taxes up and lost the election. The Prime Minister said, "Read my manifesto—no more taxes." Now he has put taxes up, and he will be thrown out of office.

§ Dr. Liam Fox (Woodspring)

Will the hon. Gentleman take this opportunity to pledge his party to reverse the extension of VAT to fuel and power?

§ Mr. Brown

Perhaps the hon. Gentleman would like to join us in the Lobby on Monday, when we will be voting against the VAT increases. I will tell him something else: when we draw up our election manifesto, we will be fair to pensioners and to all those to whom fuel prices matter, and when we go to fight an election campaign, we will tell the truth.

The Chancellor has argued that the Budget will set Britain on the road to recovery. He has argued, when he has produced figures, that the balance of payments will rise to £17.5 billion, that investment will grow by only 0.5 per cent., that the trade deficit in manufacturing will double, and that the Budget is a sign of the successes of his policy. But let us consider what is happening to unemployment in Britain.

After the Budget, unemployment will still cost the country almost £30 billion a year. The cost of every unemployed person—the rising numbers—is £9,000 a year. When faced with the problems of massive unemployment in the 1930s, we had a new deal in America. After the war, we had the Marshall plan to reconstruct Europe. We need a mobilisation of resources to combat unemployment now.

What do we have instead from the Government, when more people are unemployed; when more people are chasing jobs; when, in some constituencies of Conservative Members, 1,000 people go for every vacancy on offer; when we need a great national effort that would repair our roads and railways, build homes, improve our schools and hospitals and upgrade our environment?

When we look at the plans produced yesterday by the Chancellor and the Secretary of State for Employment, let us remember that there are fewer training places now than in 1990, when the Chancellor and the Prime Minister came into office. Let us remember that the amount spent on every unemployed person has not increased but has been reduced.

When talking about broken promises, let us also remember the promises that were made to the 294 unemployed, which have been cynically betrayed: the promise that, by March 1992, employment action would create 30,000 places—it never did; the promise that the Government would increase the funding available to the training and enterprise councils—the Chancellor had to admit that the funding was being cut; the guarantee that all young people would have a job or training—thousands, and now hundreds, do not have that; the Chancellor's promise in 1991 that the monthly rate of increase in unemployment had peaked and was likely to moderate further. All those promises were never met.

What do we have now in the Government's employment programmes? Employment action, which produced neither employment nor action, is now relaunched as training for work, to disguise a £34 million cut. The business start-up scheme mentioned by the Chancellor yesterday has been relaunched under a new name, with almost half the places that it originally had five years ago.

Certainly there are twice as many job interview guarantees from the Chancellor and the Prime Minister, but when the two main firms in the job interview guarantee scheme helping the Government are the Post Office and British Gas and between them they are laying off 26,000 people in the next few years, how can the job interview guarantee scheme generate thousands of jobs for the unemployed? After all that, we are left with the central fact that unemployment is rising and will continue to rise, and that the Government's whole approach is essentially this: that unemployment is a price well worth paying.

I say that there is no recovery that we will call a recovery when it assumes that 3 million people stay out of work. There is no recovery that is worth its name which does not begin to put Britain back to work.

Will the Chancellor tell the couple who stand to lose their home as well as their jobs as a result of higher unemployment that unemployment is a price well worth paying? Will he tell the man in his 40s who knows that he will never work again once he loses his job that his unemployment is a price worth paying? We all know very well that, if the Government accepted their responsibilities for jobs, we could begin to get Britain back to work.

Will the Chancellor tell the youngster with no hope, no cash and no job that his long-term unemployment is for him a price well worth paying? The Chancellor knows that he could abolish youth unemployment if he had the will to do so.

The tragedy is that the only redundancy that really worries the Chancellor is his own, and that the repossession of No. 11 Downing street is the only repossession he cares about.

What are the Government's excuses for what has gone wrong? They started, in 1979, by blaming the trade unions. Then they blamed Labour councils, the European Economic Community, the exchange rate mechanism and Jacques Delors. When European excuses ran out, they discovered world recession. At the weekend, the Secretary of State for Trade and Industry even blamed the Labour party.

The weekend before that, as things were beginning to get desperate, they looked nearer to home and found someone else to blame—Lady Thatcher—who, in her own words, is now the "enemy within" for the Conservative party. All was explained. The Prime Minister had been terrorised into silence in her Cabinet on a subject dear to his heart—British manufacturing industry. That is the 295 Prime Minister, the voice of the silent minority in the Cabinet, who failed to speak up for his love of British manufacturing industry—the love that dared not speak its name.

Having blamed Europe, the world, the Labour party and their former leader, whom do the Government blame now, when many people would say that they have no one to blame but themselves? They blame the British people. The Prime Minister has identified the British people's instinct for self-deprecation and for talking the country down. Not to be left behind, last Sunday the Chancellor discovered it all—the British people are to blame for the alibi society. Now we know it from a Tory—society is to blame after all. The party that told us that society did not exist has reinvented it, if only to take the blame for its own failures.

The truth is that Britain is not an alibi society that has let down a well-meaning Government: Britain has an alibi Government, who have been letting down British society for 14 years.

§ Mr. David Nicholson (Taunton)

I am sorry to interrupt the hon. Gentleman's tide of enjoyment, but does he recognise that, as the Chancellor pointed out in the early stages of his speech yesterday, there is recession, unemployment and a fall in growth in other European countries, including socialist France? What does he have to say about socialist France, which is facing elections this month?

§ Mr. Brown

The hon. Gentleman should look at the figures. He will know that, during the past two years, unemployment has risen faster in Britain than in any other EC country. Let us remember that the Government claimed that they had created an economic miracle. In 1988 and 1989, they told us that we were living through a supply side transformation of our society. Some members of the Government even claimed that living standards would continue to rise year after year. Now, the Government have created 3 million unemployed.

When we consider what has been happening in Europe and around the world—

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

rose—

§ Mr. Brown

I am grateful to the Chancellor. If he intervenes, could he tell us in which part of his election manifesto he told his constituents that value added tax and national insurance would rise as a result of his policies?

§ Mr. Lamont

Why does the hon. Gentleman not answer the question put by my hon. Friend the Member for Taunton (Mr. Nicholson)? Unemployment in France is 3 million, in Ireland and Spain it is well in excess of the level in this country, and in Italy it is very similar to the level in this country. The European Commission projects that unemployment will reach 11 per cent. for the Community as a whole. Does every word of criticism, every stricture and every argument that the hon. Gentleman has made apply to those Governments as well as to our Government?

§ Mr. Brown

I am grateful to the Chancellor, because he allows me to explain what has been happening in Europe during the 1990s. Is it not the case—does he deny—that Britain was at the bottom of the league for growth not merely last year but the year before? Is it not the case that 296 Britain has been at the bottom of the league for investment, and for employment creation? Is it not the case that Britain has been at the bottom of the league in the European Community for every major indicator in the 1990s? If the Chancellor is prepared to deny that, I will happily give way to him.

§ Mr. Barry Legg (Milton Keynes, South-West)

Will the hon. Gentleman give way?

§ Mr. Brown

I thought that the Chancellor helped Back [...]nchers, rather than the other way round.

On Sunday, The Sunday Times revealed what we already knew: that we are not only experiencing high unemployment but are engaged in a process of industrial decline. It revealed that Britain invested half as much in its industrial workers as many of the world's best economies; that our skill levels are 40 per cent. below some of the world's best; and that we have the worst record for manufacturing investment since 1979, bar none, of the countries in the European Community. While investment in manufacturing has grown by 100 per cent. and more in Japan since 1979, it has fallen by 5 per cent. in Britain.

Our argument is that this Budget does not even begin to tackle the central questions of reversing our economic decline by rebuilding our industrial capacity. The central questions are how we invest in people for the future, how we invest in industry and how we invest in the social and economic fabric of our country to ensure that we will have not only rising production in industry but rising standards of living.

The remarkable feature of this Budget is that the tax rises are to pay for the mistakes of the past. The Chancellor does not have one contribution to make towards laying the foundations for future success.

We have been saying for years that manufacturing and industry matter; that we need a policy for manufacturing for the future; and that we neglect it at our peril. For years, we have been saying what the Department of Trade and Industry data reveal: that action to restore manufacturing required a comprehensive policy for research, technology, investment and the regions. We said this not because we believed that manufacturing was inherently preferable or because we had some romantic attachment to factories instead of offices, but because we knew that manufacturing is one of the major centres of innovation in our economy and important to our great industrial regions. It is central to our exports, to our tradeable economic base and to the future of our balance of payments.

The Prime Minister tells us that he was in the minority when arguing the case for manufacturing industry. I have looked through the speeches he made during the 1980s, when he was that voice for manufacturing industry but could not raise it forcefully in public. When he spoke about the famous economic miracle, did he say that he was worried about the future of manufacturing or that something had to be done about the balance of payments? No. He said: In the 1960s we watched the German miracle from our sick beds. Today in Europe we are the economic miracle. That was what the Prime Minister said. He did not tell us that there were problems with manufacturing when, since 1979, German manufacturing has grown at five times the British rate. He said that Britain was the economic miracle.

What of the Conservative party under the Prime Minister's Chancellorship? Did the document about the state of manufacturing industry issued in 1990 by the 297 economic research department betray the Prime Minister's worries? No. What that document said was that manufacturing was an obsession of the Labour party—that it was an outdated attitude of the Labour party that put manufacturing at the centre of affairs.

What of the balance of payments which we warned about? Did the Prime Minister give speeches saying that the balance of payments deficit could cause us a problem? No. When even the President of the Board of Trade was warning that the deficit was of consequence, that it could not be dismissed as a second order problem, that it would not be easily financed, what was the Prime Minister saying? Nothing more, nothing less than that it was a second order problem, of little consequence, and could be easily financed.

What of the Chancellor during those great years at the Treasury when the Prime Minister and he were supposed to be speaking up for manufacturing industry? He said: The idea of an industrial strategy is moth-eaten, and one might even say half-baked. Those were not the words of someone who looked as if he were supporting the industrial strategy that is now referred to by the President of the Board of Trade.

Even as late as 1990, as the recession required a new approach to industry in this country and a change of policies to allow British industry to triumph over the recession, did the Chancellor say that policies would have to adapt to the needs of manufacturing industry? No. He said: The real test of Thatcherite economics is now only beginning. The slow-down in prospect will put to the test the new-found flexibility and resilience of the economy and the effectiveness of the labour market reforms. It looks as if we may now be seeing the beginning of a reverse of a long-running trend which has seen the share of manufacturing in national income fall. I feel that the resurgence we have seen so far is nothing like the resurgence we are about to see. For three years after that, manufacturing output has fallen, businesses in the manufacturing sector have gone bankrupt in record numbers, and unemployment has risen substantially. Surely that speech about Thatcherite economies was one of the great misjudgments of history. If the past three years have been the real test of Thatcherite economics, when the Chancellor sums up the Budget debate on Monday, it will be interesting to see whether he can tell us what the results for British manufacturing industry have been.

The Budget was effectively a betrayal of the people of Britain. The Government first betrayed the pensioners in 1979, when they broke the link between pensions and earnings. They then betrayed the unemployed, when they taxed unemployment benefit and then cut it. Next they betrayed the home owner, with the increase in mortgage rates that their policies produced. They then betrayed the low-paid by abolishing, cynically and cruelly, the wages councils on which 3 million people depend. They then betrayed patients in the national health service and public service consumers, and they continue to do so.

§ Sir Terence Higgins (Worthing)

For how many years did previous Labour Governments have a link between pensions and earnings?

§ Mr. Brown

I think that the right hon. Gentleman should refer to history. The link between pensions and earnings was introduced by a Labour Government to help 298 the pensioners of this country. The right hon. Gentleman should know that, as a result of breaking the link between pensions and earnings, many pensioners are hard up.

The Government betrayed the unemployed; they betrayed the low-paid and home owners. The Government betrayed people in the national health service, and they have now betrayed the taxpayers of this country by raising national insurance and value added tax. There is no one left for this Government to betray; they have no credibility in this country. The electorate will never trust them again. If Britain is to have a new start, it will need a new Government—and that will have to be a Labour Government.

§ The Chief Secretary to the Treasury (Mr. Michael Portillo)

What a speech we have just heard. What passion was shown as we witnessed the glowering countenance of the hon. Member for Dunfermline, East (Mr. Brown) across the Dispatch Box. I detected in his speech the sound of disappointed rage. The hon. Gentleman is disappointed that my right hon. Friend the Chancellor has framed a skilled Budget which is well suited to this stage of the cycle. Once again, faced with substantial difficulties in framing the Budget, my right hon. Friend has none the less produced a Budget which demonstrates a real grasp of the subject. He has exceeded the expectations of his critics.

Before yesterday, the commentators were saying that the Chancellor faced a stark choice—he could either protect the recovery or tackle the Government's borrowing, but could not do both. But my right hon. Friend has done both in the Budget—[Interruption.]—and British business has recognised that achievement. Sir David Lees of the CBI said: this budget will certainly help the recovery. The Institute of Directors said: The Chancellor has listened carefully and the package of business measures announced is relevant and helpful. The Federation of Small Businesses said: Small businesses will welcome being singled out for special support. The Association of British Chambers of Commerce said: We asked for a budget which did not upset the fragile recovery, but addressed the urgent need to boost exports and press on with deregulation. This is what we have heard. A cross-section of business leaders has given the Budget the thumbs up.

§ Mr. Max Madden (Bradford, West)

What is the Treasury's assessment of the reduction in the demand for coal as a result of the imposition of VAT on fuel announced yesterday?

§ Mr. Portillo

The VAT changes alone will produce a reduction in carbon dioxide emissions of about 1.5 million tonnes and that is part of our firm commitment to the Rio convention. I shall later be asking Labour Members how they would achieve that commitment.

§ Mr. Bryan Davies (Oldham, Central and Royton)

We appreciate, this being a debate, that the Minister has a prepared speech. But will he address his remarks to the interesting point raised by the hon. Member for Dover (Mr. Shaw), who alleged that the Chancellor said yesterday that the Government intended to restore in full to those on benefit the cost of the fuel tax? Is it really the intention of the Government to restore in full that extra tax on poor people?

§ Mr. Portillo

The Chancellor's words on that were clear. He said: Social security benefits will, of course, rise automatically to reflect the price effect of this change. But I recognise that this will cause particular problems for those on low incomes. My right hon. Friend the Secretary of State for Social Security will take this into account when the income-related benefits are uprated next year."—[Official Report, 16 March 1993; Vol. 221, c. 183.] That was perfectly clear.

§ Mr. Gordon Brown

Will the Minister confirm what the hon. Member for Dover (Mr. Shaw) understood to be the position—that the benefits will he uprated in full to take account of the rise in VAT?

§ Mr. Portillo

All benefits will be uprated to take account of the RPI. That is perfectly obvious.

§ Mr. Gordon Brown

The point is not whether the VAT rise will be reflected in the RPI. Will the right hon. Gentleman give an undertaking that the VAT rise will mean that the benefits for ordinary people on income support and pensions will rise to take account of that? Will they rise in full?

§ Mr. Portillo

The hon. Gentleman is apparently inventing an entirely new concept—[Interruption.] He is saying that in some way income-related benefits must be adjusted for particular price rises that occur. That is an entirely new concept, and I will give him an example because all such issues are made up of swings and roundabouts. The increase announced in duty on road fuels puts about ¼ per cent. on the RPI. People on low incomes are very low users of road fuels, but they will be compensated through the RPI for the extra expense that other people will face. So there are swings and roundabouts—[Interruption.]—and the words of the Chancellor were perfectly clear.

§ Mr. Jeff Rooker (Birmingham, Perry Barr)

rose—

§ Mr. Portillo

I will give way to the hon. Gentleman, but then I must make progress.

§ Mr. Rooker

Let us be absolutely clear on the point. How does the right hon. Gentleman respond to the work published this morning by the department of applied economics at Cambridge showing that, whereas the Budget will have a 3 per cent. effect on those with the lowest 10 per cent. of household incomes, partly as a result of the tax and VAT changes, it will have only a 1.5 per cent. effect on the top 10 per cent. of earners? In other words, if the nation's 10 per cent. poorest are not to suffer disproportionately, their social security benefits must rise by 3 per cent. above the rate of inflation. If the right hon. Gentleman will undertake to do that, we shall go away reasonably happy, or at least not so unhappy, and it should be easy for him to do that if he wants the Budget to be fair to all sections of the population.

§ Mr. Portillo

I believe that the Budget is fair to all sections of the population. For example, those on the highest earned incomes will be hit hardest by the tax changes in the tax credits for dividends, the tax changes for company cars and the tax changes to the married couple's allowance. All those affect people on higher incomes. There are swings and roundabouts. The hon. Gentleman did not bother to point out that currently income support scales contain a 20 per cent. allowance for community 300 charge. Nobody will be asked to pay the council tax after 1 April, but that money is not being withdrawn—it is being left in income support. I refer the House once again to the words of my right hon. Friend the Chancellor yesterday.

§ Mr. Gordon Brown

This is wholly unsatisfactory; it is a clear attempt to evade the question. Will the Chief Secretary give us an unequivocal answer—will those on income support be compensated in full for the rise in VAT?

§ Mr. Portillo

I am not in any way evading the question; I am referring hon. Members to what my right hon. Friend the Chancellor said yesterday, which was that the rise in VAT would be taken into account when the income-related benefits are uprated next year. My right hon. Friend chose his words carefully and they are on the record.

Since the Conservatives took office 14 years ago, our two guiding economic aims have been sound money and sound public finances. Those aims must stand above all others. We have reiterated those principles day in and day out, before breakfast, before lunch and before dinner. All those involved in wealth creation know that those are the right principles. By contrast, the Labour party—which is not involved in wealth creation—scarcely even recognises those principles.

Before the election we said that we had no plans to raise VAT, and that was the plain truth—[Interruption.] Yes, it was. Last year, we were looking at a level of Government borrowing far lower than that we are facing today. We must take action to deal with the changed position. The recession has lasted longer than anyone thought and the proof of that is that the Labour party reminds us of it every day of our lives. Indeed, it has made the length of the recession its excuse for abandoning all the tax proposals that it put forward at the election. Its present stance shows that now, as always, it could not care less about the state of public finances.

§ Mr. Dennis Skinner (Bolsover)

There has been a forecast of a £50 billion public sector borrowing requirement for some considerable time, so it has not come as a surprise to most people. The Chief Secretary fails to recognise that in the first 10 years of the Thatcher Government, the richest 1 per cent. in Britain accumulatively had £26.2 billion handed to them in tax cuts. What the Chancellor should have done yesterday was to recoup that money from the wealthiest 1 per cent. and not land it on the pensioners and others who will have to pay the additional VAT without any compensation.

The truth is that the Tory Government, through their Budget yesterday, not only helped the rich, but they refused to take back any of the money that they had given to them and, instead, they have crippled millions of other people. The Government are in favour of looking after the bosses and lining the pockets of their friends.

§ Mr. Portillo

The amount of money raised in income tax from the highest 5 per cent. of earners has risen consistently during the time that we have been in office. I have already pointed out that the changes that we made yesterday to the married couple's allowance, company cars and dividends will impact most heavily on the highest earners. The Budget was designed to be fair across all sectors of society and all levels of income.

The Opposition's policy has veered from side to side, with extremely strange results. They are now apparently in 301 favour of raising taxes only at election time. That is not something about which I want to complain, but they should consider what that says for the political acumen of the man whom they have recently elected leader of the Labour party.

At the election, the Labour party proposed to raise taxes by £35 billion a year, three and a half times what the Government propose. Labour wanted the tax increases to be immediate. Labour's purpose was not to pay off debt but to pay off scores against the middle classes. We heard the same tone just now. Labour wanted 10p on income tax and 9p on national insurance, not to repay borrowing but in order to be able to spend more money.

§ Mr. Campbell-Savours

May I tell the Minister once again that the £35 billion that he quotes was a monstrous lie which won the Conservative party the general election. Does not he realise that millions of people are saying this morning that the election was won by the Tory party on the back of a lie? Does not he realise that, now that we have had the Budget?

§ Mr. Portillo

The election was won for the Conservative party perhaps by the right hon. and learned Member for Monklands, East (Mr. Smith), following the Luigi restaurant incident. That was the key. The right hon. and learned Gentleman corrected the then Leader of the Opposition, the right hon. Member for Islwyn (Mr. Kinnock), who tore him off a strip. That lost the election for the Labour party. The right hon. and learned Gentleman was rewarded by being made leader of the party.

We have to raise revenue because it is our duty as a responsible Government to do so. We have chosen to do it in ways that do not harm recovery or depress incentives, ways which draw money from all levels of earnings and which contribute to meeting our commitments on the environment.

Here are the facts which cannot be ignored. Next year the public sector will be borrowing £1,000 a year for every man, woman and child in the country. The interest on that borrowing will have to be paid for many years to come. My right hon. Friend the Chancellor could have chosen to postpone action. Many presumably expected him to do that. But those who create jobs in Britain need to know that the Government will reduce their borrowings.

The "mañana" approach would have done nothing for confidence. Investors in Britain take the level of borrowing seriously. [Interruption.] The Labour party is convulsed because it does not. For example, the hon. Member for Peckham (Ms Harman) has built a political career on moving from television studio to television studio evincing righteous indignation about alleged underprovision by the state for health or education or whatever other good cause she has in mind.

The hon. Lady was at it again last night, touring the studios of London like an understudy for Joan Collins, complaining that borrowing was too high, that we should be spending more, and that we should not raise revenue. It was a curious view from a shadow Chief Secretary; it was perhaps more appropriate for a film star. I am not aware that the hon. Lady has ever addressed the need for control. 302 I am not aware that she could even spell the word "restraint". She was indeed a most original choice as shadow Chief Secretary.

The first lesson for Chief Secretaries, shadow or otherwise, is that there is no such thing as a free lunch. I should know, after my recent lunching experiences. If the hon. Lady thinks that her reputation can stand it, I will happily take her to the Churchill room for lunch and explain to her why that is so. [Interruption.] The right hon. and learned Member for Monklands, East has got the joke; well done. The Leader of the Opposition is very quick.

At the same time the hon. Lady can explain to me Labour's policies. She can explain about the extra public spending which Labour wants—more spending on employment, on health, on education, on science, on research and development, on investment—more on everything under the sun. To pay for it, there are only two choices—more borrowing or more taxing. The hon. Member for Dunfermline, East set out the options. He said: I am not talking about increasing current borrowing… I am not talking about raising income tax or national insurance or VAT. So what on earth was he talking about? Is Labour saying that borrowing is too high and spending too low, but that taxes must stay exactly where they are? If Labour is saying that, what nonsense it is.

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

I understand that the Chancellor wants to raise revenue, and he chose VAT as a way of doing that. When our zero rating was under pressure from the Community in the 1970s, I argued that it was needed to prevent VAT from becoming a regressive tax. Income tax is a progressive tax. By removing an essential element of VAT, the Government are turning a neutral tax into a regressive tax, to avoid using income tax—which would have been the proper thing to do.

§ Mr. Portillo

The proper argument against Community intervention in our zero rates is the right of the House to determine our taxation rates. It is the right of my right hon. Friend the Chancellor of the Exchequer to decide what they should be. It has been our consistent policy to move from taxes on income to taxes on spending.

Our commitment to a medium-term strategy for public spending was shown in the autumn statement. It is essential that we reduce the proportion of national income spent by the state. For the years 1994–95 and 1995–96, we are committed to real increases in the control total of 1 per cent. and less. At a time when we are committed also to increasing money for the health service and increasing the number of students, and facing pressures on social security, those are very tough ceilings. Some of my hon. Friends think that they are not tough enough. A poll of Conservative Members of Parliament published in last week's Financial Times showed that 62 per cent. favoured cuts in public spending.—[HON. MEMBERS: "Hear, hear."] My hon. Friends say "Hear, hear." I admire their spirit, and I will welcome their support for the hard decisions that lie ahead.

I have started a programme of fundamental expenditure reviews, and over the medium term and beyond they will make an essential contribution to meeting 303 our spending targets and to containing the size of the state. All the industrialised countries of the world are facing up to the same problem.

§ Mr. Robert Ainsworth (Coventry, North-East)

If those are the right hon. Gentleman's policies, and given that the Government have been in power 14 years, can he explain why public sector expenditure is 44.75 per cent. Of gross domestic product? Why is that figure higher than it was when the Conservatives took office from a Labour Government in 1979?

§ Mr. Portillo

That is a curious point to be made by a member of the Labour party. The proportion of public spending in national income was higher when Labour lost to a Conservative Government. We got it down to just over 39 per cent. The figure has now risen to the mid-40s due to the recession. I am determined that it should go back down from here. That is this Government's commitment.

My right hon. Friend the Chancellor used yesterday's Budget not just to raise revenue but to pursue tax reform—most notably, by increasing the 20 per cent. band. When he introduced that band, Labour dismissed it as a gimmick, even though a 20p band was its policy also. Labour claimed that we would never get anywhere with it— underestimated us in that. My right hon. Friend is determined to extend the 20p band year after year, until it becomes the basic rate of tax for all and the top rate of tax for most. For 5 million taxpayers, that pledge is already met—delivered, despite the recession, in the very first Budget of this Parliament.

The Budget accepts Britain's responsibilities towards the environment. The Rio convention was in June—after the election. It radically affects the view that we have to take and our judgment of how taxes must be raised. Reducing the quantity of carbon dioxide that the United Kingdom puts into the atmosphere is not easy or cheap. The Government are in earnest. My right hon. Friend the Prime Minister put Britain's name to the United Nations convention on climate change. Along with others, we are committed. We have to reduce carbon dixoide emissions by 10 million tonnes by the year 2000. The Budget measures, along with the steps that we have already announced, will deliver a reduction of about 7 million tonnes. We are therefore two thirds of the way to meeting our commitment, less than a year after the Rio convention was signed.

We have carefully chosen the way in which we shall reduce emissions. The extension of VAT to fuel and power will help us to meet our Rio convention commitments and minimise the burden on industry. Indeed, it brings domestic consumers of fuel and power into line with industrial and commercial consumers, who already have to pay VAT on their energy bills.

The House will recall the dreadful humbug that we have heard from Opposition Members. Labour's election manifesto of April 1992 proclaimed: The greatest challenge we face is the responsibility to ensure the survival of the planet. Opposition Members might have done better to concentrate on the survival of the Labour party.

§ Mr. Chris Smith (Islington, South and Finsbury)

Will the right hon. Gentleman give way?

§ Mr. Portillo

I shall give way later. I am coming to the hon. Gentleman.

304 The leader of the Labour party was up there, leading on greenery. He said: Protection of the world environment must move to the top of the international agenda. Bravely said. There he is—the jolly, green giant of Monklands, East. His words were fine, but where is the beef? Labour talks about the environment; it lectures about the environment; it preaches about the environment; it chops down trees and prints policy documents about the environment. But anyone who studies Labour very closely will find no green roots—a few green nuts perhaps, but no green roots.

How would Labour achieve our Rio commitments? Would it perhaps impose a national speed limit of 35 mph? Would it introduce a new Eurotax? Would it build more nuclear power stations? Or would it close all the coal pits in the country? The decisions that we have made take us two thirds of the way to meeting our commitment, two thirds of the way to Rio—just about as far as Caracas. The Labour party has not got as far as Clapham junction.

§ Mr. Chris Smith

The right hon. Gentleman may like to tell us why his proposal to impose VAT on domestic fuel will reduce carbon dioxide emissions by less than 1 per cent. He may also want to remind the House that the Labour party's proposal, published a month ago, on a national programme for energy efficiency work would be four times as successful, at no cost to the taxpayer, and with no imposition on households.

§ Mr. Portillo

The hon. Gentleman must acknowledge that the VAT change will enable us to achieve 15 per cent. Of the Rio commitment. It will account for 1.5 million tonnes of the 10 million tonnes to which I have referred. The hon. Gentleman's remarks puzzle me very much. I have here a copy of something he wrote in Green magazine of February 1993—just last month: Back in 1990 I proposed a series of small but effective tax measures, none of which have yet been put into practice. If I were Secretary of State now I would twist the Chancellor's arm right up his back to see these implemented. So what are these tax changes that the Labour party wants to introduce? Not VAT, perhaps? If they did not involve VAT, however, by now the hon. Member for Dunfermline, East would surely have risen to say that he would definitely repeal the imposition of VAT on fuel and power. We are led to the interesting conclusion that what we have done is precisely what Labour proposes to do.

§ Mr. Chris Smith

The Chief Secretary is talking nonsense. If he had eyes in his head, he would have read the proposals for tax changes that we published in full three years ago. We stand by those proposals, not one of which included the imposition of VAT on domestic fuel.

§ Mr. Portillo

I will tell the hon. Gentleman how I reached my conclusions. I note that the hon. Member for Dunfermline, East has not chosen to deny the charges that have been put to him. He has visited one studio after another, but he has not once denied that he will maintain VAT charges on fuel and power. When asked about it by my hon. Friend the Member for Woodspring (Dr. Fox), he made no answer. Silence was not only golden in this instance; silence was Gordon.

I have examined the matter closely. Watson might say, "Very curious, Holmes", but it is not all that curious, Watson. Labour's policy document "Looking to the Future" stated: 305 Zero-rating on items such as food, fares, books, and children's clothing should remain. Hon. Members should note that, cunningly, the document did not mention fuel and power. A most significant omission, Watson. The document went on to say: We will look at ways of…increasing taxes on environmentally damaging products". Aha! I deduce from that passage that Labour was planning to put VAT on fuel and power all along. Elementary, my dear Watson—but there is more.

A Labour document produced after the election, entitled "Agenda for Change", talked of developing a range of green taxation incentives and "fiscal incentives". Most tellingly of all, only a month ago Tribune stated: Labour's Shadow Chancellor is expected to announce…proposals for green taxation". What a dreadful end. Hanged, Watson, with words from his own mouth!

The Budget helps business. It helps exporters, by increasing export cover; it helps British companies, and foreign-owned companies that want to invest in Britain, by tackling the problem of surplus advance corporation tax; it helps small firms by encouraging fixed-rate lending; it helps entrepreneurs by letting them reinvest the capital gains that they make from selling their businesses; it helps the construction industry by setting out new plans to build the channel tunnel rail link and the Heathrow Express; it helps the self-employed by offering them perhaps the greatest ever package of deregulation for small businesses, covering self-assessment, statutory audit, VAT cash accounting, bad debt relief and VAT penalties; and it helps every one of the 800,000 businesses that were facing large increases in their rates bills.

The hon. Member for Dunfermline, East concentrated much of his speech on unemployment, but I found his lack of grasp alarming. His prescription is "First tackle unemployment; recovery will follow." Dr. Brown treats the symptom first, rather than the disease. In fact, Governments must first provide for recovery; then they can secure lower unemployment. The order cannot be reversed. In his speech today, the hon. Gentleman was hopelessly confused on that point, expressing the belief that reducing unemployment would produce recovery. That is a complete misunderstanding of the position.

In a Guardian interview on Saturday, the hon. Gentleman committed the Labour party not only to full employment, but to full and fulfilling employment for everyone—not just jobs, he said, but good jobs. That is an admirable aspiration, but, with the hon. Gentleman's policies, it is an impossible dream. The hon. Member for Peckham has been more cautious. I think that she may be developing some chief secretarial tendencies after all. Interviewed on Channel 4 by Vincent Hanna, the hon. Lady said: What we are committed to is full employment redefined to take account of the changing circumstances of the economy. Vincent Hanna said: So it's not full employment. The hon. Lady replied: No, it's just a new definition of full employment. However redefined, full and fulfilling employment for all would not be achieved by Labour. The party's claims are a sham, a cruel deceit of the unemployed and a remarkable piece of political dishonesty. The truth is that 306 Governments cannot spend their way out of unemployment; what we can do is help the unemployed to improve their skills. The long-term unemployed can lose both skills and motivation, but the Budget contains measures specifically designed to help them. A total of 30,000 long-term unemployed will be able to take courses at colleges of further education, and will receive an allowance based on their benefit. We shall enable 60,000 more to tackle the tasks that are crying out to be performed in our communities.

On top of that, we shall set up innovative pilot schemes, paying a subsidy to employers who take people on to their books after they have been out of work for a long period. The subsidy will be based on benefit rates. It will be withdrawn in stages, but we hope that, by then, many of the people concerned will have proved themselves, and that their employers will be happy to keep them on. Those are truly pioneering schemes, and they have been widely welcomed.

These Budget schemes cost money—£230 million in all. Our latest proposals add to the large amount that the Government already spend on training and help for the unemployed. We are now spending £2.8 billion a year on helping the unemployed, and offering 1.5 million opportunities. If those whom we are now training are to find jobs in future, however, we need sustained recovery and a sound economy. Unemployment can be brought down; jobs can be created. Between 1984 and 1990, the United Kingdom economy produced 3 million extra jobs. That was the best performance in Europe. Even now, Britain still has more people in work than it had 10 years ago, and more of the work force are employed than in any other major European Community country.

We have the conditions for recovery and job creation. We have the lowest interest rates in Europe; inflation is below the European average and at its lowest level for a quarter of a century; we have the lowest corporation tax rates in the European Community or the G7; we have a top income tax rate of 40 per cent., which is much lower than the top rate in Italy, Germany and France; we have rising manufacturing investment, rising productivity—it is rising faster than it has for five years—rising manufacturing exports, the highest level that we have ever had, and rising business optimism: it is at its highest for five years. Moreover, the punitive regulations of the social chapter will apply to others, but not to us. For that reason, foreign companies are flocking to the United Kingdom.

The Budget has created the conditions for a lasting recovery. It helps business and tackles Government borrowing: it provides a climate for growth. British business is enjoying low inflation and low interest rates. It knows that the Government are responsive to wealth creators; it sees that we have established a clear strategy to control spending and raise revenue. That is the achievement of this Budget and that is why I commend it to the House.

§ Mr. A. J. Beith (Berwick-upon-Tweed)

As I listened to the Chief Secretary, I recalled that he had written a pamphlet entitled "A Vision for the 1990s". I wondered whether this was the Chief Secretary who argued in the pamphlet for an ultra low tax, high growth economy. 307 He is the Chief Secretary who has to describe to us an economy which is not growing and who is trying to defend a Budget which includes significant tax increases. However, he is also the Chief Secretary who wrote in the pamphlet: No Conservative can want to rest at present levels of taxation in Britain. He has certainly given a new meaning to that phrase.

It has now become clear that the Government are a tax-raising Government. Of course, that was the case before it was less clear. The Government have raised taxes regularly and consistently. The question that the Chief Secretary left with us, even at the end of his speech, is how much more are the Government prepared to raise taxes in order to deal with the public sector borrowing requirement which they forecast? Even on the Government's own assumptions about recovery, there is a £30 billion PSBR at the end of the period described in the forecast. From what the Chief Secretary said, that does not sound like something he is prepared to accept or approve. Is there a further strategy of more tax increases if the Government are shown to have been too optimistic and if the recovery does not occur? That is the question that Ministers must answer in the debate.

It is a question asked not only by hon. Members but by the markets and those who lend to the Government. If the Government are so confident, one wonders why they are prepared to offer such a high real rate of return on gilts to the market. If inflation is going to be kept down to the extent that the Government prophesy, they are offering a very favourable rate of return on gilts.

The Budget confirms failure and does not build success. The price of that failure is visited heavily on the many families and individuals on low and modest incomes, through the 1p on national insurance and the 17.5 per cent. value added tax for fuel. The useful aspects of the Budget, such as the adoption—on a limited basis—of our proposal to convert benefits into a job subsidy for the long-term unemployed, are simply not enough to speed up recovery.

Of course, I welcome the fact that the Government have shown an interest in our proposal, but I was surprised that they want to limit it to people who have been unemployed for two years. Many more people who have been unemployed for between six months and two years could also benefit from the scheme. The idea of introducing only a pilot study will mean that, on the Government's best assumptions, a maximum of only 10,000 people can be helped. We believe that many more could be helped without significant cost to the Exchequer. The idea is to transfer benefits to a job subsidy. Our proposals involved transferring only part of the benefits so that any displacement costs would be covered. However, the job-encouraging projects are not sufficient to speed up recovery, and nor are the capital projects.

Very little is new in the capital projects which the Chancellor chose to mention yesterday. The Heathrow link has been with us for ages, and proposals and Bills have been before the House for a long time. It is no great new bonus to the construction industry. The channel tunnel link has been thrown into absolute confusion by the Government's announcement. British Rail has done all its work for a King's Cross terminal, but the terminal is now to be at St. Pancras. We hope that the project will go ahead, but it will be delayed and further confused. It seems that crossrail will disappear without trace on the basis of yesterday's announcement.

308 Let us consider the autumn statement. We were told, very disingenuously, that the Jubilee line was to go ahead. That announcement was made in the autumn statement, but the line is still not going ahead because the private sector does not think that the funding which the Government have so far offered is adequate. That was the case when the announcement was made, and it is still the case. The capital projects are far too limited to promote a real recovery.

What does the Budget tell us about the general economy? It tells us how big a mess the Government have got us into—a £50 billion deficit and little sign of the promised post-election recovery. We were promised, as soon as it was announced that the Conservatives had won the election, that recovery would take off. It did not happen. Instead, we have massive unemployment, which makes the debt problem spiral. We cannot tax our way out of that spiral. We must reduce unemployment if we are to give confidence to business and to individuals.

Individuals do not rush out to buy goods in the shops, even if interest rates are lower, because they fear that they or their families will be hit by unemployment. They may now fear that they will be hit hard by the tax changes which are to come. Even if it is relatively cheap to borrow capital, businesses will not borrow if they see no prospect of selling the goods that they make because they will not have a return on that capital.

It is necessary to have capital spending of a kind that will benefit the construction industry. It is necessary to have a job start scheme on a much larger scale. It is also necessary to help small businesses—an area in which the Government have taken up a number of the ideas that we and small business organisations suggested to them.

In some cases, the Government could have done more. The VAT threshold for accounting could have been raised to a much higher level. The Chief Secretary must bear in mind that companies which have tried to cut their costs or have tried to expand by moving premises will not benefit from transitional relief, so they still have the problem of the uniform business rate. There were some helpful changes in that sector, but they do not add up to enough to make the vital difference.

A more comprehensive programme of the kind that we advocate would need to be backed by an anti-inflation monetary discipline, but we do not have that. The Chancellor was fascinating and revealing on the subject of the exchange rate mechanism. He explained what a good thing it had been and how valuable in reducing inflation but how much better off we were going to be now that we were out of it. He made it sound as if we had been to a health farm for a couple of weeks to lose weight, but, thank goodness, we did not need to go back again. It is not like that. Sooner or later we shall need to apply an effective anti-inflation discipline again, but we do not have it. All that we have is a series of indicators from which the Chancellor can pick and choose, depending on how he feels when he gets up in the morning. That is not a coherent or understood basis for monetary policy, and not one on which the Government and the markets can rely.

With neither the type of programme nor the discipline that I have described, we face the prospect of sustained high unemployment as well as a continuing high public sector borrowing requirement, even if the Chancellor's optimism is justified. How is that hole to be filled? That question has not been answered.

309 Let us consider the tax measures that the Government have introduced. The Chancellor announced the tax on domestic fuel with a thinly veiled attempt to curry the support of the Eurosceptics in his party. That technique has not been developed very successfully by Government Whips in any event but, in this case, the Chancellor tried to curry that support by arguing that it would be not a European but a British tax. The Eurosceptics might be expected to oppose the harmonisation of VAT rates, but the Chancellor said that there would be no nasty European energy tax for us as we have a much nastier tax of our own.

It is much nastier because it is not an energy or resource tax. It is not directed at resource use or pollution. Orimulsion and windpower are taxed on the same basis under VAT. Oil and solar power have the same impost levied on them under VAT. They will attract VAT of 17.5 per cent., as will the standing charge which is so hated by pensioners who try to keep down their energy costs. All will be subject to 17.5 per cent. VAT. The new arrangement does not discriminate as a carbon, energy or resource tax would.

Just such a tax is on the agenda of the Council of Ministers and will come up in April under the Danish presidency. It appears that it is backed by a great deal of Danish commitment. The Chancellor has sought to pre-empt the decision by substituting a tax which does not draw any distinction on the basis of energy efficiency, of pollution or of resource use. It is a tax designed to raise revenue, but the Chancellor would be a very disappointed man if it achieved its effect. If the tax had the effect of drastically reducing energy consumption, he would not get his revenue.

The tax will not have that effect because it is targeted at those whose demand for energy cannot be elastic. It is directed not at industry but at the ordinary domestic consumer. It will bear heavily on families who have no choice, especially tenants of badly built houses, which are not energy efficient. Those people have no choice about where to live—they probably live in the only house allocated to them when they applied to the council. The tax will hit pensioners hard, especially in the north and in Scotland where energy costs are necessarily higher. The unspecified benefit changes, which the Chief Secretary was unable to define or explain, will not help those who are just above the benefit levels.

It is a stock response of Governments, when introducing a new penal impost, to say, "There is no need to worry, because poor people will be helped by benefits." On the basis of what we have heard today, I do not think that they will—but apart from that, it is on the many people who are struggling to pay their way and who are not entitled to any benefits at all that such a tax bears so heavily. Pensioners with just a little bit of capital saved for their retirement, who receive no benefits because of those savings, will receive no compensation for the energy tax. Working families just above benefit levels are among the people who will be hit hard.

The Chancellor should remember his election campaigns. He should remember the way in which he attacked other parties for the possibility that they might introduce taxes on energy. He has proposed a far more drastic petrol tax than we did, and without any of the safeguards for rural areas. Would he be kind enough to trawl through the 310 stock of Conservative leaflets that argued so vigorously and bitterly that anybody who voted Liberal Democrat risked higher energy charges, especially charges on petrol? The Government have gone far beyond anything that we proposed in either direction.

Let us examine the other key taxation element in the Budget—personal taxation. The most devious tax increase is the raising of employee's national insurance contributions. In all but name, that is an increase in income tax—something that the Conservatives said that they would not introduce. It is even worse than an increase in income tax, because it is not as fair. It does not apply to higher levels of income, and makes the anomalies of the national insurance system even worse—national insurance does not apply to perks and all the other factors that the income tax system covers. That is because of the distinctive, and now outdated, character of the national insurance contribution.

The Chancellor tried to justify the increase in national insurance contributions by saying that there was a shortfall in the national insurance fund. But Ministers know perfectly well that the fund has become a fiction, and that there will still be a shortfall in it. This is a tax increase, and it was designed to be a tax increase—but it is a badly designed tax increase.

The broadening of the 20p income tax band is worth only £25 next year for someone earning as little as £5,500 a year. That will not even offset the increase in employees' national insurance contributions. Someone on average earnings will be £125 worse off because of the increase in national insurance contributions, even after the extension of the 20p income tax band has been accounted for. When the freezing of the personal allowance has been taken into account such a person will be £215 worse off. Ministers' descriptions of what they are doing have not been entirely accurate or fair.

Mortgage interest tax relief is another subject on which Ministers have consistently attacked other parties for considering measures on which they themselves are now embarking. I vividly remember how, during the general election campaign, our proposals for radical reform of mortgage interest tax relief were furiously attacked by Ministers who implied that Conservatives would never touch this sacred benefit—it was to be preserved for all time. Now they have restricted mortgage tax relief further, but there has been no genuine radical reform. The Government are not transferring help to poorer people so that they can buy houses.

The basic trouble with the system, even when it is modified by being restricted to the 20p rate, is that it still gives a lot more help to people who can afford to buy larger and more expensive houses, with larger mortgages. Furthermore, people paying little or no tax cannot benefit from the relief. There is no longer the old alternative of the option mortgage scheme that used to direct help to people on low incomes who were trying to buy houses.

The Government seem to recognise that mortgage interest tax relief is not a good system. Indeed, I believe that there is increasing recognition of that fact even among Conservatives who fought the election pledged to preserve the system for ever. However, if the Government intend to reform the system, they should do so in ways that genuinely help people suffering hardship, and assist the housing market, too.

There are in the Budget measures helpful to industry and small business. Some of them, such as the cash 311 accounting on VAT, are cut-down versions of our proposals. Several measures have, rightly, been welcomed by the CBI and other industrial organisations.

The advance corporation tax proposal is so complicated that I decline to give a more considered judgment on it until I have examined it for a lot longer—but action clearly needed to be taken, because the old system operated against the interests of some of our best and most efficient exporting companies. I hope that the Government have got it right. We shall discover whether they have when we examine the measure in more detail in the Finance Bill.

My anxiety is that the changes do not add up to a programme that will restore confidence, let alone a programme to rebuild the manufacturing industry about which the Prime Minister now says that he has always been concerned. The Budget is the bill that taxpayers are having to meet for the catastrophic mismanagement of the economy under the Conservatives. It does not relieve that bill with any adequate stimulus for recovery, and it exacts payment through the very taxes that the Prime Minister and the Chancellor promised not to increase—the very taxes that they accused other parties of favouring. That is not so much the Clinton approach as the Bush approach—one goes into an election campaign denouncing things which one then goes on to do. Perhaps the Conservatives will be able to demonstrate that that is the only way to win general elections. That would be a cynical commentry on the way in which politics have developed. The Conservatives have debased politics by seeking election on a platform of low taxes while pursuing a policy of high taxes.

§ Mr. Rod Richards (Clwyd, North-West)

Does the right hon. Gentleman recall his party's document, "The Policy Declaration for the Social and Liberal Democrats", dated 1988 which says: The party should therefore not be afraid…to extend VAT over several years to food, children's clothing, domestic fuel, newspapers and financial services"? Will he comment on that?

§ Mr. Beith

I recall that document vividly, and also how totally it was repudiated within six hours of its having been produced by the two then leaders of the party. I recall that occasion with special affection, because I was one of those who was most determined to repudiate the document. On this matter it was plain wrong, and I am sorry that the hon. Member for Clwyd, North-West (Mr. Richards) has not only read it but been influenced by it, and is pursuing part of the policy set out in it. In that respect it was plain wrong. I said so at the time, and so did my parliamentary colleagues, which is why the document never became party policy.

I was arguing that the Government have bebased politics by seeking election on a platform of low taxes while pursuing a policy of high taxes. They have reduced the economy to the point at which, according to their own forecasts, even the large tax increases proposed will achieve not a balanced budget but a £30 billion deficit. The Government should go.

I believe that the British public are entitled to a re-run of the general election, in which the Conservative party is required to stand on the policies that it is in fact pursuing. I invite the Prime Minister to arrange just such a re-run of 312 the general election. I am sorry that, for the saddest of reasons, it is only the voters of Newbury who will have the opportunity to deliver that judgment.

§ Mr. Michael Jopling (Westmorland and Lonsdale)

I hope that the right hon. Member for Berwick-upon-Tweed (Mr. Beith) will forgive me if I do not follow him exactly, except to say that I was interested to hear another example of the typical Liberal Democrat party posture of having a new policy every day. If the policy that they have tomorrow does not suit them, they change it for the day after tomorrow.

The right hon. Gentleman used words such as "catastrophic failure of economic policy" to describe the Government's performance. I guess that, in the middle of the recession, opposition parties all round the world are using that parrot cry about the Governments with which they are confronted. It is not very constructive.

I hope that my remarks will be short, and I shall divide them into two parts. First I shall speak about the Budget; secondly, I want to express my significant anxieties about where it leaves us for the future.

I welcome the Budget, which I believe is constructive and helpful. I especially welcome some parts of it. In my constituency, where there are many small businesses, the measures proposed by the Chancellor, especially those on VAT, will be a huge help. I hope that the House will endorse those measures when the time comes. I declare an interest as a director of Blagden Industries. We have been enormously penalised by the imposition of advance corporation tax, so I welcome the proposed changes to that.

I want to be brief, so I shall not dwell further on the Budget, except to say that I have grave anxieties about a public sector borrowing requirement of £50 billion this year. That is too much. Although the Government are right to spend more in a recession and to put up their borrowing requirement—Keynes is not yet dead, I guess—I point out to my right hon. Friend the Chief Secretary that I told him some weeks ago that there should be significant increases in taxation, given that level of public sector borrowing requirement.

I hope that the Government have gone far enough in the Budget. I am enormously concerned to read the public sector borrowing requirement projections for the years ahead. They are summarised on the second page of the pamphlet published by the Treasury yesterday which is entitled, "The Budget in brief". Table 1, which deals with the public sector borrowing requirement, shows that, starting from £50 billion in 1993–94, there is a continuing PSBR, ending with 30 £billion in the financial year 1997–98. When one adds up the figures, one realises that the horrific figure for the PSBR in the six years up to and including 1997–98 is no less than £233 billion. That figure should cause every one of us, especially Opposition Front-Bench Members who have been pleading for more and more Government spending, to hesitate.

I am really alarmed when I see in the Red Book what is projected to be the cost of servicing that massive debt. I invite the House to turn to page 73 of the Red Book and to look at the figures for central Government debt interest. The figure is due to rise from £17.5 billion in 1992–93 to £26 billion in 1995–96. What the Red Book does not make clear is the figures that are made clear in "The Budget in 313 brief". In the extra two years up to 1997–98, there is a further PSBR of –35 billion in 1996–97 and another £30 billion in 1997–98.

It is almost impossible to avoid the conclusion that, in 1997–98, we are likely to have to look for £30 billion in debt interest. We shall be in the most uncomfortable position in that year, because, while borrowing £30 billion, we shall have to find another £30 billion to pay the interest on the debts that we have incurred.

§ Mr. William Ross (Londonderry, East)

I am interested in what the right hon. Gentleman says