Budget Resolutions and Economic Situation

§ Madam Speaker

I draw the attention of the House to the fact that I must impose a 10-minute limit on speeches between 7 pm and 9 pm.

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

The Budget sets in place one more step in our strategy for industry. When coupled with the autumn statement, it must be seen as a comprehensive response to our industrial needs. First, it provides a sound economic background against which our companies can more effectively enhance their competitiveness. Secondly, it backs our drive on the export markets. Thirdly, it addreses a range of specific measures that industry has raised with us. Fourthly, it recognises the vital role that small and medium-sized firms play in economic vitality.

No Government have done more to create a favourable climate for enterprise and wealth creation. Interest rates have been cut by 9 per cent. As a consequence, industry's costs have been reduced by £11 billion a year. The Government's privatisation programme is perhaps one of the most radical changes in the United Kingdom's economic and industrial structure since 1945.

In 1978–79, the nationalised industries received subsidies of some £2.2 billion in today's prices. In contrast, in 1990–91, the privatised companies paid £3 billion to the Exchequer. The privatised industries are achieving striking improvements in productivity. British Airways has increased its productivity by more than 20 per cent. The number of customers per employee in respect of British Gas has increased by about 19 per cent. Productivity at British Steel, which is now considered to be one of the world's most efficient steel producers, has increased 631 dramatically. It now takes only 4.8 man hours to produce a tonne of liquid steel, compared with 13.2 man hours in 1979–80.

Those improvements in productivity have been passed on to consumers as lower prices and rising standards of service. Since privatisation, gas prices have fallen by 18 per cent. for domestic customers and by 40 per cent. for large industrial customers. Those industries are, in many cases, now acting as flagships for Britain in overseas markets.

During the Prime Minister's visit to India last month, British Gas signed an agreement with the Gas Authority of India enabling both companies to take gas from offshore Bombay and send it through a new distribution network to more than 60,000 offices, factories and homes.

In Argentina, British Gas has won a $300 million contract to replace the Buenos Aires distribution system. The company is working as far afield as Indonesia and Kazakhstan. It is developing the Uisker oil field in Tunisia and converting the German town of Spremberg to natural gas.

Since privatisation, Rolls-Royce——

§ Mr. David Winnick (Walsall, North)

The Secretary of State has mentioned gas and electricity and there is much confusion in people's minds outside this place. Will the Government fully compensate pensioners, and particularly those on very low incomes, in respect of the imposition of VAT? Is it not necessary for the Government to be quite clear, before the vote at 10 pm, precisely what is to be done, bearing in mind the tremendous hardship and misery that so many people on low incomes already face when they pay their heating bills during the winter months?

§ Mr. Heseltine

Of course that is important and that is why the Chancellor of the Exchequer made the position clear in his Budget statement and why my right hon. Friend the Prime Minister built on what the Chancellor had said when he addressed the House last Thursday. I will return to that subject when I reach that part of my speech.

As I was saying, since Rolls-Royce was privatised in 1987, its share of the world civil engine market has risen from 10 per cent. to no less than 22 per cent. Its aero-engine order book has more than doubled and currently stands at £6.7 billion. More than 70 per cent. of its output is exported. Its industrial and marine activities are also world wide. It recently won power supply contracts worth £67 million in India and the subsidiary, NEI Parsons, secured a £100 million contract for turbines in Singapore.

Ten years ago, British cars were hardly seen on the streets of Tokyo. In 1991, Rover exported 10,000 vehicles to Japan. The company produced 395,000 vehicles in 1991, of which about 40 per cent. went overseas, the bulk to other members of the single market.

As I said in the House last week, British Telecom is now one of the world's foremost telecommunications companies. Last year, it won a £350 million contract to install a network for the New South Wales Government.

Our water companies are making formidable strides in overseas markets. Thames Water is expected to sign a contract for £450 million for a water supply scheme in Izmit in Turkey to build, operate for 15 years and then transfer the scheme to the Turkish Government.

§ Mr. Andrew Mackinlay (Thurrock)

What about the unemployed in Dock road, Tilbury? What about real people?

§ Mr. Heseltine

I heard the hon. Gentleman say, "What about real people?" Does the hon. Gentleman believe that real people do not work for those real companies? What sort of real people does the hon. Gentleman have in mind if people who export for Britain and design and manufacture for Britain are not considered by the Labour party to be real people? I suppose that, in the language of the Labour party, the real people are those who disrupt industrial relations, try to undermine Britain and talk the nation down: the real people of the left; yesterday's real people.

§ Mr. Dennis Skinner (Bolsover)

Will the right hon. Gentleman give way?

§ Mr. Heseltine

Here is one of them. One of yesterday's real people stands before us.

§ Mr. Skinner

As a matter of fact, I am making inquiries about today's real people. The Secretary of State knows as well as I do that the mining industry could do with participating in the exports to which he referred. After a 15 to 20 per cent. reduction in the value of the pound, we could be exporting coal and today's real miners could be taking part in that.

Will the Secretary of State tell us today that the 20 million tonnes of coal imported into Britain will be massively reduced and that he will launch an export drive for coal? If we are exporting all those things to all those parts of the world, why has there been a announcement today of an increase in the balance of payments monthly deficit of £1.3 billion?

§ Mr. Heseltine

I can help the hon. Gentleman. Yes, we can export coal the day that we produce it at a price which the export market will absorb. If the hon. Gentleman had put his mind years ago to advising his constituents about the productivity gains that we are beginning to see in the mining industry, we might not have these imports of foreign coal. The price that we have paid for the views expressed by the hon. Member for Bolsover (Mr. Skinner) and his right hon. and hon. Friends and their failure to bring home the realities of a competitive marketplace to the miners of this country is now being visited on those very people.

Thames Water, as I said, expects to sign a contract for £450 million. Anglian Water has won a stake in a winning consortium for a Buenos Aires water privatisation project. North West Water, in conjunction with an Australian engineering firm, has signed a contract for 100 million Australian dollars to improve water quality in Melbourne.

That is a remarkable transformation. Not only are those privatised companies no longer loss making, in tax terms, but they are paying large sums of money to the Exchequer. They are now winning for Britain in a way in which, for the past 30 or 40 years, we denied them the opportunity even to try to.

I am not sure whether the hon. Member for Dunfermline, East (Mr. Brown) is in his place at the moment.

§ Mr. Rhodri Morgan (Cardiff, West)

I am grateful to the right hon. Gentleman for giving way before he goes off on one of those manic, last deckchair attendant on the Titanic 633 performances. Does he not realise that the reason why the water companies are able to make flash investments in places such as Turkey and New South Wales has nothing to do with the technology which they have to offer? It has everything to do with the guaranteed and ludicrously high prices which they are allowed to charge by the over-generous terms on which they were privatised by the Government in 1989. As a result of having that guaranteed income, the companies can spend overseas the capital which they have accumulated from the ordinary water and sewerage users in the United Kingdom. It is capital which we, the taxpayers, have provided. It is nothing to do with the skills of the companies.

§ Mr. Heseltine

Here we have the revisited Labour party. This is the Labour party which does not want to see real people involved in making real products. We now have a new concept: if a privatised British company goes out and wins in the marketplace of the world, somehow it is doing so because it is taking on loss-making contracts. That is what the hon. Member for Cardiff, West (Mr. Morgan) said. British companies are not winning on their merits. They are winning contracts because, somehow or other, they are being artificially supported in the domestic marketplace.

What sort of message does the hon. Gentleman think that he is sending to countries that are considering taking British tenders? The message has come from the British Labour party that it is a giant fix—that these are not competitive tenders but have all been sorted out on the back of the domestic market by the British Government.

I hope that all those people out there who are selling for Britain are listening to this debate and to the support that they are getting from the Labour party in the House. Labour Members of the revitalised Labour party say that they are backing Britain. They are backing Britain everywhere except when it comes to winning contracts in the overseas marketplace. If the hon. Member for Dunfermline, East (Mr. Brown) were here today——

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

Get on with it!

§ Mr. Heseltine

The hon. Gentleman should not worry: I shall get on with it. The hon. Member for Dunfermline, East said: 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."—[Official Report, 17 March 1993; Vol. 221, c. 296.] That was the great sort of interrogation to which the Chancellor and the Chief Secretary were subjected by the hon. Gentleman.

What is happening to improve the living standards? What are the facts? As a result of the changes which I have been talking about, real spending on the national health service in England has increased by 60 per cent. since 1979. There are 19,000 more doctors and dentists and almost 38,000 more nurses and midwives, and 45 per cent. more acute in-patients and day cases are treated each year.

§ Dame Elaine Kellett-Bowman (Lancaster)

Real doctors, real nurses, real patients.

§ Mr. Heseltine

My hon. Friend is right: this is another example of real people doing real things because a Tory Government have made it possible.

The investment programme in the privatised water industry is heading for an additional £30 billion by the end of the century. There has been record public expenditure on roads and the urban programme has been transformed. The essence of the matter is that, while Labour Members continue to talk about these problems, the Tory Government continue to do something about them. There has been much comment about the Chancellor's commitment to extend VAT to fuel bills. That applies with a rate of 8 per cent. in the year starting 1994 and moves to the full rate in April 1995. The Chancellor made his position clear in his Budget speech. On Thursday, the Prime Minister told the House that there would be extra help for less well-off pensioners and other people on low incomes. They will get the extra help from next April before the higher fuel bills come in. That help will be additional to the future increases in pensions and other benefits which will take place automatically. Cold weather payments will also be adjusted to reflect increases in fuel costs.

I was intrigued to read in The Observer that the Chancellor and I were engaged in a furious row on the subject. Apparently, I was furious that I had not been consulted. Perhaps I may say a word about the matter. I was consulted in an orderly way. I made no protest, for the simplest of all reasons—I shared the Chancellor's judgment that it was necessary to raise taxes in the Budget.

Of course any tax increases are likely to be difficult, but, frankly, I am not prepared to cop out of the difficult tax decisions on the most contemptible of arguments—that I agree with what the Chancellor is doing in principle, but I disagree with some specific examples of the difficult decisions which he must take. That is the sort of stuff of which Opposition arguments are made. That is the sort of argument which the Labour party relishes. Indeed, it is the sort of argument which keeps Labour Members pinned to the Opposition Benches.

Why did not The Observer take the trouble to check the facts about this great row between me and the Chancellor? It cannot be because it did not know exactly how to get hold of me. That cannot be the case, because I received a telephone call from The Observer on Saturday wanting to take my photograph. The House will be delighted that I turned down that extremely generous offer. If the picture editor of The Observer knows how to find me, is it too much to think that the serried ranks of industrial and political correspondents somehow cannot manage the same trick—or were they frightened that, if they put to me the straight question, they would get the truth and the truth would deny them any sort of headline at all?

I can see that this will be the revisiting of the inglorious past of the hon. Member for Livingston (Mr. Cook). This afternoon he will be in his element. If ever there was a story tailor-made for the hon. Gentleman, this is that story. There are millions of pensioners to frighten and spectres of ill-health and hardship to conjure up. The hon. Gentleman knows the arguments backwards, because, over the years, he has invented most of the arguments backwards. He is the seasoned practitioner on whom all those people out there will wish to make a judgment.

In The Times of 14 December 1987, the hon. Gentleman described the Government's intentions as to 635 leave the NHS as a ghetto service for those who are too poor to afford anything better". In The Times of 1 February 1989, he said of GP budget holders: For the first time, GPs will have an incentive to turn away patients with a high price tag, the elderly, the disabled and the chronically sick. In The Independent of 5 October 1990, he spoke of an NHS in which pensioners queue up for their operations in an end-of-season sale". What happened? All the trusts are still in the public sector, and 1 million more patients are being treated than when the hon. Gentleman was making his statements.. The hon. Gentleman is a man with a record. He has been through it all before. He should be judged by how true it all turned out to be.

I took a little time off last Wednesday to listen to the hon. Member for Dunfermline, East, and I am glad to welcome him to our deliberations today. Some of us had the privilege to watch him. He was at his most ferocious. Psychologically, the red flag was up—I see that it is round his neck today. Red blood was flowing all over the carpets as he ended his speech with these fighting words: 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 be a Labour Government."—[Official Report, 17 March 1993; Vol. 221, c. 298.] Trust a Labour Government! In September 1964, the Leader of the Opposition, Mr. Wilson, said: Over the period of a Parliament I believe that we can carry out our programme without any general increase in taxation. When that Government left office, they were collecting £2 for every £1 collected when their promise was made. In the same election campaign, the late George Brown—[Interruption.] Oh yes. Opposition Members may laugh now. I know that it is a long time ago, but it is a long time since we had a Labour Government. The reason why it is a long time is because the Labour party said these preposterous things and was found out.

The late George Brown said: For new mortgages we have something in mind of the order of 3 per cent. By the time that Government left office, mortgage rates were 8.5 per cent. By the late 1960s we had the then Prime Minister, Lord Wilson, proclaiming on 17 April 1969: The Industrial Relations Bill is an essential Bill, essential to full employment and essential too for the Government's continuation in office. On 18 June 1969, the Bill was withdrawn from the legislative programme.

For those who are interested in the flights of fancy of the hon. Member for Dunfermline, East about trusting a Labour Government, what about all the bravura claim in October 1964: Labour will abolish poverty in Britain"? Six years later, the Child Poverty Action Group had sadly to conclude: in many ways the plight of poor families is now worse than when the Labour Government took office. Worse it was, worse and always it will be. Trusting the Labour party is not a matter of investing in risk. It is a matter of investing in certainty. All out. All up. All over.

The hon. Member for Bolsover asked a question about coal. I recognise, as will the House, that there has been much speculation in recent days about the coal contracts. Some progress has been made in respect of the base contracts. Work has continued now through several weekends. I hope that I am about to be able to report on 636 the position. I hope that I may be able to do that in the not-too-distant future. However, as I have said many times, I have no powers to make people sign contracts. In the meantime, I have agreed that British Coal can extend the redundancy terms until the end of December this year.

Increases in productivity are often accompanied by falls in employment. We have had to face that problem in the coal industry over many years. But we are familiar with the general trend throughout manufacturing industry. Indeed, manufacturing employment peaked as far back as 1966. That phenomenon is not confined to the United Kingdom. Some decline in employment in manufacturing is evident in most industrial countries.

Increased competition and continuing technical progress mean that many firms will reduce employment to stay competitive. That does not mean that those firms are in difficulties. Far from it. The vehicle industry in the United Kingdom is producing 300,000 more vehicles a year than 10 years ago, but it employs 100,000 fewer people. The paper, printing and publishing industries increased their output by more than a quarter between 1980 and 1991, but employment fell by 12 per cent.

In many industries, successful firms are cutting jobs as they invest for the future to stay ahead of the competition. New firms and new businesses were the key to employment growth in the 1980s and they are undoubtedly the area of the economy to which we must look for new jobs in the future. We have been more successful in job creation than other European Community countries. The work force in employment grew by almost 1.5 million over the last economic cycle, between 1979 and 1990, so it is of critical importance that we recognise that every degree of support that we can give to new companies is most relevant to creating new jobs and new opportunities in our economy.

The next matter of dramatic importance in what we seek to achieve and must achieve is support for our export companies. Our companies know that there is no such thing as a secure market. Overseas firms face the same pressure to win as we do. We are pushing forward with fresh initiatives to help exporters.

Last November the Minister for Trade announced an export strategy to maximise our strengths and minimise our weaknesses. I have invited British companies to second to my Department 100 men and women to help us in the promotion of our exports. I am extremely gratified by the response that I am achieving. I believe that we shall have 100 such people by the summer of this year. That will give us experts with first-hand knowledge of overseas markets who will aim to identify and promote opportunities to help our companies to fulfil their potential.

§ Mr. John Townend (Bridlington)

I am sure that my right hon. Friend agrees that our exporters are doing a fantastic job, but is not the United Kingdom's problem the fact that we import too much? Do we not have a cultural problem? A large part of the British buying public still believes that it is smarter or better to buy foreign, even when British goods are competitive and of the right quality.

I give my right hon. Friend an example from my constituency. I represent more pigs than people. We produce the finest pigmeat in the world. British charter bacon is of top quality and is internationally competitive. Yet 50 per cent. of the bacon bought by housewives is from Holland or Denmark. Is not that a national disgrace?

§ Mr. Heseltine

I understand my hon. Friend's anxiety. That is why I was delighted to notice the seminar which my right hon. Friends the Prime Minister and the Minister of Agriculture, Fisheries and Food, with leaders in both the retail and producing sectors of the food industry, held recently to address some of those difficult issues. As my hon. Friend says, that part of our economy is particularly important because it represents one of the largest deficits in our balance of trade.

The Budget of my right hon. Friend the Chancellor of the Exchequer will help business build on the achievements of the 1980s. It will promote the economic recovery by providing concrete benefits for business and a stable framework for business decisions. His Budget has successfully combined three aims, at least two of which were widely said to be incompatible before he rose last Tuesday and showed how it could be done. His Budget has avoided damaging the inevitably fragile early stages of recovery; it has achieved a substantial improvement in the public finances into the medium term; and it has done all this while keeping inflation within clearly defined limits. All three aims, and especially the continued control of inflation, are of vital importance to business.

We now hear less than we did two or three years ago about short-termism as a feature of our industrial and commercial life. To a large extent, this is because we have got inflation down, yet I do not doubt for one moment that deep-seated short-term attitudes are prevalent in our affairs; or that this is one important strand in understanding why we as a nation have performed less well than many of our competitors.

Such attitudes have led us to invest less than we might in technology and advanced means of production. They have encouraged growth in companies by acquisition and financial engineering, rather than through organic development and building on products and markets. They have led us to place far too great an emphasis on comparisons of near-term financial results in judging our companies, instead of considering the strength of management and its underlying strategy.

Those attitudes are all of a piece. They reflect much that is cultural, and they can be changed only slowly. But they have one great mechanism of reinforcement—inflation. Inflation is an evil which narrows the focus of attention into the short term. Inflation must be kept low in the years to come if our performance is to be improved. The Budget measures will reduce burdens on business by £1 billion in the year ahead. They will assist small and medium enterprises to do what they do best—create the wealth on which the rest of the country depends.

§ Ms Liz Lynne (Rochdale)

On that specific point, can the President of the Board of Trade say why the Chancellor did not introduce a statutory requirement to pay interest on late payment of debt? That would have helped small businesses considerably.

§ Mr. Heseltine

We have no doctrinal view on that measure, but there are many doubts about whether it would have the effect that the hon. Lady suggests. We have discussed the matter. My noble Friend Lady Denton has exercised significant influence on late payment of debts. There has been a substantial improvement in the rate of payment. Not the least reason for that is that the Government have paid their bills in a timely way and 638 encouraged large companies to do the same. My noble Friend has made it clear that she will take up specific cases if they are drawn to her attention.

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

I wish it were true that Government Departments had been settling their bills promptly. The Public Accounts Committee took evidence from the Property Services Agency, which was only paying when it received payment, and I shall shortly be criticising that strongly.

§ Mr. Heseltine

I fully acknowledge the high position of responsibility that the right hon. Gentleman has in our affairs. If he has examples that my Department should explore, I assure him that we shall do so, as that is an important matter. We have tried to do what we can to speed up payments, but we are aware that a statutory process might not improve matters in the way that people think, and have therefore hesitated to move in that direction.

For the second year running, no business will face a real increase in its rates bill. The package of value added tax measures introduced by the Chancellor will also be welcomed by every small firm. Finance for small businesses—a subject of great concern—will also be given a boost by the changes in premiums and loan size limits, under the small firms loan guarantee scheme. I have no doubt that my right hon. Friend the Chancellor has thrown a challenge to the banks. The Government have taken an initiative and it is now up to the banks to judge business plans and to make their loans in a way that will help businesses to grow.

The changes to capital gains tax will encourage reinvestment by not penalising those who use their profits to start another business.

I have referred to the need to help exporters. We are making available an additional £1.3 billion of cover for key markets. Together with the changes in the autumn statement that will mean that annual cover for United Kingdom exporters in priority markets will have increased by more than 75 per cent. in just four years. Premium rates have also been cut and are now more than 25 per cent. lower than in 1991–92. Those reductions will bring the average level of premiums charged in the United Kingdom down to around the average charged by the United Kingdom's competitors.

The Chancellor announced a special scheme in the Budget to help persuade foreign-owned companies to choose the United Kingdom as a location for international headquarters companies. The present advance corporation tax rules are an obstacle to their doing so. The new rules, which will be implemented next year, will remove that obstacle, which should attract new business to the United Kingdom, and bolster London's role as Europe's premier financial centre.

I know that oil companies have always recognised the responsiveness and stability that our North sea tax regime offers. However, the petroleum revenue tax regime was introduced in 1975, with the last substantial amendment in 1983. In keeping the tax system under review, it was important to keep in mind the fact that the North sea was maturing as an oil province—new fields tend to be smaller, and older fields are gradually declining. The Chancellor has now reduced petroleum revenue tax from 75 to 50 per cent. for existing fields from 1 July 1993, and abolished the 639 tax for future fields given development consent on or after 16 March. The Chancellor's proposals move the North sea from a high-tax to a low-tax regime.

Conditions for recovery are in place. The United Kingdom has the lowest inflation rate for 25 years; the lowest interest rates since 1977; and the lowest base rates in the European Community. Interest rates have fallen by nine percentage points since autumn 1990, knocking £11 billion a year off industry's costs.

We have a fiercely competitive exchange rate; a set of Budget measures to boost confidence and stimulate growth; and confidence is rising. The Confederation of British Industry, the chambers of commerce and the Institute of Directors show rising confidence in their surveys. Retail sales are at record levels; car sales are up sharply; manufacturing investment in the fourth quarter of 1992 was up by 5.5 per cent. on the start of the year; the increase in average earnings is the lowest for 25 years and we expect a further decline in the coming months.

Rapid productivity growth means that United Kingdom manufacturing unit wage costs are lower than those in Germany or Japan, on recent OECD estimates, and they have fallen during the past 12 months. However, further pay restraint is vital to maximise the competitive advantages of sterling depreciation. This month's fall in unemployment is welcome, but too much should not be read into one month's figures, as the fall might not be immediately sustained and it may be some time before the underlying trend takes a downward turn. Unemployment is likely to be one of the last indicators to respond to any recovery in the economy.

Exports and productivity are at record levels and Britain is moving ahead. British business now has clear advantages in competing in the rest of the world.

§ Mr. Anthony Steen (South Hams)

While I agree with all that my right hon. Friend is saying, does he agree that the rules and regulations affecting small firms prevent them from competing with other countries on that famous level playing field? Something needs to be done to reduce the number of rules and regulations affecting small firms. Can he tell the House what the deregulation unit is doing about future and existing regulations, which are preventing the recovery that small firms so badly need?

§ Mr. Heseltine

As my hon. Friend knows, we have started to review proposed regulations and those already on the statute book and are applying the review to domestic and European Community regulations. We have been fortunate in securing the services of Lord Sainsbury and those of various other chairmen and significant figures from the private sector, who have helped us to establish seven task forces, to consider the 7,000 existing regulations, which obviously create the climate in which industry has to operate. I shall report to the House as progress takes place.

§ Mr. Peter Hain (Neath)

rose——

§ Mr. Heseltine

I shall not give way.

I assure the House that in all those ways the Government will play their full part to help the private sector in difficult circumstances.

As I told the House in a recent debate, we live in a competitive world. As we export such a high proportion of our output, it is impossible to believe that we can operate as an island economy. We are broadly comparable with 640 many economies in the world. During the past year industrial production has fallen by 2 per cent. in Italy, by 2.5 per cent. in France, by 6.5 per cent. in Germany and by 7 per cent. in Japan, but in this country industrial production has risen in that period.

Japanese gross domestic product fell by 0.75 per cent. in the second half of 1992, output fell in France and Italy and there were three successive quarters of decline in Germany. Since 1981—the trough of the last recession—United Kingdom manufacturing output has risen by more than a fifth, manufacturing investment is up by nearly two fifths and manufacturing productivity by two thirds. Our export volumes are at an all-time high and by the end of 1990 there were about 400,000 more businesses operating in this country than in 1979.

The underlying strength of our manufacturing base can also be seen from our ability to attract inward investment. In 1991, we attracted one third of all inward investment into the European Community.

So, as we have said many times, despite the severity and length of the recession, Britain is in a strong position to take advantage of prevailing domestic and world economic circumstances. That can be done only by making this country's economy competitive, which can be achieved only by the relentless grind on costs and the pursuit of improved quality.

The Opposition are incapable of understanding those arguments, and view the British economy as an island apart from international pressures and the international marketplace. They keep peddling their view of an industrial strategy, which is simple and based on clear but irrelevant ideas: higher taxes to finance higher public expenditure; bigger training budgets; pushing up education standards; helping workers with statutory rights; and embracing the social chapter. They have pursued all those ideas in France, where their income taxes are higher and their education system renowned. They have extensive public ownership and have turned the social chapter into a Domesday book. What has happened under one of Europe's most substantial socialist Governments? The people living under it are sick to death of what is happening.

The French election result, if replicated in this country, would take a scythe to the parliamentary Labour party. It would be down to a rump of about 10 people; the impregnable Labour strongholds might be all that would be left if we had a Labour socialist Government. What would that Government look like? Perhaps the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) would be Foreign Secretary; the hon. Member for Rhondda (Mr. Rogers) would be Chancellor of the Exchequer; the hon. Member for Liverpool, Riverside (Mr. Parry) would be Home Secretary; and presumably there would be an early return to the Front Bench for the right hon. Member for Islwyn (Mr. Kinnock) as Secretary of State for Wales. We could count on the fact that the hon. Member for Bolsover would be there clambering on to any convenient barricade, searching for a starring role in "Les Miserables". What a brilliant piece of casting that would be, but it would be casting in the world of make-believe. The Budget contains real policies for the real world; I commend it to the House.

§ Mr. Robin Cook (Livingston)

For the second time in a fortnight, the President of the Board of Trade has used a speech on the economy to make a statement on his energy review. For the second time, the statement that he made about that review consisted of things that he cannot do to save coal pits. The nation is tired of hearing what he cannot do to help the miners; what we are still waiting to hear, after six months, is what he will do to help them.

Every time the right hon. Gentleman rules out another solution to the problem, as he did today, he confirms what we have always warned about: that the immense flaw in the structure of that review is that the man in charge of finding a solution that avoids closing the 31 pits is the same man who thought it was the right course in the first place. I must warn the right hon. Gentleman that he is coming dangerously close to admitting that he has wasted six months in coming to the conclusion that he was right all along and everybody else was wrong.

If the President of the Board of Trade wishes to be remembered as the man who closed down Britain's coal Industry, the Chancellor will be remembered for his 1993 Budget. It was quite the most dramatic Budget since 1988, when Lord Lawson eyed up a overheated economy and poured petrol over it, creating a rip-roaring runaway boom which burnt itself out and left his successors sitting among the ashes—except for the President of the Board of Trade: he does not notice them.

As I listened to right hon. Gentleman's speech, as he fumbled among the ashes of the Government's industrial and economic performance, I heard him describe them as a bonfire of success. I started to convince myself that the trade gap must be a statistical error, that job losses from companies and manufacturing industry are a sign of their success. I must say that I was saved from giving in to the right hon. Gentleman once his speech finally orbited out of touch with ground control and reality and he blamed my hon. Friend the Member for Dunfermline, East (Mr. Brown) for the 1964 Labour manifesto.

I admire my hon. Friend and I have known him for 25 years—he was precocious even then, as a student—but I must admit to the right hon. Gentleman that, having known my hon. Friend that long, I know that he did not write the 1964 Labour manifesto. I predict that, 30 years from now, my hon. Friend will be sitting below the Gangway dignifying the Labour Bench and recalling to the House how the 1993 Budget swept him into the Treasury and Labour into office.

What makes this Budget dramatic is the admission of the damage the Government have done to the economy. No plea of guilty has been entered, and nobody has even said sorry, in three days of debate. No request has been made for 14 years of other offences to be taken into consideration.

But the admission was there in the lengthy speech of the Chancellor, which revealed the embarrassing and painful decisions forced on him by the severity of our economic recession. It is there in the thick Red Book that charts the bleak economic problems of the future. It was there in the admission of the damage that proved the curtain raiser to the Budget—the report specially commissioned by the President of the Board of Trade, which was leaked to The Sunday Times the Sunday before the Budget.

That report, from the competitiveness unit of the DTI, said that our industrial base is fundamentally weak, that 642 our trade deficit will last for decades and that, instead of putting in place the conditions for recovery to which the right hon. Gentleman has referred, the Government have put in place low investment and low skills in industry.

Many Opposition Members share the distress that the right hon. Gentleman must have felt at people employed by the Government talking Britain down in that way. For that reason, last week, I asked the right hon. Gentleman to publish that report in full, or at least put a chained copy in the Library. He said that he could not publish it because "the report clearly reveals the devastating inheritance of 1979".—[Official Report, 17 March 1993; Vol. 221, c. 282.] That is why he could not publish it. He does not want to embarrass us; he wants to spare our feelings. I must say that that is not a sensitivity I had associated with the right hon. Gentleman before.

We know what the inheritance of 1979 was. It was manufacturing investment at 3.9 per cent., of GDP, a level the Government have never once returned to in 14 years in office. The legacy of 1979 was a surplus of £2.5 billion in manufacturing trade compared with a deficit of £7.5 billion last year. The legacy of 1979 was an unemployment rate of 1.1 million, which the Government have turned into an unemployment level of 3 million—and never in one month, in 14 years, have they got unemployment back to the figure with which they started. That is the inheritance of 1979.

The reason that the President of the Board of Trade is afraid to publish that report and shrinks from doing so is that it spells out the legacy of 1990, which they inherited from themselves. It confirms that, after 14 unbroken years in office, they have achieved industrial production with the lowest growth rate in Europe except for Greece, a manufacturing investment level lower than when they started in 1979, and a proportion of the work force with skills at half the level of other countries. That is the background aganinst which this Budget must be judged.

§ Dr. Keith Hampson (Leeds, North-West)

The hon. Gentleman is always very selective with his memory. Does he not remember that, in 1978, the previous Labour Government, against a backdrop of doubling unemployment and the collapse of manufacturing industry, commissioned the Finniston inquiry, which highlighted all our long-term failings to compete with our continental partners in the manufacturing and engineering industries?

§ Mr. Cook

My breath is taken away from me when I hear a Conservative Member complain that the previous Labour Government doubled unemployment. When they left office, the unemployment rate stood at 1.1 million and was coming down; the Government have twice taken it up to 3 million.

If the hon. Gentleman wishes to accuse me of selective use of statistics, it is particularly interesting that, in his selective use of them, he did not choose to express concern about the 68 per cent. rise in unemployment in his own constituency since the Prime Minister took office. If he is worried about rising unemployment, why does he not do his constituents the justice of expressing some concern on behalf of the 3,000 constituents who are now unemployed?

§ Dr. Hampson

That is the wrong Leeds constituency, mate.

§ Mr. Cook

With respect to the hon. Gentleman, in the event that we have the wrong figure, I assure him that I will give him the correct figure very shortly.

643 We have dealt with the inheritance of 1979 and 1990. What this Budget must be judged against is the background of 14 years in which the Government have run down industry. Judged against that background, the Budget fails to meet the test of what is needed by industry. Industrialists have already returned their verdict. Neil Johnson, the director general of the Engineering Employers Federation, said: This Budget does nothing to bring about the massive switch to investment which is essential for lasting recovery. The representatives of the Machine Tool Technologies Association have said: This Budget fell short of directly encouraging UK companies to invest. We do not need to look outside the Government for those who tell us that the Government's policies in the Budget are failing industry. We can see the verdict returned in the Red Book. We only have to look at the contents of the Red Book to see the extent to which the Budget does not stimulate industry. My hon. Friends should handle the Red Book with caution, as it has never yet got it right. It has always erred on the side of unsupported cheerfulness and presented a best case scenario. Whatever the Government say in the Red Book, experience always turns out to be worse than the promises, which are bad enough.

If the President of the Board of Trade wishes to tackle me about talking Britain down, he should note that it was not me who made the forecasts—they were deposited by the Economic Secretary. If the President fears another fit of moral indignation coming over him about people talking Britain down, he should take out his feelings on the Economic Secretary instead of me

Before I turn to the financial statement and the Red Book I shall correct the hon. Member for Leeds, North-West (Dr. Hampson). He was wrong—the increase in unemployment in his constituency since November 1990 is 68 per cent., and unemployment currently stands at 3,264. I now fully understand why the hon. Gentleman did not refer to unemployment in his constituency—he does not even know the unemployment figures for his constituency.

§ Dr. Hampson

rose——

§ Mr. Cook

No, I shall not give way to the hon. Gentleman, as it was perfectly clear that I was referring to the increase in unemployment since November 1990. If the hon. Gentleman does not know the increase in unemployment in his constituency since November 1990, I suggest that he does us all a favour, returns to the jobcentres in his constituency tonight and gives us an extra chance to beat the Government.

§ Dr. Hampson

On a point of order, Mr. Deputy Speaker. For the record of the House, the hon. Gentleman chose a particularly——

§ Mr. Deputy Speaker (Mr. Geoffrey Lofthouse)

Order. What is the point of order for the Chair?

§ Dr. Hampson

For the Official Report to be accurate, I should say that the hon. Gentleman chose a particularly good year, when unemployment was low.

§ Mr. Deputy Speaker

The hon. Gentleman knows full well that that is not a point of order for the Chair.

§ Mr. Cook

I chose the month in which the present Prime Minister took office, which was not a particularly good month for Britain, but that was the base that was inherited.

§ Dr. Hampson

rose——

§ Mr. Cook

I am sorry to disappoint the hon. Gentleman, but we cannot have a private conversation; I must return to the debate.

The Red Book shows that, in 1993 business investment is expected to fall for the fourth successive year. Ours is the only country in Europe in which business investment will have fallen for four consecutive years. Other countries worry about recession when the rate of growth in investment is not as fast as usual. The Government are so desperate that they claim a recovery when the rate of decline in investment is not as fast as usual.

According to the Red Book, the consequence of the decline in business investment means that, in 1994, manufacturing output will be growing more slowly than in the rest of the economy. Since 1990, manufacturing output has collapsed faster than the rest of the economy. Now that the Government are claiming recovery, the growth in manufacturing output is expected to be slower than the rest of the economy. So much for the Prime Minister's passionate belief in expanding the manufacturing sector. According to the Red Book, the manufacturing sector will continue to decline as a proportion of gross domestic product.

Any lingering hope that the Budget is a Budget for industry or that the Government believe that their Budget will stimulate industry vanishes when one turns to the Red Book predictions for the balance of payments. We already have a ballooning trade deficit of more than £1 million for every hour. The Red Book admits that that deficit will swell by half as much again. What is damning about the failure of the Budget to expand industry is that all that increase occurs in the manufacturing deficit. In 1993, the deficit in manufactured trade is expected to be as big as the deficit for the past two years added together—that is the measure of the Government's 14 years of failure.

I notice that no Conservative Member is rising to ask about the Labour Government's record on manufacturing trade, and I know why. It is because they know that, in every year under the last Labour Government, there was a surplus in manufacturing industry. That is the inheritance that the Conservatives have squandered.

Unlike the President of the Board of Trade, I do not believe in for ever talking down our inheritance. Britain has much to be proud of in its past. It should be proud of its inventions and the technology that it has given the world.

In the two centuries since the industrial revolution, Britain has repeatedly led the way. It led the way in railway technology. We had a surplus in the trade of railway vehicles until 1979, when it stood at £260 million. Under this Government, for the first time, we have a deficit in the trade, of railway vehicles of £57 million. The pneumatic tyre was invented in Britain by John Dunlop, and we had a surplus in the trade in tyres until 1979, when it was £90 million. We now have a deficit of £38 million. The vacuum cleaner was invented in Britain and we had a surplus in the trade in vacuums until 1979, which has now, under the Government, been turned into a deficit.

645 I go some way to agreeing with the President and say that we should stop talking down Britain's proud past. We should start pinning the blame on the people who have pulled Britain down and turned our trade success into trade failure.

A fortnight ago, when the President was accusing me of talking down Britain, he produced as evidence of the recovery and the good things about Britain, which he said that I did not mention, the 400,000 small businesses that had started up and said: It is from the small and medium-sized company sector of the economy that jobs come". The right hon. Gentleman was so proud of that figure that he repeated it again at Question Time last week.

The President is right to say that small and medium-sized enterprises are a vital source of innovation. He was also right in that, last year, 445,000 small businesses opened bank accounts for the first time. What the President did not tell the House was that, in the same year, 570,000 small businesses closed their bank accounts for the last time, and 125,000 more small businesses folded than started last year.

The right hon. Gentleman invited the House to congratulate the Government on their record in a year in which the number of small businesses that folded rose by 4 per cent. Is that the best that he can do in trying to talk up the Government's record—to admit that it is from the small and medium-sized company sector of the economy that jobs are disappearing?

Last Tuesday, Budget day, a bumper 110 of those small and medium-sized enterprises were advertised as going into liquidation, 19 of them in the manufacturing or engineering industry. They included MET Plastics in London, which were toolmakers and moulders. When asked why, the company said: Bad debts and the length of the recession". HEE Equipment in Leeds made engineering machines, and when it was asked why it had folded, it said that it was because of bad debts. It was forced to make 100 people redundant. Hi-Spec Engineering in Nottingham made powered platforms and said that it had closed due to The economic recession which resulted in an extended period of losses. Action Work Force of Batley provided personnel to factories, and at one time employed 150 people in Batley. It failed because business in the factories "dried up".

When we rang up the companies, not one of them slammed down the phone accusing us of talking Britain down. Oddly enough, not one of those companies blamed the closures on the legacy of 1979 or mentioned how encouraged they were by the evidence of recovery around them. The President spent much time spotting that recovery. I understand that he is a noted bird fancier——

§ Mr. John Smith (Monklands, East)

Bird watcher.

§ Mr. Cook

I am grateful to my right hon. and learned Friend—bird watching is not one of my sports. I understand that powerful binoculars are standard equipment in that sport. I warn the President that he should put aside those binoculars when he scans the economic indicators for signs of recovery that are not visible to the naked eye.

If the President wants to talk about recovery, I shall tell him what the Opposition understand by the word 646 "recovery" and what they accept as its definition. Recovery will be achieved when unemployment falls to the 1.1 million figure that the Government inherited from us in 1979. When they obtain that figure, they can start to talk about improving the economy.

There is something much worse than talking Britain down—cheating. That is the next feature by which this Budget will be remembered—as an admission that the Government failed, and as an admission that they cheated.

The right hon. Member of Shropshire, North (Mr. Biffen) was the first Conservative to speak after the Budget speech. I have a great deal of regard for him; in the past, he and I have occasionally found ourselves on the same side of an argument. But on this occasion I was stunned to hear him say: I am happy to stand here, shamelessly, as a taxing Tory."—[Official Report, Tuesday 16 March 1993; Vol. 221, c. 202.] "Shameless" is probably the correct word in that sentence, because I have looked at the right hon. Gentleman's election address for Shropshire, North. He did not stand there then as a shamelessly taxing Tory—quite the reverse. What he told the good people of Shropshire, North was: There is a strong need to be modest about election promises. They all have to be paid for with your money. As ever, I shall bear that strongly in mind. What the right hon. Gentleman said in his constituency was the very opposite of coming here as a taxing Tory. I travelled up and down the country throughout the last general election, and I did not find a single taxing Tory anywhere in Britain at the time. The Tories fought the last election on the single proposition that they would cut taxes and Labour would put up taxes.

No one expressed this election strategy more succinctly than the President. In Corby on 21 March 1992, he said: This election in the first week is about tax. In the second week it is about tax. And in the third week it is about tax. And if Labour were to win this election the next five years would be nothing but tax. This from a man who sits in a Cabinet that has presented us with the biggest tax increase of any Budget in history. The party that promised year-on-year tax cuts has become a Government delivering year-on-year tax rises.

§ Mr. John Townend

I note the hon. Gentleman's opposition to tax increases. He will know that I am not in favour of high taxes, but does he accept that we have a major problem with the Budget deficit? It can be dealt with, but spending will have to be cut, or taxes will have to go up—or a combination of these. What spending reductions does the hon. Gentleman want in place of the Government's tax increases?

§ Mr. Cook

What the Chancellor said at the general election was that he could foresee no circumstances in which he would have to extend VAT—but the hon. Gentleman may be ahead of the Chancellor. He may have been smarter and more far-seeing than the Chancellor. He may even have been more honest with his electors, so I invite him to point out to us the passage in his election address that mentioned that there was a severe problem with the public sector deficit and that it would be necessary to increase taxes when the Tories returned to office after the election. If he can do that, we will treat his intervention seriously——

§ Mr. Townend

rose——

§ Mr. Cook

I look forward to hearing the passage in question.

§ Mr. Townend

I did make it quite clear in my election address that I believed in sound Government finance. [Laughter.]

§ Mr. Cook

I am sure that the good people of the hon. Gentleman's constituency read that on the assumption that they did not need to expect a swingeing tax increase from him—not even those numbered among the increase of 83 per cent. in unemployment in his constituency since the Prime Minister took office.

I seem to remember a poster from the election depicting a bombshell with, slapped on the side, the figure £35 billion. That was what the Government said Labour would put up taxes by. It was always a lie. The tax increases proposed by Labour at the last election added up to one tenth of that sum—but the posters were distributed around the constituencies.

If they went back to their committee rooms, perhaps Tory Members could find these posters lying around under chairs in back rooms. They might consider putting them up all around their constituencies again. All they need now slapped on the side of the bomb is the figure £28 billion, because that is the amount that the Government will take in extra tax if this Parliament runs another four years, even if the Chancellor never comes back and raises another penny in tax or extends the scope of VAT again or increases national insurance contibutions. That is the cost of Conservatism—£28 billion, or, as the Government prefer to express it, £1,000 for every household in the country.

This is such a blatant deceit that even The Sun is embarrassed. No one was more diligent about repeating the Tories' tax propaganda at the election; no one was more naive about swallowing their threats of what Labour would do than was the editor of The Sun. And, bless his trusting heart, Kelvin MacKenzie feels cheated now. Last week he offered his honest, forthright advice to the Treasury: go away and lie down in a darkened room. This was a Budget of failure and a Budget of cheats, but there is a third and final dimension that needs to be filled in if it is to be seen in the round. It is a budget of unjust men—unjust because they made the mistakes and they now expect everyone else to pay for them, not themselves. None of them will pay: everyone else will. They are unjust, too, because the tax increases that they have chosen will hit the poor hardest—such as the 500,000 people now being asked to pay more in national insurance even though they are too poor to be liable for income tax. These are the people who never saw any of the tax cuts of 1988. What right do the Government have to ask them to pay more when they all pay less in tax as a result of Budgets that they drafted?

If the Government had more courage, they would ask those with more income to make an extra sacrifice, but no such sacrifice is asked of them in the Budget. However, an extra sacrifice demanded of pensioners paying their fuel bills. They are the ones being asked to make the real sacrifices to put the nation's finances to rights. The President has a special responsibility in this matter; he is the Secretary of State for energy. I read in The Observer that he was furious at the attempt to put VAT on fuel, and I thought that entirely plausible, as he has a very large house to heat.

648 We learned today, however, that the right hon. Gentleman was not furious. In fact, he is furious at the suggestion that he was furious. So he agreed to it. The Government's energy spokesman agreed to slap 15 per cent. on energy bills. I hope that we have heard for the last time ever the right hon. Gentleman say that he cannot save the coal pits because that might put up electricity prices. British Coal has been bringing down the price of coal while the Government have been putting up the price of electricity.

There was plenty of time for this consultation. We know this because of the Chancellor's indiscretion on the "Jimmy Young Show". He explained to Jimmy Young that the origins of the new tax go back to last summer, to the Rio convention on global warming: The moment the convention was signed I was sitting at home thinking, 'What are we going to have to do?' [Laughter.] I am not kidding. Of course, it was a bogus claim. VAT is not being applied to fuel because the Chancellor has gone green. It is being applied because the Government's books have gone into the red.

How can we believe that the Government are serious about curbing greenhouse gases after the vindictive way in which they have run down public transport, and made savage cuts in the home insulation programme? How can we believe that the Chancellor is serious about energy conservation, given the housekeeping bills from his Department in the last financial year, during which the Treasury's bill rose by 14 per cent.? Not much energy conservation there. The fuel bill at the Inland Revenue rose by 21 per cent., and at the Customs and Excise—the department that will apply the VAT to pensioners' bills—last year's fuel bill rose by 68 per cent. And these are the people who are going to ask pensioners to turn down their heating.

I do not know whether the President was furious, but I can tell him that the nation is furious, because this measure will hit the poor hardest. Every study has shown that those at the bottom of the income ladder spend four times as much on fuel as a proportion of their income as do those at the top. For those at the bottom, their fuel bill is the biggest that they will get, and the Chancellor has just increased it by one sixth.

The President was gracious enough to remind the House that I was once a health spokesman. It is a marked feature of the British mortality statistics that they are the highest in Europe in winter. Our figures are worse than those of Sweden, Norway or Switzerland, but not because we have colder winters—indeed, their winters are colder than ours. We lose more old people in winter than any other country in Europe, because we pay the worst state pensions anywhere in Europe. We leave more pensioners asking themselves whether to pay for their eating or their heating.

We ask again the question that the Chancellor must answer before we vote at 10 o'clock: will pensioners and people on low incomes be fully compensated for the increases in their bills—not have them taken into account, but fully compensated?

The right hon. Gentleman will not get away with saying that the increases will be reflected in the payments to those on income support and means-tested benefits. There are 1.3 million pensioners living on incomes just as low as income support, but not getting a penny of it. Some of them, perhaps because of a mistaken sense of pride, will not ask for a means test. There are another 1 million 649 pensioners living within 10 per cent. of the level of income support who will never qualify for a penny of it. Will they be compensated? We ask that because that is what they ask us.

At the weekend, I received a letter from a constituent on invalidity benefit, who therefore does not qualify for income support. He said: I am aghast and worried over the new proposed VAT on domestic fuels. At the moment I only put on my immersion heater for one and a half hours in the morning to heat the water and I have the gas heating on for an hour and a half in the morning and the same at lunchtime and in the evening. If I am too cold, I just make a hot water bottle and retire to bed since I must work within the limits of what I can afford to pay for my fuel bills. Do Ministers have any idea what it is like for those who have to work within the limits of what they can afford to pay for fuel? Do they have any idea of the hardship that those people will now face, with the choice of going to bed even earlier or doing without another necessity?

Tonight, the House will have the opportunity to express its verdict on that proposal. We will vote against resolution No. 21 in order to record our contempt for a Budget of failures, of cheats and of injustices. We will do it to express our derision for the Treasury Bench of limpets clinging on to office after they have broken every promise that got them on to it. We will do it most of all to stop them making the poorest in society pay for their mistakes and their broken promises. It should not be the poor who pay: they should pay, and we will make it our job to ensure that they do.

§ Sir Edward Heath (Old Bexley and Sidcup)

A large part of the debate on the Budget has been concerned with undertakings which have not been fulfilled. Election addresses have been cited. Indeed, I read in one newspaper that Labour party headquarters is busy the whole day going through every election address by a Conservative candidate to find suitable quotations. I therefore want to get that matter out of the way immediately. I said in my election address: I opposed the Community Charge from the beginning because I believed it to be unfair, ill-planned, costly to administer and above all philosophically wrong and politically damaging. I was proved right. John Major, when he became Prime Minister, pledged himself to abolish it and has done so. I then went on to deal with the fast rail link. I did not look to the future of taxes, in whatever form. That exempts me from an embarrassing position.

I believe that it is wrong for parties at a general election to give undertakings about taxation—either its rate or its nature. When I fought elections in the 1950s and the 1960s, that was not done. No Government or Chancellor's record justifies their being able to say with conviction that they can foresee the economic future for the following five years. It has never been proved that they can do so. All that declarations about rates of taxation can do is to mislead the electorate and lead to further embarrassments for Government, which then weakens our economic position internationally. I want a return to olden times. In fact, the practice was first broken in the 1959 election by Hugh Gaitskell, who promised to reduce taxes by 6d, 650 which so shocked the electorate that he lost the election. I hope that we now have a period during which we do not give such undertakings.

When changes to indirect taxation are made by a Chancellor—changes which my right hon. Friend has justified—we know that that is bound to affect many people on social security benefits and those just above the limit for those benefits. The right thing for a Government to do is, at the same time as the charges are introduced, to say that they recognise the problem and that those people will be fully compensated for those increases. That is what Rab Butler did in the 1952 Budget, and it is what happened with Iain Macleod in 1970 and with Tony Barber in 1971. It shows that we understand the position of the millions of people who are affected by such changes. It gives them confidence that the Government of the day understand them and their problems, and it gives society as a whole confidence that we care about these matters and that we will take action to deal with them.

My third point relates to my party in particular because of the targets that it has set for direct taxation. They are not achievable targets. I hope that my right hon. Friend the Chancellor will not say that, at some future time, we will reach the target of 20 per cent. and that the 40 per cent. rate will be reduced. There is no economic or moral justification for saying it. Although high taxes reduce efficiency and destroy a great deal of enterprise, we reach a point in the level of taxation where that is no longer the case. That is evident from the level of taxes paid by other countries with very successful economies, such as Germany and Japan, whose tax levels are higher than ours and higher than our targets.

When told bluntly what is required from them, the British people will respond. It is not necessary to try to smooth the path. I accept that the path in front of us is very difficult, and I have every sympathy with my right hon. Friend the Chancellor and the Government in the problems that they face. The economic position, with high unemployment and the destruction of so much of our industrial base, means that it will take many years to deal with the problems. There can be no easy, quick solution. If that is brought home to the British people, they will support the necessary steps—one of which is that the wealthier people should be prepared to pay a higher rate of tax. I believe that they would respond to a demand that they do so.

One thing that we desperately need in this country is a better superstructure. It is right to say that we have been spending more on that, but it does not meet the demands that our superstructure now makes.

§ Sir Peter Hordern (Horsham)

I think that my right hon. Friend means infrastructure.

§ Sir Edward Heath

Yes, I mean infrastructure. So many countries in Europe, North America and the far east have infrastructures infinitely superior to Britain's.

We have only to look at London and the development needed there. There is no effective overall body to deal with that. Ours is the only major capital city in the world which does not have one. The former central body, the Greater London council, was abolished out of spite because of a handful of miserable Labour councils. Now we do not have that authority. To cite one specific example, when one drives out of London on the M4, as I frequently do, one must use a double-lane highway. In 651 recent years, high buildings have been erected right alongside that road, so that if ever we have a Government who recognise that the M4, which was built 40 years ago, is totally inadequate for modern requirements, various new buildings will have to be pulled down to enable the construction of a new highway. That shows no sense of responsibility towards the demands of a very modern society. That is another case which desires urgent action. After all, improving the infrastructure provides jobs for many people.

As to the contraction of our industrial base over the past 12 years, we lost part of it at the beginning of the 1980s because we were so determined to push up the rate of sterling. Firms in my own constituency which has been established for 100 or 150 years went out of business. They never came back and they never will. That is happening in the present situation, with a further loss of our industrial base. My right hon. Friend the President of the Board of Trade rightly said that we must encourage industry, and he is doing so. Many of the measures in the Budget are extremely useful and make a great deal of sense. I am glad that they are being adopted by my right hon. Friends the Chancellor and the President of the Board of Trade.

In the mid-1980s, small firms went into business with a rush, and we know from the figures that they are in immense difficulty now. The kind of people who start small firms now have learnt the lesson of the 1980s and will not take the same risks. They will not allow themselves to get into that position. They also see how this country's banks behave when small firms get into difficulty. There is no relationship between the banks and industry in this country as there is in Germany and France, and that is what is lacking.

That apart, the major banks have enormous problems as a consequence of unwise investments, debts, loans and property purchases over the past decade. One must keep one's tongue in one's cheek when talking about London being the greatest financial centre in Europe or in the world; people outside know what is happening and can see the problems which have arisen in our banking system in the last 10 years.

My right hon. Friend the President of the Board of Trade mentioned Rolls-Royce. I will add to his remarks, especially as I know the attitude of so many of my hon. Friends on the Benches behind me. We took over Rolls-Royce in 1970 because it was bankrupt and its directors were trading against company law. We took over the company to save it from being prosecuted for tens of millions or hundreds of millions of pounds, but we were careful to do so in terms of a private company so that it could be privatised. That was exactly our plan.

That was not done without an attempt to persuade the private sector to look after Rolls-Royce. When a leading accountant reported to me that the company was not only heavily in debt but under contract to the Americans to produce an engine, would not make the delivery date, and would therefore be liable to a penalty of £400 million—a large amount of money in those days—I invited the chairmen of the four banks concerned to meet me in the Cabinet room. I explained the situation and said, "I hope that you feel that you can support industry in this country." All four flatly refused to help in any way at all. One chairman whose bank had offered a loan of £25 million, of which only £21 million had been taken up, promptly dashed back to his office and cancelled the 652 remaining £4 million.

If we had not taken the action we did, all the military planes with Rolls-Royce engines would have been unable to obtain spares and would have gone out of action. The same would have been true of all civil aircraft with Rolls-Royce engines. It would have been grossly irresponsible for any British Government to fail to stand

That company could have been privatised much earlier, but the management badly miscalculated what would happen to the dollar in the early 1980s, so privatisation had to be postponed. The company was subsequently privatised, and it is now successful, but it would not have remained in existence if the Government had failed to take action. There are instances when a Government is justified in taking action; I hope that my right hon. Friend the President of the Board of Trade will always bear that in mind.

My right hon. Friend also mentioned delegations to various countries in support of British industry. I would take it a stage further. British Industry requires much more support from the Foreign and Commonwealth Office and from our embassies and consulates abroad. I do not in any way blame the Foreign Office—the three years that I spent there as Lord Privy Seal were among the happiest of my life. For a decade, the Foreign Office has been maligned and accused of every possible crime—of always selling out to the foreigner—and its staff has been drastically reduced. It needs its confidence restored and to be provided with an adequate level of staff. That means money from the Treasury. It is not good enough for the Treasury to say, "Where shall we slash? We'll make it the Foreign Office."

The Japanese, for example, have a full consulate in every major city in the People's Republic of China. Britain has only one—in Shanghai—in addition to our embassy in Peking. The British consulate in Shanghai has a staff of seven—the consul-general, deputy, and press officer, and four assistants. Two of the four assistants are the wives of other consulate members. The Japanese have 410 in Shanghai. I am not urging that level, but we must face the challenge from other countries looking after their industries.

Foreign policy should be directed at British interests, industry and finance. We are losing masses of trade in the middle east. That is true also of Iran, because of our relationships over that wretched book. If one writes a book and it offends, one can be protected in one's own country. I thought that the author in question was wealthy enough to protect himself, but we provide public protection—very well, but I see no reason why we should ruin our relationship with Iran, which can be a very profitable market.

We are responsible for the United Nations resolution on trade with Iraq. Unfortunately, it affects companies which traded before Saddam Hussein invaded Kuwait and war broke out. Those companies cannot obtain payment for trade before the war. That cannot be justified. Other countries have already made arrangements with Iraq for the time when sanctions are removed. They will get all the business, because of our foreign policy. The same applies to Libya, where there is massive trade to be done. We are not touching it, because we are standing by the Americans.

All that may sound like heresy to some people, but we must look after our interests through our foreign policy. If I am mistaken in any of my remarks, I am perfectly ready to stand corrected, but the fact remains that foreign policy 653 must take into account our trading and industrial interests. Much as one welcomes a delegation led by a Minister, it honestly does not have a big effect.

The problem goes much deeper than anything that I have mentioned or that I have heard mentioned. I refer to the nature of our society in this country. That has been a problem for many years. Industry is still not recognised as a prime factor in our society. Do all the best and brightest in our universities say, "I must get into industry"? No; they want to get into the City, if they can—into some bank, preferably a private bank—or into public relations. The last thing they want is to work in industry. Nor am I certain that industry would welcome them; I am afraid that it does not always do so. Why is that? It is because comparatively few are management-trained at the top. Few have been to a top business school.

I recall only too well my visit to INSEAD at Versailles to present prizes. I asked the British contingent which firms they were going back to; only one person was returning to this country, and he was with one of the oil companies. He said, "The company paid for me to come here, and I feel that I am under an obligation to go back. I do not mind, because the company told me that if I was successful I would receive an increase in pay." When I asked the others where they were going, they replied, "There is no point in going back: they do not want us, and they are not prepared to pay us." They said that they would go and work for American, French or German firms.

That is the nature of our society. Despite all the changes of recent years—so many that we cannot even keep up to date with them—we have no satisfactory education system; we have not the major educational, scientific and technical system that the Germans have had since the last quarter of the last century. Moreover, we are not trying to secure such a system; we are not concentrating on that at all. Management feel that it would be rather a bore to employ people who have experienced a form of education that those currently at the top have never had, because there is just a chance that such people will know more than they do.

I emphasise that all the measures in the Budget are desirable, apart from one about which I am not quite sure—the measure relating to self-assessment for tax purposes. A number of my constituents come to me and say, "Look at what the Inland Revenue has said about our accountants' report—can you arrange for some action to be taken?" Heaven knows how many cases there will be in the event of self-assessment, but I will let that pass. I am concerned with the nature of our society; that is what we must aim to change if we are to make up the loss of our industrial base and secure a top management who can return us to a reasonable position in the world economy.

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

In his powerful speech, the right hon. Member for Old Bexley and Sidcup (Sir E. Heath) made a plea for manufacturing industry, with which I shall deal at some length. He made another important point, however: he said that there were greater priorities than a 20 per cent. tax rate, and asked for 654 a larger contribution from those who pay the highest rate. A sad aspect of the debate is that we are unlikely to hear many echoes of that request; that is a great shame.

In the past two years, the Thatcherite adventure has ended. Those 11 long years of folly started with the belief that the philosopher's stone of monetarism had been discovered, and reached the high point of hallucination—the hallucination that we were in the midst of an economic miracle. In fact, as we know, we were living on fool's gold. That is why we squandered £120 billion of North sea oil money, and £40 billion or more of privatisation receipts. Instead of using those enormous and wholly exceptional moneys to recreate our industry and restructure our essential services, we spent them on importing foreign luxuries, thereby ruining our own manufacturers.

Personally, I can never forgive the Government for reducing the number of firms in my constituency by 30 per cent.—manufacturing firms, in the main; firms that provided the goods and services that we see in every country. The closing of some of those firms lowered what had been higher-than-average levels of employment and pay in the constituency.

That period has now come to an end—notably in the Budget—with a suddenness that surprised only those who believed the Thatcherite nonsense that they so readily proclaimed. It was never a free lunch, and now the bill must be paid. The measure of that bill—in just this one year—is a £17.5 billion balance of payments deficit, and a £50 billion public sector borrowing requirement.

How then do the Government intend to restore our finances, both internal and external? That is the critical question. There are no further increases in North sea oil to provide the necessary income; what the North sea is producing we are already spending. There will be few further receipts from privatisation: the barrel has been fairly well scraped. Indeed, whereas in the past the Government could rely on £5 billion a year—and spent it—they will suffer a fall in privatisation receipts from now on.

The position is worsening all the time, which is one reason why the Government are so adamant in opposing the social chapter. They depend on a Britain with cheap labour and weak trade unions, attracting investment on the basis that it is a part of the European Community with certain unique advantages which they wish to advertise. The existence of cheap and docile labour is the Government's solution to the economic problems that they have inflicted on us. The social chapter runs directly counter to that vision; they will therefore fight fiercely to prevent its enactment. That is their solution to the Thatcher years.

The Chancellor has repeatedly said how much assistance he is giving manufacturing industry, and the President of the Board of Trade said today that the Budget was one more step in the strategy for industry. I wish that I had observed any such steps. Undoubtedly, the right hon. Gentleman has been a great disappointment. There were those who strongly disagreed with much of his politics, but, when he said that he would intervene in industry at various times of the day, we thought that he would at least make some sort of effort: we expected something from a person of such energy and drive.

The Budget has given some assistance here and there, but it provides little for manufacturing industry. The £900 million for advance corporation tax relief, the £400 million 655 for petroleum revenue tax abolition and a few other concessions may help some firms, but they do not matter much to the one industry that really counts in the long term—manufacturing industry.

Let me say in passing that I welcome the easing of certain VAT penalties. The Inland Revenue operates on the basis of an understanding of the real world, whereas VAT is the direct descendant of excise duties that resulted from the fact that, over the centuries, the establishment of a harsh regime was the only way in which to protect revenue. The system of VAT collection did not allow sufficiently for an understanding approach to genuine error.

I often feel that the greatest help that Government can give small businesses is to avoid adding to their burdens. Many small businesses would forgo any Government assistance if they could only be left alone. I know that, in this hard world, that cannot happen; but any help given by Government must be set alongside such a natural aspiration. Governments always require certain information to ensure that financial assistance is properly accountable; I understand that.

In a small firm, however, frequently only one person can provide such information—the person who is engaged in running the business, and who is diverted from the essential operation of the company. That person is even more diverted when there are substantial penalties for not carrying out the tasks required by Government. I therefore welcome the easing of the VAT penalties.

Let me turn to the next Budget that this Chancellor will present. The Chancellor has told the country that he does not wish to harm recovery by introducing large tax increases now; in the main, such increases will come later. Last week's Budget, however, is the first shoe to drop; while waiting for the second, people will be reluctant to spend. They know that the second shoe will soon follow, and their expectations will take account of that. The Government have shown us an unusual vista—the prospect not of jam tomorrow, but of vinegar for some years to come. This was a Government, however, who believed at one time in "rational expectations". Nigel Lawson believed that, by controlling the money supply, employers and trade unions would see that sterling M3 was coming down and would reduce pay claims on the basis of such "rational expectations".

Of course, employers and trade unions did no such thing. It is amusing—though sad—to recount the folly of those times. Rational expectations, however, can work only if people actually believe that things are going to happen. If they truly believe that taxation will affect them in the way that the Government have stated, spending will be curtailed, not just next year and the year after but this year as well. The only way that that will not happen is if people do not believe the Government. There may be something in that view. The Government have already back-tracked on compensation for VAT on fuel for certain groups of people. Who knows what further U-turns might lie ahead? This is, after all, a very weak Government. Many policy changes are possible.

There is a further factor that may change the income/expenditure picture to be painted by the Chancellor of the Exchequer in the autumn: that, while expenditure has to be fixed two or three years ahead, because of the planning required, revenue can be determined w