§ [Relevant documents: The Second Report from the Treasury Committee, Session 1998–99, on the World Economy and the Pre-Budget Report (HC 91-I), and the Fourth Report from the Environmental Audit Committee, Session 1998–99, on the Pre-Budget Report (HC 93).]4.51 pm
§ Mr. John Redwood (Wokingham)
I rise to oppose this Budget—a Budget of smoke and mirrors, a Budget with many a sting in the small print and a Budget which announced a little good news and left out a lot of bad news, which came in the press releases that followed. This is the third Budget of this Chancellor and this Government: third time unlucky for many. It is third time unlucky for motorists, for small business people, for industry and for most of the people who make the wealth and generate the jobs in our country.
The Government came to power promising education, education, education as their three priorities. Three Budgets later, we know their true priority: it is tax, tax, tax. There are stealth taxes and wealth taxes, income taxes and spending taxes, business taxes and jobs taxes. After the Government have put taxes up, they dare to say that they have cut them—which is misleading the House on a great scale. Meanwhile, the hospitals are short of nurses and doctors, and schools find it difficult to recruit and retain good teachers.
This is a Government of tax and waste, not tax and spend. They take more money from us so that Ministers can fly Concorde more often; they raise taxes so that we can employ more politicians throughout the country and have more quangos; and they spend massive sums on a welfare-to-work programme that simply does not work, as my right hon. and hon. Friends will demonstrate in future debates.
392 This is a Government who hire more spin doctors to tell us why they cannot afford more medical doctors. This Government are the nation's pickpocket, creeping up at the dead of Budget to rifle your wallet or purse. Saving for a pension? Not without a tax from this Chancellor. Making profits in your company? Not without paying a lot more corporation tax and then being asked to thank the Government for cutting the rate. Driving your car? Not without being clobbered by the Chancellor every time you go out of the garage, and often when you do not.
This Budget continues the great Labour tradition of tax and waste. For business, there is extra vehicle excise duty [Interruption.] I see Ministers roaring their heads off. They obviously do not know what measures were in their three Budgets. They do not know how much damage is being done to industry. They have no idea of all the tax increases that the Chancellor has squirrelled away in the paperwork. It is a pity that they do not read the stuff, but we do because we need to represent the case to British business.
Vehicle excise duty, a £25 million increase; capital gains on company sales, a £40 million increase—
§ Mr. Tony Baldry (Banbury)
Is not laughter from Treasury Ministers particularly perverse at a time when the newspapers are announcing even more job losses in the manufacturing sector?
§ Mr. Redwood
My hon. Friend anticipates my argument only too well. If only the Government could anticipate it, heed it and change their policy.
This Budget contains changes to the value added tax rules—a £70 million increase; changes in VAT group treatment—a £5 million increase; and an end to VAT exemption on financing—a £95 million increase. I see that the Chancellor is trying to find those figures, so he obviously does not know about them either. For taxation of reverse premiums, there is a £20 million increase. Stamp duty is increasing; I wonder whether that is the Chancellor's revenge on the right hon. Member for Hartlepool (Mr. Mandelson). He reads that the right hon. Gentleman is about to buy a flat for a little over half a million pounds, and up goes the stamp duty. Perhaps we should call it Peter's pence from now on.
There are increased car taxes and fuel duties. The Chancellor says in his "Budget for business" that some taxes will go down next year, and he is right—I have found two of them: a £10 million reduction in value added tax on "certain supplies", although they are not specified; and £5 million in tax relief for employer-loaned computers. Whoopee! That will make a real difference to business when it is set against the £25,000 million in extra taxes from the Chancellor's first two Budgets and the substantial increases in this year's. I assume that the borrowed computers are needed to help people to work out all the stealth taxes that they and their businesses must pay in the financial year 1999–2000.
The overall impact next year on British business will be the raising of the tax burden by a substantial amount according to the Chancellor's own figures, as set out in "Budget 99", his own document. There are no overall tax reductions for business next year. There are massive increases from three Budgets—the largest of them from Budgets one and two and smaller further increases in Budget three.
393 What do the Prime Minister and the Chancellor say about the Budget? The Prime Minister says that it is another Budget to bring an end to boom and bust. That is his favourite soundbite. Out of his limited repertoire of tired and misleading phrases, "bringing an end to boom and bust" is the most overused and misleading.
§ The Secretary of State for Trade and Industry (Mr. Stephen Byers)
To Tory boom and bust.
§ Mr. Redwood
The Secretary of State is right to say that that is the way in which the Prime Minister chooses to construct his phrase. The Prime Minister repeats it like a music hall line or a comedian's catch phrase. To those in the front line of British industry, it does not seem very funny, however. Industry has been suffering for a year. At the time of the Chancellor's first Budget, I warned ofa treble whammy on profits, investment and jobs in British manufacturing … the higher exchange rate, which throttles the prospects of exporters in continental markets; the higher interest rates which have already occurred—undoubtedly there will be more …—and higher taxes".—[Official Report, 4 July 1997; Vol. 297, c. 581.]As we know, there was more. If the Opposition could foresee all that in July 1997, why could not the Government? Why did they blunder and plunder on?
Was the Secretary of State for Trade and Industry persuaded to make today's silly statement, which had no new content, in order to delay the Budget debate beyond the normal time for the early evening news and because he did not wish to hear the truth about the plight of manufacturing? Did he also wish to delay the debate so long that I might have to be torn away to the shadow Cabinet, where my right hon. and hon. Friends are now? Or was the statement simply an unfortunate slip of his memory? Had he forgotten that all that he announced today had been announced many times before?
Why does the Secretary of State not care about the string of factory closures and industrial job losses that are being left in his wake? Why will he not come to the House to make a statement about what he intends to do about that? The real issue facing us is manufacturing collapse and factory closures, not the silly, trivial matters that the right hon. Gentleman chose to mention or policies that he has announced many times before.
§ Mr. John Bercow (Buckingham)
Is my right hon. Friend aware that he and my right hon. Friend the Member for Horsham (Mr. Maude), the shadow Chancellor, have approximately 20 times more experience of the private sector of the British economy than the Chancellor and the Secretary of State for Trade and Industry?
§ Mr. Redwood
My hon. Friend's calculation is likely to be correct; it would not be difficult to have more industrial and commercial experience than the Chancellor and the Secretary of State for Trade and Industry.
§ The Minister for Energy and Industry (Mr. John Battle)
You obviously learned nothing from it.
§ Mr. Deputy Speaker (Mr. Michael J. Martin)
Order. The Minister for Energy and Industry must not shout across the Chamber. He should know better.
§ Mr. Redwood
I am grateful to you, Mr. Deputy Speaker.
394 Why has the Budget done nothing to correct problems for manufacturing industry? It gives no answer to high sterling. It offers no relief from high taxes. It contains only more increases in the high costs facing industry.
When the Prime Minister says that he has abolished the cycle of boom and bust, does he realise that manufacturing is in recession? For a long time, the Government said that output had not fallen for two quarters. Now that it has fallen for many industrial companies for longer than that, we are told grudgingly that it is a technical recession. There is nothing technical about it. It means job losses for tens of thousands of industrial workers. It means many closed factories. It means financial ruin for some who have committed their cash and effort to making things in Britain.
Is the Prime Minister unaware of the job losses and factory closures? When he says that he has abolished the boom-bust cycle, does he mean that industry under Labour will simply stay bust? Is the magic new Labour ingredient in economic policy to be no recovery for industry now that it is down? There is certainly no sign in the Budget of any revival or any hope for the future for those who make things in Britain. There is no big reduction in their tax bills and no promise to influence Europe to reverse the continental countries' large devaluation.
The Prime Minister has as much chance of staying on his trade cycle as he has of persuading me that his policy on the euro is right. He is not merely wobbling on his trade cycle: he, and British industry, have long since fallen off. The Prime Minister may believe in new Labour's circus—as long as the spin doctors turn out the lights, no one will notice that British industry is on the floor. Unfortunately for him, people have noticed. The workers at Cadbury noticed when they got their P45s. The workers of Coats Viyella noticed when they got the sack. The workers in the FII shoe factories noticed when the factories were closed down. Even the Secretary of State for Trade and Industry noticed, and he was forced to go to the north-east with soothing words. Still not a single policy has been introduced that could reverse the industrial rout.
§ Mr. Martin O'Neill (Ochil)
A number of workers employed by Coats Viyella in my constituency have lost their jobs because Marks and Spencer has decided to switch its production to third-world countries. Does the right hon. Gentleman think that the answer is a reduction in salaries and pay to third-world levels? If not, he should address the issues and tell the House his alternatives.
§ Mr. Redwood
I have often led debates for the Opposition on that subject and suggested to the Government how they could avert some of the industrial disaster over which they are presiding. If they had a sensible policy on interest rates, sterling, business taxes and regulatory costs, British business would not have been sandbagged as it has by the Government. They have taken too much money out of the hands of manufacturing industry and that is why jobs are being lost.
§ Mr. Tom King (Bridgwater)
Sadly, I can add to my right hon. Friend's list. Some 20 per cent. of the work force of St. Regis—which, far from being in a cheap labour industry, is capital-intensive—now face the 395 prospect of redundancy. That plant in my constituency is highly efficient and has received substantial capital investment.
§ Mr. Redwood
I am grateful to my right hon. Friend and add my sympathies to his for those workers now threatened with the sack. That is what is happening up and down the country, thanks to the Government.
§ Mr. Geraint Davies (Croydon, Central)
Are we meant to understand from the right hon. Gentleman's speech that, given the chance, he would reverse the independence of the Bank of England, alongside his intention never to join the euro? In such a situation, long-term interest rates for British industry would rocket, there would be a huge migration of international capital out of the country and the rate of unemployment would escalate.
§ Mr. Redwood
What an extraordinary statement. The Opposition opposed the independence of the Bank of England because we did not think it was right in the circumstances. How right we were. Interest rates were driven higher than we recommended or proposed and British industry was put into a vice of high sterling, high interest rates, high taxes and high regulatory costs. That is why we are now seeing a disaster.
§ Mr. Redwood
The hon. Gentleman knows the answer to that question. The Opposition will set out the right remedy for the British economy in the prevailing circumstances in the run-up to the next general election. We cannot do more than oppose a wrong idea at the moment. We opposed independence for the Bank of England and we explained that we did so because it would do great damage to British manufacturing. Our prediction has come true. The Chancellor should admit that he got it wrong, apologise, recognise the damage that he has done and try to do better next time with a different policy.
One would have thought that Ministers would care more because the problems are occurring in their constituencies. My constituency of Wokingham does not have a big problem, because it is a high-tech town which is still doing well. However, there are real problems in the industrial heartlands, which are usually represented by Labour Members, especially those on the Front Bench. In the past six months, unemployment has risen by 101 in the Prime Minister's constituency. He should visit it and find out. Unemployment has gone up by 275 in Hartlepool, the constituency of the recently departed Secretary of State for Trade and Industry. It has gone up by 405 in the constituency of the current Secretary of State for Trade and Industry—a huge number of people out of work while the right hon. Gentleman is on the beat, allegedly looking after the interests of British business, yet he does nothing about it.
Has the Secretary of State read the forecasts in the Red Book? They are not my forecasts. For many months, I have been predicting industrial recession; now the Government have caught up with the Opposition's prediction. The Chancellor tells us that, in 1999, manufacturing output will fall by between 1 and 1.5 per cent. That is a recession and it is a long one. No one thinks that the Chancellor is being too pessimistic—indeed his 396 forecasts assume that sterling will fall to help manufacturing industry. However, that is not happening at present; the position is becoming worse.
The Budget predicts a further collapse in our trade balance. I remember the present Chancellor fulminating against any increase in the trade deficit under Conservative Governments. However, he does not even mention the matter in his Budget statement; nor is it mentioned by the Secretary of State for Trade and Industry. Exporters find that the going is extremely tough. What does the Chancellor say in the Red Book, although not in his Budget speech?The deficit in trade in goods and services is forecast to widen to around £ 13¼ billion in 1999".We are told that net exports will be well down on levels recorded last year. There is to be a balance of payments crisis and a collapse of manufacturing exports; the Chancellor foresees a country awash with imports as workers are thrown on to the dole and people buy goods from abroad—exactly what the hon. Member for Ochil (Mr. O'Neill) tells us is happening in his constituency thanks to the purchasing decisions of Marks and Spencer.
How many people might lose their jobs as a result of the actions of this bungling Chancellor? The trade unions are clear—[Interruption.] The hon. Member for Lincoln (Gillian Merron) should not laugh when the Chancellor is criticised by the trade unions. She should understand that sometimes the trade unions are right and that sometimes she should listen to them. The trade unions are fairly clear, saying:We estimate that in the year to quarter 4 1999 total employment could fall by 200,000 to 300,000 and almost all the lost jobs will be in manufacturing.That is quite a forecast, but it is lower than the so-called independent forecast included in the Chancellor's Budget figures, where we learn that the increase in unemployment will be 400,000 as a result of this and previous Budgets.
I wish that I could disagree with the trade union forecasts and tell people all over the country in industrial jobs that things will not be that bad. I want our country to do well and our manufacturing industry to thrive and survive. Unfortunately, the Government's whole strategy rests on people in manufacturing losing their jobs on a grand scale.
The Government tell us that British industry is 20 per cent. behind our continental competitors in productivity. If the Government will do nothing to lower other costs and taxes on business, the reduction in costs will have to come from jobs. Do they really want that? I want the Government to cut other costs and taxes, rather than business having to cut jobs. If the whole of that one-fifth gap in productivity has to be narrowed by losing jobs, the Government are recommending the sacking of 1 million people from the manufacturing areas of this country to bring us into line with Germany. They will not give on the exchange rate, regulatory costs or taxes, so they say that the brunt of the burden of adjustment must fall on jobs. Furthermore, they cannot say that the adjustment will come from rising output, which is what Conservatives would want, because the forecasts are that output will fall as a result of their policies.
To be fairer to the Government, let us be more modest in our assumptions. Let us assume that, this year, the Government want British industry to raise its productivity by only 4 per cent., thus making a small contribution to 397 bridging the gap that they perceive between us and Germany. We should remember that Germany's productivity will also rise. The 4 per cent. increase in productivity, on top of a 1 per cent. output fall—the lowest end of the Chancellor's range—means that 5 per cent. of jobs in industry must go. That is about 250,000 jobs, just for one year's modest narrowing of the gap that the Government think is all important, and which they think must be narrowed by sacking people rather than by the Government mending their own ways. Our forecast of 250,000 jobs to go in manufacturing is modest compared with the upper level of the trade union forecasts. I fear that it will come true. I wish that the Secretary of State would change his speech, change his policy and prevent it from becoming a reality—for the sake of his constituents, if not for the sake of mine.
What does the Secretary of State bring to the party? He brings a trade war between the European Union and the United States of America. Does he not realise that in a trade war there are absolutely no winners? In this trade war, the loser will once again be British manufacturing— which loses from everything the Government do. The Secretary of State seems to see himself as the samurai of the trade war, but he is instead the kamikaze pilot who mistakes the Scottish borders for New York and ends up destroying great chunks of the cashmere and biscuit industries through his suicidal dive.
§ Mrs. Angela Browning (Tiverton and Honiton)
Does my right hon. Friend recall the debate about the textile industry that we had in this House at the end of January when we implored the Prime Minister to pick up the telephone that day and talk to the President of the United States in an attempt to resolve the problems of the cashmere industry? It seems that our words went unheeded and that the Government paid very little attention to us.
§ Mr. Redwood
I am grateful to my hon. Friend. Her advice and that of other right hon. and hon. Members was good and well meant. We do not want this trade war, and we would dearly love the Prime Minister to have enough clout with the President to secure a change in the American position. We would dearly love the Secretary of State to have enough influence in Brussels to achieve some movement in the European position. [Interruption.]
Every time I mention Brussels, Labour Members laugh. It is so childish. Do they not understand that most of the big decisions affecting manufacturing in this country that are taken by the Secretary of State for Trade and Industry either have to be cleared with Brussels or are governed by Brussels regulations or potential court judgments? That is why I have to mention Brussels, and why the Secretary of State would be wise to do the same. He should understand the Brussels limitation on his powers.
In this case, the Secretary of State should spend time in Brussels attempting to get officials to understand that it is not fair for British manufacturers to suffer because of a row between the EU and the US about an entirely different issue: bananas. Instead of being difficult— saying that he rather welcomes this trade war and trying to hype up the language and the rhetoric against the United States—the Secretary of State, and the Prime Minister for that matter, should be trying to bring the sides together. 398 That is what the cashmere industry wants, and it is even what the banana producers of the Caribbean want. They know that there must be negotiations and a deal. If the Secretary of State cares about Scottish cashmere, United Kingdom biscuit manufacturing and Caribbean bananas, will he please start negotiating, calm the tempers and inject some common sense into this very difficult situation?
Why is industry generally suffering so badly, according to the Chancellor's own analysis? It is because the Government are sucking it dry and taking its money away. There have been £25,000 million-worth of extra business taxes this Parliament. That money could otherwise be spent on much-needed new plant and equipment. The Government have imposed £15,000 million in extra costs from regulation. That money could otherwise be spent creating more jobs and new products and ideas. They have let the pound go sky high against the Asian and continental currencies, which has slashed our export earnings and left our industries struggling against a flood of cheap imports.
Let us look at the Government's impact on just one industry: the food industry. It is expected to pay £50 million for the start-up costs of the Food Standards Agency; £250 million in extra food safety costs; £21.5 million in additional Meat Hygiene Service costs; £500,000 in fish inspection costs; £1 million in egg inspection costs; £90 million in business rate increases; £92 million to implement the minimum wage; £4 million to set up the working families tax credit; and £78 million for the working time directive. The packaging waste regulations, staff car park tax and electrical recycling measures are three more costs in the pipeline. In common with other industries, the food industry must pay much more corporation tax, a tax on pensions and much higher motoring taxes. After that lot, how can any Minister say with a straight face that Labour looks after business and is seriously interested in making business more productive and more successful?
This Budget tells industry to go hang. The DTI told industry that loud and clear in its competitiveness White Paper. It stated that Britain will not be able to earn a living by making things. I know that the White Paper was produced by the Secretary of State's predecessor, but I think that he agrees with it. It states:An advanced industrial nation like ours cannot support rising prosperity by producing standard products and services made with pedestrian methods and commonplace technology.What a breathtaking statement by the DTI, writing off great chunks of our industry and services. It would be laughable if it were not so serious. The Government seem to be implementing this policy in the textile, steel, engineering and shoe industries, among others.
It is not possible for every company in the country to have the latest technology or to be full of scientists or the United Kingdom's best brains. We need other types of businesses and industries. Under a sensible economic policy, it is possible to employ people and make money by using ordinary technology to create commonplace things. There is nothing wrong with that. The Government 399 have declared war on such businesses. They have been successful in that war and they are doing a lot of damage to our industrial base.
§ Mr. Redwood
I hope that the hon. Gentleman is not writing off all those businesses in his constituency that are not at the leading edge of technology. Many of those companies do not claim to be at the leading edge of technology: they simply want to make a decent living by employing people to make things that consumers want to buy using commonplace technology. The Government are making it too difficult and expensive for them to do that.
§ Mr. John Townend (East Yorkshire)
Does my right hon. Friend agree that it is not only the manufacturing industry that is at risk? The London art market, which employs 5,000 people, is in danger because of the imposition of lower value added tax and a proposed tax from the European Union. Ministers will not declare that it is a British national industry and use the veto.
§ Mr. Redwood
My hon. Friend is quite right, and I have raised that issue in the House. The Government have failed signally to speak up for the London art market. They do not seem to realise how important it is. They have not promised or threatened to use the veto, which is the very least they should do given the serious threat that is posed to the future of that important market, on which many jobs and much income depend.
The Government conjure up an image of a future Britain as a province of Europe fit for spin doctors to practise in. Our vision of reality will be distorted not by smoke from the factory chimney, but by the smoke in our eyes from the lobbyists, public relations professionals and high-tech wizards who surround the new Labour project.
This Budget is proclaimed as a Budget that will provide more work for people. Yet, as we heard this afternoon, one of its important themes is to take a lot of work away from the Secretary of State. We are told that he is to give up the day job—dealing with competition in the United Kingdom market—which is now to be carried out by a new, enlarged and expensive quango situated further away from parliamentary scrutiny. The reason that we have been given is that we cannot trust politicians—I suppose that shows a little self-knowledge on the part of the Government. However, there are many occasions when the Secretary of State should be prepared to make decisions in the public interest. He should decide how much competition will be introduced and promote that cause.
I asked the Secretary of State a series of questions following today's statement, and I received absolutely no answers. When I write to the right hon. Gentleman, I am told that he cannot answer my letters and that I should ask my questions in the House of Commons. When I question him in the House of Commons, I receive no answers. Is that because the Secretary of State does not have any answers, or because he so hates democracy that he is not prepared to make any answers available through Parliament to the press and wider public?
Why can the Secretary of State not tell us whether he wants to introduce competition into the car or brewing industries or any other areas that I asked about today? 400 Why is it such a secret? I do not believe that the Secretary of State is unable to make a judgment on those matters, and I do not believe that he can get away with the excuse that they are not his responsibility. Until he has given his job away, they are very much his responsibility. Business must know where it stands. It is in flux, thanks to the new legislation introduced by the right hon. Gentleman's predecessor, and the Secretary of State owes it to the House this afternoon to provide answers to those important policy questions.
This Government, above all else and to a greater extent than their predecessors, pride themselves on their close day-by-day—even hour-by-hour and minute-by-minute— links to the media. How can we believe that the Government are free to make impartial decisions in the area of media competition when they owe so many favours in that field? When I asked the Secretary of State to make it absolutely clear that the one case in which his argument may have force—the media—would be transferred to his independent authority, he was unable to give me that reassurance and went on to say that he is about to decide on one of the most sensitive and important cases of all—whether BSkyB should take over Manchester United.
It is a great pity that the Secretary of State does not realise the logic of his position. He tells us that there are times when a Minister is compromised by the interests of the Government generally, yet when we have the best example of a case in which that problem could arise, it is the one case in which he will make the decision and leave himself in considerable difficulty. Perhaps he will help to resolve that conundrum when he responds to the debate.
I come from a constituency which, along with others, is leading the software, internet and communications revolution. I agree that all those sectors will be more important in the future and will provide many good jobs in the years to come. However, man does not live by mobile phones and e-mails alone. We still need clothes, food and houses. We still need to make things as well as say things. It would be wrong to write off the one fifth of our economy that is based on manufacturing.
The new industries do not welcome the siren call of the new regulators. The Government threaten them with e-commerce legislation. When I met representatives of the Federation of Electronic Industries the other day, they agreed with me that elements of the new law are more likely to stifle than to stimulate the new technology.
What should the Chancellor have done in the Budget? He should have taken to heart the Prime Minister's words about doing things the American way. He should have apologised for tax increases past and avoided all stealth taxes future. He should have put off the regulations that now threaten much British commercial success. He should have struck out boldly for a freer market. The Budget could have offered a prosperous future for manufacturing. Instead, the Chancellor chose to ignore the pleas of British industry. He will live to regret that.
§ Yvette Cooper (Pontefract and Castleford)
If the right hon. Gentleman's party is so good at encouraging business and innovation in business, why is there a 40 per cent. productivity gap between UK companies and American companies?
§ Mr. Redwood
The productivity gap is largely the result of the higher taxes, higher exchange rate, 401 higher interest rates and higher regulatory costs that this Government have imposed. In 1995, BMW thought that Britain was the best place in Europe, bar none, to make motor cars. Under this Government, it is talking of pulling out, and the Secretary of State will have to offer a lot of money to try to keep the company here. What has changed is not British productivity by British managers and workers, but the Government's policy.
§ Mr. Richard Burden (Birmingham, Northfield)
The right hon. Gentleman referred to BMW and the high rate of sterling. It is true that the company has commented on that. Will he comment on the statement by Mr. Samann, the new BMW-appointed chair of Rover, who said:We do need some help from a more realistic level of sterling; a proper interest rate strategy and government fiscal policies can achieve that without inflating the economy. Early entry of the UK into the Euro would benefit all exporters"?
§ Mr. Redwood
I agree with all of that apart from the last comment about the euro, and if I were handling the negotiations with the BMW chairman, I would explain to him why I think that and try to persuade him that, under a Conservative Government, Britain would again be the best place in which to invest and to make motor cars. When one of my hon. Friends saw the hon. Gentleman leaving the House of Commons the other day, he noticed that he was not driving a Rover car or one made in Longbridge, which seems a great pity. Surely it is best for all hon. Members interested in that industry to buy cars from Longbridge.
§ Mr. Burden
I do not know what car the right hon. Gentleman saw me driving. I own a Rover 200 and my partner drives a Mini, so perhaps the right hon. Gentleman would like to apologise.
§ Mr. Redwood
If that is true, of course I apologise. I said that an hon. Friend had observed the hon. Gentleman, and he was apparently driving a Vauxhall out of the House, which seemed a pity for one who is meant to be defending Rover. I assure the hon. Gentleman that my wife and I make sure that we buy British and represent the British motor industry.
The American economy has been growing much more quickly than the European economy. Industrial production has leapt ahead in the USA thanks to interest rates, tax rates and exchanges rates that make sense for business. Industrial production has been sluggish on the continent, and countries are trying to drag themselves out of the mire by devaluing against the UK and the US.
Why do the Government want to converge with slow growth and high unemployment? Do they want a fifth of our work force to be out of work, as in Spain or southern Italy? Do they want our output to crawl ahead as some continental output has done in recent years? Why does the Prime Minister tell us that he wants a single currency as long as Europe follows the American dream? Does he not realise how stupid that sounds? Even he must realise that it will not happen. It is like saying that the Government are determined to have only fine weather and have instructed everybody accordingly on their pagers, so it is bound to work.
402 The Secretary of State for Trade and Industry delights in being the cover-up Minister. He will not answer letters and he does not like answering questions. When Parliament is not in Session, he waits until it resumes and then says that it is not permissible to write letters to him and that questions must be tabled instead.
The other day, I asked what impact a 1 per cent. increase in various costs would have on British industry. The Secretary of State must know the answer. I do not believe that he is so incompetent that he has not done his sums. His temporary lapse on his sums is not representative of his work as a whole. I am sure that he can work out percentages. So what did he say instead of giving me the answer? He replied that this Government were abolishing the boom-bust cycle. I asked nothing about cycles or busts.
The Secretary of State may be less grey than we thought if he has all those busts in his brain, but is it not about time that he lifted the quality of debate and told us what is the impact on companies of higher exchange rates, higher labour costs and higher regulatory costs, and what he is going to do about that? His failure to answer tells us a great deal about his state of mind. Either the Secretary of State is preoccupied or he knows that this is the big issue, but does not know how best to cover it up and so continues his trite mantra about no more boom and bust.
Of course, the Secretary of State and the Chancellor prefer to blame British industry. The Secretary of State tells us that it is not the Government's fault that we have a record trade deficit; that that has nothing to do with having sky-high sterling or higher interest rates than our competitors; that business is not short of cash because the Government are milking it dry; and that it is all industry's own fault for being unproductive. That is another nice irony. At precisely the time when one part of the Government are trying to subsidise people into work, the Trade Secretary and the Chancellor are trying to price people out of industrial jobs and to encourage a massive labour shake-out from traditional sectors. Everything that the Treasury and the DTI have done in the past two years has made it more likely that industrial payrolls will be slimmed down mercilessly.
One job is lost every 10 minutes. The Trade Secretary offers more job losses as his answer, which is dressed up as 75 points from a White Paper, but amounts to just one simple, painful, unfriendly point. It says to British industry, "Sack some of them now, or go bust. Get rid of some of them today, or get rid of them all tomorrow." That is Byers's choice. That is the Government's choice. They make it too dear to employ people and business has the horrible job of telling people that they are out on their ear.
This is a Budget of soundbites and contradiction. It is a family-friendly Budget which reveals just how family-friendly it is by removing the married couples allowance and mortgage interest relief. It is a shareholders' Budget which leaves in place the hated pensions tax, which taxes the main way that people in Britain own shares. It is a Budget for jobs, but its main recommendation to industry is to slim down the payroll and pray for better times.
The combination of trade war, stealth taxes and a big increase in regulation is lethal. Meanwhile, the Government weep crocodile tears over small businesses while tying them up in ever more paperwork and 403 regulation and imposing higher national insurance on the self-employed. Businesses have to cope with new rules on unfair dismissal, the working families tax credit, the minimum wage, statutory sick pay, EU paternity leave, emergency leave, union recognition, the working time directive and extended maternity leave. We shall soon find that as the small business man comes to the end of his 48 permitted hours, he has worked only for the Government and has had no time to work for his customers and himself. The Government have swamped him with more paper than the Andrex puppy.
Pity the poor haulier facing more vehicle excise duty on top of the DERV and other taxes. What advice does that vanishing British industry get from Ministers? Hauliers are told to go to the continent to fill up. Some are doing more—they are going to Luxembourg to set up and pulling out of Britain altogether.
Labour views this as an election Budget for Wales and Scotland. The farmers will not see it like that because they will remain in slump. Rural dwellers will not see it like that as they seek a mortgage to pay to use their car. People who want better schools and hospitals will not see it like that as they watch the money being wasted on other things.
This is a Budget for manufacturing collapse and industrial unemployment. It may make work for accountants and lawyers, but it will not work for business. It certainly means bust for manufacturing. The only boom that I foresee is a continuing boom for spin doctors seeking to explain away the industrial collapse. I beg to oppose this Budget.
§ Mr. Deputy Speaker
Before I call the Minister, I should inform the House that the Speaker has decided that there will be a time limit of 10 minutes on Back-Bench speeches between 6.30 and 9.30 pm.
§ The Secretary of State for Trade and Industry (Mr. Stephen Byers)
I am grateful for the 40-odd minutes that the right hon. Member for Wokingham (Mr. Redwood) took to set out his opposition to the Budget. It was The Daily Telegraph, I think, which stated that, each time the right hon. Gentleman gets up and speaks, he loses votes for the Conservative party.
The Budget presented yesterday by my right hon. Friend the Chancellor will have broad and popular appeal for business, for British people, for those who rely on the public services, and for parents who have children in school, because it confirmed that the £19 billion promised by the Chancellor as part of the comprehensive spending review was to be devoted to our schools. For those who need health treatment, the £21 billion for the national health service has been confirmed.
It is possible to marry fiscal prudence with the need to invest in high-quality public services. That is what the Budget will do. It takes forward the agenda outlined by my right hon. Friend the Chancellor. It is a Budget for jobs, enterprise and the family. That is what we should be debating this evening. I regret that the right hon. Gentleman did not use the opportunity to address those issues.
404 This is a radical Budget, which recognises that our country's future economic success depends on promoting fairness and enterprise. It is a new Labour Budget, based on a fundamental understanding of the role that business and Government can and should play in relation to the economy. Businesses create jobs and wealth. Entrepreneurs take risks in the face of uncertainty, and open up new markets. Governments should not try to second-guess boardroom decisions, yet much of what we heard from the right hon. Gentleman this evening sought to encourage us to do precisely that—massive intervention in the way in which businesses operate.
That is not the way in which the Government intend to go. We believe that the responsibility of Government is to create the climate and the framework in which business can prosper without interference from Government. The right hon. Gentleman said that Labour does not look after business. It is hardly surprising that he should say that, as the principal Opposition spokesman on trade and industry affairs.
It would be far better to listen to the comments of people who do not have a vested interest and do not approach the matter from a party political perspective— or perhaps some of them do. Let us consider the comments of some captains of industry on yesterday's Budget.
Sir Ronnie Hampel, chairman of ICI, welcomed the overall approach of continuing the direction adopted in previous Government statements about laying the foundations for business growth. The chief executive of Asda, no longer the hon. Member for Tunbridge Wells (Mr. Norman), but Sir Alan Leighton, said that he was happy with the Budget. He said that it was a Budget for individuals, families and enterprise and that the benefits that it brought to all three would go through to every sector. Lord Harris, chairman of Carpetright—who, if I remember correctly, has over time been a substantial donor to Conservative party funds and is one of the few business men who still give generously to Conservative party funds—thought that it was a good Budget for his business and that it would get people spending, especially at the bottom end.
Those are overwhelming endorsements from people who, with the possible exception of Lord Harris, do not approach the Budget from a party political position.
§ Mr. Christopher Gill (Ludlow)
There is another exception. If the right hon. Gentleman reads today's press, he will see that Eddie Stobart, the boss of one of Britain's biggest road haulage firms, says that he could save his company £2 million a year by moving his transport fleet overseas and basing it abroad. Is the right hon. Gentleman not aware of the huge damage that is done to the road haulage industry? Does he not recognise its effect on British industry?
§ Mr. Byers
I have not seen that quote from Mr. Stobart, but I will read it. He should look at the tax regime in the round. He will find that we offer a far more friendly tax regime in the United Kingdom than he would find in France, for example. It is for Mr. Stobart to make those decisions, but, if he looks at the tax regime in the round, he will see that it is supportive of his industry.
I was examining the comments that have been made about the Budget. There were some interesting comments from one person who does come at it from a party 405 political perspective, the former chief executive of Asda, now the vice-chairman of the Conservative party, the hon. Member for Tunbridge Wells. On radio yesterday, he said:We welcome the help for small business. I think that's good. We welcome the reduction in corporation tax and lower corporation tax for smaller businesses. That's good. As I said, we particularly welcome it in Asda. We are very keen on employee share ownership. I think everybody in the country is dead keen on it and that's good.He concluded by saying:Overall, not a bad business budget.That is a vice-chairman of the Conservative party, going on the record publicly and endorsing our approach, in conflict with the views of the right hon. Member for Wokingham, who speaks for the Opposition on these matters.
§ Mr. Bercow
Is the right hon. Gentleman not aware that the president of the Confederation of British Industry, Sir Clive Thompson, has said that the Government are responsible for a creeping paralysis of regulation, and that, unless action is taken to reverse the trend, that regulation will be the principal growth industry in the United Kingdom?
§ Mr. Byers
The hon. Gentleman should see what Sir Clive said about the Budget. I think that he will find that Sir Clive is not critical. Adair Turner is broadly supportive of the measures in the Budget. I was at a meeting with him this morning, with my hon. Friend the Financial Secretary, at which Mr. Turner clearly said that the tax burden on business was reduced as a result of the Budget introduced by the Chancellor yesterday.
Let us debate the Budget. I urge hon. Members to take the opportunity to debate it. Let us have a debate about the ideas, the initiatives and the promotion of enterprise and fairness.
§ Mr. Redwood
Will the Secretary of State confirm, as does the Red Book, that business will face a tax increase as a result of this Budget in 1999–2000, the immediate relevant year? We cannot be sure what will happen in two years, because there will be more Budgets. For the year that we can be sure about—the coming year, 1999–2000—the figures show an increase in business taxation, do they not?
§ Mr. Byers
The overall Budget delivers £4 billion of tax cuts. The right hon. Gentleman should consider carefully the measures that he supported when he was a member of the Cabinet. They would have meant an increased tax burden, compared to the measures that we are discussing. Business would have faced a greater tax burden, had the proposals that he supported continued. We do not agree with imposing such burdens on business. We are reducing the burden, compared to that which would have been imposed by the right hon. Gentleman.
The Chancellor was able to present that Budget yesterday because, early on in office, he took the tough and difficult decisions necessary to ensure that we have economic stability. By ensuring that, he could announce the initiatives proposed yesterday.
406 It is particularly significant that my right hon. Friend was able to do that, given the situation that we inherited when we took office in May 1997. Conservative Members do not like to be reminded of the economic mess that they left behind, but I shall remind them, and I might even mention not just boom and bust, but Tory boom and bust. I certainly shall not be referring to a golden economic legacy, because it clearly was not.
We inherited an economy in which output was rising at a rate that simply could not be sustained, inflationary pressures were building, with inflation set to rise sharply above its target level, and there was a large deficit in public finances—£28 billion, to be precise. Contrast that with the £4 billion surplus this year. Moreover, for the coming five years, we estimate that there will be a Budget surplus totalling £34 billion.
Look at what happened under the Conservative Government. Their deficit over the last economic cycle was not £50 billion, not £100 billion, but £1 billion short of £150 billion. Even with my poor mathematical skills, I know that that is £149 billion. That is the legacy created by the right hon. Member for Wokingham and his Government.
§ Mr. David Prior (North Norfolk)
Why does the Minister believe that so many foreign companies decided to invest in Britain during that time?
§ Mr. Byers
There were two reasons. First, they saw the UK as a means of entry into the European market, something which will be put at risk by the policies promoted by the right hon. Member for Wokingham. Secondly, the figures show that last year was one of the best in terms of inward investment decisions. That was 1998, the year of a Labour Government.
§ Sir Raymond Whitney (Wycombe)
On the question of the golden legacy, which the right hon. Gentleman seeks to dispute, what does he think of the view expressed by Mr. Anatole Kaletsky, who says:Mr. Brown's apparent generosity has been greatly assisted by the long-term tax increases that were bravely introduced by Tory Chancellors"?
§ Mr. Byers
The hon. Gentleman makes my point for me. That conflicts with the approach of the right hon. Member for Wokingham. That is one reason why we were not prepared to endorse that raft of tax increases proposed by the Conservative Government, and why the tax burden is reduced as a result of the Budget. I am grateful to the hon. Gentleman for drawing that to my attention.
We have economic stability because we took the difficult decision to take politics out of the setting of interest rates. We will not hear the Tory policy on that from the right hon. Gentleman. The Opposition Front-Bench spokesmen have taken a Trappist vow of silence on that. I think that I know the view of the right hon. Member for Wokingham. It is a shame that he cannot discuss it openly. He smiles because he knows that he would not have given independence to the Bank of England. It is a shame that he cannot speak his mind on the issue. Unfortunately, he cannot say what he truly believes.
We took the necessary steps to put public finances back on a sound footing. They were not in that condition when we took office. We have created a new framework for 407 stability in monetary and fiscal policies. It is because we have taken those steps that, for the past seven months, inflation has been at or around the target level of 2.5 per cent., and short-term interest rates have peaked at half what they were in the early 1990s, and have fallen by 2 per cent. in the past two months alone. As my right hon. Friend the Chancellor said yesterday, that reduction in interest rates will save the typical home owner around £900 a year on his mortgage. Britain now has the lowest mortgage rates in 33 years. Long-term interest rates are now at their lowest level since the mid-1960s.
The right hon. Member for Wokingham talks about jobs being lost. I understand the pain felt by people who have lost their jobs. I know my constituency well, and I share my constituents' pain, frustration and anger when jobs are lost. But my constituency now has more people in work than on 1 May 1997. Throughout the north-east, which has been affected by the global downturn, more people are in work. Nationally, 400,000 more people are in work than in May 1997. Those are the facts. The right hon. Gentleman likes his own prejudices to get in the way of the facts, but on this occasion he should look carefully at the true position.
§ Mr. Redwood
What does the Secretary of State think will happen to manufacturing jobs, industrial jobs, during the next year? Does he agree with the union forecasts, or is he saying that there will be no overall job losses?
§ Mr. Byers
I am trying to ensure that factories such as Siemens have a new owner so that people can get back into jobs. I want to see more positive announcements, such as the one this morning from Peugeot in Coventry announcing 900 new jobs. Why does the right hon. Gentleman not applaud that fact? He says not a word about it. He ignores it. I welcome that announcement. It came about as a result of initiatives taken by the Government and by my Department. We shall continue with such work. There are now 400,000 more people in work than when we took office. Unemployment in the right hon. Gentleman's constituency is dropping. In the constituency of the hon. Member for Daventry (Mr. Boswell), there is a 22 per cent. reduction in unemployment. The Labour Government are prepared to work even for those constituencies represented by Conservative Members.
§ Mr. Tom King
The right hon. Gentleman rightly says that he is here answering for the Government on the whole Budget. Obviously, everyone welcomes new jobs in any area; they would be as welcome in my constituency as they would be in his. But the right hon. Gentleman was asked for a judgment on the overall Budget, and that matter gives me concern. The figures appear to show that there will be a substantial increase in unemployment in manufacturing industry. The right hon. Gentleman is party to the Budget and the Budget sums. Is that correct?
§ Mr. Byers
Once again, it would have been nice had the right hon. Gentleman reflected on the fact that unemployment in his constituency is now down by more than 20 per cent. since the general election. The Budget brings good news for manufacturing. Substantial tax concessions have been introduced, specifically targeted at the manufacturing sector, and manufacturers want economic stability, not a return to the early 1990s and the 408 days of Tory boom and bust. I can remember those days. In north Tyneside, around my constituency, not just tens or hundreds of jobs, but thousands, were lost in basic manufacturing industry because of Tory boom and bust. My constituents do not forget that, and that is why they voted for a Labour candidate.
I am outlining the steps that we are taking to help the manufacturing sector. However, we need to be realistic, and there is no doubt that, as we face a global downturn, some sectors of industry will be affected. To overcome that difficult situation, we need economic stability, and we believe that we have created the framework for that.
§ Mr. David Chidgey (Eastleigh)
The right hon. Gentleman rightly says that tens of thousands of jobs were lost in manufacturing in the 1970s and 1980s, but he will also know that there has been a worldwide decline in manufacturing employment, and those jobs will not come back. The right hon. Gentleman is clearly trying to impress on us the number of jobs that have been created since the Labour party took office, but will he confirm that far too many of those jobs are less skilled than those that were lost—the jobs that do not come back?
§ Mr. Byers
A mix of employment opportunities is being created. It is a dangerous game to denigrate certain types of employment because they are part time or flexible, because many people now like to have such employment. Many full-time employment opportunities are being created in manufacturing which are well paid and high tech. That is the reality. Today's announcement of 900 high-quality, well-paid manufacturing jobs being created by Peugeot is a good example of that. I would hope that Opposition Members, from whatever party, would welcome that approach.
§ Mr. Byers
I have taken a number of interventions; I will give way in a few minutes, when I have made some progress.
The International Monetary Fund report published on Monday shows the extent to which impartial observers think that the economy is doing well. The IMF gave the economy a glowing bill of health and its report praised the United Kingdom's impressive economic performance in recent years and the Government's skilful management of the economy.
The IMF said that the private sector fundamentals were strong and that any slowdown in the economy would be short-lived. It gave credit to the new monetary policy framework for leading to timely and judicious changes in interest rates and welcomed the Government's basic welfare-to-work thrust as improving the work of the labour market. When the IMF had analysed the Government's approach to the economy, it strongly endorsed the attitudes that we have adopted.
As the Chancellor said yesterday, we understand that there will be difficulties, with a quarter of the world in recession and world growth being cut by half. We have to overcome those short-term difficulties and we believe that the steps that we have taken, which will be carried through by the Budget, will ensure that we can steer a course of stability. Conservative Members know that full well and that the economy is now in a strong position. 409 We need to build on that strength. In particular, that means that we must seize the opportunities provided by the knowledge-driven economy of the future. If we fail to do that, we will be left behind as a country and as a people.
Success in tomorrow's fast-moving world depends critically on how well we exploit our most valuable and distinctive assets—the knowledge and the talent of the British people. The first industrial revolution was based on investment in capital and machinery. The revolution that we are going through requires investment in human capital—in skills, in learning and in education. That commitment comes from the Government.
Here is a message for all industry: knowledge is increasingly important not just for new industries; it will affect old, traditional industries just as much. They must embrace the knowledge-driven economy. Some are doing so, but all the traditional sectors need to do so if they are to prosper.
Last December's White Paper on the knowledge-driven economy set out a model for industrial policy for the next century. First, we must invest in British capabilities—in particular, our world-class science and engineering base and our skills. Secondly, we must act as a catalyst to collaboration between businesses and between businesses and our important science base. Finally, we must promote greater competition—principally, by empowering consumers, but through regulation where necessary. That is why I said to the House earlier that we will fully implement the 75 commitments in the White Paper. An implementation plan, which will show clearly how we intend to deliver on those commitments, has been published today.
A more fundamental challenge faces us all and goes beyond government: how can we end the poverty of ambition in Britain, which has held us back for too long? In government, in business, in universities, in schools and throughout society, we must foster a new spirit. We must be prepared to seize opportunities to turn new ideas into successful products and services and be committed to constant innovation and improved performance. Yesterday's Budget was an important step on the road, introducing measures that will encourage the new spirit of enterprise.
§ Mr. Lansley
A few moments ago, the right hon. Gentleman said that the Budget contained tax measures designed to help manufacturing. I am looking through the table of "Budget 99" measures. He will of course be aware, on behalf of manufacturing, of a further table in the Red Book listing a large number of additional measures, which were announced before "Budget 99"— in 1998 or earlier—and take effect after this Budget. I have found 14 measures that will increase taxes on business, totalling £2.8 billion for the year beginning 1 April 1999. So far, I have found three measures that will reduce tax by a total of £15 million. There is £2.8 billion in extra taxes and a reduction of £15 million, which is a pretty poor show.
§ Mr. Byers
I would accept that a £15 million reduction is not good enough; we need to do better. If the hon. Gentleman looks through the Red Book and reads the 410 statement made by my right hon. Friend the Chancellor yesterday, he will see that the impact on investment will allow small and medium companies to write off 40 per cent. of all that they invest in plant and machinery in the coming year. That is particularly important for manufacturing companies. I am sorry that the hon. Gentleman did not see that example of what we have done; perhaps he chose not to see it.
§ Mr. Byers
No, I will not. The hon. Gentleman has had his chance. We have provided £325 million, which can be written off against investment in plant and machinery in the coming year. That is the reality, and it is a shame that he is not aware of it.
Other steps that will be introduced as a result of the Budget will make a real difference. For example, my right hon. Friend the Chancellor confirmed the reduction in the basic rate of corporation tax, ensuring that it will be reduced to 30 per cent. from April this year—down from 33 per cent. when we took office. That is the lowest rate of any major country in Europe and the lowest rate of any major industrialised country, including Japan and the United States.
§ Mr. Byers
No, I will not.
We are also cutting small companies tax to 20p in the pound—down from 23p when we took office—and, to promote even greater enterprise and investment, we announced a new starting rate for small businesses of 10 per cent., which is the lowest ever starting rate. We calculate that 270,000 businesses stand to benefit from that reduction, and 85 per cent. of them employ fewer than 10 employees. That will make a huge difference.
Corporation tax rates of 10, 20 and 30 per cent.— guaranteed to be no higher in the lifetime of this Parliament—show how serious we are about encouraging business and ensuring that the United Kingdom is a good place in which to do business.
§ Mr. Byers
I want to make some progress; I will give way shortly.
We need to ensure that those opportunities are provided, but other, non-tax, measures will benefit industry. As I said in my statement, we will be setting up the new Small Business Service to improve Government assistance to those vital businesses. It will have a strong voice for small business at the heart of Government, and it will improve Government services to small businesses and ensure that those services address the real needs of the sector.
We have not forgotten the importance of science. The Budget shows our commitment to investing in Britain's capabilities, and our science and engineering base must be world class. Scientific discovery underpins our quality of life and is an invaluable source of wealth creation, economic regeneration and employment. That is why my right hon. Friend the Chancellor yesterday increased the Government's contribution to the university challenge fund, which will make a real difference in respect of the commercialisation of scientific research.
411 I want more British inventions to be transformed into British products—creating jobs and wealth here in Britain. That is not the case at the moment. Our proposals and the measures announced in the Budget will change that and ensure that we can take advantage of our own ideas and do not see them exploited by other countries.
§ Mr. Redwood
I think that the right hon. Gentleman inadvertently misled the House when he replied to my hon. Friend the Member for South Cambridgeshire (Mr. Lansley). I have checked the Red Book. It is very clear that the tax breaks for small and medium enterprises and the research and development tax credit do not come into effect in 1999–2000, the year about which my hon. Friend asked. I hope that the record will be corrected. The fact remains that there will be a big increase in tax in 1999–2000, mainly from the first two Labour Budgets, but also from the cumulative impact of this third Budget, which also raises taxes in that year.
§ Mr. Byers
I think the record will show that I was referring specifically to the £325 million that we are providing for write-offs—in the coming year. When the right hon. Gentleman has time to look at the record, he will doubtless reflect on that. I was talking about the year specified by him—the year ahead.
§ Mr. Byers
I want to make some progress, given the number of hon. Members who wish to speak.
There can be no doubt that the economy of the future will succeed for our people only if it respects the environment. Protecting the environment remains a priority for this Government, and getting the environmental framework right will be good for businesses as they move into the clean technologies of the future. Yesterday's decision to implement the recommendations of Lord Marshall, the former president of the Confederation of British Industry, will make a significant contribution to the improvement of energy efficiency in business, and will also meet the United Kingdom's climate change targets.
Notwithstanding the claims of Conservative Members, the new tax will entail no increase in the burden of tax on business. The revenues will be recycled in full for business, through—among other mechanisms—a cut in national insurance contributions.
We welcome the strides that have already been made by many firms—especially those in more energy-intensive sectors—to improve their energy efficiency. Special consideration will be given to particularly energy-intensive industries. We intend to set significantly lower tax rates for energy-intensive sectors that improve their energy efficiency, and we have asked them directly to submit their proposals. Businesses will also gain from an additional £50 million for schemes to promote energy efficiency and renewable sources of energy.
We need to consider the skills gap. We must ensure that we equip everyone in Britain with the skills that they will need to succeed in the computer-driven world of the future. That is why we will create a national network of 1,000 computer learning centres—one for every community in Britain. That network will have one purpose: to ensure that Britain and our people are equipped for the information age. Inequality in computer 412 learning today will mean inequality in earning power tomorrow. Anyone who is left out of the knowledge revolution will be left behind in the knowledge-driven economy, and that is unacceptable to the present Government.
This Government believe that the best way in which to address inequality and social exclusion is the creation of a more affluent, more successful Britain, providing everyone with opportunities to achieve their full potential—opportunities that accompany the success of British business at home and abroad. Equally, however, the fairer Britain is—the more open it is to the talents of all, whatever their class or background—the more enterprising and prosperous all Britain can be. That is why yesterday's Budget reformed the tax system in favour of work, enterprise and families. It made the tax system fairer by announcing the new l0p rate of income tax, which will be introduced in just a few weeks' time, and a cut in the basic rate of tax from 23 to 22 per cent., which will be introduced in April next year. Those two cuts will increase the rewards of work for all working taxpayers, while targeting the benefits on the low-paid and making work pay.
Our first principle in supporting the family is that the interests of children must be paramount. For the past 30 years, families with children have been the losers in the tax system: their tax burden has risen by nearly 20 per cent. under successive Governments. That is why we are increasing child benefit by 3 per cent. in real terms from April next year. It will be worth £15 a week for the first child, and £10 a week for subsequent children. That will make a real difference to families who are supporting parents and have other responsibilities.
Yesterday's Budget also guaranteed a better deal for all pensioners. It provided a fivefold increase in the winter allowance, from £20 to £100, and took an extra 100,000 pensioners out of tax altogether. It provided for pensions to increase in line with wages rather than prices. It also provided a guaranteed income for pensioner couples of £121 a week, nearly £800 a year more than the amount that obtained when we took office in 1997. On average, pensioner households will be £240 a year better off.
I was particularly interested by the comments of Stella Hague, the mother of the Leader of the Opposition. Commenting on the £80 rise in winter fuel payments for pensioners, Stella Hague, aged 71, said, "It's very nice to have it. The £100 will be very acceptable." Given that the Leader of the Opposition now believes in "kitchen table" politics, perhaps he will get around the kitchen table with his mother, and take some of her advice in regard to the Budget.
Yesterday's Budget is a Budget for enterprise and fairness, a Budget which could be brought about only because of our prudent economic management of the economy. It will ensure a better deal for children and the elderly, a better deal for the hard-working majority and a better deal for Britain's enterprising small businesses and risk takers. It is a Budget for the many, not the few. It is a Budget which is radical and forward looking. It is a Budget for prosperity, fairness and social justice, and I commend it to the House.
§ Mr. John MacGregor (South Norfolk)
Given what the Secretary of the State said about he mother of my right hon. Friend the Leader of the Opposition, I must say that I do not consider the £640 million that has been devoted to those cold weather payments to be a prime example of the concentration of massive sums on those who are most in need.
Although I have escaped the 10-minute limit, I intend to limit my speech to 10 minutes anyway. Let me begin by making two declarations of interest. First, as I want to say something about savings—if I have time—I should declare that I am a non-executive director of Friends Provident. Secondly, I am a member of the Magic Circle—and, more precisely, an associate of the inner Magic Circle. It is for that reason that I shall say what I am going to say about the Budget.
In magic, or conjuring, what matters is not what people see on the stage, but what is hidden from their view. Yesterday, it was not what the Chancellor said that mattered, but what lay in the detailed notes behind it. Listening to the speech, as all the so-called goodies unfolded, I was somewhat bamboozled as to how it all added up—until, reading the press briefing later, I found that it was explained by two factors, as well as the windfall of the £4 billion reduction in debt interest payments resulting from lower interest rates worldwide.
First, the Chancellor has introduced a new principle in Budgets. I am something of a connoisseur of Budgets, having been involved in framing some. The new principle is this: "We have not got enough to announce in this Budget, so we shall announce next year's as well, and some of the following year's too". That explains why so many goodies could appear. Reading the press briefing, I could not believe my eyes. Time after time, I came across something that had been announced—something that we all thought would appear this year—which, we now find, will be introduced in the Finance Bill in 2000, or, in some cases, in the year after that. The presentation of the Budget involved an enormous number of conjuring tricks, if I may put it like that. It takes one to recognise another.
That is best illustrated by a table at the front of the press briefing. According to the table, the average household will be £380 better off. The implication is that that is a result of this year's Budget. It is necessary to turn to the notes for editors to discover that the measures involved are those announced in both the 1999 and the 1998 Budgets, and that they will take effect over the three years from 1999. Moreover, the national minimum wage will have an impact. Everything has been thrown in to produce the highest possible figure.
The other factor is this. As my right hon. Friend the Member for Wokingham (Mr. Redwood) pointed out, the Government—as is so common with them, especially in regard to public expenditure increases—have reannounced measures that had already been announced. When I started to look through them, I recognised, as a former Chief Secretary to the Treasury, that the Government had done what we used to do: they had taken some sums out of the year two contingency fund and put them into year one programmes. The number of additional programmes is small. The Government received lots of plaudits from Labour Back Benchers, but their actions are no different from those conducted in the past. We should not be overimpressed by the figures that the Chancellor announced.
414 It is dangerous for the Chancellor to take a three-year view in a one-year Budget. A possible trap lurks, especially given that the big tax reductions are earmarked for the later years—as usual with the Chancellor. Overall tax reductions total £1 billion in the year ahead and £3.5 billion in 2001— surprise, surprise. However, the danger is that, if the reductions in debt interest fail to materialise in the later years, or, more particularly, if growth, which, again, is expected to rise much more in the later years than this year, fails to materialise, the Chancellor will not be able to introduce additional improvements and benefits on top of those that he has announced. Therefore, he will depend on economic performance worldwide and in this country over three years to implement the Budget fully.
Of course, I welcome some of the measures in the Budget. Even more, I welcome the fact that it does not include measures that previous Labour Chancellors would have been tempted to introduce.
By introducing lower direct tax rates, the small business and enterprise measures, and employee share-owning schemes, the Chancellor is simply following policies and approaches that we Conservatives pioneered over 18 years. Naturally, I am pleased that Labour has been converted to what until now has been an entirely Tory approach, but the Chancellor should not claim, as he did yesterday, that he is embarking on new directions. He has simply recognised the success of the policies that we pursued over 18 years and carried quite a number of them on. It is those that I welcome.
I thought that the small business measures were going to be classic. In fact, I had a great sense of déjà vu because some of them were extremely like the measures that the Conservative Government introduced when I was the Minister with responsibility for small business between 1981 and 1983. However, I looked at the details and too many of the measures were too small and fiddly.
The 10 per cent. corporate tax rate for small businesses looked extremely good until I saw that it was limited to £10,000 profit. Small businesses might be advised not to become incorporated in the first place—the costs of doing so would probably outweigh the benefits of that tax change. That was not apparent in the Budget speech.
One of the features of the Budget is that it has further complicated the tax system, when it should be simplifying it. A range of the measures—all very small, apparently desirable, and which have immediately received a good press—will just complicate the system and not have a big impact.
§ Mr. MacGregor
No, I will not, if my hon. Friend will forgive me.
The Government propose to establish the Small Business Service. When I was Minister with responsibility for small business I was responsible for the Small Firms Service. Then we used business people to advise small firms; at that stage, there were not many self-employed and small businesses. We changed the culture successfully over the succeeding years. The service was designed to advise small businesses on practical measures such as marketing, financial control and so on.
415 I was amused by the highlight of the press release for the Small Business Service:The SBS will have a new role helping businesses comply with regulation.That is like someone saying, "I am going to torture you, but I have good news for you. I have a therapist who will help you to endure the pain."
I have grave doubts as to whether it is right to have publicly financed venture capital funds of the sort announced in the Budget when one of the great successes of the British economy is the growth of venture capital funds from the private sector. The £20 million is peanuts compared with what is being raised from the private sector, including that from venture capital trusts this year, so, again, it sounds like a gimmick.
The main point I should like to make about small businesses is that, overall, all the measures have few pluses when we compare the minus side of companies having to pay at least £4 billion more in tax in each of the next four financial years. The changes that reduce tax are very small compared with the measures introducing those big increases.
The Secretary of State for Trade and Industry did not deal with that point in answer to my hon. Friend the Member for South Cambridgeshire (Mr. Lansley). If the Secretary of State looks at pages 112, 113 and 120 of the Red Book, he will see just how big the increases in tax in the corporate sector are in the 1997, 1998 and 1999 Budgets. They include road fuel duties and the changes in advance corporation tax, which, as Sir Clive Thompson, the Confederation of British Industry president, has pointed out, will add considerably to the tax burden of the business sector over the next four years.
I should like to mention only two more points, because I want to keep within the 10-minute limit if I can. I am really bothered that the fuel duty escalator is inflicting real damage to the economy and to rural areas, and is producing very little environmental benefit. It was originally introduced some years ago to deal with the effects of greenhouse gases and to meet the targets under the original Rio de Janeiro convention, which was followed by the Kyoto convention.
It was felt—as a former Secretary of State, I understand the reasoning—that there had to be some reduction in emissions and that pricing was one way in which to achieve that. With the escalation in that fuel tax, however, and given that the Government increased the escalator beyond what the Conservative Government established, and, in their first year of office, doubled the amount of tax by taking a second chunk of it, we have the highest petrol costs in Europe. Tax represents a higher proportion of the cost of fuel in the UK than anywhere else in Europe.
We have overdone it. We are getting to the equivalent of the law of diminishing returns in relation to the environmental benefits. Frankly, people want to use their motor cars. The damage inflicted by the tax on petrol is seen in rural areas in a constituency such as mine. Most of the representations that I receive are fiercely against the escalator. For many people in rural areas, there is no practical alternative to the car for going about their daily business: getting to work or taking children to school. That tax increase, which is bringing in vast revenue, will have serious consequences for such rural areas, on top of the consequences of earlier measures. It is often those on 416 lower incomes who will have to pay the cost—at least £60 more this year—thus removing the benefits of many of the measures to help the lower paid.
The measure's effect on the economy and its competitiveness is also great, as many road hauliers point out. In addition, there has been a savage reduction in the road programme, which I strongly criticise because I believe that there will inevitably be an increase in road transport. That, combined with the fuel duty escalator, means that we are in danger of adding a factor of considerable uncompetitiveness to the British economy. The Secretary of State, who endorses the competitiveness White Paper, should deal with that issue. The time has come to stop the fuel duty escalator—it is one of the most damaging parts of the Budget.
There is not much in the Budget to encourage the saver or more people to take out pensions. That fact, and all the various measures that the Government have taken before, mean that I am not optimistic that we will achieve the increase in pensions that we seek from all age groups, but particularly younger generations.
The removal of £5 billion from pension funds in the Chancellor's first Budget, the impact of which the ordinary person has not yet understood, has helped him to fund quite a few of the tax reductions in the current Budget, but that measure will do long-term damage, disadvantaging those who retire on pensions. It is already taking away money from pension funds and increases the danger that companies will have to make higher contributions and, therefore, face a higher cost to fill that gap.
That problem is exacerbated by the fact that individual savings accounts are no substitute for the TESSAs and PEPs which we left to the Government. Moreover, the capital gains tax reforms are a huge missed opportunity and are not well directed, while non-tax paying pensioners are being treated appallingly by not being allowed to reclaim their dividend income. We can add to that the confusion over the pension schemes created by the Government and the discouragement of traditional occupational pension schemes as a result of their action on pensions and other matters. There is also the problem of personal pensions, for which I do not blame the Government; and the drop in annuity rates, caused partly by actuarial calculations and the fact that people are living longer, and partly by lower interest rates and yield on gilts. The latter factor is becoming a matter of common comment in the press and is bothering many people who are shortly to retire. It is clear that the overall cumulative effect of the various changes since 1997 has been disadvantageous to pensions and will ultimately be disadvantageous to pensioners. I regret that the Budget has done nothing to put that right.
After 24 hours, I now understand—finishing my speech where I started it—why I was bamboozled by the Budget. However, I know also that the reality of the Budget will become apparent when people read its small print and experience its impact. It will look a very different Budget then.
§ Mr. Martin O'Neill (Ochil)
Yesterday's Budget has done more to help relieve family poverty than probably any other Budget in the past 30 years. The Budget offers, for the first time in many years, a clear chance to those 417 who are in low-paid jobs, or who have no job at all. It is little wonder that the Child Poverty Action Group said that the Government are genuine in their commitment to reducing family poverty, and that the Budget will take about 700,000 children out of the poverty trap, once and for all.
Such praise for a Labour Government from the Child Poverty Action Group is rich praise indeed. In the past 25 years, that organisation has been among the best-focused critics of Government, regardless of colour. I also well remember the problems that my right hon. Friend the Member for Birkenhead (Mr. Field) caused previous Labour Governments, in the 1960s, through his analysis of how those Governments tried to attack family poverty.
In discussing working people and their life chances, we should start by acknowledging that this Budget will make a bigger difference to them than any other Budget in many years. Certainly in my own constituency of Ochil, the Budget will benefit 10,000 families. The living standards of many pensioner families in my constituency will also improve.
The right hon. Member for South Norfolk (Mr. MacGregor) said—at least I think that he said—that the way in which the money had been allocated to pensioners to help them with heating—the £100 instead of the £20—could have been improved. We are aware of the problems—perhaps he knows about the problems better than most of us do. As I recall, he had occasionally to stand at the Dispatch Box to try to defend schemes that helped some parts of the country, but not others, or helped some people, but not others. We know that, from start to finish, those attempts were a shambles.
We realise also that if we are to deal with an issue such as providing winter fuel payments, it makes a lot more sense to make the benefit universal. The 11,616 pensioners in my constituency who will benefit from the Budget's generous treatment will realise that it is much simpler simply to get the money in hand. Better-off pensioners may do whatever they want with the money— they might even wish to give it to charity. They might choose simply to benefit from the Government's generous provision. However, for the poor pensioners in my constituency, who have been frightened to heat their homes, the prospect of receiving an additional £100 is one not to be missed. I think that most hon. Members appreciate that.
Many hon. Members have already said, quite correctly, that the Budget is about enterprise, work and employment creation. In the past month, my constituency has suffered just over 300 jobs in the textile industry. Although the losses—40 here, 30 there or 25 elsewhere—have been in various companies, the case of one company, Coats Viyella, is perhaps worth mentioning. It supplied Marks and Spencer. Once the contract between the two had been settled, it was assumed that—for a long time to come, if quality was maintained—Marks would buy the blouses that the women at Coats Viyella made.
We know the saga of Marks and Spencer. We are aware of its boardroom battles, and the drop in its share price. We know that it has lost its direction as a company. We know also that it is no longer sufficient for Marks and Spencer to try the old trick of sending back all the stock 418 if there is one flaw in one garment—which was how it used to exercise stock control and get the stock burden off its back. Marks and Spencer now realises that that practice alone is not enough if it wishes to compete with the other high street retailers which import large quantities of stock. Marks and Spencer is therefore going elsewhere for its business.
I am not attacking or criticising Marks and Spencer's investment policy, or making a severe criticism of the wages that employees at Coats Viyella are being paid— although those employees are not overpaid, and some of them could probably benefit from introduction of the national minimum wage. Nevertheless, the fact remains that Marks and Spencer—because of the mess that it is in—is forcing textile jobs out of Britain. Those jobs would have been forced out regardless of which party was in power.
Other textile companies, including those that are operating at the upper end of the market, look not only to the United States, France and Germany as potential customers, but to Taiwan and the countries of east and south-east Asia. The Japanese are not buying a new cashmere sweater, or any other sweater, every time they plan a trip to the golf course. They are not spending money as they were. The situation in those countries is part of the reality in the downturn in demand for United Kingdom textiles.
It comes a bit rich for a Europhobe, such as the right hon. Member for Wokingham (Mr. Redwood), to criticise the Government's approach to the negotiations on bananas or the cashmere industry. Certainly, both in Scotland and elsewhere, there is frustration and impatience about the plight of textile workers as a consequence of the banana negotiations. However, let us not forget that the Conservative Government brought the original banana appeal.
There is no disagreement on the banana negotiations between us and the French. There is no disagreement on it between the United Kingdom, France and even Ecuador— which, although it is one of the mainland Latin American banana producers, is not one of Chiquita's customers. Ecuador is just as much under the cosh as the African, Caribbean and Pacific countries are. It is a complicated issue, and it does not do to simplify it, to try to make a party issue of it in the House.
Perhaps the current Administration have a better relationship with the Clinton Administration than the previous Administration had. Although it would not be difficult to improve on the previous Administration's relationship with the United States Administration, we should realise that other forces are also at work. I think that, in a Budget debate on trade and industry, it is harmful to dwell unduly long on the issue.
The Government have been attacked because we have not given away enough money—only £1 billion—and should have given away more. If more money had been given away—I ask Opposition Members to consider this—what would have been the reaction of the Monetary Policy Committee, at its next meeting, when it considers reducing interest rates? Would an interest rate reduction be the consequence of massive fiscal largesse? In today's press, Adair Turner made a reasonable point when he said:We asked for a boring budget and this is not a bad result. The fiscal balance is reasonable.The Monetary Policy Committee has made successive interest rate reductions, to give the country an injection of confidence. In the past month, the MPC's message has 419 been quite clear: "We are not going to cut interest rates this month, but will let the Government take on the responsibility of increasing business confidence."
When one examines not only the Red Book fine print but the proposals announced today by my right hon. Friend the Secretary of State for Trade and Industry, one begins to see from where new businesses will come, and where Government assistance will be available.
Hon. Members have mentioned the new tax rate for small businesses. Let us face it: the majority of businesses that collapse are fledgling businesses. We have to do two things in the United Kingdom: first, help fledgling businesses through the very tough period when they are starting and profits are not very great; and, secondly, remove the stigma of failure from businesses and business people who fail. We have to make people realise that they should get back into business at the earliest possible moment and give them access to the maximum financial support.
I was interested in the point made by the right hon. Member for South Norfolk about the number of names that have been given to small business support organisations. However, we now have a plethora of organisations, something which we did not have when the right hon. Gentleman had responsibility for the issue. Previously, there was the Small Firms Service and nothing else; there was not the support system that we have now. There were occasional bits of support from the chambers of commerce and there was a wee bit from the DTI, but not much else. Nowadays, we have business links, about which we do not disagree across the Chamber.
We need a formal structure that can directly advise Government of the needs of small businesses. I am happy to welcome the establishment of the Small Business Service—I acknowledge that it is another agency, but it is one which is worthy of our support. It will be able to provide small amounts of money and appropriate advice. For businesses beyond the early stages of growth, it will be able to provide appropriate managerial skills supported by funding from outside. Companies that need experienced hands during a worrying period will have access to people who are used to running bigger businesses.
I could go through the whole Budget, but, in the short time at my disposal, I will not abuse the courtesy of the House, so I will touch on one important area. Much is made of our attempts to meet the Rio and Kyoto targets. The carbon taxes are probably a more sensitive way of meeting them than a blank energy target such as the multiplier. The Marshall report was a model of lucidity and fairness.
The Government have picked up the points on fiscal neutrality and they have nodded in the direction of the Institute for Public Policy and Research report, which suggested that if there was a reduction in national insurance contributions from employers, something like a quarter of a million jobs could be created. The Government's proposals strike a reasonable balance between the carrot and the stick. I hope that if the Government's proposals are successful, we can see some easing of the problems facing the road haulage industry.
Most of us who have been in the House for any time know that the road hauliers are the biggest crowd of whingers under the sun. We are largely inured to their pleas and complaints. However, I am almost concerned 420 by what they are saying now. The imposition of tax on fuel is affecting some small hauliers such as those in my constituency who take goods down to England and bring loads back to Scotland.
§ Mr. O'Neill
I am sorry, the hon. Gentleman will appreciate that I do not have time.
Those hauliers find that their business is being taken by lorries coming over from France loaded with fuel that is far cheaper. There is a problem here and we have to balance prices up. We have to recognise that there is a split between the needs of the environment and the needs of the Chancellor.
I should like to think that we could be looking at the question of the trading of permits. That was one of the issues that Marshall considered in his review of energy taxation. It is an interesting market, of which Britain could corner a bit, but, more important, it would give us greater flexibility in emission control. To deal only with one part of the Marshall report is short-sighted.
We see a Government who recognise that we shall no longer be able to depend on the construction of steel mills or massive textile mills to mop up the employment of our people. We need small, effective businesses, and I look forward to continuing debates on e-commerce and the like, which are in their infancy and are only nodded to in the Budget. I know that that is part of the Government's programme. I see the Budget as an important step this year. I welcome it and hope that, by this time next year, we shall see that the small amounts that have been made available—if they were large amounts, the Government would be attacked for providing subsidies—for support and assistance to small businesses and industry in general, and the climate and stability that the Government have created, are the greatest aspects of the Budget. I welcome it.
§ Mr. David Chidgey (Eastleigh)
I am pleased to see the Secretary of State still in his place. It is unusual to see a Secretary of State here this late in the day. I am grateful, and I compliment him on being here. There are some things in the Budget that we can welcome.[Interruption.]In spite of Ministers' interventions from a sedentary position—although we always say with the Minister of State that we are not sure whether he is sedentary or not— I will try to get on with my speech.
The Chancellor has shown some recognition of the difficulties facing our economy, and we welcome that. We obviously applaud the fact that the aims that he sets out for tackling those difficulties are close to our own in many respects. However, aims are one thing and the means to achieve them are another. It is on the means that we have some disagreement with the Chancellor and some concerns. Some of the means that the Chancellor proposes run the risk of being clumsy, unfocused or, at worst, ineffective. That is not only our view but that of a number of respected analysts, not least the Institute for Fiscal Studies which, like us, has repeatedly warned of the problems building up in the economy. In earlier exchanges, the Secretary of State expressed his doubts 421 about the IFS view, but we hope that he will tell us why he does not accept that the IFS has genuine reservations about some of the measures in the Budget.
The Chancellor's statement and the Red Book set out many of the problems in our economy in stark relief. They concentrate on poor productivity, low investment in research and development and low skill levels. Earlier today, the Secretary of State issued a statement on competitiveness. It is a good read. I had the opportunity during earlier exchanges to read it, and it was more enjoyable than the speech from the Conservative Front Bench. The statement refers to milestones and target dates for the process, but nowhere can I find targets for outcomes. I put that point back to the Secretary of State. I know that it is difficult, challenging and dangerous for the Government to set down outcomes, but if we are serious about improving our competitiveness, we should ask for a little more from the Government.
The United Kingdom produces less per person than other major economies. As was mentioned earlier, there is a gap of 40 per cent. between our productivity and that of the United States and more than 20 per cent. between our productivity and that of France and Germany. It reflects weaknesses of long standing in our economy. I do not blame the Government for that, but they recognise it, and I expect them to propose some positive measures to do something about it.
We invest less in research and development than our competitors. The United States invests 50 per cent. more as a share of GDP. It is in the Red Book, so it must be true. The United States and Germany invested 40 per cent. more per worker on new capital equipment than we did in the last economic cycle. Those are the stark facts. Those are the problems. Added to that, the skills gap in the United Kingdom is fast becoming a chasm. Twenty-two per cent. of our adult population has poor literacy skills—twice as many as in Germany.
In spite of the Chancellor's protestations to the contrary, he has been forced to admit that the predictions that we made earlier in this Parliament about the plight that manufacturing industry would suffer were right. He now accepts that manufacturing is in recession and that the recession will be quite deep—1 to 1.5 per cent. in 1999. The result will be unemployment in what is normally a skilled sector. Instead of being flat, as the Government predicted, unemployment will rise by about a quarter of a million in the next two years. That is a worrying figure, particularly for those involved. Hon. Members on both sides should show genuine concern about that, not just try to score cheap points. It is a huge problem which Parliament should address.
The Chancellor should not just carry on saying that the problem is all due to the collapse of the global market and the economic failures in Asia, Russia and Latin America. Those factors have not helped—no one is suggesting otherwise—but we export more to the Netherlands than to those three areas put together. Treasury figures show that business in our key export markets is growing at nearly 6 per cent. a year. Sadly, our take-up of that business is growing at only 0.5 per cent a year.
In our key export markets, British business is missing out on opportunities for growth. The reasons are crystal clear—the high value of sterling and high interest rates. 422 Sterling is still 10 per cent. higher than its level when the Government came to office. No wonder the export forecasts of companies in my constituency have dropped by up to 50 per cent. this year. With interest rates 1 or 2 per cent. higher than in the rest of Europe, the extra cost of investment adds to our uncompetitiveness.
The Chancellor knows what he needs to do. It is the word that dare not speak its name. He knows that a clear commitment to a programme for Britain to join the euro would remove those burdens of an over-valued pound and high interest rates at a stroke. The boost that that would give to British industry would leave the gimmicky tinkering measures in the Budget in the shadows. We would get some real progress straight away.
The Chancellor has set out a wide range of measures that command broad support in principle from various sectors of industry and commerce. However, we must try to determine their impact in practice. We need to quantify and qualify the measures that he has set out. The Government have proposed a new small business service to co-ordinate advice and support small and medium enterprises. We are told that it will be staffed by civil servants and people drawn from business and that it will help business to comply with new Government regulations. That seems like an admission by the Government that the host of new regulations that have been drawn up by one group of civil servants are so complex that we need another group of civil servants to explain to business what to do about them. That is not what the Government intended, but it is beginning to look that way.
Would it not be better to have simpler, clearer regulations that were kept to a minimum? The Secretary of State for Trade and Industry and the Prime Minister have both said on the record that they want to modernise and simplify regulations. We should be able to see that happen in practice, rather than passing legislation that adds more regulations to the statute book and more burdens to business.
We need to know how the new Small Business Service will operate. Will it be just another centralised quango controlled from Westminster, or will it get to grips with the needs of small businesses? I hope that the Government will follow the best practice of the American model. It has not been mentioned so far, but I am sure that the Secretary of State is well aware of the practice that I am talking about. The stated objectives of the United States small business administration scheme are to aid, counsel, assist and protect the interests of small business. It aims to ensure that small business gets a fair share of Government purchases and contracts. It makes loans to small business and small investment companies, working with banks and lending institutions to provide loans and venture capital to small firms which cannot secure financing through normal lending means. It is a proactive organisation which is not there just to explain the red tape that the Government have introduced. It is not a centralised organisation. There are 900 small business development centres across the United States servicing more than 500,000 small firms, in partnership with federal, state and local government and community and private sector groups.
The American model works. If we are going to follow their best practice, the Small Business Service must have a network of regional centres working in tandem with the regional development agencies. The emphasis must be on 423 providing advice and support from the established business community to new entrants, not more red tape from bureaucrats based in Whitehall.
We welcome the Chancellor's proposals to widen employee share ownership. We have long argued for an expansion of share ownership as part of our belief in developing a stakeholder society. Improved access to, and tax relief for, employee share schemes will help to align the interests of employees with those of managers and shareholders. It will help to spread incentives across the board. However, there are some problems to overcome. If new employees are to be offered share ownership, it helps if the share value is rising. In too many cases, the share value of small firms has fallen significantly. Employee share options are not attractive if the option exercise price is higher than the share market value.
An increase in employee share ownership is unlikely on its own to change the City culture of demanding a quick return on investment. As long as institutional investors and investment fund managers are driven by a need to maximise dividends in the short term, there will be little room to invest profits to gain stability and long-term growth. We have to change that culture.
The Chancellor has put forward some novel ideas on company taxation, targeted on reducing the productivity gap. They are aimed at small firms, but they will have little effect on aggregate research and development or investment, because the bulk of both is done by large firms. I asked the Secretary of State earlier about the rationale of targeting the incentive of research and development tax credits on small firms. It will be cheaper to implement than a scheme that applies to all firms, but it will also have much less impact on the economy because, although small firms employing between one and 99 people accounted for 36 per cent. of employment last year, they carried out only 9 per cent. of total business research and development. The Government are hitting the wrong target. Only just over half our small and medium firms are innovators, compared with nearly three quarters of large firms. Any extra incentives should be targeted where there will be most take-up.
The Government want to improve capital allowances for small firms. A move from 25 per cent. first year allowances to 40 per cent. implies an increase in the present discounted value of capital allowances of less than 3 per cent. Given that SMEs account for a relatively small proportion of investment in plant and machinery, the impact on the total level of investment is unlikely to be significant.
The measures on venture capital challenge are interesting. In 1997, UK venture capital firms invested more than £4 billion—£3 billion in this country. However, the investment in early-stage companies was a mere £159 million, of which only £58 million was in start-up firms. We should question the extent to which the provision of tax incentives for the formal venture capital sector affects early-stage financing for start-up firms. Estimates suggest that, in America and the United Kingdom, informal venture capital provides more finance to start-up firms than does the formal sector. We need to learn from that.
We welcome the extra money for individual learning accounts, to go to up to 1 million account holders. However, we have two main concerns. First, what will 424 the administrative costs be? Secondly, how much of that £150 million will result in new training rather than simply a transfer of people who have done the training anyway?
The proposals for greater incentives to recruit high-quality managers come without any argument about whether equity-based remuneration is disadvantaged under the current tax rules, without any evidence of the success of past schemes and without suggesting how the incentives could be used selectively for certain managers without being susceptible to abuse. We need clarification on that. Many hon. Members will remember the effects of the original discretionary scheme, which operated until 1996 and allowed employers to target specific employees rather than offering a scheme to all employees. The previous Government abolished that on the recommendation of the Greenbury committee, whose report argued that there was no case for one form of remuneration to receive preferential tax treatment over another. Are we going through the loop again? We should be clear.
The Secretary of State for Trade and Industry has made a great deal of the importance that the Government place on research and development. Yet the examples that he has given to me recently—particularly on one of our most important industries, the aerospace industry—do not tie up with what he says in the House. I am sure that he does not mean to mislead us. Many assume that the aerospace industry comprises a few giant international companies, but the truth is far from that.
It may well be that the industry employs more than 120,000 people, has an annual turnover of more than £15 billion and contributes significantly to our balance of trade. However, three quarters of aerospace firms in the UK are small to medium enterprises. It is vital that then-interests in investing and research and development are maintained and encouraged. At present, we invest in aerospace research and development proportionately less than any of our major European competitors.
I have raised this question with the Secretary of State, who has agreed that Government investment through the civil aircraft research and technology demonstration programme has been vital to the industry, and has made a significant contribution to competitiveness in the industry, and to other industries outside aerospace. He has said also that we invest far less than our competitors from DTI funds into the industry.
The Secretary of State could not tell me whether he would maintain the minimal budget of £24 million, which is under threat. I think that I am right in saying that £24 million is about half the level invested in France, and a quarter of the level invested in Germany. We are talking about one of our few remaining world-class industries— providing a bright future that could spread research and development opportunities and synergy through manufacturing—and the Government cannot make up their mind whether to keep the tiny, miserly budget on which the industry depends for innovation and new ideas.
My concerns are that the Budget fails to tackle some of the major concerns of industry. The Government claim that prudence is a virtue—maybe it is, but lacking ambition is not. The Budget tinkers around the edges, and tends to ignore the major issues. My party's priorities are to reduce the burdens on business and to simplify the tax system. We want to introduce annual tax audits to reinforce those aims, and to state clearly the extra costs of administration on business.
425 Our aim is to have less regulation, not just better regulation which burdens business. We want to simplify the tax system, and bring in higher tax thresholds—not introduce targeted tax wheezes which will have a limited effect in specific areas. We want a firm commitment to a programme for entry into the euro, which would boost exports and industry at a stroke.
We recognise that the key to Britain's future success lies in improving the level of skills and education of the work force. Rather than playing to the gallery with a penny in the pound tax cut, we would have invested the £5 billion that the Chancellor has given away on education, targeting the money on reducing class sizes, improving standards and creating the skills base that is vital to our long-term economic future.
§ Mr. Tom Clarke (Coatbridge and Chryston)
Yesterday, the Chancellor of the Exchequer began to challenge the biggest plight of our time in modern Britain—poverty. It coincided with measures aimed at reducing poverty abroad, too, but I begin by talking about domestic issues.
Coming from a constituency such as Coatbridge and Chryston in what was once the industrial heart of Scotland, I know that it is crucial to address some of the problems faced by those people in what, hitherto, have been known in many minds as the forgotten parts of Britain. In those parts, the people have often felt that politics and government have left them behind. Now, I believe that those problems are beginning to be addressed.
We may have begun to turn the corner. It is long overdue, and that makes the job so much harder. We cannot shirk from the challenge that presents itself in areas such as mine. Our people are not the underclass— they are indeed "our people". For too long, we have failed to acknowledge that it is in all our interests to offer hope to the poorest people in this country—as the Chancellor did, quite magnificently, yesterday.
An economy in which a significant proportion of the population is unable to fulfil its potential is far poorer and far less productive. Real hope lies in providing a decent standard of living for all, and real opportunities to all who want—indeed, need—to work. We need to help people who have been left out of too many Budgets for far too long: those who have worked hard in the past; the nation's elderly; those families who seek, but are unable to find, work; and, of course, those children of the poorest families who represent this nation's future.
Those children do the worst in life. Their chances of upward mobility, of something better, are, as they see it, no better than they were decades or many Budgets ago. In the schools, through no fault of their own, they often lack the educational skills that enable them to progress and to improve their life chances. Their health standards are often way below those of their friends. No one—still less a child—deserves that disadvantage.
At last—less than two years into the life of this Government—we have the signs that the Government believe that that change is not only necessary, but possible. Many of the resources were switched yesterday, for the first time in decades, to improve the chances of 426 those very children. My right hon. Friend introduced measures such as the new children's tax credit, which will help all families—that is welcome—but clearly benefits the poorest children most. That is not just welcome, but necessary.
We cannot tolerate a society that is prepared to write off the potential work force through poor education. We need to employ the potential of all our people, and yesterday's commitment to utilise modern technologies in all schools was a major step in the right direction. The new deal for the unemployed was an excellent start, and we are seeing the fruits of the windfall tax on the utilities being shifted to help provide opportunities to those at the opposite end of the financial spectrum. I believe that to be right. If equality of opportunity is to mean anything, everyone must have that equal chance.
We must ensure that all the unemployed have access to skills and to work. That includes those who have worked for many years, but have, unfortunately, lost their job. Large numbers—very large numbers in my constituency—of men and women aged over 50 have, in effect, been driven out of the work force over the past 20 years as redundancy after redundancy has swept up millions of our older workers. At that time, the Government of the day had the benefit of what seemed to be almost inexhaustible revenues from oil, which they used not to invest in capital and jobs, but to pay for massive unemployment, and all the economic and social tragedies that went with that. There are now twice as many men over 50 without jobs as there were 20 years ago, and about 40 per cent. of men aged over 55 have no job at all. The plight of this group is one of the unspoken tragedies of our time. I am extremely glad that my right hon. Friend the Chancellor has recognised their needs. Not only do they need to work; we need their talents, experience and knowledge and their contribution to what ought to be their society as well as ours.
That is why I was particularly pleased about the commitment to provide opportunities for people over 50: a voluntary scheme, money to help with retraining and a minimum income guarantee mean that thousands, not least in my constituency, will be given the chance to relearn the skills needed to re-enter the work force with a much better chance of a real job. Creating employment opportunities will not only promote economic growth but ensure that the benefits of that growth are shared throughout society, through families and local communities that are often crying out for the renewal and regeneration that my constituency and many others desperately need.
People will be grateful for this opportunity, which represents enduring Labour values: the equal wealth of all individuals and the recognition of each person's dignity and potential, with everyone making the most of their talents. That is radical, realistic, right and consistent with the Budget.
We must remember that many people have worked all their days and are now retired. In the past, the pensioners were left out of the picture. It is unacceptable to have pensioners living in poverty, and in many cases they are in dire poverty. They have the right to a decent standard of living. They have earned it by working hard for many years. They do not deserve to live in a situation in which they have to choose between heating their homes and eating.
427 My right hon. Friend the Chancellor has responded to that situation with the warmth that we would have expected of him. I unreservedly commend the commitment to switch resources to the poorest pensioners, who are to receive a fivefold increase in their winter allowances to help to pay their bills. That is right, and long overdue. In my constituency, it will benefit more than 11,500 pensioners. I have to say with candour that some of them are the very poorest of pensioners. I am delighted that they are being recognised at last.
A minimum income guarantee linked to earnings rather than prices is long overdue and is an imaginative and major step forward in challenging the poverty that nobody deserves to endure; and challenge poverty we must.
Poverty—grinding, demoralising and simply wasteful— has, I am afraid, become the reality for thousands of people of all ages, not only in Scotland, not only in Britain, but throughout the world. It is time that we took action to change that, and change it we can. We live in a time of uncertainty but also of enormous opportunity. We hear that the ever-globalising world economy is creating rapid political, economic and technological changes. That is good. It is also creating vast amounts of wealth, which provides opportunities for all, but we have to ensure that it goes to all.
I am proud that the Government are taking a lead in tackling those issues head on, to ensure that the people of today and tomorrow, here and throughout the world, are given the standard of living that any human being is entitled to expect. We may not hear much talk of redistribution, but I have always thought, like my constituents, that actions speak louder than words. The Government's actions as demonstrated in the Budget are rightly targeted at helping those who really need that help. In that spirit, I welcome it and support my right hon. Friend the Chancellor.
§ 7.4 pm
§ Mr. David Davis (Haltemprice and Howden)
I have some sympathy with the aims of the right hon. Member for Coatbridge and Chryston (Mr. Clarke), but I spoke at some length last year on the mathematics of the working families tax credit, so I shall not follow him down that route and bore the House twice on the same subject. He intimated that the Government had got good headlines out of the Budget, and he was right. However, it is true that Budgets that are praised in March are often pilloried by May, and I suspect that that might be the current Budget's fate.
It is hard to see the wood for the trees—or, perhaps, to take a line from my right hon. Friend the Member for South Norfolk (Mr. MacGregor), the mirrors for the smoke—following the Chancellor's performance yesterday. Perhaps the wisest course is for me to talk a little about the Government's long-term financing and the effects on the real economy.
As the Economic Secretary is on the Treasury Bench, I want to make a public accounting point. The Finance Act arranges that the National Audit Office audits those parts of the Budget that the Chancellor directs. Some assumptions were audited in the past, and others this year. A valid assumption last year is not necessarily valid this year, and the fact that something has been audited in the past does not make it right today. It is rather like having a public company in which the auditors are allowed to audit only those subsidiaries that the finance director picks in any given year.
428 Will Treasury Ministers consider amending the Finance Act so that the audit of the Budget is under the control of the Comptroller and Auditor General rather than the Chancellor? That might lead to better public finances and more confidence all round.
I have some concerns about the Government's overall financial strategy. Over the decades since the war, every Government have faced—not unreasonably—welfare, health and education expenditure that has grown faster than the economy. That has been funded by taxation going up as a percentage of gross domestic product, but the process has hit a limit. The world's most successful economies have public expenditure of about a third of their overall economy. Ours is about 40 per cent. When the figure gets to 50 per cent., even countries as powerful as industrial giants such as Germany stagger and fail. There is a serious limitation.
Another method of funding is by transfers in spending. For Britain and other countries since the war that has largely occurred by transfers from defence—expenditure on which has halved as a percentage of GDP over the past 30 years from 6 per cent. to about 3 per cent.—primarily to welfare, but also to education and health. We have already reached a minimum for defence spending.
Too many Governments, including even the Government in which I was a Minister, took too much of a peace dividend at the end of the Soviet Union's hegemony. The present Government have gone even further—unwisely, in my view. The proper dividend of peace is peace, not money for other expenditure. That source of funding, then, is also running out.
A further option for funding is privatisation. The previous Government led on that, and Labour opposed it virulently, although it has now been persuaded to support it. Privatisation was a useful source of funds when nationalised industries accounted for 11 per cent. of GDP, but now they account for only 2 per cent., so that source of funding is limited.
What are the Government's solutions? We have heard a great deal about their stealth taxes, and even the Prime Minister admitted last week that the burden of taxation is going up. I will not comment on that, as others will have plenty to say about it. The national asset register is a Government innovation of which I rather approve. It identifies assets that are less than useful to the state and sells them off. In effect, it is the garage sale of the century of public assets. That is nearer to the sale of the family silver and the Canaletto to which Harold Macmillan referred than privatisation ever was. The plan is to raise almost £4 billion a year in that way in the next few years, so it is a significant component of the Government's funding. I think that it is a good idea. However, it will be much harder to deliver on than the Government believe. Indeed, last week a Liberal question identified that only about half a per cent. of the asset base was sold in the past year, so it will be difficult.
I am concerned that the Budget has coupled the policy of stealth taxation with a new policy of covert debt—a potentially dangerous cocktail which could burden our economy.
§ Mr. Davis
I am afraid not, as I have only 10 minutes in which to speak. Normally, I would love to give way to my colleague on the Public Accounts Committee, but not today.
429 That cocktail could burden our economy in much the same way that it did in the 1970s. The pressure on welfare, health and education spending means that the Government will be tempted to finance much of their capital expenditure through the private finance initiative. That method avoids large sums of capital expenditure having to be found and spreads the costs over the life of the project.
The PFI has many virtues—after all, it was a Conservative policy in the first instance. The private sector brings good management, innovation and enterprise to the provision of public services. Properly used, it is a good thing, but the temptation will be to provide public services and public service capital assets on the never-never. Just as someone who accumulates hire purchase payments carelessly loses control of his or her financial affairs, the Government could do the same. I draw the attention of the House to the fact that the Red Book shows that they are planning about £11 billion in PFI expenditure. Every time that the Government undertake a PFI project, they commit tomorrow's taxpayer's money. If that is done imprudently, it will shackle the hands of future Governments every bit as tightly as though they had borrowed billions of pounds. Just like unfunded pension liabilities, that could grow to be an intolerable burden on the nation's finances. It concerns me that we may have a Chancellor who is living for the moment and forgetting his responsibilities to future generations in that respect.
The Chancellor may be behaving responsibly—I simply do not know—but to prevent that scenario he must set an explicit limit on how much capital expenditure he finances on the never-never. If he does not do so, his golden rule on capital expenditure will be meaningless. Clearly, stealth taxation accompanied by covert debt mean that today's expenditure will be financed not merely out of tomorrow's pensions funds, which we all know about, but out of tomorrow's taxes. That would be irresponsible and improper, and I urge the Government to avoid it by having proper rules to govern that type of expenditure.
On the longer-term aspects of the financial package that make up the Budget, rather than the details that my hon. Friends mentioned, this year, because there has been a change, assumptions relating to the labour market have been audited by the National Audit Office.
Incidentally, I broadly welcome the measures for the employment of people aged 50 and above—not merely because that decade is facing me, but because those people are socially valuable. In many ways, I think that the measures will be more effective than some of those aimed at younger members of the work force. The 50-year-old-plus man or woman is a valuable member of society and could continue to give a great deal.
However, within the labour market issues and assumptions in the Budget, the largest reduction in expenditure over the Red Book period—about £9 million—results from lower social security payments. That reduction arises because last year, not this year, the Department of Social Security told the Treasury that its assumptions for social security expenditure looked pessimistic. Fewer people were claiming income support and the job seeker's allowance than had been expected and fewer people were turning up for interviews. Why? 430 It is a result of the reforms that were initiated by the Conservative Secretary of State for Social Security in the previous Government. I will give this Government credit: where they have continued and toughened up those reforms, as they have occasionally done, they have reinforced that case.
§ Mr. Michael J. Foster (Worcester)
I shall begin by referring to the car industry in the west midlands. The area is extremely reliant on that industry—and not merely on the huge car factories, such as Rover at Longbridge. There are many smaller component factories, such as Metalcastings Ltd. in my constituency, which is a classic example of a small manufacturing company that relies heavily on the Rover Group as a customer. I speak as a member of the third generation in my family to work in a car factory. I urge the Government to do what they can to support Rover on behalf of the many component manufacturers in my constituency and elsewhere in the west midlands.
The car industry is not a lame duck. It is not a primary industry with low profits, but one capable of being highly value-added, with high skills and a high-tech base. The industry has huge export potential and it should be encouraged. I ask the Government to ignore the editorial in The Daily Telegraphlast month, which stated that "BMW should close Longbridge" and thatSubsidies simply do not work".The small and medium-sized enterprises that rely on the thriving car industry will welcome the Budget because it will undoubtedly make it more profitable to invest, but they also need a secure business environment in their sector so that they have the confidence to do so. I am pleased to note that the Government have recognised that. The Red Book refers to key investment mechanisms and goes on to mention spill-over effects, where one firm's investment creates new growth opportunities for other firms. That is perhaps best seen in the development of clusters of firms, where the opportunity for a particular firm to make profits depends crucially on the presence and prior investment of other firms. Rover, Longbridge, could be a classic case of that, if it gets the grant aid from the Government.
On the proposals for small businesses, I am pleased that the Chancellor has had time to read the December 1998 small firms survey that was conducted by Hereford and Worcester chamber of commerce before he finalised the Budget. Clearly, this Chancellor has listened to what those small firms had to say in the survey. The new rate of reduced corporation tax for small business start-ups and the lower rate of corporation tax mean that retained profits are more available for investment and that there is a greater reward for enterprise. A feature of the United Kingdom economy is that small firms rely heavily on retained profits for their investment plans. Indeed, the survey found that 56 per cent. of the small firms used only retained profits for their investments and more than half thought that it was their most important source of finance.
The extension of the 40 per cent. first-year capital allowance adds to what previous Budgets have done to give incentives to invest. Some people argue that the 431 measure affects only the timing of the investment, making marginally profitable projects more viable. However, coupled with the economic stability that has been brought about by Bank of England independence, prudent fiscal management, an end of boom and bust and the positive growth forecast from the Treasury, that continued tax relief may affect the volume and not merely the timing of the investment.
Of special note is the small business service and the extra help with venture finance. In the survey that I mentioned, about 80 per cent. of respondents claimed that they needed more help from the Government in that area, 36 per cent. wanted easier access to the small firms loan guarantee, 35 per cent. wanted the Government to promote a wider range of finance options, and a further 36 per cent. wanted easier access to financial information and advice. Those small businesses will thank the Chancellor for his Budget. Those are the findings of those who are active within the chamber of commerce. Imagine what they would be for those who are not active members—those who are perhaps too busy to seek such advice.
I particularly welcome the help for automated payroll support. I spent six years teaching night school students how to do manual payroll calculations and I can assure the Government and every small business out there that computerisation works. That is a further example of the Government's reduction of the burdens on business by enabling businesses to process a piece of essential work. It adds to the already enlightened approach that the Government have taken in bringing together the Contributions Agency and the Inland Revenue, an act which was welcomed in the survey to which I have referred.
I have a few remarks to make on employee share schemes. I worked in the car industry for a company that gave employee shares to the workers—me included—and I saw at first hand the real interest that employees began to take in the financial success of the company. They love sharing in the good times. It is interesting to see workers on the production lines in the huge car factories of the west midlands scanning the newspapers to find out the daily share price of their holdings. They also quiz their line managers on what has caused particular movements. That interest and involvement should be admired and encouraged.
I taught accountancy at a college, and that included teaching about labour remuneration schemes—or new labour remuneration schemes as I used to call them. Employee share schemes clearly show a sense of partnership and team work in a business. They enhance other productivity measures that the Government are keen to see in industry. In particular, they will enhance new investment opportunities that will result from reduced tax levels.
Coupled with the works council directive and our fairness at work legislation, the Budget will equip the United Kingdom for the 21st century with workers who know that they will achieve more working together than acting individually within an organisation. The employee share scheme meets all the basic criteria of a good remuneration package. It is fair to all employees, because they are all eligible. It has a regular reward because dividends can regularly be converted into more shares. It is certainly easy to operate, and it focuses on long-term commitment to a company.
432 The three-year commitment if full tax advantage is to be gained will mean that, at a time when many small businesses are suffering from skill shortages, workers may commit themselves for longer to particular organisations. That will reduce the high costs of labour turnover that small firms face.
The Budget is good for business. It lowers business taxes, it improves investment incentives, it takes measures to improve productivity and it gives extra training opportunities. All that has been done the new Labour way. Employees and employers will be able to work together, and the Budget will complement existing Government policies. In short, a Government of joined-up thinking have produced a joined-up Budget.
§ Sir Raymond Whitney (Wycombe)
The hon. Member for Worcester (Mr. Foster) believes that the Government are good for business. I fear that he will be disappointed in future. I am sorry about that, and I shall tell the House my reasons for thinking so later.
We are accustomed these days to the phrase "spin doctor". It is a feature of modern politics, and yesterday proved that it has become a feature of economics and Budget presentation. The Chancellor of the Exchequer, however, qualifies less as a doctor of spin than as a doctor of obfuscation. It was he who gave us the famous phrase about neo-classical endogenous growth theory, and he has talked about the symbiotic relationships between growth and much more. He has progressed from that to the performance that he gave yesterday: the words were simpler and crisper, but they were no less misleading.
We must carefully consider the reality beneath the golden words of the Chancellor. Two points may be briefly made. The first concerns the tax position and the reality that my right hon. Friend the Member for Richmond, Yorks (Mr. Hague) so successfully exposed in his exchanges with the Prime Minister today. The reality is that Labour's first two Budgets involved an increase in taxes of nearly £41 billion, and in the coming year taxes will rise by more than £7 billion. Stealth taxes are an important theme, and we should hear much more about them.
The second reality obscured by the Chancellor's carefully phrased delivery was the matter of the golden legacy, on which we have already heard some exchanges this afternoon. It is a sensitive point with the Government. The going concern that took over in May 1997 will of course always reject the proposition that the Conservative Government left a golden legacy, so I must draw Labour's attention to The Times yesterday, in which Anatole Kaletsky wrote:The real authors of Britain's present economic prosperity—and of the present Chancellor's good fortune—were Kenneth Clarke and Norman Lamont.Mr. Kaletsky points out that automatic revenue growth is built in to the British system, which is ungainsayable, but which has not been said by Treasury Ministers, who seem always to try to reject a legacy that truly was golden.
Kaletsky also rightly makes a proviso—that the economy must not be in recession if automatic growth is to occur. That is one of the dangers that the Chancellor's seemingly solid edifice stands precariously against. In his projections for the next two or three years, the Chancellor 433 still relies on growth of 1 to 1.5 per cent., which is about twice the average forecast of well-respected economic commentators throughout the country.
There is surely no doubt that manufacturing industry is already in recession, or that it has been seriously damaged. Many of yesterday's measures will increase the damage to that unhappy sector. We have heard quoted many times the assertion of Sir Clive Thompson, president of the Confederation of British Industry, that an increase of £20 billion in business taxes has already been inflicted.
Business does not face merely taxes, of course. A bureaucratic burden is also being heaped on industry. I am not prepared to enter a Dutch auction between the present Government and their predecessor about whether there have been 3,000 more documents or 2,500, but we all know that there have been too many of them. That is certainly the view of British industry, and many quotations to that effect can be adduced.
Another danger manifest in the Budget is the temptation to meddle. In The Times today, Anatole Kaletsky cites the interventions that will burden and harass industry, saying:Individually all these may be small measures, but taken together they seem to represent a covert triumph for the traditions of interventionist economic meddling and social engineering that appeared to be buried with old Labour.That is true, and it is being said by an independent economic commentator rather than coming only from Conservative politicians. The Labour party still believes that everything can be done from Whitehall. We heard bland words from the Secretary of State for Trade and Industry about the necessarily limited role of Government, but by their deeds shall ye know them. As the Budget works out in the months to come, I fear that it will become all too clear that it spells bad news for industry.
There is another danger. The Budget will make it harder to continue the downward pressure on interest rates. If anything, it might put pressure on interest rates to rise again, when set against the inflation target. We all know that if that happens, the impact on the pound, on our export potential and on business and jobs will be hugely negative, coming on top of an already difficult situation for British exporters. That would have negative consequences should we approach membership of European monetary union, although I do not wish to go too deeply into that subject from the Conservative Benches tonight.
Like many Budgets in the past, this Budget received a warm reception on the day and the day after, but that means that in six months' time there will be wailing and gnashing of teeth. This will be a classic example of such a Budget.
§ Gillian Merron (Lincoln)
It used to be the case that the Chancellor wore the heavy mantle of chief distributor of misery, entrusted with executing Budget provisions in a limited and predictable manner. However, now the headlines proclaim, "Flash Gordon", "Everyone's a winner" and "Brilliant". How Budgets, Governments and Chancellors can change!
434 The Budget is supported by good housekeeping, including a major reduction of the inherited national debt and the costs associated with it and a determined yet practical reduction of unemployment and its associated social security, health and other costs, none of which properly serve the individual or the economy. However, I noted that the Chancellor again failed to realise the fears of George Bernard Shaw, who wrote some time ago:Give women the vote, and in five years, there will be a crushing tax on bachelors.I wondered whether I should be generous and say that even Conservative Members would not have added that to their intended list of items such as food, books and children's clothing that were under threat of imposition of VAT, had the Conservatives won the election.
I especially welcome the Budget's impact on my constituency of Lincoln. More than 11,000 families will benefit from the further increase in child benefit plus the new children's tax credit. That will mean that the Labour Government, since coming to power, will have doubled the financial support available to children. More than 16,000 of Lincoln's pensioners will benefit from an increase in the winter allowance from £20 to £100 which, together with the other measures including the reintroduction of free eye tests—I strongly supported the local Age Concern group's campaign on that issue—and the lifting of many pensioners out of tax liability, will provide a better deal for pensioners than they have been used to for some time.
To achieve all that, support for business and enterprise must be a priority. I know that many in the business community will be pleased by the Government's practical responses to their needs, which Labour has listened to for some time. The business community will welcome the Budget announcements, including the tax reductions and credits, the new small business service and new proposals to increase share ownership, to help to increase productivity. Lindum Construction in Lincoln proudly announced such a scheme some time ago and I believe that it will be successfully replicated around the country.
I recently addressed business representatives at a busy chamber of commerce lunch. In discussion afterwards, I heard how business people genuinely felt a sense of stability that, slowly but surely, is rebuilding the confidence lost in the Tory years of boom and bust. Such confidence supports an American parent company's decision to establish a new manufacturing site in Lincoln. A year ago, I was pleased to welcome Sermatech UK to its new Lincoln facility, which employs some 33 people. Sermatech established that plan in partnership with Alstom Gas Turbines, which—incidentally—supplies the turbine that powers the Whitehall energy efficiency scheme. No. 10, the Ministry of Defence and many other key buildings rely on Lincoln's skill and technology for heat and light. That is a powerful position to hold. Sermatech has a positive future and I believe that it will be enhanced by the final Budget of the millennium.
This is a Budget for work. Lincoln has seen a steady reduction in unemployment, which has fallen by 15 per cent. in the past year. The new deal is part of that, and I am especially pleased that the over-50s will have an opportunity to benefit from a new programme to get them back to work so that they are not left on the scrap heap. Anglia Water last year invited me to support its 37 new deal young recruits and their mentors in Lincoln. I was 435 delighted to hear that since my visit, Gary Peck, a trainee leakage operative, has obtained a permanent job as an assistant surveyor. He is just one example of the powerful effect of a partnership initiated and funded by the Government. Gary's view is:I wouldn't be in this position if it wasn't for all the help I've been given.He is a bright young man with great potential: he just needed the opportunity of the new deal to get him into work. There are many more like him, who will benefit from the Government's determination to get people into work, including those who find it hardest to get their feet on the employment ladder.
On education, I especially welcome the £470 million investment to broaden access to technology for both children and adults. I was delighted to see that principle already in action at Ermine junior school in my constituency, which has a dedicated room with IT equipment for that very purpose. Especially impressive is the availability of the new technology to those in the local residential home. The friendships and exchange between the children and the elderly people provide an example of true and meaningful education.
I especially welcome the allocation of £2,000 to every school for books. I welcome it for the contribution it will make, but also for its directness. We all know what the money is, what it is for and where it is going. The path of previous allocations of extra funding for education from this Government has not been so clear in my constituency.
I also welcome the recent intervention by my right hon. Friend the Secretary of State for Education and Employment who has written to Lincolnshire county council to urge it to ensure that the additional Government provision is spent on education and, especially, to support schools so that resources can be spent directly on raising standards. Not surprisingly, the Conservative leadership of the county council takes issue with that point, but the issue is not only how much is spent on education— important though that is—but where it is spent and what it is spent on. I know from parents, teachers and governors—whether at Ancaster, Sir Francis Hill or any other school in Lincoln—that the education priorities voted for by the people in Lincoln and across the country at the general election are not being met in my constituency.
In contrast, yesterday's Labour Budget is just what the people voted for on 1 May 1997. It is a Budget which speaks of how all players, from the company director, through the NHS manager, to the pensioner or parent managing a household, can see and feel the links to and benefits from each other. I welcome the Budget with enthusiasm. It is a better deal for Lincoln and a better deal for Britain.
§ Mr. David Prior (North Norfolk)
As I listened to the Chancellor's Budget statement, my impression was of massive complacency, and that same complacency was exhibited by the Secretary of State for Trade and Industry this afternoon. There was more than a touch of Dr. Pangloss about both statements. Where have the Chancellor and the Secretary of State been for the past year? Do they have industrial companies in their constituencies? Are they aware that orders, sales and 436 profit margins are being squeezed, and that many manufacturing and engineering companies are laying off employees?
Almost worse is the impression that neither right hon. Gentleman has grasped the lesson that the country had to learn so painfully in the 1980s: we operate in a global marketplace, so we have to be the best by the best world standards. It is because this country embraced those two lessons that we were able to attract so many foreign companies during the 1980s and the early 1990s. The benefits of that investment, such as improved working practices and product quality, are still with us today.
Whereas the challenge in the 1980s was for this country to catch up with Europe, especially our competitors in Germany and France, today's challenge is no longer confined to Europe; we have to be better than our competitors in the United States, Asia, south America and other parts of the world. It is becoming increasingly widely recognised that the European way of doing business is not competitive. Take the case of Germany today: many large industrial companies are disinvesting from Germany and reinvesting in new manufacturing capacity in the countries of eastern Europe and south America.
We have to judge the Budget against that background because only if we get right the fundamental decision about what sort of economy we want in this country will we be able to afford in the long term decent pensions and public services and to achieve a high level of employment. Getting that judgment right is crucial, but I believe that, as we adopt an increasingly dirigiste style of government, with bigger government, more interference and more regulation, we build a higher costs base that will eventually lead to protectionism in Europe.
The lead measure in the Budget was the reduction in the headline rate of corporation tax. I welcome that, but have to point out to Ministers that the problem currently facing British industry and commerce is not the level of corporation tax, but the fact that our costs are too high to enable us to compete. Our regulatory costs, employment costs, transport costs, energy costs and administrative or bureaucratic costs have become too high.
Let me give a few examples. Take inspection costs in our abattoirs, which are going through the roof because of new European Union regulations, or the hygiene and welfare standards imposed on our pig and livestock producers. Take the effect of the minimum wage on a company in my constituency that employs a lot of casual workers and now faces the bureaucratic problems of filling in all the forms needed to comply with the minimum wage. Take the effect of the working time directive, which has had a big impact on companies that work in shifts, especially those that have night shifts. Take the effect of the increased recognition of trade unions. Most damaging are the new rules on unfair dismissal, which will deter many companies from taking on new employees. Finally, the social chapter is, in effect, a means of making all EU countries operate at the same level of uncompetitiveness.
When they took office, the Labour Government inherited a culture of business and entrepreneurialism—a culture which had changed dramatically during the 1980s and 1990s. We had embraced the new competition and were able to compete throughout the world. We have now taken a wrong turn, however: just as we were about to 437 embrace success, we have gone off in the wrong direction, towards a more highly regulated dirigiste form of government. I had hoped that the Budget would demonstrate that the Government had taken on board the lessons of the 1980s and early 1990s but, sadly, they have not.
§ Mr. Stephen Hepburn (Jarrow)
I shall concentrate my remarks on the effects of the Budget on the northern region and the constituency that I represent. I shall explain how the Government's actions are continuing to improve the quality of life of the people in my area, by rewarding work and supporting families. However, first, I pay tribute to my right hon. Friend the Chancellor and his team and to the team at the Department of Trade and Industry who have worked since the beginning of this Parliament to bring about that better standard of life for the many and not the few. The many are the people on low incomes and middling incomes—the real wealth creators in this world.
The great thing about the Budget is that it continues that work in a spectacular way, by recognising and rewarding the central aspects of life—families and work—and putting great investment in public services. Families are given more by increasing child benefit to £15; 12,000 families in my constituency benefit from that. That increase plus the new child tax credit mean that families will be hundreds of pounds better off and that the youngsters in those families will have a better start in life.
The £40 billion for public services, such as health and education, was promised some time ago, but the fact that it was widely discussed before the Budget statement should not take off the shine. The importance of public services to the poor, who cannot afford private health services or to send their children to private schools, cannot be stressed too strongly. The modernisation of my local accident and emergency unit will be greatly appreciated; and the £2,000 for every school for books will be gratefully received by hard-pressed teachers and governors. The Budget also delivers a better deal for pensioners by increasing the winter fuel allowance from £20 to £100 which, taken together with the earlier cut in VAT on fuel and the minimum income guarantee, means that more than 16,000 pensioners in my constituency will be hundreds of pounds better off.
It is significant that the Budget rewards work by building on the new deal, which has already had an impact in Jarrow where it has halved both youth unemployment and long-term unemployment. The minimum wage will make hundreds of people better off, as will the l0p starting rate of income tax and the future cut in the basic rate from 23p to 22p. Taken together, all those measures mean that there will be more money for people to spend in the area. Individuals and families will be better off, with the result that the local economy will receive the boost it needs. The stronger the local economy, the more jobs are provided for local people.
We in the northern region, in the Jarrow constituency and on the Tyne, still rely to a great extent on engineering. We welcome the service industries, which have created valuable jobs, and we welcome the high-tech industries, because they represent the future and we have to look to the future. However, we have to remember that balance 438 is important in any economy, so I pay tribute to the employers and the workers in the north who have survived the bad times—the boom and bust under Tory rule.
It is a disgrace that the average age of a skilled worker on the Tyne is now 50. It is more important than ever that Tyneside and Swan Hunter get the Ministry of Defence work for which tenders are currently being submitted. If the £130 million tender for Royal Navy supply ships is accepted, work will be provided for hundreds of skilled men for many years to come. Perhaps more important are the opportunities that that will create for youngsters to learn skills and carry on the good work that made Tyneside great.
In my area, small businesses were set up as the larger firms closed down. Redundant workers used their skill and determination to provide a living, not only for themselves and their families, but for their work colleagues, whom they took along when they set up the business. Although many have gone to the wall over the years because of problems in the economy, some have survived. They have told me that they welcome the new climate of economic stability; they welcome the new deal, which has given them opportunities to employ people who they might not have employed in the past; and they welcome the cut in the small business tax rate to l0p.
With mortgage rates at a 35-year low, tax incentives to work and massive investment in public services— £40 million has been identified—people in the south of England must be asking why they did not listen before to those in the north and cast their vote for the Labour party. I am pleased that the good people of the south have now listened to those in the north and cast their vote with sense. I know that the Labour Government will not let them down: they are providing jobs and a good standard of living for all the people of this country.
§ Mr. John Townend (East Yorkshire)
We live and operate in a global economy, and this country is very affected by the world economic situation. I find it strange, therefore, that the subject is dealt with only scantily in the Red Book, which devotes a mere two pages to it. I believe that the Chancellor's forecasts are too optimistic when one considers the possible dangers to the world economy in the year ahead. The danger worldwide is no longer inflation but deflation. The problem is that few people alive today—bankers, politicians and business men—have lived through and experienced deflation and know how to deal with it.
Asia is still in difficulties. Japan is, at best, bumping along the bottom and, at worst, heading for even more deflation. Europe's economy is weakening and unemployment is rising. The current world economy is being kept on the rails by the motor of the American economy. This situation cannot last indefinitely because of the growing United States trade deficit. The US cannot, and will not, be willing to be the importer of last resort for ever.
If there is a financial crisis in Brazil—all commentators accept that the Brazilian economy remains fragile—it could spill over into the rest of Latin America. If the American stock market were to fall sharply, it could cause a drop in consumer demand and the world economy would move quickly into recession and deflation unless the European Union was prepared to change its policy to 439 allow an increase in growth and open its markets. By announcing next year's tax reductions now, the Chancellor has become a hostage to fortune. I do not believe he has taken sufficient account of the dangers.
I turn now to a constituency matter: the burden on the motorist. I represent a rural constituency where people must use cars to travel to work and the shops and to take their children to school. Once again, the Government have used the injudicious commitment given by the Deputy Prime Minister at Kyoto as an excuse for another pernicious attack on the motorist. Fuel tax now constitutes 85 per cent. of the cost of the petrol that we buy—that is the highest percentage in the European Union. I do not know whether the Government are proud of the fact that, since Labour came to power, British tourists, for the first time in history, can fill their tanks more cheaply in Calais than in Dover.
This is an anti-motorist Government, and I am delighted that the Leader of the Opposition indicated in his response to the Budget a change in our policy. I have long advocated abandoning the concept of an automatic escalator for petrol tax. With my right hon. Friend's statement, we at last have a political party in this country that will fight for a fair deal for the motorist.
The policy has proved an absolute failure on conservation grounds. People have not given up their cars or used them substantially less. My constituents have no alternative: they must pay the tax with money taken from elsewhere in the family budget. The poorest motorists suffer the most, particularly the poor who live in the country. This tax also hits the family because many families' main pleasure is the family car: taking the family out for a day trip is often the highlight of the week.
The change in the vehicle tax does not help the family. The Chancellor clearly has no experience of such things. It is impossible to get two or three growing teenagers and all their luggage into a car of 1,000 or 1,100 cc. Has the Chancellor not heard of the family saloon? This tax hits the family and the countryside.
The Government are proud of their Budget policies for small business. Unlike most Labour Members, I have owned and operated medium-sized enterprises for the past 40 years. I have looked carefully at the Budget proposals, and I have discovered that 98 per cent. of small businesses will get very little. For those who receive something, the benefits will pale into insignificance compared with the cost of implementing the 2,000 additional regulations introduced by the Government through the social chapter, the working time directive, the "Fairness at Work" White Paper, the national minimum wage, the new hygiene regulations, the Sex Discrimination Act 1975 and the Race Relations Act 1976. The list goes on and on.
Most Labour Members have never run a fish and chip shop and they have no idea of the burden that such regulations impose on small businesses. It is not just the financial cost, but the enormous amount of management time that is devoted to such matters that should be spent on productive development of the business.
I shall give an example from my constituency. Mr. Simpson has been a butcher and his family have operated an abattoir for four generations. He spent £30,000 in order to comply with the hygiene regulations introduced by local authority environmental health officers. New regulations will now be imposed from 1 April. Mr. Simpson tells me that when he slaughters 440 for six hours on Monday—he slaughters once a week— three staff members are present as well as up to five members of the inspection staff, for whom he has to pay. Mr. Simpson will be forced to close his business from 1 April.
Labour Members have made much of the 1p cut in corporation tax for small business. A company that makes £50,000 a year will save £500. Apart from the cost of regulations, that sum will be more than gobbled up by the increase in the cost of petrol. For most businesses, motoring costs are a major expense. Most goods are delivered to customers by road, and sales representatives must have cars to do their jobs. The increase in the tax on DERV will be badly received by the haulage industry. As many of my right hon and hon Friends have said today, more and more hauliers are flagging out their trucks. While returning to my constituency by train last week, I spoke to a man who owns a haulage business in Wakefield, who told me that he had just sent 20 vehicles to be registered in Luxembourg.
The tax increases will also be a bitter blow to agriculture, which is important to my constituency and which is suffering badly at present.
The company car has also come in for another battering this year. The reduction of the rebate for high mileage and the abolition of the reduction for cars that are more than four years old mean that an owner could pay an extra £776 for a five-year-old car worth £19,000 that does about 10,000 miles a year. The changes will hit particularly badly sales representatives who work hard and do high mileage. That is most unfair, and represents another attack on middle England.
My right hon. and hon. Friends have talked about stealth taxes. I draw the attention of the House to the increase in tobacco duty. Hon. Members have probably forgotten that there was an increase on 1 January this year of 21p per packet. Less than three months later, there has been another increase of 17.5p. I do not smoke—I think it is a foul habit—but I think that that increase will simply encourage smugglers. Smuggling is no longer an amateur operation: it has been taken over by professional criminals. Many people are shifting from trafficking in hard drugs to trafficking in cigarettes. That is not the way to deal with the problem—it should be addressed by gradually reducing taxes.
The price of sparkling cider has increased by £1.02 a bottle. That will damage the British cider industry. What is the reason for the increase? The Government have given in to pressure from the Italian Government, who believe that cider competes unfairly with cheap Italian sparkling wine. If the Government wanted to deal with the problem, they should have reduced the duty on sparkling wine to the level of that on ordinary wine. There is no reason why we should pay a tax on bubbles as well as face increased cider prices.
This Budget is bad for middle England and destroys the Government's claim to be the party of the middle classes. Those on above-average pay will pay more national health insurance, as will the self-employed. Home owners will lose MIRAS and pay more stamp duty when they move house. Middle England's company car taxes have increased dramatically. The married couples allowance has been abolished, and private and corporate pensions have been attacked yet again. The penny will start to drop with middle England. The Budget, which is bad 441 for business, agriculture, the countryside, the motorist, the smoker and, above all, the hard-working married man who works long hours to provide a better standard of living for his wife and children, will in time prove to be bad for Labour.
§ 8 pm
§ Mr. Gareth R. Thomas (Harrow, West)
I join other Labour Members in congratulating my right hon. Friend the Chancellor and his team on yet another excellent Budget. He impressively balanced the need for radical new measures to promote enterprise and the need to deliver additional support to those who need it most, while at the same time not putting at risk our hard-won economic stability. The 16,500 pensioners in my constituency will be particularly delighted by the £1 billion package of extra help for pensioners, especially the uprating by average earnings of the minimum income guarantee.
In Harrow, we are lucky to have high numbers of people in work and a high proportion of small businesses. The new l0p rate for income tax and the 1p cut in the basic rate, coupled with my right hon. Friend's measures to stimulate investment and growth in the small business sector—rewarding, as they do, hard work and entrepreneurial talent—will be extremely well received.
I want to concentrate my remarks on the Government's welcome commitment to the introduction of a business energy tax in April 2001. I never believed that environmental protection and economic growth were direct opposites. I also never had much confidence in the arguments and mindset of those on the right or the hard left of British politics, who seemed to believe that sustainable development and enterprise were at different ends of the policy spectrum. There is clearly a third way which marries environmental aims with economic goals. Economic instruments such as the business energy tax which stimulate effective business and market responses to the environmental challenges which we face are examples of sensible new Labour policies.
Over the past few weeks, Labour Members have had to endure much windy piffle-paffle from Conservative Members about the Government's attitude to Select Committees. The centrepiece of the Environmental Audit Committee's response to the last two pre-Budget reports has been to call for the implementation of a business energy tax. I congratulate the Government on their sensible response to those reports. Such a tax will be an important tool in meeting the targets that were set at Kyoto for reducing greenhouse gas emissions and will clearly encourage industry to conserve energy and switch to much cleaner forms of energy.
Crucially, the commitment to make the levy fiscally neutral will also protect business competitiveness. The notice that has been given and the consultation that my right hon. Friend the Chancellor has announced will give business time to plan and an opportunity to work with the Government to decide on the details of the levy.
As countries across the world consider how they will meet their climate change commitments, the introduction of a business energy tax is increasingly recognised as a useful and essential tool. Six European countries have already introduced an energy or carbon tax since 1990, and Germany and Italy are working on similar proposals.
442 In the middle of the next decade, carbon emissions are projected to start increasing again in the UK. According to the projections of the climate change consultation paper, the proportion of the six Kyoto greenhouse gases accounted for by CO2 will rise from 78 per cent. in 1990 to 84 per cent. by 2010. As my right hon. Friend the Chancellor made clear yesterday in his statement, we are locked in, rightly, to a legally binding target of a 12.5 per cent. reduction in our carbon dioxide emissions.
Labour Members recognised a long time ago the necessity of reducing carbon dioxide emissions—hence our manifesto commitment to reduce them by 20 per cent. That is an ambitious goal, and it is a recognition not only of the present Kyoto targets, but, more importantly, of the stringent requirements that are likely to follow the first round of the agreement.
Industry produces 40 per cent. of those carbon emissions in the UK and will, along with other sectors, have to make a significant contribution towards meeting climate change targets. A signal needed to be given to the whole of industry that energy efficiency and the use of renewable energy supplies had to be a priority in its future investment decisions.
In an ideal world, I would have preferred the tax to be levied according to carbon content, rather than pure energy usage, but I recognise the difficulties that would arise in trying to calculate accurately the carbon content of electricity, as well as the inevitable complexity and resulting uncertainty that it would introduce.
I welcome the comment in the consultation document that my right hon. Friend the Chancellor will keep under review the possible exemption of energy supply from small-scale renewable generators, albeit if pool reform allows. Studies cited by Lord Marshall's report demonstrate that energy taxes effectively produce cuts in emissions. The Swedish environmental protection agency has estimated that the introduction of its carbon tax has reduced emissions by 2 per cent. My right hon. Friend the Chancellor estimated that the levy alone would save about 1.5 million tonnes of carbon a year by 2010. That, together with the other measures that he announced, would achieve an overall reduction of 3 million tonnes of carbon, which is equal to about 2 per cent. of Britain's emissions. That would be a significant contribution to our climate change targets.
There is no reason per se why a business energy tax should hurt Britain's competitiveness. I have already referred to the fact that many of our European neighbours are implementing or considering proposals for an energy tax. That tax will not place Britain at a competitive disadvantage with our major trading partners.
I welcome my right hon. Friend's announcement that the revenues from the levy will be recycled back to business through the national insurance system, ensuring that there is no increase in the overall tax burden for business. That clearly demarcates the tax as one for environmental purposes and ensures that it will be judged on that basis.
The announcement that energy-intensive industries can seek voluntary agreements to reduce their levy in return for undertaking energy-efficient measures is clearly sensible. The energy tax in Denmark works in a similar fashion to protect the competitiveness of its energy-intensive industries, and has lower tax rates for companies in those sectors that agree to invest in 443 energy-efficient measures. That is in line with the aims of our levy to reduce emissions by focusing on changing industry behaviour, not loading extra costs on business or raising revenue for the Treasury.
Research quoted in Lord Marshall's report found considerable scope for cost-effective energy-saving measures in all sectors, including those identified as energy intensive. Another important feature of the Danish energy tax is the strong support given to small businesses to improve their energy efficiency. The CBI has rightly argued that if a business energy tax were to be introduced, it should include support for small businesses to adopt energy-saving technologies through the provision of information and advice. Clearly, the welcome £50 million investment fund will provide some support, and it will help to promote an expansion in renewable energy.
The exemption for renewable energy where it is supplied direct to the consumer is also sensible and welcome, and reflects the environmental benefits that accrue from renewable power sources, which are not currently recognised in their prices.
A significant increase in the supply of energy from renewable sources is important in the interests of a long-term, secure, diverse and low-emission energy supply in the UK. In that context, I look forward to the renewables review due to be published by the Department of Trade and Industry shortly.
Under the previous Administration, we had the worst record in Europe for exploiting renewable energy sources. Eurostat figures reveal that, in 1995, the renewable share of inland energy consumption was 0.7 per cent. in the UK, compared with 25 per cent. in Sweden, 24 per cent. in Austria, and a European Union average of 5.3 per cent. I therefore particularly welcome the Chancellor's commitment to examine whether further incentives could be given to promote the take-up of renewable sources of energy by utilising part of the revenues from the business energy levy. Other European countries have implemented various means of supporting renewables which have resulted in a much larger share of the energy market for that sector. Capital credits on the purchase and installation of new renewables equipment to overcome the barriers of high initial costs have been utilised in Belgium and Finland.
Another model that has been suggested is the Dutch system of tax relief for green investment funds. Banks managing the funds in the Netherlands are able to offer good rates of interest to green projects that would not otherwise have been financed, while still providing a reasonable rate of return to investors. So far, £1 billion of private sector finance has been levered into those green funds.
My right hon. Friend has delivered undoubtedly the greenest Budget that we have seen. It builds on the lead that Britain gave at Kyoto and will continue to ensure Britain's place at the forefront of the drive to reduce greenhouse gas emissions. I warmly welcome it.
§ Mr. John Swinney (North Tayside)
The hon. Member for Lincoln (Gillian Merron) commented earlier that newspaper headlines had been broadly favourable to the Budget. Of course that must be conceded—the Government have had a great day in the press. However, one press headline might not have cheered up one of the 444 households in Downing street, because it stated that "The future's Brown". That might have gone down well at No. 11, but I suspect that it would not be the centre of attention at No. 10.
I welcome some of the measures in the Chancellor's Budget, especially the adoption of the l0p starting rate of taxation, a measure which clearly supports the position of low-income households.
The moves on pensioners, particularly the winter payment of £100 and the Chancellor's guarantee yesterday that that would be sustained throughout the term of this Parliament, are welcome, but I urge the Chancellor to ensure that that is protected against inflation.
The more direct and targeted support for children is equally welcome and shows a willingness by the Government to tackle direct support in the most effective way.
The measures on lower corporation tax, to which I shall return, are also welcome. The Government expressed scepticism when the argument for lower corporation tax was advanced by my party before the election. Their change of heart is welcome.
The Chancellor's growth assumptions have been the subject of debate today, and I join in the scepticism about them. The sweep of independent forecasters believe that the 1999 forecast adopted by the Chancellor is broadly double the mainstream position. The forecasts for the year 2000 settle at about half a per cent. lower than that made by the Chancellor. It is stretching credibility to assume that there will be such a lively bounce-back from the close proximity of recession as the Chancellor implies by his growth assumptions.
As we survey various economic information relating to the volume of job losses that have taken place in Scotland since the general election—there have been 14,000 job losses since May 1997, and only yesterday further job losses were announced in manufacturing in Scotland—the Red Book commentary on the position of the manufacturing sector and the downturn in manufacturing output illustrates the severity of the problem.
The Chancellor's growth assumptions are not just a point of academic interest—they are fundamental to the plans that he has announced. At column 175 of Hansard yesterday, the Chancellor gave an assurance that the delivery of the £40 billion of public expenditure envisaged in the comprehensive spending review was safe within the fiscal rules and assured as a result of the assumptions that underpinned the Budget. A great deal hangs on the Chancellor's ability to deliver those growth assumptions, especially in relation to valuable public expenditure programmes.
I am concerned about the fiscal and monetary balance that has been struck by the Chancellor in the Budget. The delivery of further fiscal loosening is clearly part of his judgment, but I fear that that may jeopardise the ability of the Monetary Policy Committee to deliver further interest rate cuts that will take our level to one comparable with European short-term interest rates, which are such an important factor in the competitive position of British companies. If that disparity continues, it will create a competitive disadvantage for our companies. Some of the beneficial business measures that the Chancellor announced yesterday will be undermined by this fiscal stance.
445 On the proposals for enterprise, I welcome the cuts in corporation tax, as I said. We should learn from some of our European counterparts that, by lowering the rates of corporation tax, we can expand the yield of tax generated to the economy.
I welcome the measures on small and medium enterprises, but I caution that new initiatives should not be allowed to clutter the existing SME support initiatives. Additional bureaucracy should not prevent resources from reaching front-line companies that could benefit from the new services.
Let me comment briefly on particular industries. In the Chancellor's statement yesterday, there was cursory reference to the whisky industry, which is fundamental to the economy of parts of Scotland. The £2.54 billion a year trade in the whisky sector underpins 12,5000 direct jobs in Scotland and 50,000 indirect jobs.
Hon. Members have commented extensively on the importance of spin doctors in the presentation of the Government's Budget programme. One of the national newspapers in Scotland ran a front-page story on Tuesday, speculating with a high degree of certainty that there was to be a 4 per cent. cut in the duty on whisky, and suggesting that that was due to intensive lobbying by the Secretary of State for Scotland.
That cut did not materialise. Whisky is still the most heavily taxed spirit in this country. Is it any wonder that sales of that important commodity are depressed? There was a 7 per cent. fall in sales in the UK last year, and declining revenues as a result of the depressed sales. In 1991–92, more than £1.7 billion in tax revenues were generated from sales of whisky, but, last year, the comparable figure was £1.5 billion. The opportunity to solve some of the problems in that sector have been missed in the Budget.
The other sector on which I shall comment is road haulage and the more general issue of fuel duty. I thought that the hon. Member for Ochil (Mr. O'Neill) was about to get himself into serious trouble with some of his remarks about road hauliers, but he saved himself. Road fuel duty is becoming an enormous problem to the economic health not just of rural and county constituencies, such as the one that I represent, but more widely across the economy.
I refer to comments made by Mrs. Pat Grant, the managing director of Norfrost Ltd., an important manufacturing company in the north of Scotland. The company manufacturers what used to be called white goods—refrigerators—at its factory at Thurso in the north of Scotland, and transports them for distribution throughout the world. Mrs. Grant estimates that the last increase in the fuel duty escalator put her company's costs up by £100,000. It is a large company which employs many people. The increase in fuel prices is becoming a serious issue in the manufacturing sector in Scotland. Mrs. Grant reckons that the fuel duty escalator is as big a competitive impediment to her business as the overvalued pound.
The compensatory measures from the rural transport fund announced by the Government—a 20 per cent. increase—do not address the problem for rural areas. In my constituency, a large rural part of Scotland, three rural 446 petrol stations have been defined as being capable of benefiting from additional support from the rural transport fund, but one of them has already closed. What help is that to car users in the rural areas of Scotland? The Government must think carefully about future initiatives in the sector. We will oppose them on Monday night on that issue.
The Chancellor boasted in his Budget statement that he had delivered a public expenditure position that was £2 billion lower than the spending plans that he inherited. No wonder. The Government have confirmed that £211 million has been cut from Scottish education in the past two years. I can see no new money for public services in the Budget. If the Chancellor had £2 billion for tax cuts in the future, the public would have expected that to be directed towards public services. Even under the Government's current plans in Scotland, public expenditure will not recover to its level under the Conservative Government in 1994–95. The expectations of the Scottish people will be diminished by the Budget.
§ Ms Claire Ward (Watford)
I, too, congratulate my right hon. Friend the Chancellor on an outstanding Budget, which will, without any doubt, introduce many measures that will benefit my constituents. That is in stark contrast to what we had from the previous Government. A Conservative Member referred earlier to some strange golden legacy. I do not remember a golden legacy when the Labour party came into office. Our only legacy was one of poor investment in public services, poor standards in education because of a lack of investment, poor investment in our infrastructure, including our rail services, and a crumbling national health service. This Government have invested far more money in our public services than the previous Government could ever have dreamed about.
I returned to my constituency today to meet some pensioners who were celebrating an exhibition on memories with local students at West Herts college. I asked those pensioners for their views on the Budget. It was summed up for me by one pensioner who said, "There is something there for everyone and a bit more for those who need it most." That is exactly what the Budget is about.
We can judge our society by how we treat our pensioners, who deserve the very best that the country can offer them after they have committed so much of their life and effort to it. We have shown a clear intention to deliver the best for pensioners. The £20 a year winter fuel allowance has been increased to £100, The pensioners to whom I spoke today recognised that as a major asset. It is difficult for them to decide how to share their small income between heating, food and other necessities. That is clearly a welcome measure for pensioners in Watford.
Nearly 16,000 pensioners will benefit from the other measures introduced in the Budget. The minimum income guarantee will ensure that, through the income support system, a single pensioner will have a minimum income of £78 a week. While many of us with mortgages have seen the reduction in interest as a real blessing, many of my pensioner constituents have regretted them, because they rely on the interest from their savings. This is a section of society who need that little bit more income at a time when they deserve to live their lives in some dignity. Therefore, I welcome the introduction of pensioner bonds to provide better value for pensioners.
447 This is also a Budget for families, and I welcome the change in the married couples allowance, not because I am anti-marriage or in any way want to penalise those who are married, but because we have rightly given priority to families with children. We have decided that the most important thing is to give the best start to children in all families. By introducing a taper to the children's tax credit, my right hon. Friend has recognised that there are families who do not need that money and that the benefit should not be paid in full to higher tax payers.
The Budget will, without a doubt, reward work and make work pay. Far too often, those on benefits and seeking work have lost out on getting into work. There have been many disincentives to work. The Government aim to make work pay, and the Budget does that, along with all the measures that will be introduced within the next couple of years, including the minimum wage, which will be introduced this year, and the working families tax credit. The l0p rate of income tax will help those on low incomes most of all. Although Watford will be considered a southern town in comparison with other parts of the country that have problems, we still, unfortunately, have areas of low income and low pay. That measure will be an added boost to those families and individuals.
Lone parents will benefit from the Budget. Many have found a disincentive in moving from benefits into work. The extension of benefits for an additional two weeks will give extra security to those who wish to work but might otherwise have felt that they would lose out disproportionately by doing so. That, together with the increase in child benefit and the Government's child care strategy, will make it much easier for lone parents in my constituency to secure work that will pay in the long term.
My right hon. Friend's reluctance to increase duties on alcohol must be welcomed by those of us who like to indulge now and again. I also welcome the reduction in the duty on pools companies. The headquarters of the Ladbroke group is in my constituency and, on its behalf, I welcome such changes. I also welcome my right hon. Friend's decision not to increase duties on alcohol because, although no brewing now takes place in Watford, there are many brewing industries in the town.
I am also pleased that today, which is national no smoking day, the Government can confidently say that they are not encouraging smoking, and are doing everything in their power to reduce the amount of smoking that takes place by increasing the duty on cigarettes. As someone who does not smoke, and who does not wish to have smoke blown all over me wherever I may be, I am pleased that the Government have taken this step.
§ Ms Ward
I shall not give way because of the 10-minute limit on speeches.
This is a positive Budget for all my constituents and for businesses that will gain from the tax changes and from the incentives to encourage employees by means of the new grant for information technology. There is no doubt that information technology and education are the way forward for Britain, not low incomes and poverty pay. The Government have recognised that as a priority.
448 The additional £2,000 per school for books will also show that the Government are serious about making education a priority, together with the additional funding for education and the health service.
I welcome the Budget on behalf of my constituents of Watford.
§ Mr. Tony Baldry (Banbury)
The Budget is a crucial time because there is nothing more fundamental in the state than what the state takes and what the state returns and redistributes. Therefore, it is important for democracy and good governance that what happens in the Budget is reasonably transparent. This Budget is deliberately opaque. Its opaqueness is such that, the day after the Budget, the Prime Minister and my right hon. Friend the Leader of the Opposition are still involved in a lengthy wrangle about whether the burden of taxes has increased or decreased. That must be a matter of fact that could be resolved fairly easily.
Those who turned on BBC Radio 4 news this morning at the first opportunity—6 o'clock—would have heard the commentator on the business news confirm that, so far as the BBC is concerned, taxes are going up and will go up substantially each year for the next four years as a consequence of the Budget. That view is clearly confirmed by the House of Commons Library, but the fact that it is still a matter of dispute is a reflection not only on the Government, who persist in putting up taxes, but on the way in which the Budget has been presented. Different tax years have been confused, some measures that have been introduced will not be implemented for two years and we have had to try to compare the various figures, so it is not surprising that there has been a fair degree of confusion.
The Government are somewhat embarrassed by all that, because the Prime Minister said before the general election that the Labour party had no plans to increase tax at all. However, only last week he had to acknowledge that the tax burden will increase over this Parliament. The tax burden has already increased substantially during this Parliament—Labour's first two Budgets increased taxes by more than £40 billion. This Budget includes a substantial number of new taxes, the impact of which upon individuals, couples and families is not immediately obvious. Mortgage interest relief has been scrapped, the married couples' allowance has been abolished, company car taxes and stamp duty have gone up and petrol tax has gone up yet again.
In a number of ways, the delivery of the Budget was intended to obfuscate. For example, yesterday, the Chancellor made much to all of us in the Chamber of the fact that the bottom rate of income tax will be lowered to l0p, but there was no mention at all of the scrapping of the 20 per cent. band. People earning the maximum allowed at the basic rate of income tax will pay slightly more tax next year, despite the introduction of the 10 per cent. band. They will pay up to £141 extra tax because the 10p rate will apply only to the first £1,500 earned in excess of personal allowances. The 23 per cent. basic rate of income tax will be extended to cover earnings between £1,501 and £28,000.
At first sight, those measures looked like good news for those on lower pay, but the Chancellor forgot to tell us that he was scrapping the 20 per cent. band. When one 449 looks at the facts, they are somewhat different from the spin. The 10 per cent. rate was trumpeted as the centrepiece of the entire speech, but the ending of the 20 per cent. rate went unannounced. It was simply abolished by omission—glided over as if it had never been.
Although attention is intended to be drawn to the 10 per cent. bottom rate of tax, no adequate attention was given to the fact that the upper earnings limit on national insurance will rise by more than 18 per cent., thus cutting take-home pay over the next two years. For most people there is little difference, whether in respect of tax or national insurance contributions, and many people will see more of their pay absorbed by national insurance contributions.
The Chancellor hailed the introduction of the children's tax credit as a reasonable quid pro quo for scrapping the married couples' allowance in April 2000, but the children's tax credit will not be introduced until 2001. That is a further example of the Chancellor confusing different years and seeking to give the impression that he is being generous, but all the figures show that the position is somewhat different and millions of households—couples with children, couples with a mortgage—will suffer a loss.
Pages and pages of the Budget were devoted to various schemes intended to help business, but many are so complex that an aspirant entrepreneur will find himself surrounded by eager officials from the new Small Business Service and accountants explaining the joys of tax breaks for investment and for research and development. There is also the offer of computers from the capital modernisation fund, but businesses in my constituency in north Oxfordshire want to be left alone by the Government and a substantial reduction in regulation.
I am prepared to lay a wager with Ministers on the Treasury Bench that an independent poll taken a year from now in a patch such as my constituency would show that very few businesses had contacted the Small Business Service or had been able to take advantage of any of the specific measures in the Budget.
Those businesses are really concerned about the general burdens on manufacturing industry and the manufacturing base and what they see as an ever-increasing army of health and safety officials, building regulations inspectors and VAT men who are only doing their job. They are concerned about the working time directive and all the new burdens on business that the Government have introduced from unnecessary European Union directives.
The self-employed are concerned about the substantial increases in their national insurance contributions, which were not properly highlighted by the Chancellor. Many businesses are set up by people who start off as self-employed, so that measure is a real disincentive to them.
It will be interesting to see which, if any, of the various specific measures announced for business come to fruition. Good window dressing and good headlines on Budget day made an impact, but, six or nine months down the line, few of those measures will have made much impact for British business.
450 The measures in the Budget are intended as spin. The various programmes on enterprise took up seven pages of the Chancellor's speech, but the announcement that he was ditching mortgage interest relief at source took only seven lines. He will give a little more than £290 million through the programmes referred to in those seven pages, but he will take away £1.4 billion by scrapping MIRAS.
Ministers must accept that, although at first sight this looks like a giveaway Budget, it is in fact very complicated. Business people and those involved in enterprise cannot be motivated if they cannot see incentives. I predict that those who will benefit more than anyone else will be chartered accountants: they will have a field day as a result of a Budget which, when it is analysed in years to come, will be seen not as a giveaway but as a Budget which continued to hike up taxes and tried to hide that with spin and obfuscation. It would have been so much better if the Government had sought to cut taxes—
§ Mr. Geraint Davies (Croydon, Central)
What a great Budget! It was not red nose day for the Opposition; it was red face day. We had a fantastic media reception, involving winners and more winners: pensioners, businesses and families. It has been reported that even Stella Hague, the Leader of the Opposition's mother, thought that this was a great Budget.
Nevertheless, it is important to take a strategic view of the impact of the Budget on UK plc, as we move forward in the global economy during difficult times. The Budget will create a fairer, stronger Britain for the future. We should look at the big picture, rather than making puerile jokes about Roger the dodger. No doubt Stella was not very impressed by that. Anyway, we should consider the broader impact on the British economy.
I think that we all welcome the lower tax rates: the reduction from 23p to 22p, the l0p tax band and the cash for families. Some 16,800 families in my constituency will benefit from that. We also welcome the stimulus for enterprise, the support for pensioners and the recommitment to health and education in the form of £40 billion. There is also extra money for accident and emergency services, and £2,000 for each school.
All that is welcome, but I heard some scepticism from Opposition Members. Where was the money to come from? In fact, this is the stability dividend from the drawing of a line under the period of boom-and-bust chaos created by the last Government. The reality is that we inherited a debt cost of some £28 billion a year—debts which have now been transformed into budget surpluses. The reality is that, since the new Labour Government took power, nearly half a million more people are now in jobs—no longer claiming benefits, but creating economic wealth. The reality is that long-term interest rates are lower than they have been for 40 years, and that short-term interest rates have fallen seven times in succession. For that reason, we are spending less on social security than was anticipated.
The current position contrasts with the vivid picture painted by the right hon. Member for Wokingham (Mr. Redwood), who seemed to be describing another 451 world—a world to which, presumably, he has now gone. The right hon. Gentleman conjured up a picture of escalating unemployment; as I have said, nearly half a million more people are now employed. He talked of recession—and, of course, there is a recession in wider terms. A quarter of the world is in recession. Global forecasts have been halved, and difficult times lie ahead; but we must face those times realistically.
That does not mean a repeal of the independence of the Bank of England, which the right hon. Gentleman seemed to be calling for and which would cause interest rates to hurtle up. It does not mean rejecting, in perpetuity, entry into the euro, which would drive away all international investment. Conservative Members keep badgering us about the need for sterling to go down. Sterling will go down only if the City and the international markets lose confidence in it, and that will happen only if those markets have confidence in the Conservative party's ever regaining power and, as a consequence, preventing Britain from joining the euro—and the reality is that no one thinks that will happen.
Earlier this week, the Financial Times reported the International Monetary Fund as describing Britain as a glowing example to the world. One of our key objectives is to make work pay by guaranteeing an income of £10,000 for every working family in Britain, and—as we shall do through this Budget—lifting an extra 7,000 children out of poverty. Family support, in terms of income, is crucial to a Government whose priority is education, education, education: a Government who see that as the key to the liberation of our children, enabling them to be productive in a new economy and a new world.
In the world of Tory poverty, children in millions of households went to school with low self-esteem, low nourishment and low prospects. That sounded the death knell of Britain's economy, but we have turned the situation around.
I welcome the structural tax changes that will eliminate some of the distortions that we have inherited—distortions that were not tackled during the 18 solemn years of Tory rule. The move on mortgage interest relief at source is particularly brave. MIRAS is a distortion of the housing market which causes normal people to invest enormous amounts in housing rather than in British industry. It has also made the UK economy too sensitive to interest rates. We want to consider the prospect of joining the euro; we do not want interest rates to be set on a pan-European basis, and then to find that there is a particular sensitivity in the UK economy. That prospect has been eliminated. Moneys have been recycled more fairly and effectively, supporting enterprise and families.
I welcome the alignment of national insurance and tax, which goes hand in hand with the transfer of responsibilities for national insurance to the Inland Revenue. That is good for business, for the markets and for Britain. I also welcome the new tapering of business taxation. Corporation tax is at 30 per cent., an all-time low, the tax for small and medium enterprises is at 20 per cent. and the tax for companies that are starting up is just 10 per cent. The Budget is creating a ratchet for the generation of a new enterprise culture in Britain of prosperity and employment.
The support for SMEs will encourage rational risk taking. Lower capital gains tax, regional research and development tax credits and university cash for science and innovation are all to be independently welcomed.
452 For a new Government, their approach on environmental sustainability is forward looking and brave. They have taken the opportunity with both hands. The tax on fuel, the investment in transport, which is yet to be announced, the neutral system of business energy tax, combined with reductions in national insurance, the attack on company cars—it is about time that we did something about them— and supporting company schemes that provide communal transport for employees, are all to be welcomed.
We are creating a virtuous investment environment in Britain which is based on low tax, high skills, an open economy, market access to Europe, stability and an end of boom and bust. The fact that it is an environment in which English is spoken will be well received by the north Americans, the Japanese and others. There will be opportunities for more and more investment in a new Britain and new world.
The Budget has been good for families, the elderly, small business and the environment. Well done Gordon for making Britain great again.
§ Mrs. Angela Browning (Tiverton and Honiton)
I shall concentrate on matters in the Budget that particularly affect my constituency. I begin with a point that I raised with the Prime Minister this afternoon at Question Time, although I did not, of course, get a satisfactory reply.
In my constituency, which forms a large chunk of rural Devon, 80.4 per cent. of householders have cars. Those cars are necessary to their everyday lives. Users are of all ages. If they did not have access to a car, many elderly people in rural areas would have to move out of the villages and their homes elsewhere, and move into towns and cities. It is mobility, and the flexibility of that mobility, that make the car so important, yet today, those people face paying £3.13 for a gallon of unleaded petrol.
The Prime Minister seemed to indicate to the House this afternoon that, because of some of the pluses in the Budget, it did not matter that cars are being taxed at that level, but, in rural areas, there is a distorted effect. People living in rural areas will not enjoy any benefit that the Budget has given them in any other measure because they will need to spend the extra money keeping their car on the road.
The Government have increased the fuel tax escalator to 6 per cent. The tax has kicked in in three Budgets in two years; it has rocketed up since the 1997 general election. I was pleased to hear my hon. Friend the Member for East Yorkshire (Mr. Townend) say how the Conservatives would not only oppose but vote against the measure, which has been of great concern to me over many years, particularly on my constituents' behalf.
If the Government and the Prime Minister in particular are not willing to listen to Conservative Members about how unfair the measure is to people living in rural areas, perhaps he will look at the Hansard of yesterday's debate on the Budget, when his former Chief Whip, the right hon. Member for Bishop Auckland (Mr. Foster), said that he would be torn to pieces by his mainly rural constituents because of the imposition of that tax on petrol. It does discriminate against those who live and work in rural areas.
Many of those car drivers are also self-employed people. In rural areas, starting up small businesses is very important. People have a choice in rural areas: they either 453 start a small business or they go and work somewhere, very often somewhere quite a long way away. Encouraging entrepreneurs in rural areas is therefore extremely important. However, those people are being hit not only by additional petrol costs but by the increase in class 4 national insurance contributions, which will affect 500,000 self-employed people.
We have heard much today, particularly from the Secretary of State for Trade and Industry, on large businesses' support for the Budget. However, the response from small businesses has not been so favourable. I should like to quote two responses that we have received today.
The first is from Brian Prime, chairman of the policy unit of the Federation of Small Business, who estimates that increased class 4 national insurance contributions— from 6 to 7 per cent.—will hurt not only those additional self-employed people butThe real entrepreneurs and risk takers—the sole traders will miss out on the corporation tax changes, but will be hit by increases to national insurance contribution.The Federation of Small Business said that the Budget hascompletely missed the target where the majority of small firms were concerned".Again we heard the Government praying in aid the support of the Confederation of British Industry and big businesses. However, as Conservative Members know, if one is really serious about developing entrepreneurial skills across the United Kingdom, whether in rural areas or in towns, one realises that it is small businesses—the genuine entrepreneurs—who create wealth and growth. They are the people who, in the main, create the jobs. The Government should take seriously the fact that the Budget has hit that sector.
It would be wrong for me not to take this opportunity to talk about another sector, which includes many small businesses, which I know have made representations to the Government prior to the Budget: the road haulage industry. In his speech today, the hon. Member for Ochil (Mr. O'Neill), quite astonishingly, described road hauliers as whingers, which I am sure will not go down well with his own hauliers—I imagine road hauliers live in most constituencies.
In my rural constituency, in Devon, I have many road hauliers. I have also received a whole bundle of letters from such hauliers who are small businesses, many of which were established by owner operators, employing up to 12 or 20 people. They are very important employers in my constituency, but are now fearful—as they were before the Budget—about the very future of their businesses. The Government ignored the representations that they received in a document that was sent, before the Budget—it was also sent to hon. Members—from the Freight Transport Association and the Road Haulage Association.
Hon. Members are aware of the issues that the associations raised in their representations to the Government, and the urgency with which they wanted the Government to deal with their problems in the Budget. However, their concerns have not only been ignored by the Government, but been exacerbated in the Budget because of the increased tax on diesel.
Therefore, not only will we lose individual small businesses, but there will be a sea-change in how the industry operates. I believe that the change—the way in 454 which businesses are so-called "flagging out"—will gather momentum, with businesses establishing themselves across the channel rather than operating in the United Kingdom.
I pay tribute to my hon. Friend the Member for North Shropshire (Mr. Paterson), who is in the Chamber, for raising the issue on the Floor of the House in a previous debate, in the hope that, prior to the Budget, the Government would listen not only to the industry but to representations from hon. Members on both sides the House.
It was with absolute dismay that I read the information provided today by the Road Haulage Association, after it had analysed the Budget's impact on the haulage industry. I beg the indulgence of the House to read it out. The increase will affect all my haulage companies. It says:Britain's hauliers reacted with 'anger and disbelief, to today's announcement by the Chancellor that Duty on Diesel Fuel is to be raised by more than 11 per cent.According to the Road Haulage Association, the rise will add more than £20,000 to the annual fuel bill of an average haulier"—fuel costs in the industry often represent about 36 per cent. of business costs, so this is a huge increase on a section of their costs—(vehicle fleet of 10 40te gvw artics), pushing their total average fuel bill beyond £200,000 for the very first time. The hike means that since the new Government came to power in 1997, fuel costs for the average haulier have increased by more than £50,000.Hauling goods around the country is important, but nowhere more so than in the south-west peninsula. In Devon and Cornwall, we have to haul goods further because of the topography of the region. We are trying to encourage new investment and to persuade new companies to establish themselves there. The cost of hauling goods once they are manufactured is critical to the decision on where in the country to locate. The increase in diesel duty has not only put a block on investment but jeopardised the companies that already exist in my constituency.
Commenting on the increases, the director of the Road Haulage Association said today:The reaction of my members to this increase will be one of anger and disbelief. Despite strong joint representations…the Chancellor has just rung the death knell for over 53,000 jobs in the UK haulage industry. It is particularly bad for hauliers who are competing against unfair competition from abroad. Increasing numbers of my members are asking how they can get out from under this Government"—by flagging out. The flagging out package will enable them to avoid the United Kingdom's very much higher vehicle excise duty, as well as giving them access to cheap foreign fuel. Many hauliers are simply awaiting the outcome of the Government's review of vehicle excise duty before making that decision, but—
§ Mr. Richard Page (South-West Hertfordshire)
I start by apologising to the House for inadvertently making a misleading statement last Monday week. I was standing in this very spot, and I said to the House:I rather like Budgets, because they are just about the only Government announcements that are made to the House before they are made to the media."—[Official Report, 1 March 1999; Vol. 326, c. 834.]455 An hon. Friend of mine said, "Just wait and see." I have to say that my hon. Friend was right and I was wrong. I got it wrong because the headline-grabbing measures announced by the Chancellor yesterday—the decision to abolish MIRAS and the married couples tax allowance, the increase in child benefit, the creation of partnership shares and the l0p starting rate for income tax—were all trailed in the weekend press.
The Observer had the proposals for a minimum guaranteed weekly income for the over-50s. The Sunday Telegraph had the tax break for research and development plus cuts in corporation tax for small firms. I can cite many further examples, but the basic point is clear. Before coming to the House, the Government leaked the details of the Budget on a selective basis so that each newspaper could have its mini-exclusive. It shows the Government's hypocrisy that, a couple of weeks ago, the Home Secretary went to the courts as a "matter of principle" to prevent the press leaking details of a report submitted to it before it was submitted to the House. Yet, when we have the Treasury leaking like a sieve about the Budget, even without the support of Charlie Whelan, we hear nothing about that principle, as it would compromise Labour's manipulation of the media. Spin today is, indeed, everything.
I genuinely congratulate the Chancellor on his performance. It was a superb presentation. I take nothing away from him. If I were an ice-skating judge, I would give him 5.9 out of six for performance.
However, the marks for content would be considerably lower. I have been in the House long enough to know that the mood created by a Budget, with much waving of Order Papers from the Government side on a Tuesday, more often than not turns decidedly sour in the weeks that follow. In that one hour, five minutes and 40 seconds—I am told that that was the Chancellor's presentation time— we heard nothing but a flood of facts, figures, details and projections. Not a single financial stone was untouched.
I thank the Chancellor for his consistent praise for the previous Conservative Government. He again made much of the present strength of the economy, speaking about the deficits reducing and, in the same breath, repeating Labour's manifesto commitment, saying:We said in our manifesto we would work within the existing spending plans for our first two yearsThat means working within the figures of the previous Conservative Government.
We have seen the success that has flowed from that, because the Government inherited a golden legacy. However, the two years are up and the Government are starting to fly blind. For me and many in the media, a sober analysis of the Budget shows that millions of taxpayers will be out of pocket within two years, particularly thanks to the changes to the upper earnings limit for national insurance, which The Daily Telegraph has described as the "forgotten tax". It will rise by 18 per cent., cutting take-home pay over the next two years. The measure will be particularly damaging for constituencies with a profile similar to that of South-West Hertfordshire.
The Government have started to gamble and they have got themselves into a box because of their actions in their first Budget. I admit that there was a potential for an increase in inflation. I understand that they were reluctant to use their powers to reduce consumer expenditure. Instead, through interest rate hikes and bashing industry 456 at the start, they have ensured that our exports have been hit by a high pound. The recent reductions in interest rates have merely been following world figures. The effect of our strong pound continues to damage our industry, in addition to the extra taxes that the president of the CBI has eloquently referred to. If rates are reduced further, the price of British goods might become more attractive, but inflation would become a threat. If it is held, unemployment looks set to rise.
That is what the Government are planning. The National Audit Office today endorsed the predictions of several financial bodies that a further 400,000 will become unemployed over the next two years. With falling output, the Secretary of State's call for increased efficiency will result in an increase in unemployment.
Of the measures in the Budget, particularly those affecting small businesses, I support the continuation of the 40 per cent. write-off allowance against investment for small business. The idea was blocked by the previous Government, but I have always supported it. I have made my views clear several times. However, it is not extra money, but merely a continuation of the allowance. I would like a higher percentage that was more closely focused on the means of production rather than being spread all over. In other countries, particularly Japan, the idea has been used as a specific generator.
I welcome the l0p starting rate for tax on profit for small business, but, again, I must record my admiration for the Chancellor's careful choice of words. He said:Every company making a profit of up to £50,000 will benefit.On closer examination, that 10 per cent. applies only to the first £10,000, after which a taper comes in. For a company earning £50,000 profit, the measure will be tax neutral.
I am slightly concerned about the various arrangements to help small business. The Chancellor referred to theone-stop open-door service…to offer loan guarantees, to support innovation, to advise on electronic commerce and deliver, for the first time, an automated payroll service".—[Official Report, 9 March 1999; Vol. 327, c. 175–79.]I wonder whether that will cause confusion, because I understood that business links was the one-stop shop. I do not know whether the new service will be through business links, or separate from it.
I am sorry that the Budget contained no mention of the threat that the country will face from the amount of business that will be done through the internet, where the collection of tax will become so much more difficult. In horse-race betting, for example, people who bet abroad through the internet completely avoid paying any tax. That trend will spread through sectors of the service economy.
Behind the Budget are a large number of narrow, targeted measures, and the Budget must appeal to as wide a range of interest groups as possible. Everyone is in favour of the general economy and particular expenditure that Sir Anthony Eden talked about in the 1950s. George Bernard Shaw said that Governments who rob Peter to pay Paul can always rely upon the support of Paul. The trouble with this Budget is that it is built on that foundation, and you cannot fool all the people all the time.
§ 9.7 pm
§ Mr. Owen Paterson (North Shropshire)
The background to the debate is that there are three levels of taxation in the world. One, in the United States, has created 13 million jobs in the past six years. Here in the UK, we have created 2.5 million jobs. In the euro zone, there has been a net loss of 699,000 jobs.
The Budget shows that we are on the cusp of moving away from a free-enterprise, low-tax economy towards a higher-tax economy. It was breathtaking for the Prime Minister to state today that the Budget would lower tax. The Government came into power with the level of tax at 38.1 per cent. of GDP. Page 154 of the Red Book clearly states that that will go up to 39.7 per cent., as projected for 2003–04. The level of tax was £315 billion in 1997; it is projected to be £425 billion in 2003–04.
Another lesson from the United States is that we should have fewer regulations and less intervention in business. The huge growth in jobs in America is because of micro-businesses. Businesses with a turnover of less than $500,000 are exempt from the minimum wage and all sorts of discriminatory legislation. In contrast, since the Government came to power, there have been 2,000 new directives. Ian Fletcher, of the British Chambers of Commerce, has calculated that they will cost £500 million to set up and £500 million a year to administer.
There are signs in the Red Book that the cost of the Budget will be in increased unemployment. In the west midlands, unemployment is nudging up from 4.6 to 4.9 per cent. In my two boroughs, it is rising from 4.1 to 4.5 per cent., and from 2.5 to 2.8 per cent. Regrettably, the Red Book states that social security benefits will march away. In 1998–98, the figure will be £93.5 billion, rising to a projected £106.4 billion in 2001–02.
In my constituency—a rural one—the last census referred to manufacturing and a large agricultural element, but distribution and storage are major industries and employers in Shropshire. There is nothing in Shropshire that does not move by diesel-powered truck: it is estimated that 97 per cent. of freight moves by road in rural areas. In that regard, I thank my hon. Friend the Member for Tiverton and Honiton (Mrs. Browning) for her generous comments earlier. Haulage is being savaged by the Government. That is an extraordinary feature of their taxation policies, because it is one area of policy which remains 100 per cent. in the Government's hands.
§ Mr. Paterson
No, there is no European impact on vehicle excise duty and petrol or diesel duty.
We are talking about a major strategic industry. If we doubled rail investment, it is unlikely that more than about 10 per cent. of freight would go by rail. In 10 years' time, it is likely that 90 per cent. will still go by road. The Red Book contains an astonishing increase in duty: not the escalator of 6 per cent. that we were promised but an increase of 11.6 per cent., which puts 28p a gallon diesel.
Thirty-five per cent. of the cost of running a lorry is diesel, and more than 85 per cent. of the price of diesel is tax. The average small haulier, running perhaps 10 trucks, has had to pay an extra £35,000 a year since the Government came to power, and now the Government have added a further £20,000. That means an increase of 458 £9 billion to £10 billion in fuel duties in this Parliament. The diesel-petrol escalator is worth more than 1p on income tax.
Our diesel is easily the most expensive in Europe. To fill a large truck with two tanks with 1,200 litres costs £756 here, as opposed to £438 in France or £354 in Luxembourg. I mention those countries because, in September, the French Government, who have a more intelligent attitude to their haulage industry, introduced a rebate to help French hauliers to compete with those of Luxembourg.
Vehicle excise duty is also totally out of line with the duties in other European countries. UK VED for a 38-tonne vehicle is £3,210; in France it is £486; and in Portugal it is down to £308. The Budget contains a savage hike in VED for a 40-tonne vehicle, up to £5,750. That gives a French operator a comparative advantage of £2,700, or about 3.5 per cent. of operating costs.
We discussed this issue in European Standing Committee A this morning, the Minister for Transport in London gaily said that we have lower social costs and management costs; but there is not a haulier in the country making a margin of 3.5 per cent., so our hauliers are already out of pocket on VED alone.
There was a move in the Budget to push people towards fitting catalytic converters so that they can burn ultra-low sulphur diesel. That is a chimera. To convert a Euro 1 engine costs £4,000 and a Euro 2 engine £3,500. The £1,000 rebate is not enough because—this is a critical fact that the Government have completely missed—the fuel does not generate the same amount of energy as ordinary diesel. A large haulier, Newell and Wright in Sheffield, converted 130 38-tonne vehicles and reported an 8 per cent. increase in fuel consumption that cost them £250,000 a year.
There is worse news on ultra-low sulphur diesel: more crude oil needs to be burned to get a given amount, so more carbon dioxide is produced in the refinery as well as more diesel being burned in the lorry. That cannot help the Government's environmental commitments.
The fundamental flaw is that the freight journey has to be made. There is no marginal impact in making freight more expensive, because the load has to be carried. Either it can be carried by a foreign-owned truck or the domestic haulier is forced to go abroad or be put out of business.
The Kyoto accord requires us to reduce emissions by 12.5 per cent. from 1990 levels. According to the Library, in 1990 power stations emitted 54 million tonnes of carbon; road transport 30 million; and other sources 76 million. That is 159 million tonnes in all. However, only 16 per cent.—emitting a maximum of 5 million tonnes—of that traffic was goods vehicles. Therefore, page 84 of the Red Book does not add up. I do not envisage that the carbon dioxide reductions that the Government have promised will come about and I would be grateful if the Minister would explain how they will do so.
I foresee the end of the British road haulage industry as we know it. Today, the Road Haulage Association has been flooded out with calls from people who want to take up its offer of a streamlined package of legal fees and administration costs to flag out abroad. The director general of the RHA has asked:What can we do to get out from under this Government?459 and has said that the association's members are, "voting with their wheels". Nowhere will that be more obvious than in Northern Ireland. All the road hauliers there will be based in the Republic.
The damage to the industry is considerable. According to the Centre for Economics and Business Research, more than 26,000 jobs will go in the haulage industry, but there is worse, as the economy as a whole will be seriously damaged. Every business is made less competitive by the swingeing increase in transport costs and that is particularly so in a constituency such as mine. The load has to be carried. As it is estimated that a further 26,000 jobs will go in the general economy, the job losses will amount to more than 53,000, which is more than the west midlands would lose if BMW took the drastic decision to move Longbridge production to Hungary.
The loss in tax revenue is a bigger down side. In 1998, the Excise lost £411 million. By 2002, it will be losing more than £1 billion in excise duty. I know hauliers who have not filled up a single truck in this country for two years. If they flag out and base abroad, many domestic-oriented British hauliers will be using foreign-purchased fuel. The total reduction in gross domestic product could be as high as £2.1 billion. As my hon. Friend the Member for Tiverton and Honiton said—
§ Mr. Colin Breed (South-East Cornwall)
I shall take a few moments to deal with the small business aspect of the Budget, and I welcome the new tax regimes. However, I shall concentrate on the venture capital side. Last year, the Chancellor said that venture capital trusts would be reformed, and that initiative will continue this year. Frankly, in the past couple of decades, various Governments have recognised that small businesses are generally under-capitalised. They also suffer from far too much red tape and bureaucracy and from not being able to get skilled employees at the right time.
On under-capitalisation, it has always been difficult for Governments to inject public money into private businesses, even though small businesses find it extremely difficult to get hold of that capitalisation to provide them with the stability that they need to allow them to grow successfully and provide employment opportunities.
Far too many small businesses are just about managing. They really are under-capitalised and more than afraid of going to their banks to borrow money. Even if they did so, the banks would not be able to provide the sort of real capital that would give the businesses the stability that they need.
Venture capital trusts have perhaps concentrated on high-tech industries, which offer the opportunity of making not exactly a quick buck, but not a slow one either. They have supported businesses that have the opportunity of a meteoric rise. Such businesses are relatively small and, by their very nature, do not employ many people. Most high-tech businesses have a low ratio of employees.
How are we to help the majority of small businesses to get the capital that they need? I suspect that most of the help has to come from the private sector. Venture capital companies cannot provide low levels of help for small 460 companies cost effectively. Amounts under £250,000 are difficult to invest and expensive too. However, the fact that venture capital companies and individuals find it difficult to get out of the investment when they want to realise some of the profit is one reason for those high-risk reward profiles. The reason for that is largely the huge hurdle between small private companies that have some outside investment and their ability to be listed on the stock exchange or even sell out to another company.
I hope that the Government—perhaps through the regional development agencies—may consider an opportunity to provide an interim step. We have heard from the Prime Minister that he wants us to consider American models. One of those models can be found in what is called the over-the-counter market. It offers an opportunity for private individuals, small venture capital companies and regional operations to invest in relatively small businesses that they may know and support. They may know the product or management. They may genuinely support a company that they believe to have good opportunities for growth.
Such a company cannot go to the stock exchange, and it is not cost effective to get in small amounts either from venture capital trusts or from small venture capital investments by bigger companies. The opportunity exists for private individuals and regional investment companies to support indigenous small business—not necessarily high-tech business, although they could be included.
I believe that a number of private individuals would welcome such an opportunity. Many people who are reasonably well off and who have decent investment portfolios sometimes find it rather boring to receive a return on their investments that is broadly the FTSE average. They would like something a bit more spicy for their money or something more local with which they can have a closer connection. Yet there is no such opportunity in the United Kingdom.
Some years ago, the Conservative Government tried to provide business expansion schemes. I am sorry that the schemes were largely misused for property companies, in which there was little risk, simply so that a tax shelter could be achieved for investment. That idea was not successful, but that does not mean that the intention was not right. I believe that opportunities must exist between the situation in which individuals put relatively small amounts of money into family businesses and that in which venture capital companies seek to invest the £250,000 or £500,000 that would make their investment both cost and time effective.
I am talking of investment of between £50,000 and £250,000 in companies that have been going for perhaps two or three years and which have an opportunity to expand. That level of investment simply is not available. Because of the nature of venture capital trusts, it is not likely to come from them. Such investment is equally unlikely to be attractive to some individuals because of the lack of opportunity to move the company on to the next stage and to realise a return on their investment.
I hope that the Treasury will examine the American models and consider how regional development agencies might be able to assist local or regional over-the-counter markets to provide opportunities for individuals to invest in small companies that they may know or wish to support. They could provide an added opportunity for real investment that would cure the under-capitalisation of much small business.
461 Successive Governments have recognised the problem, but have found it difficult to provide a model for putting public money into private companies. The Government must try to provide the means by which private individuals may more successfully promote and invest in small businesses.
§ Mr. David Heathcoat-Amory (Wells)
My hon. Friend the Member for South-West Hertfordshire (Mr. Page) said that he was initially rather impressed by the presentation of the Budget speech, but became progressively disillusioned as he read the detail. I completely agree. We have learned from the Government that the packaging may be good, but the substance always turns out to be disappointing. The rhetoric of the Budget speech is beginning to fade, and we are faced with the reality of the Budget as set out in the Red Book. We have always known that this is a tax-raising Government—they broke all their promises on tax within a few months of taking office in their first Budget—but that reputation was confirmed in yesterday's Budget statement.
The Chancellor had an opportunity to repair the damage of the first two Budgets, because, as a result of the earlier tax increases, tax revenue is buoyant. He could have reversed earlier tax increases, but he did not. Therefore, if all the Budgets are taken together, the Government are committed to a £40.7 billion tax increase during this Parliament. That figure is derived from Government documents and was not materially altered by the Budget we heard yesterday. Therefore, the supposed tax reductions, and the other handouts and benefits, are funded from other tax increases in the same Budget or from previously announced tax increases that will take effect in the coming financial year.
Naturally, the Chancellor did his best to try to disguise those facts, but they have been exposed by Conservative Members in the debate today. My right hon. Friend the Leader of the Opposition started the process earlier today when he pointed out that the Chancellor had boasted a lot about the new measures for enterprise and business, while saying nothing in his speech about a much bigger tax increase—the £240 million extra national insurance contributions from the self-employed. That measure is coyly referred to in the Budget report as a reform of the contribution system.
A helpful press release provided a list of some of the enterprise measures. Some are well meaning and may have merit and we shall scrutinise them carefully when we come to the Finance Bill, but they are essentially tinkering at the margin. A £20 million venture capital challenge is all very exciting, but it hardly offsets the £25 billion extra burden of business taxation that the Government have already levied.
Nor have the Government learned the lesson that one of the best things that Government can do for businesses, especially small businesses, is to stay out of the way. My hon. Friend the Member for North Norfolk (Mr. Prior) and others referred to the regulatory burden and pointed out that businesses usually do best when they have least to do with Whitehall and meddlesome Ministers who have no business experience. To take just one example, the working time directive is contained in 72 pages of 462 guidance, and even that is called a basic guide. The minimum wage regulations take up 112 pages. It is not surprising that the British Chambers of Commerce have estimated that the extra regulations so far in this Parliament will impose an extra burden on British businesses of £5 billion every year. If the Government really wanted to help business, they could start by simplifying those regulations. Instead, they have decided to set up a new body called the Small Business Service, which will give businesses advice on how they can comply with all the regulations. Businesses do not want new bodies: they want simplified regulations and fewer of them.
§ Mr. Heathcoat-Amory
Will the hon. Gentleman forgive me for not doing so? I would normally give way, but I want to answer some of the points raised in the debate, including his. I am short of time and the Paymaster General has to speak as well.
Two weeks ago, the Prime Minister went to Milan to speak to the socialist convention, where he lectured his European Union colleagues on how they should adopt the United States business practices of low taxation, fewer regulations and less Government interference. That is what he said, but it is not what he does—instead, he is converging on the wrong economy. If he really believed what he said, why does he not have a convergence programme with the United States? Instead, we are converging with the European Union economies. The EU is increasingly a high-tax, high-cost, high-regulation, high-unemployment zone, yet it is that disease which the Prime Minister invites this country to catch all over again. It is hardly surprising that his remarks were greeted with amused contempt by his colleagues, who pointed out—if not to him then certainly to each other—that he was telling them to adopt the US model while doing the opposite in his own country, as demonstrated by yesterday's Budget.
Increased regulation is not the only problem. My right hon. Friend the Member for South Norfolk (Mr. MacGregor) complained about additional complexity in the tax system. Take stamp duty: the Chancellor inherited two rates of stamp duty, but now we are to have four. The right hon. Gentleman said, completely misleadingly, that the measure was all about householders and that only those who buy expensive houses will pay the additional rate—but most stamp duty is paid by the commercial sector, so it is the firms and enterprises that the Chancellor says he wants to help which will pay the additional taxation. The same is true of corporation tax; the Chancellor inherited three bands of corporation tax, but now we are to have five. The story is the same on income tax; the right hon. Gentleman inherited three bands, but now we are to have five. Massive additional complexity is being built into the tax system with which the Chancellor expects people to comply.
The much-leaked l0p rate of income tax is advanced as a means of tackling poverty, but if the Government were really interested in tackling poverty, they would take people out of taxation altogether, because a l0p tax band is not a good way to help people on lower incomes. If the Government are serious about helping people on the bottom of the income scale, they should reverse 463 the disgraceful decision to end the repayment of dividend tax credits to non-taxpayers—a matter we debated a few months ago. There are 300,000 non-taxpaying pensioners who, from April this year, will not be able to reclaim those dividend tax credits. They are among the most disadvantaged people in the country, yet the Government have decided to do nothing to help them.
Instead, the Government are bringing in a 10p rate of income tax, but, as my hon. Friend the Member for Banbury (Mr. Baldry) pointed out, abolishing the 20p band, which the Government are doing simultaneously, pushes people upward into the higher 23p band as well as downward into the new l0p band. That has been spotted by commentators outside the House, and David Major, a partner in Deloitte and Touche, is quoted in today's newspaper as saying:There may be an illusion that he has given something away with the l0p band…What he has done is to abolish the 20p band to more than pay for the l0p band.There we have it—another example of stealth taxation. The Chancellor says that he will bring in a tax credit for children, but he will do so a full year after he abolishes the married couple's allowance. Therefore, for a full year he has the benefit of the money from abolishing one allowance before giving some of it back to some people by introducing a measure of greater complexity in a future Budget.
We have also heard about the relentless increase in indirect taxes, especially excise duties on tobacco and fuel. My hon. Friend the Member for East Yorkshire (Mr. Townend) raised the issue of tobacco smuggling, which has become epidemic and results in lost revenue of at least £1.5 billion a year, perhaps more.
It is noticeable that the Budget report now estimates that the revenue from tobacco will be £7 billion next year. However, last year's pre-Budget report estimated that the revenue would be £8.9 billion, so nearly £2 billion in revenue has suddenly disappeared. I think I know where it has gone: it has gone overseas or been lost through smuggling. In giving his reasons for increasing tobacco taxation, the Chancellor referred to the importance of dissuading young people from starting smoking. However, if they buy tobacco from uncontrolled outlets in clubs, pubs and car parks, they are more likely to take it up.
When in opposition, the Prime Minister was fond of saying that we should be tough on crime and tough on the causes of crime. The cause of this crime is the Government's widening even further the gap between our rates of duty and those of continental Europe. It is a particularly odd policy move from a Government who are committed in principle to tax harmonisation in Europe— indeed, the Paymaster General, who is about to reply to the debate, chairs a Committee on tax harmonisation. Yet the Government are doing the opposite at home: they are disharmonising and making the gap bigger.
Another example is fuel duties. I agree entirely with my hon. Friend the Member for Tiverton and Honiton (Mrs. Browning) who said that increased fuel duties are particularly unfair on the rural motorist for whom a car is not a luxury, but a necessity. The rural motorist was abandoned long ago by this Government. My hon. Friend the Member for North Shropshire (Mr. Paterson) highlighted another serious problem. He has done a tremendous amount of work raising the profile of this issue, so the Government are fully aware of it.
464 Quite simply, the British haulage industry is being rendered uncompetitive in European terms as a result not of anything that it has done, but of something the Government have done to it. The Government are erecting a green smokescreen: under the guise of an environmental measure, they are piling tax upon tax. That is bad not just for the haulage industry directly but for manufacturing industry as a whole, because all manufactured goods must be transported.
The Government's policy is particularly destructive because they have singled out diesel for special increases. Diesel is the fuel of industry—if the Government do not know that, someone should have pointed it out. We are talking not about the private motorist but about British jobs—particularly those in constituencies with a heavy manufacturing bias. Diesel is to increase by another 12 per cent. Even the low-sulphur diesel, to which the Chancellor said that he would give an "additional tax advantage", has increased by 10 per cent. If the Chancellor is considering any more special tax advantages, I hope that he will think again. I do not want a tax advantage if it means an extra 10 per cent. rate of duty.
The haulage industry must not only try to pass on some of the costs to the rest of British industry—and thereby make it uncompetitive—but must face competition from abroad. We have the most expensive fuels in Europe and there is a smuggling problem in northern Ireland. I tabled a parliamentary question asking whether the Government had estimated the amount of fuel that is being smuggled across the border by criminal gangs and paramilitaries. They replied that no estimate had been made. That is not good enough. We are talking about colossal sums of money which induce criminality. The tobacco and fuel tax increases are certainly bad for individual taxpayers, for industry, for competitiveness, for employment and for the rule of law—and, in the longer term, they are bad for the Revenue as well.
I turn briefly to the overall impact of the Budget. My hon. Friend the Member for Wycombe (Sir R. Whitney) raised, quite rightly, the prospect of a manufacturing recession. The Budget report records that manufacturing output will fall this year by between 1 and 1.5 per cent. That is not only a technical recession, but a severe one. My hon. Friend also said that he does not believe the Government's growth forecasts. They, too, are optimistic. Almost all outside commentators estimate growth to be well below Government estimates, not only this year but next year. That would make any manufacturing recession even worse.
The hon. Member for Harrow, West (Mr. Thomas) spoke eloquently in favour of an energy tax, but, if that is introduced, it will be another hit on manufacturing industry. He may have put forward a good environmental case, but he entirely overlooked the industrial damage that will be caused.
§ Mr. O'Neill
I want to make two points. First, if there are to be energy taxes, they must be fiscally neutral, and the Government have accepted that. The attack on my hon. Friend the Member for Harrow, West (Mr. Thomas) and the general thrust of the right hon. Gentleman's argument therefore has no substance. Secondly, vehicle excise duty is a complicated issue and there is much special pleading by the road haulage industry. Some of us have sympathy with the industry, but VED will not 465 necessarily undermine the opportunities available manufacturing industry in this country. The Oppositie spokesman has not done justice to that case—
§ Mr. Heathcoat-Amory
It is intolerable that a well-considered case advanced by the British haulage industry should be dismissed as special pleading by Government Members in that way. The industry has made a good case, which the Government have not answered at all. The industry would have more respect for the Government, as would we, if its case for a lower or non-existent escalator had been answered by Ministers. We shall shortly hear a reply to the debate and we shall give the Paymaster General an opportunity to answer that case, but so far we have heard nothing.
On the fiscal neutrality of the energy tax, we should be forgiven for being a little cynical about whether the Government will pocket something along the way.
§ Mr. Heathcoat-Amory
If the hon. Gentleman will forgive me, I will not because I am answering some of the points that he made.
By definition, the firms and sectors that pay the tax will not be those that will be reimbursed from the revenue. Manufacturing, as a whole, will pay more than its share of the tax, and the money will flow back to different sectors, mainly the service sector. There will be a net distribution of wealth from manufacturing to the service sector. I hope that hon. Members with large manufacturing concerns in their constituencies—I certainly have some in mine—will bear that in mind before they advance the case for the tax on environmental grounds alone.
The estimates on which the Budget is based are extremely shaky. My right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), who has told me that he cannot attend this part of the debate, put forward the good idea that the National Audit Office should audit and check parts of the Budget that it is excluded from auditing at present.
The Government have given in on unemployment. They used to assume that it would simply be flat. They have now agreed that it is more realistic to accept the National Audit Office assumption of an increase in unemployment over the next few years. I am afraid that very little in the Budget will prevent that 400,000 increase in unemployment that the NAO is projecting.
All the Government schemes in the world will do nothing unless the economy generates real new jobs, and the Government keep taxes down and reduce the cost of employing people. I do not believe that the Government have understood that message. If they have understood it, they have not acted on it. They are squandering the golden economic legacy that we left to them, and the country as a whole will pay the price.
§ The Paymaster General (Dawn Primarolo)
The official Opposition have been whistling in the wind this evening to keep up their spirits in the face of the congratulations that the Government have received on their economic policies and yesterday's Budget, from sources that range from the International Monetary Fund to the mother of the Leader of the Opposition, Mrs. Hague.
During the debate, the Opposition adopted not so much a kitchen table approach as a pick-and-mix approach. The quote from the hon. Member for Tunbridge Wells (Mr. Norman), who welcomed the help for small business in the Budget and described the Budget as not bad for business, was not echoed by many of his hon. Friends, despite the fact that the hon. Gentleman is vice-chairman of the Conservative party.
The comments of the shadow Chancellor, who described MIRAS as having outlived its usefulness and said that it should be abolished—the sooner the better— were not echoed in the Opposition's official policy this evening, presumably because the shadow Chancellor had to rush off to the shadow Cabinet meeting. The shadow Secretary of State for Trade and Industry suggested that we had deliberately timed the debate in order to deny him the opportunity to attend that meeting.
The Leader of the Opposition said that if we were going to phase out the married couples allowance, we should replace it with a better-targeted allowance for families who need help. That is precisely what we have done, but did the Opposition stick to that policy? No. They are into their kitchen table pick and mix.
The Opposition could not explain why Sir Ronnie Hampel, chairman of ICI, welcomed the overall approach of continuing the direction adopted, in order to strengthen the foundations for business growth; nor could they explain why Alan Leighton, the chief executive of Asda, said that he welcomed the Budget and called it a Budget for individuals, a Budget for families, a Budget for enterprise, saying that the benefits that it will bring will flow through to every sector.
The Opposition could not explain why they disagreed with Lord Harris, the chairman of Carpetright, who said:I think it is a good budget for my business. This is a budget that will help people to spend, especially at the bottom end of the income scale.Throughout the debate this evening, the Opposition complained about what they did not like, denied what they had been committed to in government and said nothing about what they would do to tackle the skills shortage, investment, the productivity gap, help for families, incentives to help people into work and investment in our small businesses. They speak of their golden legacy, but even they do not believe that they left us one, because they cannot tell us now what they would do to help the economy.
In their many contributions to the debate, my hon. Friends touched on various aspects of the Budget. My hon. Friend the Member for Ochil (Mr. O'Neill) welcomed the Small Business Service and said how important that would be. He welcomed the Marshall report and, in an intervention on the right hon. Member for Wells (Mr. Heathcoat-Amory), he re-emphasised the importance of taxing the bad and helping the 467 good—exactly what we are doing—to deal with the issues and challenges arising from the Kyoto conference and our international obligations on greenhouse gases.
My hon. Friend the Member for Harrow, West (Mr. Thomas) made an interesting speech, going further than the Budget with regard to environmental commitment, but, none the less, raising important points about how to tackle the environmental problems that we face.
My right hon. Friend the Member for Coatbridge and Chryston (Mr. Clarke) underlined the importance of the Budget in helping those in most need. My hon. Friend the Member for Worcester (Mr. Foster) reinforced that point, but went on to deal with the importance of introducing employee share ownership.
My hon. Friend the Member for Lincoln (Gillian Merron) also made important points about how many families and pensioners in her constituency will benefit from the Budget, and those points were echoed by my hon. Friend the Member for Jarrow (Mr. Hepburn).
My hon. Friend the Member for Watford (Ms Ward) spoke of a meeting today in her constituency at which pensioners told her that there is something for everyone in the Budget, and a bit more for those who need it most. She summed up the assessment of the Budget across the board. Even the Institute for Fiscal Studies had to admit that as a result of its analysis today. A single pensioner will now receive £500 a year more than when the previous Government left office and pensioner couples will receive £800 a year more.
Central to the Government's strategy is the need to tackle the employment and poverty traps, to deal with skills shortages and to encourage investment in our economy.
Opposition Members referred to the fuel escalator. The hon. Member for Tiverton and Honiton (Mrs. Browning) said that it was a policy which she had been unhappy with for some time. Presumably, she was alluding to the fact that it was her Government who introduced the fuel escalator, and even though she was unhappy then, she decided not to say anything, and has only now discovered the problem.
§ Mrs. Browning
I articulated that on several occasions. The hon. Lady might like to know that, during one television interview that I gave after a Conservative Budget, someone said that I sounded less enthusiastic than the Liberal Democrat representative.
§ Dawn Primarolo
The hon. Member for Eastleigh (Mr. Chidgey) may wish to take that up with the hon. Lady, but perhaps not now.
Just to reinforce the point, the policy that the hon. Lady now decries was started by the Conservative Government for good environmental reasons, but she wants to forget that. That is part of the previous Government's amnesia.
§ Mr. Townend
Will the hon. Lady accept that the Conservative party has changed its policy? [Laughter.] How can she laugh when new Labour has changed all the policies of old Labour? It is no longer in favour of nationalisation and wants to privatise; it now supports business and enterprise. It has changed its policy. Will she not accept that we have changed ours?
§ Dawn Primarolo
I offer the hon. Gentleman a challenge. When he can come to the Chamber and tell 468 us the united policies of Conservative Members, we will consider listening to them. Not only do the hon. Gentlemen and his hon. Friends want to forget the 18 years of Conservative Government and encourage the electorate to pretend that they never happened: they now think that they can have opposition without responsibility and without policy. But perhaps that is a bit unkind. They probably want opposition with 1,000 policies, because each of them needs to change his policy each day.
§ Mr. Lansley
Does the Minister still subscribe to the view expressed in the Labour manifesto that it is an explicit objective of a Labour Government to raise the trend rate of growth of the United Kingdom economy? On what assumption about the trend rate of growth is the Budget based and why has she not subjected that assumption to audit by the National Audit Office?
§ Dawn Primarolo
The hon. Gentleman is avidly reading the Red Book so he will see what we are doing in a whole range of areas—tackling the productivity gap, investing in skills, investing in small business and creating sustainable growth. That is precisely what the Government are about.
The Budget is locking in the economic stability that the Government are creating and sustaining. We are introducing a small business tax rate of l0p. We are rebuilding our public services with extra resources for school books and for accident and emergency departments. We are making work pay with a new l0p starting rate of tax and a cut in the basic rate of tax to 22p next year. Conservative Members say that, somehow, the disappearance of the 20p rate means that people are not better off, but they should study their figures a little more closely. People are better off as a result of the l0p starting rate.
§ Dawn Primarolo
The hon. Gentleman shouts his intervention across the Chamber, but I will take it. Individuals will be better off by in excess of £300.
§ Mr. Townend
Will the Minister tell the House how much the average taxpayer will save with the l0p rate, given that the Government have done away with the 20p rate? According to my calculations, the £150 saving comes down to £60.
§ Dawn Primarolo
For people in 2 million households, the measure halves the rate of tax that they will be paying. I am sure that the hon. Gentleman can understand that clearly.
The Budget is about locking in economic stability, controlling public finances, ensuring that we are investing and ensuring that we cut borrowing and continue to do so. It is about raising—
§ Dawn Primarolo
I do not have time to give way. I apologise to the hon. Gentleman.
469 The Budget is about raising productivity on a foundation of stability. We must work to raise productivity. We must deliver better skills, innovation, competition, information technology and a secure environment for small businesses. Yesterday's Budget introduced seven major reforms for a knowledge-based enterprise economy, opening it up for all. The Budget invests in families by ensuring that the new children's tax credit will maximise support to those families with the lowest income. It raises child benefit, which the Conservatives froze, to a higher level than at any time since its introduction.
The Budget gives a fair deal to pensioners, with £100 for the winter payment and a guaranteed minimum income which will be linked to earnings. It will build a better society, which will ensure that we have a fairer society in which we support each other and ensure that there is opportunity for all to fulfil their potential. The Budget is about making sure that nobody is excluded; everybody should be included in the prosperity of our nation.
The Budget is about helping the British people. Conservative Members are interested only in helping themselves. When they talk about the Budget, they deny their past and want to take the credit for our future. They will be sorely disappointed. This is a popular Budget. It has been widely recognised as such and welcomed by this country as a way forward for the Labour Government.
§ It being Ten o 'clock, the debate stood adjourned.
§ Debate to be resumed tomorrow.