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Mr. Deputy Speaker (Mr. Harold Walker) : I now call on the Chancellor to move the motion entitled "Amendment of the law". It is on this motion that the Budget debate will take place today and on the succeeding days. The remaining motions will not be put until the end of the Budget debate next week and they will then be decided without debate.

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Budget Resolutions and Economic Situation


Motion made, and Question proposed,

That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance ; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide--

(a) for zero-rating or exempting any supply ;

(b) for refunding any amount of tax, otherwise than in a case where the amount has been paid by reason of a mistake ;

(c) for varying the rate of that tax otherwise than in relation to all supplies and importations ; or

(d) for relief other than relief applying to goods of whatever description or services of whatever description.-- [Mr. Lawson.] [Relevant documents : European Community document No. 8887/88, Annual Economic Report 1988-89 and the unnumbered document, "Annual Economic Report 1988-89" (final version as adopted by the Council).]

5.29 pm

Mr. David Knox (Staffordshire, Moorlands) : I should like to start by congratulating my right hon. Friend the Chancellor on this, his sixth Budget statement. Like all his previous Budget statements, his speech today was well constructed, to the point and commendably brief. I do not know how many more Budgets my right hon. Friend will introduce, but he has set his successors a very high standard to match, and of course his Budget speeches compare very favourably both in style and in content with those of the right hon. Member for Leeds, East (Mr. Healey) between 1974 and 1979.

Mrs. Maria Fyfe (Glasgow, Maryhill) : But they are an awful lot denser.

Mr. Knox : I must thank the right hon. Gentleman the Leader of the Opposition for his private notice question this afternoon. With the exception of one or two hon. Members, the entire House is very grateful to him for co-operating to stop an abuse of parliamentary procedure. As a result of the right hon. Gentleman's action, the House was able to proceed with the Budget debate in the usual way. I think that a Conservative Member ought to express the gratitude of this side of the House to the right hon. Gentleman for his action. However, unlike the Leader of the Opposition, I welcome my right hon. Friend's cautious and prudent Budget. Given the balance of payments position and the current rate of inflation, he was right to be very cautious and to maintain the public sector debt repayment at the same level in the coming year as it has been in the past year. I strongly welcome a number of measures in my right hon. Friend's Budget. Chief among them is the fulfilment of the pledge made in our 1979 election manifesto that the earnings rule would be abolished. We have long waited for that to happen, and at last it has been implemented. Incidentally, another pledge made at the same time was that there would be rather less legislation under a Conservative Government than under the previous Labour Government. Perhaps that pledge also will be fulfilled in the coming years, who knows? In the face of inflation and balance of payments difficulties, I am pleased that my right hon. Friend decided

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to stick to increasing the thresholds by only the statutory amount. One expected him to do at least that, because he was one of the authors of the original Rooker-Wise-Lawson amendment back in the 1970s. Although he does not always receive as much credit as he should for this, he has as Chancellor fulfilled the spirit of that amendment in the past.

I am pleased also that my right hon. Friend has made the changes he has to national insurance contributions. The new arrangements will be much more satisfactory, because they remove the disincentive to people to earn more that obtains in the existing arrangements. I am pleased that my right hon. Friend has taken steps to increase long-term saving. I view the decline in saving over the past few years as a serious matter. I am glad that my right hon. Friend has taken the important measures that he has to try to increase the rate of long-term saving. Together with those, there are measures to increase wider share ownership, which is important if we are to create a capital-owning democracy--to use that great phrase of the late Iain Macleod.

I am pleased that my right hon. Friend has not increased duty on alcohol and tobacco. I warmly welcome the change in duty payable on unleaded petrol. Only 5 per cent. of petrol consumption is accounted for by unleaded petrol, and it is high time that its share was considerably increased. Yesterday, I took the precaution of asking my garage to convert my car to unleaded petrol, so clearly I shall benefit from that measure. I had no pre -knowledge of the Chancellor's decision.

Important though the measures announced by my right hon. Friend are, he will be judged on the economy's general performance during the next year rather than on his Budget. Two areas of the economy are of particular concern at present. They are the balance of payments and inflation. There is no doubt in my mind that the balance of payments is the more serious of them. In the early 1980s, we had--thanks to oil--very large surpluses on the current account of our balance of payments. They enabled us to build up massive overseas investment. Today, British people own much more capital abroad than foreigners own in this country. Britain has become one of the strongest creditor countries in the world. It can be argued that that is the only real advantage North sea oil has given us.

It was hoped that that advantage would be a lasting one and that the income from our overseas investments would help us to pay our way in the world when the oil was no longer there and we were compelled to import oil again. However, over the past three years we have moved from a position of having a substantial surplus on our balance of payments current account to having a substantial deficit. Last year, the deficit totalled £14.5 billion. This afternoon, my right hon. Friend announced that he expects a similar deficit in the coming year. We can pay for such deficits either by the sale of overseas investments or by borrowing.

So far, the deficits have been financed mainly by borrowing at excessively high rates of interest, which have attracted hot money into London. A combination of our strong net capital position and high interest rates has enabled us to avoid the kind of sterling crisis that we knew in the 1970s. If our current account deficit continues uncorrected for any length of time --and there is no sign

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that it will not do so--our net capital position will deteriorate, to the point where we shall eventually become a net debtor country. If that happens, apart from the devastating repercussions for our domestic economy, it will mean that oil had come and gone with no long-term advantage to the British economy.

I have none of the hang-ups about borrowing and debt that the Government have, but I find it difficult to understand how a Government who are so concerned about their own borrowing, and who are now so proud that they are paying back the national debt, can appear indifferent to the fact that we, as a nation, are deeply in debt, that we are enjoying a standard of living that we are not earning, and that that standard of living is financed in part by borrowing from foreigners.

The principal task facing my right hon. Friend in the immediate future is action to remedy the current account deficit. What should be done? Our deteriorating balance of payments probably owes something to increased inflation. Prices are rising faster in Britain than in many other countries, which makes us uncompetitive. Although action must be taken to control inflation, I do not attach great significance to rising inflation as a contributory factor to creating the deficit, because it appeared before inflation started rising. Whatever view one may take, I hope that no one believes that controlling inflation will of itself remedy our balance of payments problem. Much more important as contributory factors to the deficit are the rise in consumer demand and the effects of high interest rates. Rising consumer demand has been fuelled by easy credit, a fall in personal savings, and the tax cuts of the past two Budgets. As to the latter, I am not being wise after the event, because in my speeches on the last two Budgets, I criticised tax cuts because of their possible effect on our balance of payments. I regret that it seems that I was right.

As to rising consumer demand, I am sorry that my right hon. Friend has not introduced some form of credit control in his Budget, but I am not terribly surprised that he did not do so. I welcome steps to encourage savings. It is important to remember that temporary increases in fluctuating interest rates are unlikely to act as an incentive to the kind of long-term saving that we need. My right hon. Friend's new measures will have a positive effect on increasing long-term savings--and it is those that we need.

I welcome the fact that my right hon. Friend did not announce further tax cuts--not because I have any ideological objections to them, but because I believe that the money would have been spent at least in part on imported consumer goods, and we cannot afford that at present. I am sorry that my right hon. Friend did not divert some of the money he might otherwise have devoted to tax cuts to capital expenditure on the infrastructure with a low import potential. In that way domestic demand could have been maintained at such a level as to ensure that unemployment continued to fall.

In my view the greatest stumbling block to righting the balance of payments deficit is the policy of high interest rates. It is of course true that the current high interest rates policy will bring downward pressure on inflation and consumer demand--which will help the balance of payments--but it also has a serious adverse effect. High interest rates keep sterling at an artificially high level, which makes British exports dearer in overseas markets and hence more difficult to sell. It also makes foreign imports cheaper, so they are easier to sell.

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As long as the high interest rates persist, I do not think that we can expect to reduce the deficit, far less eliminate it. If we are to eliminate it--and we must--there must be a reduction in the exchange rate of sterling against other currencies, and that means that interest rates must be allowed to fall. I am afraid that I heard no indications of such a policy this afternoon.

The other economic problem facing the Government is inflation. Although I do not consider it as serious a problem as the balance of payments deficit, the current position requires remedial action, particularly because of the political importance that the present Government have always attached to controlling inflation. Over the past year retail prices have risen by 7.5 per cent., and, as my right hon. Friend said this afternoon, they are likely to rise to 8 per cent. in the next few months. That is more than twice as fast as the annual rate of inflation 12 months ago.

The Government have reacted to rising inflation by increasing interest rates, and I have no doubt that if they persevere with that policy inflation will eventually be brought under control--but at a price. Apart from the effects on the balance of payments, to which I have already referred, the use of high interest rates has other adverse effects. If interest rates are used as the sole weapon against inflation, to be successful the policy must be pressed to the point at which there is a severe demand deflation. Output will stop rising and will probably start to fall ; unemployment will stop falling and will probably start to rise again, although there are still far too many people out of work--despite the welcome fall of 1 million in unemployment over the past two years.

The cost of squeezing out inflation using interest rates on their own is very heavy for the balance of payments, output and jobs, and other measures should be used in addition to interest rates. Of course alternative anti- inflationary weapons such as credit controls also have deficiencies and weaknesses, but surely there is a case for using a combination of measures. None need be pursued to its ultimate extreme, but the overall effect will be more likely to achieve the objective of controlling inflation without over serious side effects.

One aspect of our inflationary problem, which I think that the Government should consider again, is the effect of wage and salary increases on price rises. In recent years wages and salaries have continued to rise faster than output, and that rise has accelerated recently, thus contributing to the higher rate of inflation. The problem may well worsen in the current year, because the increase in the inflation rate will mean that the cost of living factor in wage and salary claims will be higher in 1989 than it was in 1988. The excessive increase in earnings has happened because the labour market for wage and salary earners has been overheated, despite high levels of unemployment and the freeing of the labour market that has resulted from the trade union legislation and other measures introduced in recent years. Obviously that overheating has intensified as unemployment has fallen. It is, of course, absurd that the labour market should be overheated when 2 million people and more have been out of work, but it shows the importance of more and better training--the Government's actions in that regard are to be commended--and of further measures to improve the mobility of labour. No matter what action is taken, however, it seems likely in the long term, and certain in the short and medium

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terms, that the labour market will continue to be prone to overheating, even at times of high unemployment. It seems to me that we are further away than ever from resolving the great unresolved economic problem of the post-war era--how to maintain high employment and at the same time control inflation, particularly wage and salary cost inflation.

Could it be that there is a case for an incomes policy after all? Of course incomes policies have their weaknesses and deficiencies, but so have all the alternatives. I hope that the Government will think again, and will not rule out some form of incomes policy in the future.

5.45 pm

Dr. David Owen (Plymouth, Devonport) : Having erred considerably in the direction of carelessness in last year's Budget, the Chancellor has certainly chosen the path of caution this year. What worries me is that he has not sought to take measures that will improve the underlying competitiveness of British industry.

Like the hon. Member for Staffordshire, Moorlands (Mr. Knox), I believe that the balance of payments deficit haunts the economy and is likely to do so for the next two to three years. Unless serious steps are taken to ensure that unit costs are kept down and our manufacturing competitive edge is maintained, we shall continue for the next few years to look apprehensively over our shoulder to see how much foreign confidence in the United Kingdom economy we are able to retain.

It appears to me from his overall Budget judgment that the Chancellor is more fearful than I had expected : this is a more cautious Budget. There are two possible interpretations of that caution. Perhaps, having been careless last year, the Chancellor is determined not to repeat his error this year, in which case his caution must to some extent be welcomed. A more cynical explanation, borne out by the cynical manner in which consumer spending has been pumped up before elections, is that the Chancellor has deliberately been over cautious this year so that he can be far more relaxed in the run-up to the next election, and that the old familiar electoral cycle is dictating Budget judgments.

How much credibility can we give the Chancellor's judgments? People have been pretty kind to him, but the fact is that in March last year he predicted a current account deficit of only £4 billion and an inflation rate of 4 per cent. For him to have been so grotesquely wrong about the balance of payments deficit figures, and now to admit that he expects inflation to rise to 8 per cent., is a mark of how seriously wrong last year's forecasting was.

The question is whether we can give much credence to the Chancellor's figure of 8 per cent. The worst decision that he has made in social terms, and in terms of equity and justice, is his decision to cut the retail price index by 0.5 per cent. In forgoing excise duty indexation, the Chancellor is forgoing some £290 million. I am worried about inflation and I want to see the Chancellor trying to massage the RPI down. Nevertheless, I find it immensely hard to understand how a Chancellor can raise charges for prescriptions, eye tests, water, gas and electricity--all of which are essential--yet forgo an increase which most people had expected on cigarettes, which kill and damage and cost the National Health Service substantial sums every year, and alcohol, the growing abuse of which is causing immense social problems.

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The Chancellor has a funny sense of social and economic priorities. In deciding to reduce the pressure on the retail price index, which I support, he opts for freezing the duty on cigarettes and alcohol, yet increases prescription charges and essential charges for water, electricity and gas, which every family in Britain cannot do without. If those are Lawson priorities, I do not want much of them. There is a serious question about the essential issue of how to bring down the RPI, but there are also other problems. The Chancellor has produced some well-thought-out measures and, to be fair to him, it is very attractive that at long last the earnings rule has been abolished. That was a very brave decision. His decision on unleaded petrol is certainly a step in the right direction. I would have preferred a bigger margin of 20p, but provided that the oil companies do not cheat this time, a 10p margin will be most beneficial. We strongly support some of his other measures.

I am anxious, however, about the strategy behind the Budget. The fundamental objective is to improve our competitiveness. The Chancellor has decided to spend £14 billion on public sector debt repayment. He wisely decided not to reduce basic tax rates, as that would have sent all the wrong messages and would have fed through into consumer spending, but there is no inherent reason why we have to pay back our debt except to retain confidence. The Chancellor could have embarked on spending priorities to strengthen the underlying economy and retain confidence.

For example, the Chancellor inveighed against a devaluation in the currency to retain competitiveness because of his very reasonable fear that that would feed through in inflation. He stated that that would not be the case and that he would hold up interest rates to protect the pound because of his anxiety about inflation. Yet the Red Book states :

"manufacturing unit labour costs rose by 2 per cent. in 1988, a little more than in 1987"

but were not offset by productivity.

"Unit labour costs in the other major countries fell slightly on average."

There is no sign that unit labour costs in Britain will fall. We need devaluation without inflation. How do we achieve that? The Government could consider the national insurance contributions paid by employers. We have argued in the SDP many times that targeted reductions in employers' national insurance contributions should be part of a strategy to tackle unemployment and encourage industrial expansion. We have argued that those reductions should and could be targeted to be fully in effect by the end of 1992. If we were to phase out the national insurance contributions by employers, perhaps by a 15 per cent. reduction this year at a cost of £2 billion, we would have a strategy for retaining the competitivenes of British industry, provided that that relaxation was not simply passed on in pay rises. But no one can do anything about industry that pays over and above productivity. There are already ominous signs in the economy that some employers are beginning to allow pay rises that cannot be justified by productivity.

I was surprised that the Chancellor did not take the opportunity to link pay rises to share options, so that all company employees would have the tax-free share perk which was given to directors in the 1984 Budget. But it

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should be given only on pay rises, not on existing pay and would be taken in the form of share options. That would have exerted downward pressure on wage inflation and attracted more savings.

Almost all the measures that the Government have announced for savings are worth while, but they are very cautious and minimalist, and will not improve the personal savings ratio to the extent necessary to provide a little more room for manoeuvre on interest rates. Therefore, I fear that interest rates will remain high for some time, and that will damage industry and investment.

I believe that it was a mistake not to encourage more private investment into infrastructure. Infrastructure investment is difficult for private investors. There is a long pay-back time and a very high environmental cost which is not always justified by pure profit. The Government should consider the SDP's suggestion for infrastructure bonds, encouraging people to invest in infrastructure, which is an essential part of keeping British industry competitive. It is no use making the substantial and worthwhile investment in the Channel tunnel unless it is linked to all parts of the United Kingdom. That necessitates an improvement in road and rail links right up to Scotland.

There is no evidence yet that the Government realise the urgency of our transport links, and they are not producing the Victorian investment which made our present railway network and is needed to revive and renew it again. There is no dedicated freight line and no linkage to Liverpool to open up that port to Atlantic trade and enable it to compete with Rotterdam with a free flow rail link straight through to the Channel tunnel. That is an inspired investment. It is seen to be long-term and does not feed through to inflation and I believe that it would carry confidence abroad far more than public sector debt repayment.

There is no vision in the Budget and no element in which the Chancellor is tackling the very weaknesses exemplified by our trade deficit. He has no strategy to improve the competitiveness of our manufacturing export industry on which our real prosperity depends. Only if that and our industrial and manufacturing capacity improves will we get away from the confidence factor and be able safely to reduce interest rates. We need investment in substantial portions of British industry. We do not attract the same levels of investment as our foreign competitors.

We have to remember the true message of 1992. To hear the Government talk about 1992 one would think that it was all opportunities. The Government are right to be optimistic and to get our business men orientated to the fact that 11 nations' markets will be open to us. But it is about time that Britain realised that 11 other nations see ripe opportunities in our market. It is very easy to penetrate the British market. We have national newspapers and national media and if one pays for advertising in those one goes in with a tremendous market push.

We are extremely vulnerable to aggressive exporting incentives by the other 11 European Community countries. We have to be more conscious of how vulnerable we will become in 1992 when the barriers come down. It is excellent that we talk about the opportunities, but we should realise how vulnerable we are and how dangerous 1992 could be. What we do between now and 1992 is of critical importance in ensuring that our industry

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is competitive. The absence of that drive in the Budget makes me feel so negative and pessimistic--intense caution and no imagination. The Chancellor has had a bruising year. There has never been a period when a Chancellor has been so comprehensively disowned by his Prime Minister. Indeed, there was a time when some of us wondered whether he was the Chancellor of the Exchequer. It is all very well for him to come to the House without some of the bombast that we have had to put up with when he slashed into teenage scribblers in the City who jump up and down in an effort to get press attention, but their predictions were right and the Chancellor's were wrong. There is something else missing. There is an absence of commitment to investment, to keeping unit costs down and to skill training--an essential element if we are to remain competitive. Much of the wage pressure that is building up is because employers have to pay over the odds. There are not enough skilled people even though there is high unemployment in some parts of the country. We are not getting the right type of people through. The Government may say that they are taking measures to redress the position but all the time there is a lack of real investment in skill training, which would produce results as quickly as they are needed, which is pretty quickly. Then there is the social dimension. The Government have done insufficient to shield some of those who are feeling the effects of high interest rates--in particular, first- time home buyers. we should move towards expenditure taxation. All savings should be treated the same. The Chancellor has always favoured a broad tax base and low rates. The problem is that the Prime Minister faces one of her usual dilemmas between intellect and instinct. She wishes to retain some tax allowances, like the mortgage tax allowance. She wants low tax rates but she wants to keep various allowances. We have to read between the lines of the Chancellor's statement. I have not yet had time to read the small print, but from what he said on life assurance and on pensions, it seems that once again his dream of taking away all tax allowances, and of going for a broad-based tax and low rates has been defeated by politics, if not by institutional inertia. It is high time we went the other way. We have to face the fact that most tax allowances will stay. The mortgage tax allowance will remain. Therefore, all savings should be treated equitably and fairly, with tax allowances at the standard rate across them all. There is nothing inherently wrong in saving for a house. It is no different from saving for a pension. It is an individual choice that people make. We had better give up the idea of getting rid of all tax allowances and going for a simple system of narrower-based tax. We shall continue to have many allowances on savings. Let us make them neutral between savings instead of having the nonsense about mortgage tax allowance hovering between the Prime Minister's passion and the Chancellor's hatred. Let us face it : it is legitimate to have mortgage tax allowance at the standard rate and to be prepared from time to time to up it to help young people who are buying a house for the first time. They are being treated badly ; it is wrong that that should happen.

One suggestion of the SDP is for a kick-start mortgage : the limit would be raised to £50,000 for the first year and then tapered down. We have to consider the question more rationally. Are the Government phasing out the mortgage tax allowance? Is that their policy? I would be interested to know. It appears that one day the Chancellor wants that

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but that near election day the Prime Minister comes back increasing it. We are unequivocal. We want an expenditure tax and we want all savings to be treated neutrally. Tax allowance at the basic rate, but not at the higher rate, is acceptable ; the higher rate should be abolished. We would keep mortgage tax allowance and encourage home ownership. It is essential that young people who want to purchase their own homes are not savaged because of high interest rates. Other social requirements are missing. The child tax allowance should have been increased by at least £1. It is an outrage that we have not been able to help the greatest element of poverty--the poverty among families with a large number of children.

The Chancellor has rightly concentrated quite a lot of money and support on the elderly. He has reduced the age allowance for additional tax relief from 80 to 75 and has also abolished the earnings rule for pensioners.

I welcome what the Chancellor has started to do on national insurance contributions. The SDP has urged him for many years to act on the national insurance contribution for employees. His tentative first step is welcome. It starts to make the national insurance contribution more progressive. Although there are many spikes within his new system, it will be logical only if the Chancellor carries reform on each year, continuously making changes to marry the national insurance contribution to income tax. We should accept that a national insurance contribution paid by an employee is to all intents and purposes an addition to income tax. It is one and the same thing and the two should be treated in the same way, with no disincentives and a smooth transition between the two. If that is the Chancellor's strategy, we welcome it. I hope that he will move faster on it and eventually reach complete integration.

Another missing social requirement relates to housing benefit. The impact of the present housing benefit on poor families is appalling. I hoped that there would be at least a 10 per cent. increase in housing benefit to shield people on lower incomes.

I thought that the Chancellor was seriously interested in attracting women back into employment. The problem in nursing will be savage. Employers who make nursery provision for female employees are treated absurdly because the Government insist that that is a tax perk that has to be clawed back. That is wrong, and the requirement should be abolished. These are all important changes. They are right in social justice but also have economic advantages.

The Budget has been unimaginative. I leave it with a feeling of pessimism. It is as if the Chancellor's imagination and bounce have been knocked out of him over the last year. By all means let him be cautious, but where was the understanding of the faults of our economic position? I do not know that we are yet in a crisis, but the balance of payments deficit has to be grappled with far more courageously and adventurously, and with much greater commitment to investment in the medium term than is contained within the Budget. Perhaps the Chancellor fears something that he has not felt able to let the House know. Certainly I find it hard to understand why he has produced a Budget with so little imagination on the central question of Britain remaining competitive in its industry and ensuring that its exports can expand in order to close the trade deficit.

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6.8 pm

Sir John Stokes (Halesowen and Stourbridge) : My right hon. Friend the Chancellor was faced with a difficult problem this year owing to the rise in inflation and the danger to sterling. In framing his Budget he has been extremely sensible and realistic and he comes out with credit. His Budget is sound and strictly anti-inflationary. Official statistics are notoriously unreliable. I suspect that our balance of payments figures are nothing like as bad as they are presented. Industry is thriving to an extent which I have not seen for a long time. The recent report of the Institute of Directors expresses confidence among business men. It says that generally high interest rates are not harming investment.

The outlook for business profits continues to be very good. I am delighted to see in my own constituency the progress of many firms in the past year, especially in sales and marketing and in their use of skilled manpower. Exports are holding up very well and the remarkable export successes of some of my firms, even very small ones, are unsung in the media, which only seem to like bad news.

British industry as a whole still cannot make enough products of the right design and price to compete with the flood of imports from abroad. That serious matter will take some time to cure. The motor trade, on which so many people in my constituency depend, is holding up very well.

The strength of sterling depends on strict control of inflation and is also based on the respect of foreign countries for the Government, headed as they are by a Prime Minister who is a leading world statesman. It would be too frightful to contemplate what would happen if the Opposition parties were able to form a Government. The control of inflation must always be the hallmark of the Government. There is no doubt now that the high interest rate is cooling down excessive spending in the high streets. It is essential to bring inflation tightly under control once again, for the good of the country and to ensure that the Government are returned at the next general election.

It is terrifying to look back at the pace of inflation in the last two generations. It would take £25 today to buy goods worth £1 before the war. Even in the past 10 years, the value of our money has gone down by 50 per cent. That has not happened in certain other countries such as Germany and Switzerland. We must ask ourselves why. Is it because we have not worked hard enough, have paid ourselves too much or have paid out vast sums in welfare and other benefits which we cannot afford? These difficult questions are for the present generation to answer, in spite of the vast improvements of the Thatcherite revolution. We must hope that the next generation will make a better job of it than we have done.

I welcome the higher bands on which income tax will be levied, which will attract those who are out of work to seek employment more avidly. I particularly welcome the reductions in national insurance payments for the lower paid. I am not surprised at the vast amounts that these very important reforms will cost the Treasury, as they are well worth it from the human point of view and for the help that they will give as an incentive to work and to improve one's earnings. I have a few disappointments, however, in this otherwise excellent Budget. I should have liked capital gains tax to be abolished, as well as inheritance tax, which

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runs quite counter to the philosophy of the Government. It is only natural for a parent to wish to hand on to his children what he has saved and built up. I also hoped that stamp duty might have been abolished, especially in house purchase, thereby reducing costs, and the mass of paperwork involved in housing transactions.

I welcome the reduction in the national debt, which is good housekeeping and saves the taxpayer money in future years. It also paves the way for tax cuts. I am delighted that the earnings rule for pensioners has been abolished.

I have received several representations from constituents about their fears of an increase in the tax on company cars. On the whole, I agree with what the Chancellor has done. The more that tax allowances are phased out, the greater can be the reduction in income tax.

Mr. Graham Riddick (Colne Valley) : Does my hon. Friend not agree that there is a major problem for a salesman who travels, say, 30,000 miles a year and who needs his company car? He has no choice, as he could not carry on his job without a car. It is essential that the Chancellor stops hammering those thousands of people.

Mr. Stokes : My hon. Friend is very percipient. I was coming to that very point, having a son who has risen from salesman to general sales manager, and who is now a consultant. It is most unfair on those people. I hope that there will be a chance to make the correct amendments during debates on the Finance Bill.

I welcome the improvements in corporation tax, so that smaller firms will have more money available for investment. The fall in unemployed, about which we hear so little from the Opposition, is also very welcome, but it puts up pressure for higher wages. That should be resisted by employers, unless there are real productivity gains. I welcome the many steps that have been taken to improve savings, which are vital to our future prosperity. I also greatly welcome the plans to extend share ownership.

The Chancellor said nothing, perhaps wisely, about 1992. I would be happier about it if the EEC concept was less Socialist-oriented, and more keen to create real competition from firms that were freed from old fashioned Socialist ideas, such as worker directors.

I hope that the recent blast from the bishops will not deflect the Government from continuing to enable individuals to give of their best, to help themselves and their families, and of course the economy at large. The attack by some leading Churchmen on individual effort is sinister and dangerous. Who wants inefficient state industries? How right the Government are to denationalise them as fast as they can, and thus staunch the dreadful losses that have built up. Who wants inefficient private companies or an inefficient City of London?

A good industrial or commercial concern treats its employees, suppliers and customers fairly, as for instance does Marks and Spencer and other similar organisations. What on earth is wrong with that? It is from the profits of our industry and commerce, and especially from the successes of our manufacturing industry, that taxpayers' money is found to fund all kinds of good causes such as better health care, a better environment and improved roads, and better welfare benefits, where all those are right and desirable. There would be more money for the arts and all kinds of other good causes. There would be support for

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the police in the fight against crime. There would be more to contribute to the defence of the West and to the defence of our country.

The enormous sums of money needed to provide for our colossal public expenditure could not be found if individuals at all levels in industry and commerce did not work and try hard. Their successful effort is vital to the nation, competing as we are against the great trading nations of the world. But that does not mean that all those hard-working and patriotic people are nasty selfish brutes. We only have to consider the enormous increase in charitable giving to realise how generous people are. Lower taxes seem to mean that people are giving more away ; and how splendid. It is a marvellous time for charities. Let us hope that they are all being run efficiently.

I hope that the Chancellor will pay no attention to the silly dons in some of our universities who, leading a marvellously sheltered and secure life, constantly complain and hold out the begging bowl. The Oxford dons made such fools of themselves in refusing to give my right hon. Friend the Prime Minister an honorary degree. Now they are appealing for a large sum from private individuals to assist in the running of one of the great universities of the world. The combination of taxpayers' and private money is often the best way forward, whether for institutions such as universities or for special situations such as the regeneration of our inner cities.

Vast sums of taxpayers' money are spent on state education. It is right that my right hon. Friend the Secretary of State for Education and Science should be trying to ensure that education equips people for life, including earning a living, but that does not mean that we are producing a philistine generation. I read history at Oxford, a subject that I have always loved, and I have found it a great help to me in dealing with my fellow English men and women, and essential for understanding our institutions.

As a nation we love to grumble, and the media, particularly the BBC, love to foment that characteristic. Of course we have the bad and sad pockets-- the poor and those who cannot cope with life--but the vast mass of the people have never been so prosperous as now. The change in the west midlands is startling compared with when I first went there over 20 years ago. So many more ordinary people now own their own homes, and they have cars and telephones, every kind of gadget in the kitchen, televisions and videos and holidays abroad once or twice a year. They dress very well, their children are spotlessly turned out and they eat and drink well. They go out more to restaurants and they enjoy themselves.

I am glad about all that and we must be thankful for it. Provided that, as a nation, we improve ourselves morally as well as we have economically, we have little to fear and we should all count our blessings.

6.21 pm

Mr. Roy Hughes (Newport, East) : We have listened to the Chancellor deliver his sixth Budget this afternoon. Beforehand, the pundits had predicted that it would be as exhilirating as a wet Sunday afternoon. After listening to it, many will feel that their forecast was correct.

There were one or two concessions in the Budget, such as the abolition of the earnings rule for pensioners, which the Opposition welcome, and the small concession to the low-paid in national insurance contributions. However, as

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my right hon. Friend the Leader of the Opposition said, the Chancellor faced a cruel dilemma. He had a surplus of no less than £15 billion--five times bigger than he had expected. He did not know what to do with that for fear of triggering off an inflationary spiral, upsetting the City and threatening sterling. But much of the Chancellor's dilemma this afternoon was of his own making. Last year he created a bonanza for the better-off. It helped spark off the credit boom, and the country is now suffering the after-effects. How did the Chancellor obtain that £15 billion surplus which has caused him such problems? First, he stoked up the economy to achieve relative boom conditions at a time of the previous general election. That in turn brought about an increase in tax revenue. Secondly, the Government continue to derive immense benefits from North sea oil revenue. Whether such revenue has been put to the best use is an argument for another day. Thirdly, there is the money from the sale of what has euphemistically been called the family silver. Vast revenues have come into the Treasury from that source. Fourthly, there is the sale of council houses. The list goes on, and the vast bulk of the proceeds is pocketed by the Treasury.

In judging the measures that the Chancellor proposed this afternoon, it is worth looking, as my right hon. Friend the Leader of the Opposition did, at his earlier forecasts. The trade deficit at the end of 1988 was £14 billion. The Chancellor had forecast that it would be £4 billion. He was a little out there. The trends in 1989 are even worse. For example, the January deficit was £1,700 billion, equivalent to an annual deficit of £20 billion. Interest rates have gone up from 7.5 per cent. last May to 13 per cent. That has led to increased mortage costs, imposing hardship on many less well off families. As a result, there have been many repossessions and the number of homeless families has increased correspondingly. The situation is made worse because the Government are not allowing our local authorities to use the proceeds from the sale of council houses to build the new houses for rent which so many less well off families urgently need. Likewise, high interest rates keep up the value of the pound, making it harder to sell British goods overseas. Furthermore, high interest rates stifle investment because the cost of borrowing is so dear, yet that investment is so badly needed, particularly in our manufacturing industry.

Three years ago, the Chancellor told a City audience that inflation was the judge and jury, so let us take him at his word. He forecast a 4 per cent. inflation rate at the end of 1988. In fact, it is just under 8 per cent. at present and is still rising. In addition, there are to be increases in water and electricity charges. The poll tax is still very much an unknown quantity, but we can all fear the worse. The Labour party criticised last year's Budget, saying that, apart from being unjust, it was foolhardy. However, the Prime Minister described it as brilliant in concept, drafting and delivery. How wrong can one be? I wonder what she will be saying about this Budget. It is because the Chancellor was so wrong last year that he has had to be cautious this year.

What would a Labour Chancellor do in the present circumstances? I am convinced that he would not give priority to paying off the national debt. First, he would look at the state of our NHS after 10 years of Thatcherism. His first decision would be to scrap the recent White Paper, which is little more than a step on the road to the privatisation of that wonderful service. He would

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concentrate on reducing those huge hospital waiting lists and take steps to increase the number of doctors and nurses in the service. He might look too at the measly wages paid to the back-up staff in the NHS, not only the clerical and administrative staff, but the technical staff, so many of them highly trained, using the most sophisticated equipment in the operating theatres and other vital areas. If greater appreciation is not shown to those people, many of them will leave the service, and the patients will be the real losers.

An efficient transport system is basic to an efficient economy. In manpower terms, our rail network has been cut to the bone. Competitor countries such as France and West Germany have invested heavily in their rail networks. We must now do likewise. Without prejudging any inquiries that are taking place, there seems little doubt that manpower cuts imperil passenger safety.

When so much of our passenger and freight transport is by road, we are still a long way from creating an efficient road network. There are too many bottlenecks, so many bypasses yet to be constructed and our motorway network is still incomplete. We should get rid of the iniquitous toll system on estuarial crossings. Those toll charges are relics of a feudal age.

There is no excuse for not investing in roads, when this year about £17 billion will be raised in motor taxation and less than a quarter of it will be spent on roads and maintenance.

Labour believes that a concerted effort should be made to preserve and protect the environment. That cannot be left to the vagaries of market forces. The Thatcher Government have presided over a decade of environmental negligence and lassitude. Labour is pledged to clean up our beaches, promote safe energy, tackle the greenhouse effect and save the ozone layer. We want our water safe and clean, not sold off.

According to Government statistics, unemployment is now running at about 2 million. I would put the figure much higher, and I agree with the economics editor of The Observer who last Sunday put it at 2, 700,000. But with such a staggeringly high level of unemployment, a skill shortage is fast developing. Many employers having cut back over the years in this vital sphere, there is now an urgent need to invest in skill training, and a Labour Chancellor would give that task the highest priority.

There are at last indications that the political tide is turning. The forthcoming Vale of Glamorgan by-election is likely to show that trend accentuating. At last, people are calling for change, and it is clear that Britain now needs a Labour Government.

6.33 pm

Dr. Alan Glyn (Windsor and Maidenhead) : The people are calling for change, as the hon. Member for Newport, East (Mr. Hughes) said, and that is exactly what they are getting. This is a sensible and prudent Budget. It is the first time in the nation's history that we have begun to pay back the national debt, and I consider that £14 billion towards that repayment will recoup itself in interest charges. If we can go on in that way, we shall be able to repay all the debts that have been incurred by our predecessors.

I, too, welcome the abolition of the earnings rule and the encouragement which the Budget gives to wider share

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ownership. When I speak of wider share ownership, I appreciate what the right hon. Member for Plymouth, Devonport (Dr. Owen) said about the need to think in terms of home ownership and the ownership of all assets. Those assets should be passed on to the children of those who have acquired them without incurring a penal rate of tax. The idea of saving should not be confined to one generation, just as the idea of paying back debts should not be confined to one generation. Our exports are up, and 1992 will provide us with a challenge and a wonderful opportunity. That point was well illustrated by the right hon. Member for Devonport. Our competitor countries are often able to get into our markets and invest in our enterprises. We have the chance of doing the same to them, and there is no reason why we should not do it.

Controlling inflation is one of the most important tasks on which the Chancellor has embarked. We can see, by looking back, say, 30 years, the way in which inflation has altered the pattern of our lives. It has done much damage to the elderly, who find towards the end of their lives that their savings are worth perhaps 10 per cent. of their original value.

Our society is, happily, rapidly improving its standards of living. That is happening under Conservative rule. But high earnings must give people a sense of environmental responsibility, for example, through the use of lead -free petrol. In the way that they mean a better standard of living, they must be accompanied by higher moral attitudes. We must work at preserving that and other aspects of our lives.

Conservative policy has altered the nation out of all conception. Had we thought, say, 30 years ago of the changes that have taken place, we could not have imagined that they would happen. In my lifetime much has completely altered. Today, brains, intelligence and the ability to produce goods are attributes which the Conservative party recognises.

If we continue in this manner, we shall arrive at an even higher standard of living and create a nation that is proud of itself, in which opportunities are available to everybody and a nation that can stand well above all other nations in Europe.

6.37 pm

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