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predict, since the Government's growth forecast is surprisingly low. One wonders whether it represents the Conservative's secret war chest, and whether the Government will use it to disburse inflationary tax increases so close to a general election that inflation will not have time to work through before polling day. The Government are certainly understating the possible future surplus. I hate to shock the Chief Secretary to the Treasury, who has a wonderful, unshockable look about him, with the suggestion that political considerations might enter the minds of Treasury Ministers.

Mr. David Steel (Tweeddale, Etterick and Lauderdale) : My hon. Friend said that the Budget cruelly failed to deal with any of the problems of the lower income groups. However, he has not yet noted that under the new proposals concerning pensions for those earning up to £60,000 a year, we, the taxpayers, could contribute as much as £4, 800 per annum.

Mr. Beith : I am glad that my right hon. Friend has applied his mind to the details of that section of the Budget. I noted that those proposals might require more detailed study.

Some of the uses to which the Chancellor could and should have put the surplus would have had few of the inflationary dangers that are implicit in the tax cuts that he rightly declined to make. It would be interesting to know at what stage he decided against going ahead with tax cuts. Was it when he received the retail price index figures the other day? Was it a week ago, a fortnight ago or a month ago? Perhaps we shall never know until he demits office and writes a book about it.

The Financial Secretary to the Treasury (Mr. Norman Lamont) : The right hon. Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel) suggested there has been an increase in tax privileges for higher-paid people. My right hon. Friend the Chancellor announced a restriction. The right hon. Gentleman has got it the wrong way round and should correct it.

Mr. Beith : My right hon. Friend has worked out precisely the amount by which tax relief can accrue up to the £60,000 ceiling. I am sure that we shall have a useful seminar on the details of this at a later date. I noted that the Chancellor had placed a ceiling on it, but it was quite high. Perhaps I can encourage my right hon. Friend to join me and the Financial Secretary on the Committee dealing with the Finance Bill.

I shall give some simple examples of ways in which the surplus could have been used that many people would have liked which would do some good and would have no inflationary consequences. Why did not the Chancellor take the opportunity to increase our overseas aid budget? Many of us feel that it would be reasonable to do so, and it would not have inflationary consequences. There is surely not such a desperate shortage of potential overseas aid field workers that huge wage inflation consequences would result. If we made more effort to help other countries it might result in long-term trading advantages.

Non-inflationary measures could have been taken in the home economy that would have helped to make industry more competitive, such as investment in training, in regional policy in areas where the economy is not overheated-- and there are quite a number of those--and in environmental measures. The burden of such measures

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is at present being placed on the consumer, of which the water industry is an obvious example. Skill shortages and bottlenecks in employment occur because people are unable to move to suitable low-cost housing. Investment in communications would not have been inflationary if it had been carefully tailored.

The Chancellor could have given more help to groups whose expenditure is so close to the breadline that it is the least inflationary. They will not rush out and buy imported goods, because their expenditure is so constrained that it will provide only a little extra for food and basic essentials. I heard the hon. Gentleman mutter, "Cigarettes" sotto voce, which is an extraordinary comment to make given that the Budget failed to increase the tax on tobacco.

Mr. Major : I said no such thing.

Mr. Beith : I attributed it to the Financial Secretary to the Treasury, unless there is a ventriloquist on the Government Benches. We should have had a Budget for the future, but we have a sackcloth and ashes Budget in which the Chancellor has said, "I got it wrong." The result is a Budget of missed opportunities, which does not tackle the problems at the heart of our balance of trade deficit. It does precious little for the environment and next to nothing for the low-paid.

The confident Chancellor has been replaced by the chastened Chancellor. We have yet to see the compassionate Chancellor or the constructive Chancellor. That transformation will not be achieved by the present occupant of the office or any of the prime ministerial favourites who are sometimes discussed as possible replacements for him. Indeed, I do not think that it will be achieved under this Government.

5.43 pm

Mr. Charles Wardle (Bexhill and Battle) : Like my right hon. and hon. Friends and many commentators elsewhere, I applaud my right hon. Friend the Chancellor for his unequivocal warning in the Budget that inflation is the greatest threat to this country's renewed prosperity and for his clear signal that the fight against inflation will continue to be his overriding priority.

If my right hon. Friend had not adopted such an explicit anti-inflationary stance, I am certain that the international money markets would instantly have taken a jaundiced view of sterling. If they did so, it would lead, in short order, to more costly imports and upward pressure on inflation in the sort of sprial that was uncomfortably familiar before 1979. Instead, the initial response of the currency markets seems to have been firm for sterling, which seems to suggest that my right hon. Friend's message that caution is his watchword has been well received in the quarters where it counts.

No doubt the achievements of the British economy in the 1980s's, which my right hon. Friend listed in his opening remarks of his Budget speech, will have helped to remind his wider audience how far Britain has progressed over the past decade. The longest period of sustained economic growth since the second world war, substantial improvements in productivity, capital investment outpacing consumption, higher exports and a record number of

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people in work are features of a healthy economy that must not be allowed to succumb again to the disease of inflation.

The dead hand of Socialism, state intervention and the mindless self- interest of undisciplined trade unions are things of the past. Britain is now confident enough to know that enterprise and individual ownership stimulate the creation of wealth, by which the nation can afford the means to care for those in genuine need. That is why growth in gross domestic product, reduction in national debt and greatly increased public spending have become a reality at one and the same time, and why inflation is rightly regarded by my right hon. Friend as a sinister threat that could undo so much of what has recently been achieved.

To the extent that my right hon. Friend left himself some room for tax changes, within the constraints of a balanced Budget dominated by such a large public sector debt repayment, he should be congratulated on targeting extra relief for pensioners and people on

lower-than-average earnings. Neither group looms large in consumer spending, but both will welcome greater help.

Changes in employees' national insurance contributions are one of the most efficient ways of putting more money in the pockets of the lower-paid and alleviating the poverty trap without fuelling greater spending power among the better-off. I hope that my right hon. Friend's proposal will be the first of several steps in this direction during the remainder of this Parliament.

The earnings rule has long been an iniquitous charge on the old-age pension, which individuals have contracted in good faith with the state through regular national insurance contributions. To have that contract with the state broken and the old-age pension reduced, simply because an individual chooses to work after the statutory retirement age, has always seemed to be daylight robbery without a shred of actuarial justification. The proposal to abolish the earnings rule is long overdue. It is especially timely as the labour force of normal working age is shrinking, and active and experienced minds and hands aged over 60 or 65 will be in progressively greater demand.

The extension of the higher age allowance from those aged 80 and over to those aged 75 and above is another important move because it will bring some relief to pensioners of an age who may justifiably feel that the economic boom of the 1980s has, to some extent, passed them by. They retired a decade or more ago before the state earnings-related pension scheme was under way, so many receive no more than a token ex gratia payment from their employers, the basic old-age pension and perhaps a modest income from savings. They are just above the income support bracket and do not have an occupational pension. They are a stark exception to the Government's accurate--but in this context confusing--assertion that the average income of pensioners has risen 23 per cent. more than inflation since 1979. The average is no doubt correct, but the pensioners to whom I allude have not kept up with the average, and those who qualify for the higher level of age allowance sorely need the proposed relief.

There will be many such beneficiaries from this proposal in my constituency, who have raised families, fought wars and paid their taxes throughout their working lives without demanding a penny of social security, except perhaps housing benefit to relieve their rates bill. They deserve the extra allowance that has been proposed and I

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hope that my right hon. Friend has it in mind to lower the qualifying age for the higher level to 70 and over before long to cater for women who retired at 60 a decade ago.

Of my right hon. Friend's other measures, the proposals to encourage wider share ownership, and the further incentives for personal savings, are welcome, but they will need to be promoted more vigorously than has been the case with previous schemes if they are to have the desired effect.

In the corporate sector, the changes in profit limits for small companies' corporation tax will provide an important stimulus for retained earnings in many developing businesses. By contrast, however, the changes in tax on company cars will no doubt be met with howls of displeasure in some quarters. I trust that my right hon. Friend will ignore the protests, because the benefit in kind of a company car will remain a substantial perk. I have no doubt that, even after the latest scale changes, the underlying benefit in kind is a significant addition to salary.

I hope the day will come when a purist approach to tax reform can be taken, with a much lower basic rate, funded by full taxation of benefits and the abolition of mortgage interest relief, which I raised in Committee on last year's Finance Bill. It would be a fairer system in the end, but, for the time being, some anomalies are expedient. Thus, in the medium term at least, tax relief on private medical insurance will serve to shift many people from National Health Service waiting lists to the private sector, to the immediate advantage of others further down the NHS waiting lists.

While my right hon. Friend's Budget proposals are suitably cautious for the uncertain circumstances that prevail in the face of higher inflation, it is difficult to ignore the external factors beyond his control, which could yet put a strain on our economic performance. Worries about the United States trade deficit, and an upward movement in interest rates in the United States and elsewhere, could yet put sterling under pressure, with inflationary consequences in this country, in spite of my right hon. Friend's determination to maintain high interest rates here as long as they are needed.

There are two other factors that I should like to mention. First, employers and employees will have to reach pay settlements within the rate of inflation if interest rates are to bite into consumer spending and into higher levels of personal debt. Higher pay settlements will simply nullify the interest rate medicine. Secondly, it would be unwise to assume that the supply side transformation is by any means fully accomplished. The removal of controls, the shake-out of surplus labour and more flexible employment legislation have all been vital to business, but that does not mean that manufacturing industry can respond, at the drop of a hat, to the expected lower levels of domestic demand and achieve instant export gains in order to alleviate the balance of payments deficit overnight. As the House knows well, export markets are much more complex than that, and changes in business direction need rather more time for product planning and marketing than is sometimes suggested.

In order to complete the supply side transformation, the United Kingdom business environment still needs to step up a gear, with more skills training, more enterprising and internationalist management, and greater investment in research and development from the private sector.

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Further changes are needed from the Government as well, including amendments to financial services legislation, and a much more efficient transportation infrastructure--to highlight just two areas. Much remains to be done, but my right hon. Friend's Budget proposals address the immediate inflationary circumstances with realism. They are sound measures, which are most welcome.

5.54 pm

Mr. Peter L. Pike (Burnley) : When considering the effects of this Budget, one has to take into account what the Government have done in total. One cannot isolate the Budget from the total package--the legislation that the Government have introduced and the actions they have taken over the past 10 years. This Government can no longer hide behind the Labour Government of 1974-79. They can no longer blame the previous Government. They have been in office almost exactly 10 years, and they must be prepared to stand up and defend their record--and what an appalling record it is, so far as the majority in this country are concerned.

It cannot be claimed that this is a Budget for the poor or the low earners. That would be a total fallacy. The Government must accept that they have forced people into low pay and poverty--whether they be unemployed, pensioners or, indeed, people in employment. Workers have been forced to take lower pay as a result of this Government's action over a period of years. Government Members have often said that low pay is better than no pay. While there may be some truth in that statement, I do not accept the basis on which it is made. It is time to say that fair pay is better than no pay. Fair pay and fair conditions are what we should be working for, but those things are not acceptable to Tory Members.

Let me give some examples of the way in which the Government have attacked the lower-paid over the last two years. We know what they have done to curtail the wages councils. We know what they are doing to reduce the protection afforded to some of the lowest paid. The Employment Bill, which is now going through Parliament, will result in people being denied benefit if they refuse a job on grounds of pay. Indeed, I am currently dealing with constituents who have been refused benefit because, according to the Department of Employment, under the current rules governing availability for work, they went too far by asking for £80 a week. In 1989, £80 a week is very much on the low side for a married person with a family, even in a low-pay area such as north-east Lancashire. That is what the Government have done.

In transport, let me mention the Government's competition policies. They claim that the new transport law has saved money for the country. How has it saved money for the country? By giving a worse package of conditions to the people employed in the industry. Almost all of those who work on the buses have worse conditions of employment now than they had before that legislation was passed. Then there is the Local Government Act that was passed last year. When local authorities are compelled to go out to competitive tendering they cannot lay down any conditions with regard to conditions of employment. The sole purpose is to worsen the working conditions and reduce the pay of employees. In response to a debate in Committee, the Minister said that many local authorities

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have to put up with restrictive practices. He said that it was appalling that people working on Sundays had to be paid double time, that competitors could get them to work for time and a half, or ordinary time, or even less. Of course there is some truth in that. The present levels of unemployment make some people willing to accept conditions that they would not otherwise accept. But that does not make it right. The Minister said that Labour Members were defending the unions and attacking people's right to work and that, in his view, that was quite appalling. So long as I am in this House--and I know that this applies to my colleagues also--I will fight to protect the conditions of working people.

The claim that this Budget will help working people is galling. A person earning £10,000 a year will be better off by £45 a year. For a person earning £28,000 a year, the saving will go up to £282. Again, the higher-paid benefit. A person on £50 a week will be £1.01 better off because of the national insurance saving. Of course, we welcome what is being done about national insurance, but it does not go far enough. A person on £600 a week will save £6.63, £1.21 of it national insurance. The Government could have increased the level at which national insurance contributions start. Yesterday, the Chancellor's excuse for not doing so was that it was a system of benefit relative to contributions, but we have always had a scale on which some people are exempt. Whether the figure is £43, £53 or £60 is something that the Government could determine. If they had wanted to take more people out of the national insurance bracket, they could have done so.

The Government could also have helped the lower-paid by increasing the single and married person's allowances more than they did. Instead, they increased them to just slightly above the minimum established by previous Finance Acts. This is not a Budget for the poor or the low-paid.

Since 1979, £23 billion has been handed out to the top 1 per cent. of taxpayers. Combining this and last year's Budget, the top 5 per cent. of taxpayers have had more handed out to them than the lowest 70 per cent. put together. That may be justice and equity for the Tory party but it is not for the majority of people.

Next month, the people of Scotland will pay the poll tax for the first time, and next year it will come into force in England and Wales. I accept that there are many anomalies in the present rating system, but the poll tax replaces a system that has existed for many years with a tax that is dearer to collect and has no fairness or equity because it does not take into account ability to pay. That must be wrong and it must be condemned. I am sure that the Government will find that the British people overwhelmingly reject it. Some 200,000 pensioners on income support, who were on supplementary benefit before the changes introduced in April 1988, will receive no increase. The protection that they enjoyed last year, and will enjoy again this year, means that they have not suffered a cut in cash terms, but, with inflation running at 7.5 per cent. and having increased last year, they are now at least 10 per cent. worse off in real terms than they were before April last year.

A further 300,000 pensioners on income support, who were on supplementary benefit before April last year, will not receive a full increase this year, although they will

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receive something. Those in receipt of housing benefit transitional payments will also find that they will not receive the full uprating of benefit. They will not be very happy with a Budget that is supposed to be helping the lower paid and the poorer people. We know that the increases in mortgage interest rates have affected many people purchasing their houses over the past year, and we know too how the Government's policies have affected rents. In 1979, my local authority in Burnley received a subsidy of £1.6 million to help those renting their houses, but for the past few years it has received nothing. That shows clearly where the pressure to increase rents comes from.

One factor that will soon have to be taken into account in considering whether people are eligible for the full housing benefit is whether they live in a bigger house than they need. An elderly couple living in the four -bedroomed house in which their family grew up may not wish to move. They will not recieve the full housing benefit because they will be deemed by the Government not to need such a big house. That may be true, but at the end of the day the Government talk of choice. People will not welcome the removal of their choice to continue to live in the house that they have lived in for many years.

When the Government talk of choice they link it with the ability to pay. That is the big qualification. What we should be talking about is opportunity--the opportunity for people to have decent education, decent housing and a decent Health Service, regardless of their ability to pay. It is particularly important that children should not have their educational rights limited because of the inability of their parents to meet the cost of student grants, or loans, as they may be in the not too distant future.

I welcome the tax concession on unleaded petrol as a move in the right direction. However, if the Government were serious about protecting the environment, they could have increased that figure. They claim to be the green party, concerned about the environment, but profitability and cost always come first for the Conservative party. They will always be overriding factors whatever is being considered.

When we consider the Water Bill, currently going through Parliament, the quality of our bathing water and beaches, the deterioration of river quality and our drinking water quality, which fails to meet the EEC guidelines, we know our failures. If the Water Bill is to be enforced through the National Rivers Authority, there will be a considerable improvement, but there have already been derogations and concessions to allow more time.

The Government know that nobody will invest money in the water industry unless they write off considerable amounts of debt and considerably relax the limits on the time allowed to deal with the problems of pollution to ensure that we bring our water, rivers and beaches and sewage treatment works up to the required standard. Unless the Government fiddle the figures and dodge the issues, they know that people will not put their money in the industry. That is why the Government announced yesterday that people will be able to put some of the money in their personal equity plans into the privatised industries. They have to do everything possible to persuade people that that is where they should be putting their money.

The Government have a surplus of £15 billion, but they are unable to deal with the problems of our water, rivers and waste tips. The Select Committee on the Environment was unanimous in its report published last week that it was

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a miracle that we had not had a disaster as a result of contamination, or an explosion. That is a failure of Government. The Government will not take enough action on chlorofluorocarbons and all the other issues, because for them money is the most important thing.

Manufacturing industry still has a massive trading deficit--the £3 billion surplus in 1979 has become a £20 billion deficit. At the end of the day, the manufacturing industries are Britain's bread and butter. We must get our manufacturing industry into surplus if Britain is to have a future--that does not mean that I dismiss the importance of the service industries and tourism--they are important and we want to develop them and do well from them--but at the end of the day manufacturing is our base and our future depends on it. That is what our past was built on and we must get it right. There is no way in which the Government can do that because they do not believe that it is their problem. Until they recognise the problems of manufacturing industry, we shall not find the cure.

An increase in interest rates from 7.5 per cent. to 13 per cent. affects investment in manufacturing industry and its ability to compete abroad. Energy costs are rising again. There is to be an increase in electricity charges in excess of 6 per cent. That is at a time when the price of coal and other costs have been going down, and when the cost of energy, in relative terms, for industry should have been reduced. One of our industrialists' biggest anxieties is not wages or rates but comparative energy costs, which are far higher in Britain than elsewhere in the EEC, and they are being deliberately forced up again by the Government. In addition, a 22 per cent. increase in water charges is to be imposed by the private statutory water undertakings. The Minister said that they were already private. So they are, but they are controlled under different legislation than will be the position when the Water Bill is passed. The statutory water undertakers were asking not for 22 but 50 per cent. until the Minister intervened.

Mr. Mans : When foreigners consider investing in this country they look not only to energy costs but to industrial relations, and in the past the latter has been one of the main factors why they have refused to invest here.

Mr. Pike : That claim is exaggerated, and, being a Lancashire Member himself, the hon. Gentleman must know that our area has a history of good industrial relations. Yet Burnley, in north-east Lancashire, is the fastest shrinking town in England. It has lost 9.7 per cent. of its population because of the decline in manufacturing industry. People are leaving to look for jobs and we have many empty houses. The same applies to Pendle, Rossendale, Hyndburn and other places in north-east Lancashire.

In the way that people moved in the 1930s, so today people are moving from Lancashire to seek work in those areas which the Government are encouraging and developing. We want more jobs brought to our areas. The Government must have a positive policy of direction of industry, with proper regional policies. We must have good communications by road and rail to encourage investment in north-east Lancashire and the north-west.

We can have no optimism on that score in view of what the Conservatives did when they came into power in 1979. Having brought about industrial closures, they then created a consumer demand, which we then were unable to

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meet. To meet it, we had to suck in exports. We are still doing that, and the process will continue until we enlarge our own manufacturing base.

While investment is slightly ahead of what it was in 1979, there are exceptions in some parts of the nation. We have had a low rate of investment for the last 10 years in manufacturing industry. We shall have to pay the price for that in the coming years, and the Conservatives will be held responsible for that.

In constant terms, output in the north-west is 19 per cent. down. It now stands at £7.453 million, compared with £9.171 million in 1986. Investment is 38 per cent. down over the same period. Indeed, in the year 1985-86 there was a drop of 10 per cent. in investment in the north-west, that despite the fact that the north-west and Lancashire is a key manufacturing region in which we should be investing. Employment in manufacturing industry fell by 38 per cent. between 1979 to 1986. About 34 per cent. of the total work force in 1979 was engaged in manufacturing industry. By 1988, that had fallen to 23 per cent.

The EEC announced recently, under objective 2 of its regional economic development fund, wide extensions of areas for benefit, and today most of Lancashire and large parts of the north-west are covered by objective 2. That state of affairs has come about because of the failure of the Government to develop the regions to their full potential. In addition, the whole of Northern Ireland is covered by objective 1 of the EEC's regional economic development fund plans. We have the largest share of objective 2 money of any EEC country, with 20 million people in the United Kingdom living in areas receiving objective 2 assistance. In other words, 39 per cent. of the Community population eligible for this assistance live in the United Kingdom, plus those who live in Northern Ireland coming within objective one.

We must ensure that those funds from Europe reach their target. The British Government must not make that money subject to additionality, so that we finish up losing Government resources in the way that has happened in the past. It must be additional money. The areas concerned must benefit, and the Government must not take it from them.

Considering that the Government had a surplus of £14 billion, one wonders why they have not done more to tackle the many housing problems that exist. Five areas in my part of the world--they are not all Labour- controlled ; one is Conservative and one is

Liberal--Burnley, Pendle, Rossendale, Ribble Valley and Blackburn, had an HIP allocation, in constant terms, of £59,730,000, but their bid in 1979 was for £67,916,000. That represented 83 per cent. of the bid. The bid for the current year for those areas is £47,709,000, and they are getting £9,900,000, or only 21 per cent. of the bid. They have appalling housing conditions and need a great deal of money to effect improvements. That is an indictment of the Government's record, particularly in view of the enormous surplus available to them. The Chancellor is in a cleft stick. He dare not allow inflation to rise, so he cannot spend money where it should be spent. The Government are failing all along the line. That will continue to be the story until we have a change of Government and a new Chancellor. For its inner-city programme, Burnley received in 1988-89 £1.8 million, and in the current year it is receiving

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slightly more, £1.89 million. But that represents a cut in real terms. The eight areas in the north-west received £43,250,000 in 1988-1989, and collectively they will be receiving, in 1989-90, £42, 903,000, yet the Government have declared that they want inner-city improvements to be a priority.

The Government announce new schemes and produce glossy booklets about the inner cities and so on, but as the booklets become more glossy, the packages have less content, and the problems continue to exist. When they give local authorities money to deal with local problems, they are really only returning to those authorities a fraction of what they have taken from them in the last 10 years. Lancashire put in a bid for £34 million for its educational capital expenditure. The area is committed to spending £16 million on schools alone, yet it received an allocation of only £13.5 million. School buildings remain in urgent need of repair, yet it is well known that investment in schools has a strong bearing on the education of our children.

My area sought £27.5 million for roads expenditure, but received an allocation of £12.82 million. All around us we see decay and decline as a result of the Government's failure to tackle the transport and other problems of communication. Conservative Members may not like to hear these facts, but they are true, and they will ensure that, when the next general election takes place, the people will vote for a party and for policies which will tackle these problems and ensure that people have a decent standard of living and a fairer deal than they will ever get under Toryism.

A wind of change is blowing across the nation. People throughout the country can feel it. Only Conservative Members fail to recognise its existence. Many of them occupy marginal seats. I advise them to seek safer seats or to look for other jobs. They might then make a better contribution than they are making in the House to the well-being of the British people.

6.19 pm

Mr. John Biffen (Shropshire, North) : As I listened to the hon. Member for Burnley (Mr. Pike) I began to fear that indignation would inhibit peroration, but I was delighted that we were taken for a tour. The hon. Gentleman demonstrated in graphic form the values and judgments by which he hopes to fight, and triumph at, the next election. This is a Budget that is necessarily related to that future election, so we should not in any sense be self-effacing but should put our value judgments before the House, even at this early stage. I know that there is great potential pedantry about considering Budgets present and Budgets past and I should like to make a passing reflection. Last year, when we had a Budget, we had evident and emerging inflation. We had a substantial Government surplus and a most ambitious range of direct tax cuts which, it was alleged, would be non-inflationary because of the absence of a Government public sector borrowing requirement. This year--the stage is reasonably familiar--we have established inflation and an even greater Government surplus, but there has been a delicacy, a development, a nuance. No longer are we given the prospect of substantial tax cuts to

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give emphasis to supply side economics. We are told that they must be reined back almost in their totality to secure a more progressive addressing of inflation.

I welcome these changes. I have no wish to be personal, but I feel as though my mere rowing boat were taking on the full complement of the Titanic. Make no mistake, the House is being asked to consider a redirection of economic policy--in a direction that is welcome but none the less offers clear prospects and disciplines to both sides of the House about the development towards a general election. There is an initial stage, which is the business of dealing with inflation at a high and challenging level and which will require compelling and consistent policies. That initial challenge successfully surmounted, we come to the second stage--how the two sides of the House will consider the use of a Government surplus which is not intended to be permanent and which exists for use in public spending, taxation and reassessed debt repayment, all of which will engage judgments that are central to the conduct of the next general election.

Opposition Front-Bench Members agree in their hearts with every word I say. What was fascinating about the speech by the right hon. and learned Member for Monklands, East (Mr. Smith) was not that it had all the advocate's professionalism but that it did not say, "Here is a cautious Administration which has the capacity to use £14 billion to regenerate the economy and bring about higher levels of activity and lower unit costs, thus having an impact on inflation." There was none of that. The right hon. and learned Gentleman knows perfectly well that he would like to sit this one out. He would like to be around to benefit from the inevitable difficulties that arise in reducing inflation. The right hon. and learned Gentleman is taking no view on the £14 billion surplus which is to be used for accelerated repayment of the national debt.

The right hon. and learned Gentleman shows good strategic sense. He leaves it to the hon. Member for Burnley--I hope that the hon. Gentleman will not leave the Chamber when all these plaudits are to be heaped upon him--and the hon. Member for St. Helens, North (Mr. Evans) who had a litany of public spending increases which they thought were instantly appropriate to deal with the current position and which were made plausible by the existence of a £14 billion Government surplus. We have been given a useful insight into the Opposition's tactics over the coming months. On the Front Bench there will be sobriety and moderation of the most impeccable kind while the rough stuff will be delegated to the franc-tireurs from the Back Benches who will argue without inhibition the true causes that they champion.

I should like to speak about the two facets of the Budget position-- inflation and the Government's surplus. My right hon. and hon. Friends should be under no illusion that the present inflationary climate is serious and that its overcoming does not invite analogies with soft landings. Such analogies induce a sense of good-natured optimism about the quality of Front Benches and the general nature of good luck in public life, and on the whole are matters that we would do well without.

At 8 per cent., the inflation figure is much higher than anyone would have forecast a year ago. I take no view as to whether the Treasury is optimistic in the downward trend that has been predicted. I notice that today in The Times Mr. Tim Congdon, who probably has as good a track record as any commentator on these affairs, has written :

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"all previous cyclical experience is that, once a credit-driven boom has started, it takes much longer than expected to bring inflation under control."

We could add to that from our anecdotal experiences.

I believe--I realise that this will not be accepted by the hon. Member for Burnley--that the labour market today tells us the story not of the 2 million unemployed, with its echoes of the 1930s, but of high levels of activity in the economy and emerging shortages of labour throughout the country. As Government statistics are somewhat at a discount these days, certainly for the Opposition-- [Interruption.] well, "Whom God hath joined "--I shall quote from the fourth quarterly survey of the Association of British Chambers of Commerce, which said :

"It is therefore abundantly clear that skills and labour shortages are widespread and not at all confined to the South East." I understand that interest rates are the primary weapon of my right hon. and hon. Friends--it is a distinguished Treasury Bench at present. I fully understand that that has serious economic and political short-term consequences ; none the less, it is the central weapon, and I believe that they are right to make it such. I recognise that there are always siren calls about physical controls of credit, but those calls are generally made in headlines and not in footnotes. I suspect that such physical controls are inoperable as an adjunct to my right hon. and hon. Friends' monetary policy. They are unwise, none the less, to give any credence to the cruel jibe that the Chancellor has only one club in playing this game of golf--a point made last year. Therefore, I ask, what gilt funding policy will they pursue in the context of a £14 billion debt repayment, since this could well supplement interest rate policy? I hope that, before the debate is through, they will say how they interpret that situation and opportunity.

Let us consider the challenge that both parties will face come the next general election, when we shall have to decide how to present our cause and our aspirations to the public we serve. We do not know how long it will take to bring down the rate of inflation. I think that the process will be slower rather than quicker, although it is in the interests of all of us-- economic as well as political--for the process to be as quick as possible. Having said that, I assume that, by the time of the next general election, there will be a genuine public debate about what we should do with a public sector repayment figure of something like the magnitude that the papers issued with the Budget suggest.

The background against which we shall fight the next election, which I assume will be in 1991, will not be the same as the background to the previous election : 1991 will not be a re-run of 1987. Let us not think that inflation will have abated only to allow a recrudescence of the consumer boom. The social and political atmosphere will be quite different, and I think that there will be a stronger case to be made for the Tory tradition of social spending than hitherto.

I yield to no one in my commitment to market economics and economic liberalism, but I have always regarded that as part of a balanced ticket-- with the mechanics of wealth creation on the one hand, and what we do with wealth in the public sector on the other. A public sector policy does not undermine the free enterprise ethic--indeed, it sustains it, because we live in a society in which there is the expectation of public collective provision in social policy. I shall choose only two examples--

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education and health. I have studied the spending plans for 1989-90 to 1991-92, elaborated in Cmnd. 621. A look at the planning totals in real terms shows that for the National Health Service the increase is about 5 per cent. and for education there is no increase. We have in prospect a chance to remedy that. We have in prospect a chance to preach a message of collective provision and investment which stands in the long tradition of Tory Chancellors and Tory Governments. My right hon. and learned Friend the Secretary of State for Health will have a great role to play in all this. He has taken to phrase-making--always a high-risk strategy for a politician to adopt. He talks of "wallet- reaching". The people who will have to do the wallet-reaching for the Health Service before the next general election are Treasury Ministers, and that attitude will have to be broadened to cover other aspects of social policy, including infrastructure and education. I must say to the Government and to my hon. Friend in general that if in 1991 we are not inspired in social policy by one-nation Toryism, that if we do not master the language, rhetoric and reality of one-nation Toryism, the nation will master us.

6.33 pm

Mr. John Battle (Leeds, West) : It seems to me that the Government rely on image and presentation. Their idea seems to be to create an initial impression--before the facts have been checked--and hope that it will stick later. No one will have been left with the impression that the social spending to which the right hon. Member for Shropshire, North (Mr. Biffen) referred has started with this year's Budget. The Budget was heralded in the press as a Budget for the low-paid and pensioners. The impression has been given that, although the Government did much to help the richest last year, it will be the turn of the low-paid and the pensioners this year. That argument is belied by the facts of taxation changes, compounded with social security changes.

We have made a start, at least. The Government now actually accept that low pay exists. I served recently on the Standing Committee on the Social Security Bill. It was with some difficulty that we convinced the Minister that some of the pay on offer in Britain is incredibly low by modern standards and by the standards that we ourselves would be prepared to accept. When I pointed out that in my constituency £2 an hour and less was being offered for some jobs and my hon. Friend the Member for Birkenhead (Mr. Field) gave similar figures, the Minister asked the civil servants to telephone the jobcentres to check whether our figures were correct. He did not believe them. Those figures have been confirmed. Nearly a third of the work force--9.9 million people--earn less than two thirds of the average wage.

We ought to scotch the rumour that this is the Budget of the low-paid and the pensioners. The Chancellor sets his speech in the context of the medium -term financial strategy. A two-tier economy is developing as a result of that stategy. On the one hand, we have those in relatively secure, reasonably paid work who may receive decent pensions while on the other we have those in part-time, temporary, low-paid work. The Budget serves to reinforce that divide in the economy.

We need to challenge the media myth that one can tackle poverty simply by reforming the national insurance

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contributions. The changes will not put an end to wage bunching just below the threshold, because what people will gain in earnings through the national insurance changes they will lose as they lose their entitlement to benefit.

The Government say that the Opposition have no policies. We are entitled to ask them why they have failed to do as we suggested and turn the national insurance earnings limit into an allowance. That would go somewhere near to breaking people out of the poverty trap. I note that the Chancellor steered clear of increasing allowances by any more than he was legally obliged to increase them. The Chancellor tells us that he has taken from us more than he needed but that he dare not give it back because he is scared of the effect on inflation.

Let us consider in detail the changes in national insurance contributions. Anyone earning more than £43 a week must now pay 2 per cent. in national insurance on the first £43 and 9 per cent. on earnings over that amount. It has been suggested that a step-by-step gradation is being replaced by a straight line. In fact, the earnings of low-paid workers-- especially women who work part-time--will still be bunched at £43 a week and below, but they will not now be entitled to essential benefits such as maternity allowance, family credit, unemployment benefit and housing benefit. In other words, they will lose as a result of the changes. Moreover, as employers' national insurance contributions have not changed, employers will still want to keep wages below the national insurance contribution threshold. The Chancellor's national insurance reforms will give less than £1 to 5 million people earning less than £100 a week.

Our proposals for an allowance system would have nearly doubled that gain. But the injustice is perpetuated because those earning more than £15,800 will continue to pay no extra national insurance contributions on anything they earn over that amount. Last year's injustice, whereby the rich gained the most and the poor gained the least or lost out, remains built into this year's Budget. The unemployed, pensioners living on the state pension and women receiving child benefit gain nothing from the Budget. It is worth reminding the Chancellor that 48.1 per cent. of female manual workers in full-time employment earn less than £100 a week. According to the recently published new earnings survey, the bottom 10 per cent. of the earnings distribution now receive only 31.3 per cent. of the gross weekly earnings of the top 10 per cent. compared with 42.3 per cent. in 1978.

The proportion of male full-time workers earning less than the Council of Europe decency threshold has doubled since 1979. It is notable that, although the Government use the rhetoric of Europe and 1992, they are not yet prepared to accept the Council of Europe decency threshold of two thirds of the average wage as a means of assessing low pay. More than 50 per cent. of adult women in full-time employment earn less than that decency threshold. The tax burden of a married couple on three quarters of average earnings has increased. The figures that Ministers have given in answer to questions in the past weeks and months demonstrate that, although the Government have refused to acknowledge it.

Many people in Britain earn well below the average wage of £254, around which the Government base their

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figures and statistics. Not only are the earnings of the lowest-paid male manual workers lower compared with the average wage than they were in 1986, but the Government's failure to uprate personal allowances and thresholds by earnings levels means that an additional 160,000 families on low incomes will pay income tax. That is the economic reality of the Budget. Those people will be brought into tax because the Chancellor has done nothing to tackle the inequitable nature of the income tax structure. With a mere two bands the Government are perpetuating the injustice of a tax system operating on a huge ratchet mechanism--those at the top of the ladder get the most every time there is a step up. That has not been changed.

The Government's failure to enmesh the tax system with the benefit system through the eligibility of those in low pay to family credit and housing benefit is surprising. It is a classic case of giving with one hand and taking away with the other. Because means-tested benefits are based on net income, any rise in net income will reduce the total benefits received, so that tax cuts have little or no effect on the poverty trap as people lose access to benefit. As the Chief Secretary to the Treasury conceded in reply to my intervention, what is offered as a teaspoonful of aid will be meaningless as the Government's hand seems to be around the windpipe of the main benefits structure so that people lose.

On 10 April there will be effectively another Budget--the budget for the poor, in which benefits will be uprated by 5.9 per cent. That increase is below the inflation figure that the Government have accepted in the Budget. In two weeks' time poor people will be worse off as a result of the Budget.

To tackle low pay and end the poverty trap, we need to raise non-means- tested benefit. What could be better than raising child benefit instead of freezing it year after year in the hope that it will eventually fade away? That is the best means of tackling family poverty. Another way of tackling low pay and ending the poverty trap would be to ensure that basic wage rates increase in relation to the average wage and are not so low that people need to claim benefit to supplement them.

I do not believe that the Government intend to eradicate low pay. The Chancellor referred to the Social Security Bill, but he did not refer to the fact that the central aim of that Bill, which has completed its consideration in Committee and will soon return to the House, is to force people to accept any level of remuneration however low or they will lose access to unemployment benefit. The Bill states that the level of remuneration will no longer be a good cause for not accepting a job. That is a charter for a low-wage economy.

Mrs. Alice Mahon (Halifax) : I am sure that my hon. Friend will recall that I told him that home workers in my constituency earn as little as 24p an hour packing Christmas cards, yet those Christmas cards were being sold in Woolworths for £1.69 a pack. That is the reality of the Chancellor's strategy for low pay.

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