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The principles of the Social Security Bill will mean that people will no longer be classed as unemployed. In case hon. Members think that unemployment is not an issue in
Column 461the Budget, paragraph 3.04 of the Red Book states that employment is unlikely to rise. That can only mean that unemployment is expected to rise. That is the underlying strategy in the Budget, which is based on the fact that unemployment will not continue to go down but will rise. But unemployment will no longer be seen to rise, because those who do not accept low-paid jobs will be taken out of the system altogether. There will be no cost to the state in increased social security payments because the state will not pay. As has happened before, unemployment will become a tool to force people into work. America now has its lowest unemployment ever, 5.1 per cent. What is the response? There is no celebration that people are finding jobs and contributing to society. The response is that there was an emerging skills shortage. Conservative Members have used that phrase this afternoon. In their terms it means that there may be increased wage demands which they see as inflationary ; therefore, there has to be a pool of unemployment to drive down wages. That is the basis of the Government's strategy in the Social Security Bill, which is not about raising benefit but about building low pay into the benefit structure.
The Government's intention will be reinforced by the dismantling of the wages councils, which offer only minimal wage conditions. It is worth reminding the House of the figures. In the clothing and textile industry, the wages council level has been set at £1.99 an hour for some years. In Bramley jobcentre, in my constituency, job machinists are offered work at £2 an hour--1p above the wages council minimum. What will happen when the wages councils are dismantled? Does anyone imagine that the wages of job machinists will go up? Of course they will not ; they will go down. The Government's real contribution to the low-paid will be to price more people into low pay and trap them in the part-time, low-paid temporary sector of the economy. Contrary to what Conservative Members have said, the great weakness in the Budget is that there is no ending of the tax on child care--the one thing that would enable women to take full-time, permanent and relatively secure jobs. Women will still be trapped in part-time, temporary and low-paid work. It is not, as one journalist reported this morning, that the Chancellor's
"conscience has caught up with him".
However, the unemployed and low-paid who are forced to pay the price for the Government's policies will catch up with his conscience.
The majority of pensioners have not gained from the Budget. If the Chancellor really wanted to help pensioners, he would remove the £8, 000 ceiling on savings for pensioners on housing benefit, which not only acts as a disincentive to save but means that they lose their housing benefit. If the Chancellor had restored the link between the rise in pensions and earnings, and pensions had risen at the same rate as inflation since 1979, from 10 April a weekly single pension would now be worth an extra £9.70, and that for a couple would be worth an extra £15.45.
Pensioners in our society who depend on state pensions have been short- changed for years. I received a letter from a pensioner in my constituency which said :
"If you are unlucky enough like me to be 68 and on income support you get the increase on your little pension (I don't get a full pension), straight away your income support withdraws it from you so you are back to square one Seems to me
Column 462Sir that those who have have more, people like myself and goodness knows there are plenty of us, will still have to struggle." That is the equation--pensioners feel that this is not their Budget because they will be back to square one when the impact of the changes in social security and the changes in the Bill are taken into account.
The Budget contains proposals and changes for those approaching retirement and for those in work who will benefit from the incentives and the subsidies to private pension schemes, which undermine the SERPS that we talked about earlier. However, pensioners, and those approaching pensionable age, without jobs, and those in part-time, low-paid work who do not receive pension back-up will simply suffer a decrease in state pension. Therefore, I respond with some cynicism to those who say that pensioners should be allowed to work longer. It may well be that pensioners on state pensions will have to work a lot longer.
Mr. Ian McCartney (Makerfield) : Is is not true that, later this week, a fuel tax will probably be imposed on pensioners--an unnecessary 6 per cent.-plus increase to pay for the privatisation of the electricity industry? Is it not a disgrace that such a tax should be imposed on pensioners, and that those charges do not appear in the Budget? The Government obviously hope that the general public will not notice that the tax has been imposed on them.
Mr. Battle : My hon. Friend is right to remind us of that. We face rises in the charges for electricity, gas, water and medical prescriptions. In the last year we have seen the introduction of charges for sight tests and visits to the dentist which were all well above inflation. They will all have a particularly harsh impact on people--including pensioners--who live on below-average incomes. The Chancellor suggested that we had enjoyed one of the longest periods of strong and steady growth, but he has not chosen to ensure that pensioners have a decent standard of living in their retirement. Surely they are entitled to that. Even with present economic growth, the Government cannot sustain their promises for transitional payments of housing benefit.
It is a marketing myth to describe this as a Budget for the low-paid or pensioners. The right hon. Member for Shropshire, North said that we should return to the Tory tradition of social spending. Such a tradition certainly does not start with this Budget. The people who will have to pay the price will do the arithmetic and work out that they have been short-changed by the Budget and the Government. They will know that the Chancellor had to introduce such a Budget because he needs a low-wage economy to be built under the structure of the upper-tier economy.
The buzz word of the Budget is "prudence". In the Oxford English Dictionary, that word is defined as the
"ability to discern the most suitable, politic or profitable course of action".
We should underline the words "politic" and "profitable". The Budget will certainly be profitable for insurance and pension companies, and it was certainly a politic Budget, geared towards the bribes that will be offered in the way of tax cuts in time for the next general election. In practice, the Budget may well consolidate the marginalisation of the poor by squeezing them out by means of the tax and benefits system.
Column 463On the BBC's "Newsnight" programme on 30 July 1985, the Prime Minister said :
"I do feel very strongly indeed that people on comparatively low wages and pensioners pay too much tax."
That concern has not percolated through to the Chancellor's Budget, and the Government should not try to pretend that it has. The people who are being made to pay the price for the Government's approach to the economy cannot and will not be deceived and, when they get the chance at the next election, they will ensure that this Government pay the price.
Sir Anthony Grant (Cambridgeshire, South-West) : The hon. Member for Leeds, West (Mr. Battle) made a sincere plea for the lower-paid and pensioners, and the House always listens with great respect to a sincere plea for the less fortunate in our community. I am sure that the Treasury Ministers will heed what he said. Certainly, his remarks about pensioners struck a chord with me. I agree that this is not a Budget for the lower- paid but it is prudent, sensible and in the nation's interests.
As all my hon. Friends who have spoken have said, I think the top priority must be the curtailment of inflation--the curse which inflicts everyone and everything in our society. The debate began with the customary vigour of my right hon. Friend the Chief Secretary to the Treasury. He is one of the best Chief Secretaries that I can recall in my time in Parliament. I hasten to add that he follows the distinguished precedent of my right hon. Friend the Member for Shropshire, North (Mr. Biffen).
Although we realise that public expenditure is dealt with at a different time, it is fair to pay tribute to my right hon. Friend the Chief Secretary. He has succeeded in reconciling the various voracious interests in public expenditure among the different Departments because of his skill and particularly pleasant personality.
My right hon. Friend the Member for Shropshire, North--to whom we always listen with great interest and with whom I always seem to debate--is a most interesting man. We have been friends for a long time and I am sorry that he has left the Chamber. Following discussions that we used to have during the Wilson Administration and that of my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath), I never thought that I would hear him making a strong plea for further public expenditure. However, he is a percipient and far-sighted man--no other hon. Member could give a more long -sighted view of the future than he, and he may well be right. His views will certainly be carefully considered by Treasury Ministers.
I said that this was a wise and prudent Budget. Let us look at the background. We need to go back to the famous black Monday, when stock exchanges throughout the world slumped, with Governments as well as City institutions showing excessive nervousness. The fire was fanned by the media, which tried to paint the inaccurate picture of a second Wall street crash. There were worldwide and hysterical fears of a major recession, and interest rates were brought down by too much. My right hon. Friend the Chancellor himself admits that, although he had to follow the trend, that was an error.
Next came the failure of the BP flotation. The building societies were awash with money, which boosted the
Column 464housing market and fuelled inflation. I do not believe that the tax cuts in the 1988 Budget were the cause : I supported them at the time and still believe they were right. Although I appreciate that my right hon. Friend cannot reduce taxation in the present circumstances, I hope that the impetus for a reduction in direct taxation, which has been the main theme of this and previous Conservative Administrations, will be maintained. As I said last year, I can see no moral or merit in taking vast sums from a vast range of people, sloshing it around expensively in Government bureaucracy and then doling it out to whom - ever clamours loudest. That should not be part of the Government's philosophy or of that of society as a whole. Although dull, this Budget is wise both tactically and strategically. Within the constraints in which he has operated, my right hon. Friend has been able to find room for some helpful measures, but I shall touch on only two. The first is the encouragement of wider share ownership. I was a founder member of the movement for wider share ownership 20 or 30 years ago. In those days, we had the support of Labour Members : the present Lords Lever and Houghton were enthusiastic members. That Labour enthusiasm, however, has diminished over the years. Wider share ownership was never very fashionable, but my right hon. Friend has picked up the theme probably more than any previous Chancellor, and I am glad that he has found himself able to help the cause in his Budget. I also welcome the improvements in the personal equity grant, which had got off to a rather dull start and was not taken up as much as it should have been. My right hon. Friend has improved profit- related pay and, in particular, employee share ownership schemes.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) thought the additional incentives for people to join personal equity plans rather inadequate. Let me point out that the annual amount that can be invested--provided that it is invested in unit and investment trusts--has been quadrupled. I do not call that puny : I think it very encouraging.
Mr. McCartney : In his analysis of wider share ownership, perhaps the hon. Gentleman will tell the House whether he believes that the Chancellor should have made a statement about compensation for my constituents and others who took the Government's advice and put all their pension savings into firms such as Barlow Clowes and other City bucket-shop operators. Having lost tens of thousands of pounds, they are receiving no public redress for advancing their position in the share-owning democracy on the Government's advice.
Sir Anthony Grant : I share the hon. Gentleman's view. I too have constituents who have suffered from the Barlow Clowes fiasco. I am afraid that there will always be--I must choose my words carefully--people who are unsatisfactory for others to invest in, but there is always a certain number of casualties. I hope that I too brought pressure on the Government : I certainly thought that they should share some responsibility, and welcomed the news that the ombudsman was to look into the matter. I hope that reasonable redress will result from that.
Mr. McCartney rose --
Mr. McCartney : The Government launched a BP share repurchasing exercise because of the state of the market. Given that they felt that that was the correct response, should the Chancellor not use some of the £15 billion in his coffers to assist those pensioners, some of them now destitute, to provide redress?
Sir Anthony Grant : I do not want the Government to become involved, because when they do they get into a monumental mess. That is one of the reasons why I tend to agree with the hon. Gentleman about Barlow Clowes. The less the Government have to do with such matters the better, which is why I support privatisation.
My right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) spoke of the importance of the manufacturing base. Although I do not suggest that it will necessarily make a huge difference, I believe that the encouragement of worker participation and wider share ownership can make a useful and worthwhile contribution. Enthusiastic National Freight Consortium workers made substantial sums on the corporation's flotation, which they richly deserved, and I should like that to be extended throughout manufacturing industry. It is important to get such schemes across to the public. Let me make a suggestion, because sometimes schemes are announced in the Budget and then forgotten. Ministers--not necessarily Treasury Ministers, but certainly Trade and Industry Ministers--constantly, I hope, visit companies all over the land. I suggest that when they go in to see the company chairman--after they have been adequately refreshed in the boardroom--one of the first questions that they should ask is "What is the company doing to encourage employee share ownership schemes, personal equity plans and profit-related pay?", and they should draw his attention to the improvements that have been made in the Budget.
I also welcome the encouragement of small firms. Small firms are one of my pet causes. I was Minister responsible for them at a time when they were not fashionable. They are now very fashionable and I am glad that my right hon. Friend has helped them with his changes in corporation tax, as they have been hit hard by the increase in interest rates. Having welcomed the simplification in VAT over the years, I was very pleased that my right hon. Friend lifted the VAT threshold for small firms to the EEC maximum.
I am glad that my right hon. Friend the Financial Secretary is on the Front Bench, as I know that he is interested in this subject. The VAT threshold of £23,600 is ludicrously low. Very small firms earn that amount ; for such firms--often run by a husband and wife, or indeed an individual--to have to go through all the panoply of formfilling, Customs and Excise inspections and so forth is an undue burden, even with the simplification of VAT. I make this plea to my right hon. Friends in the Treasury : will they please continue to press the EEC to show some common sense? The EEC is supposed to believe in small and medium-sized enterprises ; this is one way in which such enterprises can be encouraged. If the level is lifted--to £50,000, £100,000 or whatever--it will be a tremendous boost for the small firms sector.
This is a throughly sensible if dull Budget, and is in the interests of the nation as a whole. I certainly support it, and, more important, I believe that it will be supported by all sensible and thinking people.
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Mr. William Ross (Londonderry, East) : I listened with interest to the speech of the right hon. and learned Member for Monklands, East (Mr. Smith). Whenever he accused the Government of being responsible for the 8 per cent. inflation we are now facing, I thought back to the performance of the previous Labour Government in the 1970s. I came to the conclusion that at that time neither he nor his right hon. and hon. Friends would have been so willing to accuse the Labour Government of being responsible for the inflation we were living through. I was rather surprised that his comments were not challenged instantly by the Ministers on the Treasury Bench. However, perhaps the Chancellor was remembering the comments he made yesterday. In a rather throwaway line he said that inflation was now fairly widespread and he seemed to be using that as an excuse for the inflation we are now facing. It is in direct contradiction to his comments in the 1970s when he said that inflation was the direct responsibility of the Government of the day.
Mr. Andrew F. Bennett (Denton and Reddish) : Will the hon. Gentleman accept that during the 1970s there was a massive world oil price increase, together with an increase in other commodity prices? That was the problem with which the Labour Government had to grapple and with which by 1979 we were coming to terms. Yet the first act of this Government was to increase VAT and start the inflationary spiral again. Today we do not have world pressure on prices. In fact, oil prices are falling, so there is no excuse, except the Government's actions, for the present inflation.
Mr. Ross : If one really wants to look for excuses, they can always be found. The hon. Gentleman's comments about oil prices are true. Today, as far as I can discover, in real terms oil prices are only about 60 per cent. higher than before the first oil price shock. I will leave the hon. Member for Denton and Reddish (Mr. Bennett) to argue that point himself if he catches your eye, Mr. Deputy Speaker. I will let the hon. Gentleman defend the previous Labour Government and let the Government of the day demolish that argument if they see fit.
There are several things in the Budget we should all welcome, not least the £1 billion give-away in relation to the changes in national insurance contributions. However, I am curious about whether we are seeing the first timid steps towards amalgamating the national insurance contributions and the general income tax structure. I appreciate what the Chancellor said yesterday about the contributory factor, but, despite that, surely they are both basically a tax on income. Since most benefits come from general taxation anyway, there is no good reason why we cannot look forward to an amalgamation of the two so that we can see what every individual is paying in tax as a proportion of his income.
As has already been adequately pointed out, the change does not deal with the real problem of the low pay structure found in some parts of the country, especially in the Province, of Northern Ireland where there is an over-dependence on benefits. I should like to see that swept away and replaced by realistic incomes. However, that involves another subject with which I shall deal shortly. I welcome the fact that married women will be given their own entitlement under capital gains taxation. That
Column 467will help small family businesses which are so painstakingly built up. It will also help the farming community, especially in the Province where we have the peculiar situation of most farms being owner-occupied.
My party welcomes the increases in the price difference between lead-free and leaded petrol. The only sad fact is that in Northern Ireland we have only 91 outlets for lead-free petrol. I am not sure whether that problem is prevalent elsewhere in the United Kingdom but I suspect that it may be in the more sparsely populated areas. For that reason, if for no other, we should welcome the increasing differential in the price of petrol. If the difference could be increased further, it might be an added incentive, together with the other measures mentioned by the Chancellor, such as eventually getting rid of two-star petrol, to ensuring that lead-free petrol is available in every part of the country and that every petrol station has at least one pump selling lead-free petrol.
I welcome the general tidying up of fiscal policy, which covered a wide range of things and which will benefit both small and larger investors together with old people. I welcome the fact that some tax loopholes were closed. It is amazing how tax loopholes appear every time there is a change in taxation. No doubt the well-intentioned changes of yesterday will result in new loopholes which will have to be closed by subsequent Budgets.
However, there are some raspberries for the Chancellor. First, income tax starting points remain the same, except for indexation. There was some scope to go further or to reduce income tax by a small amount. I am dismayed that the Government are having to come to terms with the fact that the EEC is able to impose its demands upon the financial management of British affairs. That has not been mentioned in the debate so far and we should not allow it to pass unheeded. It is the first sign of a long shadow that will increase in intensity with passing years. More and more powers will be handed by this place to the Common Market. The end result will be that we lose all control over our Budget and the management of our economy. I see that there is some agreement for that view on the Government Front Bench and I am glad to see that. I cannot believe that the country will lightly throw away that freedom. The Prime Minister's Bruges speech some time ago was helpful in that respect. I hope that it is followed by action to re-establish the authority of the House over this country. The EEC will eventually do this nation a great deal of damage. My party has always been opposed to it. We continue to hold that view, even if we are the only party in the House to do so. We are wholeheartedly opposed to it and hope eventually to gain a considerable number of converts from both the major parties as the real meaning of the Single European Act becomes more apparent to all who sit in this place.
I regret the failure to give further help to manufacturing industry. The manufacturing sector is about £14 billion in deficit, and I do not believe that all the talk about being competitive or about overseas investment being a help to us is good enough. Every £1 million that leaves this country and is invested in a factory somewhere else represents an export of jobs as well as capital. If we are ever to overcome the bottlenecks that have been made apparent by the deficit in our manufacturing industry, we
Column 468have to become more competitive. We can become more competitive only with better machinery, and that means the expenditure of large sums of money. That is a simple fact of life if we are to improve our efficiency. If we are not prepared to do that, we can expect the gap to get wider. Since manufacturing industry is the powerhouse of our wealth creation, we will slip further down the international league, and none of us wants to see that happen.
I listened with great interest to the Chancellor's comments on the national debt. The effect of that huge burden of national debt on the national economy is not widely understood in the country. We are told that the housewife at No. 10 runs a fairly tight purse in her own establishment, but who has ever heard of a family who were happy to go on paying huge sums of bank interest without reducing the loan? If any of us were in that position, it would not be long before we were slipping quietly and circumspectly past the bank manager's door or before he was saying, "Here, boy, I want a word with you. When are you going to do something about it?" It is not right to continue to carry that huge debt indefinitely.
Every 10 years we pay out as much as we owe, which seems a crazy way to proceed. There is, of course, a long history of wishful thinking behind the desire to get rid of the national debt, which extends back to Prime Minister Robert Walpole and the National Debt Reduction Act 1786. Attempts to diminish or get rid of the national debt are not new ; they are two centuries old--and probably rather older than that.
This year we have a first-time surplus of £8 billion, after the sale of various assets through the privatisation process. We were alleged to have a surplus last year, but that happened only because the Government had sold the family silver. Any family would do that in times of crisis if they were really in need of money, because silver is a mere ornament and does not make much money sitting on the family sideboard. But if one sells the family silver and then spends the proceeds on current expenditure, such as buying the groceries, one has not got out of debt. That has always been my objection to selling off assets through privatisation and never diminishing the national debt. If we sell assets that belong to the nation, we should try to do something long-term for the nation.
In considering the debt, I am considering only the rather narrow definition of national debt in the sense of central Government debt rather than the wider area of public sector debt. That is because a great deal of local government expenditure included in the wider public sector arena relates to investments in, for example, water, sewerage and housing. Such expenditure produces concrete results which will remain after the debt incurred to build them has been repaid, although at a high rate of interest.
At the end of last March, the central Government debt was about £197 billion, which was a huge sum of money. It has, apparently, been reduced during the past year. At one time it was much higher, as a nominal sum. After the war, the national debt was two and a quarter times the gross national product. It has fallen as a percentage not because it has been repaid, but because of the country's increasing wealth.
In his speech today, the Chief Secretary to the Treasury talked about reducing the borrowings of the last Labour Government. I point out to the Treasury Bench that that is not strictly accurate. In 1979-80, the debt was £95.3 billion. At the end of last March, it was £197.5 billion.
Column 469During the Government's nine years in office, the debt rather more than doubled in nominal terms--if not in real terms. It was costing us £16 billion a year to service the debt. What could the Government not do with £16 billion a year? That is the amount that we are paying year after year. This year, the Government are repaying £14 billion. They are paying back what they themselves borrowed, not what the Labour Government borrowed and the House should bear that in mind. I welcome the fact that the Chancellor is paying back money and I hope that he continues to do so.
If the right hon. Member for Shropshire, North (Mr. Biffen) were still here, I would try to comfort him by pointing out that he is not alone in being practical about what the Government should do with the surplus. I admire the right hon. Gentleman because he is practical and he knows that the first duty of a political party is to continue to win elections. He is clearly prepared to spend money in doing that. We can, therefore, expect a give-away Budget, if not next year, the year after that at the latest. The Labour party had better watch out because it is not in a position to spend money and it will not necessarily be spent in the ways in which it would like it to be spent.
When the Chancellor and the Treasury redeemed the £14.5 billion, did they pay back only loans that had reached maturity, or did they go into the market place and buy, at above the nominal value, debt that was carrying a high rate of interest? Was that not the best way to spend the £14.5 billion? We would be interested to hear the answer.
I noticed with considerable dismay that, having reached the happy position of being able to redeem the debt, the Chancellor did not give a commitment to eliminating it, but said very much the opposite. With the present fears about inflation, I can understand why he did not plough the £14.5 billion back into the economy, but he may be making a virtue out of necessity. It is clear that the Government got all the figures wrong last year. Nobody expected £14.5 billion and the figure was out by £10.5 billion. They cannot be any more sure about the forecast of £14.5 billion for next year unless the figures are more soundly based than in the past year. Can the Chancellor assure us that the figures are correct, or do we have to wait until next year's Budget?
I return to the Chancellor's comments about the repayment of the national debt. He said yesterday :
"I set out the principle of a balanced budget as the proper objective of fiscal policy, in these terms :
A balanced Budget is a valuable discipline for the medium term. It represents security for the present and an investment for the future. Having achieved it, I intend to stick to it. In other words, henceforth a zero PSBR will be the norm. This provides a clear and simple rule, with a good historical pedigree.'
To go further than this, and seek to achieve the maximum possible repayment of public debt, would not be consistent with the Government's policy, as it would mean deferring for a very long time the benefits of a reduction in the burden of taxation."--[ Official Report, 14 March 1989 ; Vol. 149, c. 297.]
The right hon. Member for Shropshire, North can take comfort from those words because it is clear that the policy of reducing the national debt until it is eliminated will not continue. If I am wrong, I shall be happy to hear it. The reduction is temporary and has come about because of the peculiar circumstances in which the Government found themselves with an unforeseen and massive surplus, which they have put to good use.
Column 470We should eventually set out to clear the national debt. If we consider the £14.5 billion plus the £16 billion which we are paying in interest--and the Chancellor referred yesterday to the £1.5 billion savings that he would achieve at the end of next year on the national debt interest charges--the total is about £30 billion a year. That is a huge sum of money. I hope to see the day when we do not have to find such sums in interest charges and capital repayments to repay the national debt.
Mr. David Madel (Bedfordshire, South-West) : It is a pleasure to follow the hon. Member for Londonderry, East (Mr. Ross) who raised the question of the European influence on our tax system. Although I do not fully agree with him on that, some of the controversial proposals from Brussels would require unanimity, and to date the Government have said that they will not agree to a number of them. As with any Budget, this Budget has been a balance between taxing and spending. The Autumn Statement is now an enshrined part of our financial scene--more is said about spending in the autumn than now. I have always regarded the Budget as the overture to the Autumn Statement because what the Chancellor says about the strength of the economy at Budget time is likely to tell us what we can expect in relation to spending in the Autumn Statement, six months ahead. I welcome first the national insurance reforms. It is widely felt by the public that national insurance is nothing of the sort, but that it is merely a decision to tax and a decision to pay. I am pleased that the Chancellor has lifted a tax burden on the lower paid in his national insurance changes.
Secondly, the Chancellor has changed the tax system on unleaded petrol. He went into considerable detail on that. He has widened the gap between four- star and unleaded petrol. However, we now need a sustained advertising campaign by the motor manufacturers to get their message across and to tell us which engines will run on unleaded fuel without any changes being made. We also need to support the Chancellor's comments yesterday about the need for a complete conversion to unleaded fuel, following or running parallel with a greater availability of unleaded fuel at petrol stations. I welcome immensely the fulfilment of the pledge to abolish the earnings rule for pensioners. That will have an additional impact on our retraining of older people, which is at last being carried out to a greater extent. However, as a result of the Chancellor's change, there will be a further demand and a further need for such retraining.
I turn now to excise duties and VAT. Before we even agree to the harmonisation or approximation of VAT with the EEC--I am not sure that we will and even if we do, it may be some years off--in my view, VAT does not have to stay at its present high rate for ever. It is possible to reduce it on certain items. Most people regard the retail prices index as applying only to essentials and they would not automatically class drink and tobacco as "essentials". Therefore, it might be possible for the Chancellor to reduce VAT in the future. I turn now to the other taxes on spending. It has been pointed out for years that it is unfair to have a 10 per cent. car tax on top of VAT. If--I repeat if--we move to an approximation of indirect taxes with Europe, that 10 per
Column 471cent. car tax will have to go and we would achieve--industry will welcome this--an approximation of new car prices in this country with those of our European neighbours.
Therefore, I hope that for the time being we shall not rule out a reduction in VAT, which would obviously help the Chancellor in his battle to keep inflation down.
There has been much adverse comment in the debate about last year's Budget and about what the Chancellor did between the October 1987 crash and his 1988 Budget. I have never joined in that criticism because I think the Chancellor was right to do things after the crash to stop us going into recession. My right hon. Friend pointed that out in his Budget statement when he said :
"Output in the United Kingdom has grown faster than in all the other main European nations during the 1980s--a marked contrast to the previous two decades, when we were bottom of the league".--[ Official Report, 14 March 1989 ; Vol. 149, c. 294.]
In other words, the last thing that we needed in late 1987 and in 1988 was action by the Chancellor to tip the country into recession. My goodness, we needed to get to the top of the European output league to improve our manufacturing base and to provide more employment.
I can remember reading--I was not a Member of the House then--that the then Mr. Harold Wilson hugely enjoyed himself in the 1960s when he referred to the late Mr. Harold Macmillan and Mr. Selwyn Lloyd as "Stop-Go and Son" in relation to their Budget policies. No such criticism could be levelled at my right hon. Friend the Chancellor today. There has been no stop. There has been an improvement in output and investment--something that we have all wanted--and, above all, that has created more jobs and improved our competitiveness. As my right hon. Friend the Financial Secretary to the Treasury is in his place, I should like to raise the question of tax relief for people who are seconded from industry into education or business. The Government have just announced a welcome new scheme, which they call Bridge, which is Government and business investing in each other. My hon. Friend the Under-Secretary of State for Corporate Affairs sent us all a letter, stating :
"We also want to see more people from business getting first-hand experience of working in Government Departments."
Obviously, the Government want to see more civil servants going into business but I was interested to read about business people going into Government Departments.
I raised that issue with my right hon. Friend the Financial Secretary earlier this year in relation to tax relief for such people. In his letter to me of 11 January 1989, my right hon. Friend stated :
"Any costs which a company or individual trader incurs in connection with the employment of the person on secondment (and in practice this is likely to mean mainly the cost of his or her salary) are allowed as a deduction in calculating the profits of the business for tax purposes."
The new scheme is about secondment and we should welcome the move to get business, the Civil Service and Government working more closely together. From what my right hon. Friend stated in that letter, I assume that tax relief applies, but further tax incentives may be necessary to encourage firms to release and second people into the Civil Service so that Government and business can better understand what each is trying to do.
Column 472The hon. Member for Londonderry, East referred to the challenge to industry and the need for us to be much more competitive. Page 26 of the Red Book states :
"The maintenance of competitiveness in the year ahead will depend on success in restraining unit cost increases."
Because of 1992 we must see the challenge to our manufacturing industry in European terms. Although we have greatly improved our performance, there is a considerable way to go in terms of output and fixed investment in manufacturing.
Because of the changes in the labour market, trade unionists and employees are in a strong position, not because we have suddenly tipped out the important reforms on trade unions that were made in the early 1980s, but simply because of the state of the labour market and the growing skills shortages. That presents a great challenge to management in responding constructively and effectively to what the Chancellor said about the need for increased competitiveness. There is an obvious need for a better use of machinery at work and for a change in working practices--in other words, for better organisation of how we work.
There is also a need to take full advantage of the Chancellor's changes on share option schemes for employees, which he went into in considerable detail yesterday. In my view, there is a need to move to two or three-year wage deals rather than having the annual difficulty and tug-of-war about what should be paid. I hope that as an employer, the Government might feel that in some areas they can move towards such two or three-year wage deals.
If we are to improve our competitiveness, much will depend on the speed with which we can retrain our people when new industries appear. Although industrial relations in this country have improved, in many industries there is an armistice rather than a lasting peace. If we are to move to a German standard of industrial efficiency and output, we must also have a German standard of compromise and co-operation between management and employees. That still eludes us in some industries and it damages our competitive performance. A terrific challenge now faces management, the unions and employees to get industry better organised because nothing can change the fact that 1992 is rushing upon us with all the challenges to industry that that will entail.
I shall just say a word about Government spending. As I said, the Budget was a balance between taxation and spending. The Chancellor referred to that in relation to the repayment of debt. He said : "net debt interest costs will be lower by over £1.5 billion a year.
This saving is being put to good use, allowing extra spending on departmental programmes within our overall public expenditure constraints." --[ Official Report, 14 March 1989 ; Vol. 149, c. 296.] The question is, are the public expenditure constraints too tight? My right hon. Friend the Member for Shropshire, North (Mr. Biffen) mentioned health and education as two matters requiring increased but careful, planned public expenditure.
I shall give one example. Each year Her Majesty's inspectorate of schools issues its annual report which is entitled "Standards in Education" and the latest one for 1987-88 has just come out. In that report, the inspector says :
"In many ways, then, the education service is well placed to face the future with some confidence. But some old, familiar problems persist. Pupils and students of below
Column 473average academic attainment continue to get a generally poor deal. Accommodation in many secondary schools and in some FE colleges is in poor shape, shabby in appearance and deteriorating as repair and maintenance are further delayed."
It is true that the Secretary of State for Education and Science has made provision for increased expenditure, but, when the next annual HMI report comes out, I hope that the inspector will not use those words, but he will be able to say, "Some old and familiar problems are diminishing as the Government get to grips with the questions of accommodation for our secondary schools and equipment in secondary schools and in further education."
I am not suggesting that we can cure it overnight, but after 10 years in government, what will help the party and the Government is for such independent reports--which are so crucial for our children--to point to a steady improvement in what we are providing for the state education system rather than saying pessimistically, "Old and familiar problems exist."
Another item of public expenditure to which the Government will soon have to turn their mind is the community charge and the revenue support grant that will be needed to underpin it. This is the time of year of the Grand National. As the Government rush around the legislative track, in 1990 there is this Becher's brook of the community charge to be jumped. I beg my right hon. Friend to err on the side of generosity when fixing the revenue support grant for local authorities for the first year of the community charge in 1990. I did not vote against it ; in fact, I supported the Government on the community charge, because, as long as the flat rate is reasonable, I believe that it will be acceptable to the public. I know that it is early days for the public expenditure round, but now is the time for us to put in our bids and draw attention to what we believe will be contentious matters.
I regard this as a safety first Budget, but "safety first" is not a bad slogan. it was used by the Conservative Government in 1929. Before historians leap to their feet and say, "But Mr. Baldwin lost that election by using safety first'," I shall point to one historical fact. The evidence is that the Conservatives lost the 1929 general election because they were not perceived to be doing enough to cure unemployment. I believe that we can use "safety first" again. We certainly have a good safety first record on defence, a safety first Budget and prudence with Government finances.
However, we want to avoid what happened in 1929, albeit on a different matter. We do not want the public to say, "We are not too sure about you, because you are not paying sufficient attention to certain public services." I have mentioned the education service and other hon. Members have mentioned the National Health Service. If the public see that we are steadily attending to what needs to be done in those aspects of Government expenditure, safety first will pay off and we shall be returned to power in 1991.