House of Commons Hansard Debates for 15 Mar 1989

Mr. Andrew F. Bennett (Denton and Reddish) : I am pleased to follow the hon. Member for Bedfordshire, South-West (Mr. Madel). Since coming to the House in 1974, he has been one of those hon. Members who have diligently argued for the education and employment services. It is a sad reflection on the Tory party that he has never achieved office--perhaps that was because he stuck

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to his principles, unlike many others. I certainly agree with his comments about needing more investment in the public services. I believe that the best way to test this Budget is to show how it would affect my constituents. What would have happened if the Chancellor had delivered his Budget last year and this year to the Reddish or the Denton pensioners associations? If the Chancellor had gone to those two groups of pensioners, they would have torn him apart. They are extremely bitter about the way the Government have treated the average pensioner. Last year, they were insulted by the slogan that it was a give- away Budget, because for almost all the pensioners in my constituency there were no give-away provisions. They did not benefit from the Budget, but they were almost all caught by the social security changes that followed. They knew that they were the people who last year were paying the price for that give-away budget with cuts in their social security, pensions and housing benefits. Not only did they pay last year, but they are now paying because of the inflation that that Budget stoked up. They have actually been asked to pay twice.

Last year, because of the outcry from the Opposition and from those outside the House, in the end the Government came up with transitional benefits to ease the cuts for pensioners. However, all they have done is delay those cuts for a further 12 months. Therefore, this year many of my pensioners will receive no increase at all in their pensions. If the pension is increased, not merely will it be increased by only 5 per cent. when the actual inflation rate is 8 per cent., but for many of them the extra that they receive in their pensions will be taken straight away by the loss of their transitional benefit.

People talk about 8 per cent. inflation, but it is much higher than that for many pensioners. They are the people who have been or will be on the direct end of those price increases that have been deliberately engineered by the Government. They are the people who are having to pay higher prices for their gas because of the Government's privatisation programme. They are the people who will have to pay higher prices for electricity when the electricity industry is set up for privatisation. They are the people who will have to pay a levy on their electricity prices to sort out the mess that the Government have caused in the nuclear industry.

They are the ones who will have to pay higher water charges. As residents in Stockport and Tameside, many are extremely bitter about the fact that over the years they have invested in the water activities of their local authority, originally through their water rates. They saw good reservoirs and, in many instances, good supply systems built. They believe that those are their systems. They do not see why they should now be sold for someone else to make a profit. Not only will someone else make a profit, but they will have to pay higher water rates.

Many of my pensioners are concerned about the way in which the Government changed the rules about the television licence. They believe that the Government were mean in taking away from people in sheltered housing the 5p licence and substituting the £5 licence. One of my constituents moved from an upstairs flat to a downstairs one in a sheltered scheme because the stairs were difficult to cope with ; because of that, she became liable to the £5 rate.

Many of the pensioners in my constituency will feel bitter about the Government's action. They looked to this

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Budget for some concession. They would have liked the Government to attempt to restore the link between pensions and earnings. They feel, as I feel, that if the country is doing well--the Government claim that the country is doing well--they should be sharing in some of that general prosperity. However, as long as the Government maintain a link merely with prices rather than with earnings, they are excluded from any share in that extra wealth.

My constituents continually remind me that, if the link between pensions and earnings had been retained, the single pensioner would be £9.70 better off and the married couple £15.45 better off. Many pensioners in my constituency are caught by the savings rule. To some, £8,000 may sound like a lot of money, but pensioners who have been forced out of their homes because they can no longer afford to maintain them and who move into sheltered housing find that even if they have relatively small savings, they are not eligible for state benefits.

My constituents ask also about the Christmas bonus. The Government constantly parade the fact that they restored the Christmas bonus, but it has been steadily devalued in real terms. My constituents ask why it cannot be uprated. If the Government cannot do that, why not provide a television licence concession for all pensioners, rather than for just those living in sheltered housing?

My constituents view with some cynicism the abolition of the earnings rule, because many of them were forced out of work by the Government long before they reached pensionable age, as a result of the way that the Government have destroyed jobs in my constituency over the past 10 years. My constituents would have loved an opportunity to continue working until pensionable age, so that they could have saved a little as a hedge in their old age. For them, that was not possible. Very few of my constituents will benefit from the abolition of the earnings rule, and the Reddish and Denton pensioners associations will be quick to point out that it is people such as the Prime Minister who will benefit most from that measure, rather than the ordinary pensioner.

They will make the same comment about private health insurance tax relief. A number of pensioners in my constituency have been waiting years for hip operations and treatment for arthritis and cataract operations. They feel that it is totally wrong that they should subsidise out of their taxes people who are rich enough to afford private health care and to jump the queue. My constituents will be very bitter about that. They will not greet the Budget with any enthusiasm.

A large number of my constituents are low-paid. They are already bitter at wages councils being abolished and at the way in which the Government are pushing the country into a low-paid economy. My constituents await with dread the imposition of the poll tax. For those on low pay, it will make a swingeing cut in their living standards, however generous the Government may be. The low-paid have already suffered because of increased prescription charges, and they have also lost because of higher council rents and the imposition of sight test and dental examination charges. Many of them are caught in the poverty trap, which the family credit system does little to overcome.

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The low-paid are the people whom an increase in child benefit would have done most to assist. One of the meanest tricks played on the low-paid with children was the Conservative view that it would be better to replace tax relief for children with a child benefit allowance--and having done so, to renege on the promise to uprate the allowance in line with inflation and to freeze it instead. Last year's tax give-aways meant nothing to the unemployed in my constituency, but the social security squeeze made a great deal of difference to them. A substantial number of people are receiving reduced benefits because they are repaying loans to the Department. The same applies to young people aged between 16 and 19 who have lost benefits altogether, and those same young people, perhaps because they have fallen out with their parents, face considerable difficulty in obtaining accommodation.

In particular areas of my constituency such as Brinnington, debt management problems for people on low incomes are substantially increased. The Government have done nothing for them. Some of my constituents have at least turned to self-help schemes. I was delighted to pay a visit at the weekend to the launch of the Brinnington credit union, established by people wishing to overcome the credit problems that the Government have created and by moneylenders' extortionate interest rates.

It may be thought that a mortgage interest rate of 13 per cent. is horrific, but some moneylenders in my constituency charge interest of 35 per cent., 40 per cent. or 50 per cent. to people who cannot afford repayments in the first place. I am delighted that my constituents have established a credit union that will help to channel local savings into relieving poverty there. It would have been nice if the Government could have provided help for such credit unions, because existing operational restrictions on credit unions are harsh.

For my constituents, the re-creation of full employment and of well-paid jobs would probably be worth more to them than anything else, yet the Government have been destroying jobs for 10 years, and today's high exchange and interest rates make it extremely difficult for the successful companies in my constituency to expand. A company's investment programme for the year ahead may comprise three or four schemes as the subject of investment. When interest rates are as high as 13 per cent., a board may approve the first scheme on the list but not the others. If this country is to return to full employment, and if there is to be the investment that will help us pay our way in the world and which will help my constituents to secure well-paid jobs, we must ensure that firms are encouraged to make the maximum investment in new schemes.

I turn to environmental matters. Reddish vale has been well preserved by the local authority, and the opening up of the vale by Greater Manchester council was a great achievement. It is spoiled only by the River Tame that flows through it. It is not the most polluted river in the country but certainly it is one of the most polluted. Government financial assistance to make it possible for effluent to be treated by the companies that are pumping it into that river, or to local authorities to ensure the efficiency of their sewerage works, is minimal. The Government trumpeted the Mersey basin scheme, but much of that money was spent on the lower parts of the

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Mersey. If one wants clean rivers, it is better to start cleaning operations at the river source rather than lower down.

There is great concern in my constituency about the lack of Health Service provision. More and more of my constituents are resorting to raising funds for local hospitals. I admire them for holding raffles and other fund- raising events, but that also fills me with horror. I thought that, when the National Health Service was established in 1947, it would provide proper health provision for all, and that it would not need to rely on raffles for its funding. I admire the work of fund raisers, but greater Government resources need to be pumped into the Health Service. The same is true of the schools in my constituency.

The Government's refusal to allow local authorities to build houses means that more and more young people in my constituency are unable to obtain the housing that they need. A substantial number of elderly people who are in the wrong housing could be moved from family housing to sheltered housing if it were available. The Government must make it possible for local authorities to build housing to rent if they are to relieve misery in areas such as mine.

The Budget has failed my constituents. There is nothing in it for pensioners or the low-paid and there is little for those on average earnings. Nothing in it will encourage my constituents to believe that the shortcomings in the Health Service, pollution in rivers or the housing crisis will be resolved. It is high time that the Chancellor and the Government went and we had a Government that cared about ordinary people rather than the extremely rich.

8 pm

Mr. Julian Brazier (Canterbury) : I should like to speak about the impact of fiscal measures in successive Budgets on employment. Then I shall touch briefly on two unrelated tax concerns.

I firmly believe that in the long term unemployment is not caused primarily by macro-economic factors. It is possible to find countries that have been prosperous for a long time yet still have high unemployment, of which America of the 1960s and 1970s is a good example. It is possible to find countries with low standards of living yet little unemployment. Korea is such an example, but before it is said that Korea has had high growth for a long time, there are other countries that have a low growth rate and low unemployment, of which Sweden is an example. The key causes of unemployment lie not in macro-economic but, micro-economic factors. There are many but I shall dwell on fiscal ones, especially the fiscal balance between tax treatment of capital and labour.

If we take a long view of unemployment in the United Kingdom, smoothing the economic cycle by taking a five or six-year moving average, we find that unemployment rose slightly in the 1950s, rose slightly faster in the 1960s, accelerated in the 1970s and early 1980s, peaked in 1986 and fell.

It is interesting that 1979 was the watershed in macro-economic policy. The Government followed a quite different policy from their Conservative and Labour predecessors. The watershed in the fiscal treatment of capital and labour was not 1979 but 1984, as I shall try to show. It is why I believe unemployment turned round much later than the general economy--in 1986--and why it will continue to fall sharply.

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In the framework that we inherited in 1979, which was bequeathed to us as much by previous Conservative Governments as Labour Governments, a number of features were biased to capital and away from labour, such as 100 per cent. capital allowances and regional grants which were paid indiscriminately for investment in capital goods. Even if such investment was purely labour-saving and would not have a chance of standing up on normal market grounds, it may have been profitable because of the combination of 100 per cent. first-year allowances and lavish regional grants. Furthermore, we had penal rates of personal taxation and employers' national insurance contributions were 13.5 per cent. As a result the gross cost to the employer of providing even quite a modest net wage was extremely high.

In the 1960s and 1970s, successive Governments built up a strong bias in the economy against employing labour and in favour of investment, resulting in a steadily rising rate of unemployment. I firmly believe that a high level of investment is a feature of a successful economy, but it does not follow--and I have never discovered any evidence throughout the world--that the artificial subsidy of uneconomic investment by Government is a short cut to prosperity.

Mr. Richard Caborn (Sheffield, Central) : The hon. Gentleman said that he has considered different models throughout the world. Has he considered the Swedish model? Conservative Members may scoff, but full employment is the centre of its policy and it is accepted by capital and labour.

Mr. Brazier : I am not an expert on the Swedish economy, but if the hon. Gentleman will forgive me I shall make a number of points about other countries a little later.

In the first five years of our term of office, while I wholly supported the transition to what are generally called dry macro-economic policies, we did little about the balance in tax treatment between labour and capital. We made a little progress with basic rates of income tax and employers' national insurance contributions, but, unfortunately, it was partly outweighed by a failure in one Budget to index personal allowances and a rise in employees' national insurance contributions. The big change occurred in 1984, with a clear commitment to phasing out 100 per cent. first-year capital allowances so that investment would have to stand on its merits and not be subsidised by the taxpayer. It was followed by further cuts in income tax and employers' national insurance contributions and the abolition of indiscriminate regional grants, which were doing more harm than good. If I had more time I could cite one or two examples in which, for relatively short periods, factories benefited from those grants, which led to unfair competition and some of those factories subsequently folding.

In 1988, those cuts in personal tax were boosted by almost doubling benefits to the working poor by replacing family income supplement with family credit. Finally, this Budget made a considerable reduction in employees' national insurance contributions. The net result of those changes over the past five years is that we have completely restored the balance between labour and capital. Although growth rates throughout Europe over the past 10 years have been comparable, our unemployment, according to the figures of the

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Organisation for Economic Co-operation and Development, is about 7 per cent. and falling, while the average for the rest of the EEC is about 11 per cent. and rising. Most of southern Europe heavily subsidises capital, especially through regionally directed subsidies. Most of northern Europe, especially Germany, has heavy social charges, which are the equivalent of employers' national insurance contributions. Thus Europe has not righted the imbalance, and in some countries the figures are rising.

Mr. Stuart Holland (Vauxhall) : While the hon. Gentleman is giving us this geographical tour, will he admit that the reason for the introduction of new capital and technology in northern Italy--whether it be Tuscany, Emilia Romagna or Veneto--and in Germany is that there is co- operation between management, capital and labour? Labour is involved through participation schemes or co-operative ventures in the introduction of new and flexible techniques of production.

Mr. Brazier : I understand the hon. Gentleman's point. I said that there are other micro-economic factors involved besides fiscal factors but all the parts of Italy that the hon. Gentleman mentioned are outside the regions at which grants are directed. Most of the grants are directed at southern Italy, where, despite them, unemployment continues to worsen.

I shall make one final geographic point to complete a quick Cook's tour. America has moved dramatically in the same direction as us. It has undergone considerable tax restructuring, which in some respects is following ours. It has managed to get rid of most of the market-distorting, investment-directed tax breaks for companies. As a result, companies are paying much more tax. At the same time the Americans have substantially reduced the burden of personal taxation. The net result across the Atlantic has been a reversal of what the previous generation experienced. In other words, America has much lower levels of unemployment than continental Europe.

For all these reasons, in addition to a 10-year period of sound macro- economic policies, we now have five years of sound fiscal balance in the treatment of capital and labour, of which this Budget's changes in national insurance contributions represent the final building block. I congratulate the Chancellor of the Exchequer on that.

I want to move very quickly to the two specific measures that I mentioned earlier. The first concerns armed forces housing--a subject on which I have touched in a ten-minute Bill. The heart of the property-owning democracy that this country has seen develop over the past 10 years is the ownership of a home. In the civilian population as a whole, home ownership is now running at 63 per cent. The sad fact is that the armed forces, in particular the Army and that section of the Air Force that deploys heavily in Germany--mostly personnel involved with the Harrier and the Tornado-- have not shared in this. The very simple reason it is not possible for them to do so is that over half of our Army is abroad, and the rest is very heavily dispersed with soldiers seldom going to the same place twice--so it is impossible for a serving member to become a home owner. He can, of course, become a house owner and be an absentee landlord, with all the problems

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that that entails--and, by God, I have a thick file on those problems : tax, tenants and, even worse, no tenants. Such a person cannot be an owner-occupier.

I hope that my hon. Friend will convey to my right hon. Friend the suggestion that he consider whether, in the PEP scheme that he is developing, provision could be made for a special scheme for members of the armed forces, to enable them to accumulate, in a tax-effective manner, a capital sum that they could use to buy a home on retirement. The MIRAS advantage that is available to the civilian population should be extended to the housing payments of those members of the armed forces who do not own houses. Payments could be made into a PEP scheme to make that possible.

The second of my two points concerns the Merchant Navy. It was very disappointing that an otherwise excellent Budget did not touch at all on the present very sad state of our merchant fleet. I am relieved to hear that numbers of some categories of ships are now stabilising, but at a very low level. I remind my right hon. Friend the Chancellor that the early-day motion on this subject, which was tabled only two or three weeks ago, already has the signatures of more than 170 Members from all parts of the House. I put it to my right hon. Friend that fiscal and other measures, but especially fiscal since we are talking about the Budget, at a minimal cost- -such as extending roll-over relief to three years, or extending the upper limit for the BES as it applies to merchant shipping--would make a very big difference to ship owners, at a very small cost to the Exchequer. Overall, though, I believe that this is a very good Budget on both macro-economic and micro-economic grounds.

8.14 pm

Mr. Calum Macdonald (Western Isles) : Yesterday's was a standstill Budget from a boxed-in Chancellor, making a mockery of his claim to be a Chancellor who concentrates his attention on the supply side of the economy. He found himself boxed in by supply side constraints that are quickly snuffing out his economic boom. The two major constraints, of course, are a lack of productive capacity in manufacturing industry and, equally, a lack of skilled and properly educated labour to man that capacity. The consequence is a British economy throttled by bottlenecks. Of course, the biggest bottleneck has been in the south-east, whereas constituencies like mine, where unemployment is rising again, are not getting even a glimmer of the prosperity of which we hear so often from Ministers. That is why regional policy must be at the heart of any credible economic strategy.

It is the effect of this and past Budgets on the regions that I want to talk about. This Budget is a testimony to failure--the failure of the Government to promote balanced growth and balanced development in Britain. It shows that Thatcherite free market policies have led to gross overheating in the south-east, while the rest of the country has been crying out for more activity.

It is also a Budget of fear. Despite having accumulated a surplus of some £14 billion over the past year, the Chancellor has had to run away from his own goal of lowering the overall burden of taxation. He was too scared yesterday even to increase the tax on cigarettes. The only cure for these supply side constraints on productive capacity and skilled labour is supply side investment. This

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is not just a private responsibility but also a public responsibility--it is a responsibility of government. This, I feel, is the crux of the divergence between the Opposition and the Government--not just in respect of this Budget, but in respect of a succession of Budgets and Autumn Statements.

In the past, the Government's policy has been to fuel the demand side only, with their tax cuts for the rich and their irresponsible and inflationary credit booms. The Opposition have called instead for investment in the supply side of the economy, investment in the prime factors of production-- machinery and men. That is why we call, for example, for measures to improve investment in manufacturing industry, and it is a disgrace that, even now, manufacturing investment is below the level of 1979. That is why we have called again and again for investment in education and training. It is a disgrace that access to higher education--universities and polytechnics--and to colleges of further education has actually diminished during this Government's period of office.

I want to spend a moment on that subject. I see that a quizzical look is coming over the Minister's face, but I can tell him that that is true, that access to education has fallen at a time when industry is crying out for more skills. [Interruption.] I am referring to the ability of people in the relevant age groups to enter higher education.

The Economic Secretary to the Treasury (Mr. Peter Lilley) : The proportion?

Mr. Macdonald : Yes, the proportion. It is astonishing that the Minister does not know the effects of his own policy on higher education. [Interruption.] Well, I refer the Minister to the response to a question put to the Secretary of State for Education and Science last month by my hon. Friend the Member for Oxford, East (Mr. Smith). The Government's own figures show that the percentage of 18 to 24-year-olds entering first degree courses--universities, polytechnics, colleges of further education-- actually fell between 1979 and 1987. In 1979 it was 1.95 per cent. [Interruption.] These are the Government's own figures.

Mr. Lilley : Including polytechnics?

Mr. Macdonald : Including polytechnics. Access to polytechnics has increased by 28 per cent., but access to universities has fallen by 17 per cent. The percentage of 18 to 24-year-olds entering these forms of higher education fell from 1.95 per cent. in 1979 to 1.92 per cent. in 1987.

Mr. Brazier : Let me give the hon. Gentleman the actual percentages. The total proportion of people going into all forms of higher education-- universities and polytechnics--when the Government took office was about 12 per cent. That has risen to about 14 per cent. and it is on target to rise to 18 per cent. in five years through a combination of extra places and demographic changes.

Mr. Macdonald : I refer the hon. Gentleman to the figures given by the Under-Secretary of State for Education and Science for the percentage of 18 to 24-year-olds entering first degree courses in Great Britain in universities, polytechnics and colleges of further education. The situation is the same in Scotland as in England and Wales.

It is the grossest hypocrisy for the Secretary of State for Education and Science now to make pious statements of his intention to increase access to higher education when

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he is part of a Government who have systematically reduced that access. Moreover, they have done that at a time when there was an opportunity to increase access because of the fortuitous biological fact that that part of the population was increasing. Therefore, the Government had the opportunity to increase the number of people with skills and training. I see all kinds of hurried consultation on the Conservative Benches.

The Government's policy over the years of focusing on tax cuts has exacerbated the problems being experienced by the regions and the problems caused by the dismantling of regional policy. This Budget and last year's Budget taken together have given the great bulk of the tax cuts to the south-east. That is simply because on average the south-east has the people with the highest incomes and it is they who have been helped by the tax cuts. Fifty-two per cent. of all top rate taxpayers live in the south-east.

This year's standstill Budget has hardly begun to make up for last year's Budget when top rate tax cuts simply fed the consumer boom in the south, giving the rich money which they simply spent on imports. The south-east alone saw 57 per cent. of the 1988 tax handouts for the rich compared with just 3 per cent. for Wales, 3 per cent. for the north, 5 per cent. for the west midlands and 6 per cent. for Scotland. This year there have been not so much tax cuts as new tax loopholes, new perks and old ones being widened, which again benefit the richest, and consequently the south-east, disproportionately. The tax concessions on personal equity plans have been widened. There are tax concessions on the purchase of shares in privatised industries. Yesterday we had the most scandalous single item in the Budget- -the introduction of tax concessions on the purchase of private health insurance for the over-60s. Contrast that with the Government's failure to do anything about what we can call the toddler tax, the tax on workplace nurseries. Toffs who ride around in company cars can continue to enjoy their tax reliefs. Toffs who send their children to Eton can continue to send them to a tax-free institution. But ordinary working people who send their toddlers to workplace nurseries continue to be hammered.

It is scandalous that the Chancellor is continuing to lavish such largesse on the south-east when regional aid to industry has been slashed mercilessly in recent years. Aid to the north has dropped from £325 million in 1979 to £108 million today. Aid to Scotland has fallen from £314 million when the previous Labour Government were in power to £152 million today. That policy of giving money to the south-east is not only unfair : it is economic nonsense when the economy is overheating.

Mr. Lilley : When is the hon. Gentleman going to compare public expenditure per head in Scotland with that in the United Kingdom? Since that is 28 per cent. higher in Scotland than in England, does he think that that is unfavourable to Scotland?

Mr. MacDonald : I should love to have a proper analysis of that figure, since it does not include defence expenditure. If Scottish public expenditure included items such as mortgage tax relief and defence expenditure and it was compared not with the United Kingdom--because the north is also badly done by--but with the south-east, we would have a different story. The Library tells me that such an analysis would be enormously difficult, but I am working on it.

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The policy of giving money to the south-east when the economy is overheating is economic nonsense, yet that is done despite 2 million unemployed, even on the Government's own figures. We need a rebalancing of demand away from the overcrowded south-east to the regions, where more activity is needed. That is the only way to secure sustainable balanced growth without creating a balance of payments deficit and rising inflation.

8.26 pm

Mr. Keith Mans (Wyre) : I want to make a few comments on this year's Budget and, more specifically, on some of the national indicators that lie behind it. Before, doing so, I want to consider some points made by the hon. Members for St. Helens, North (Mr. Evans) and for Burnley (Mr. Pike), from my part of the country--the north-west.

It never ceases to amaze me that Opposition Members, particularly from the north-west, always seem to talk down the area. The fact is that there is a good success story to tell in terms of increased employment throughout, much higher than the increases in employment in many other parts of the country ; increases in manufacturing industry, on which I shall have something to say in a minute ; and, more specifically, big increases in a widely expanding service sector, particularly in areas such as Liverpool and the area in which I live, the Fylde.

One could say that we in the north-west are suffering--at least in some areas--precisely the same skills shortages that exist in the south-east. Therefore, some of the comments, particularly those made by the hon. Member for St. Helens, North, are pretty wide of the mark and do not encourage employment in areas such as my own, giving a false impression of what it is like in that part of the world. We in Lancashire have the largest concentration of aerospace factories this side of the Atlantic. It is a highly technical and highly skilled industry, where skill shortages are building up. That contrasts starkly with the picture painted by Opposition Members about the economic viability of the north-west.

The hon. Member for Burnley mentioned Lancashire and education. I want to try to put the record straight. My right hon. Friend the Secretary of State for Education has given Lancashire this year a grant 40 per cent. higher than the average for shire counties throughout Britain. Indeed, the grant is the second highest of any shire county. That shows that the Government care about education, a subject to which the hon. Member for the Western Isles (Mr. Macdonald) referred.

Mr. Caborn : Will the hon. Gentleman explain why the European Community, in designating objective 2 of the regional fund, decided that 36 per cent. of the total funds available should come to the United Kingdom? The criteria for receiving that assistance is unemployment and a declining industrial base. In Lancashire, Accrington, Blackburn, Bolton, Burnley, Bury, Liverpool, Pendle, Rochdale, Wigan and St. Helens are all now included in objective 2 because of their rate of unemployment and declining industrial base.

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Mr. Mans : By far the majority of the towns the hon. Gentleman mentioned are not in Lancashire, so I cannot comment on the point he made. I assure him that a number of other areas in Lancashire did not get the grant.

I had intended to make the main point of my speech the merits of employee share ownership plans, but following the Budget statement it is clear that much of what I wanted to see achieved in that context has been achieved. I am pleased about that, because it represents an important step forward in this area of industrial development. I shall deal with that issue later, but I wish first to refer to the various national statistics, in particular the manufacturing output statistics, on which the Budgets are based.

Members in all parts of the House pay great attention to those statistics, but they are relied on particularly by Opposition Members, who regard them as a good guide to the general health of the economy. I do not attach the same importance to that set of statistics because manufacturing industry is becoming more sophisticated. Peripheral activities such as design, marketing and training are gaining in importance at the expense of the core manufacturing activity on which the statistics are generally based. In some areas--for example in the manufacture of computers--the peripheral activities, which may in a sense be considered to be in the service sector, are now taking a larger share of the total value of the product than the product itself. Manufacturing output statistics are no longer accurate because certain items--for example, design, marketing, training and software production--may or may not be included in the statistics, depending on whether they are carried out by the manufacturing company ; in other words, whether they are in-house or contracted from outside.

If such activities are carried out by the company producing the product, they are included in the manufacturing output statistics. But if, as is increasingly the case, firms go outside for those activities, they are not included in the figures. They are, nevertheless, an important part of our total wealth-creation machine, and that is why I intervened in the speech of the hon. Member for Burnley on this point and why, as I say, I do not attach as much significance as many people do to that set of statistics. Consider, in that context, such mundane items as employees' canteens. If they are provided within the firm, they count as part of the total manufacturing output of that firm in terms of the statistics. But if that activity is contracted out to a firm in the service sector, they are not, so there is a distortion in the figures. We should either modify the statistics extensively in the near future or pay less reliance to them and use instead statistics that take into account advances not only in the manufacturing sector but in the service sector as well.

Another set of statistics is the balance of payments, which again, I argue, is becoming increasingly difficult to compile accurately. The removal of exchange controls was one step in the direction of uncertainty, and in 1992, with the creation of the unitary market, it will become incredibly difficult to decide what our balance of payments are on a monthly basis.

For that reason, one must ask whether, after the creation of the unitary market, there is any point in deciding the relative trade balance between London and Paris, for instance, any more than there is in deciding the relative trade balance between London and Birmingham.

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As a guide to the viability of the economy, slavish regard to what the balance of payments is saying for a specific month is no longer the right way forward. I suspect that the financial markets already realise this, considering the way in which they understand that Britain continues to be a good place in which to invest.

In considering the balance of payments, one must also consider the nature of the deficit itself. Here I disagreed with my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour). He maintained that our present deficit was similar to deficits which occurred in the 1950s, 1960s and 1970s, that they were composed largely of an imbalance of consumer goods and that we were importing more consumer goods than we were exporting.

I suspect that the deficit this time is not quite the same. It is made up this time of a much higher percentage of

industrial--capital--goods and items which fall between the two sectors, items such as photocopying machines and office equipment which has traditionally come from abroad but which is necessary for the future to create the right productivity increases in that sector of industry.

I suspect that my right hon. Friend was right when he said, in answer to my intervention, that in the last two years industrial investment has increased substantially. In my view, that is significant. There is a clear parallel between that and the fact that our balance of payments deficit has increased during those two years.

I believe that a high percentage of the deficit is composed of capital goods and that, rather than being similar to deficits we experienced in the past, our present deficit is similar to the deficit Japan had in the 1950s and 1960s when it was successfully rebuilding its industry. We are seeing the results of that rebuilding now.

When trying to rebuild the industrial base to produce tomorrow's rather than yesterday's goods, it is vital to equip it with first-class and world- beating machine tools and other capital goods, even though they may come from abroad. That is what I believe is going on now, and from that point of view I suspect that from 1990 onwards we shall see a rapid improvement in our balance of payments, when our consumer goods become as competitive as those from the rest of Europe and other parts of the world.

In relation to employee share ownership plans, I am delighted with the progress that has been made in the Budget, particularly in connection with profit-related pay and in the tax relief given to payments by companies to ESOP trusts. I should like to see those moves go further. While I realise that that may not be possible this year--because of the complications in organising the tax regime successfully--perhaps we shall get next year or the year after some roll-over relief for capital gains tax when applied to employee share ownership trusts.

In creating the right environment for the new vehicles of wealth creation to prosper, we should not be too rigid about the type of model that we want. The historical and large model of worker ownership in the Soviet Union has been a monumental failure and is rapidly being dismantled, to be replaced by a model similar to those that exist in this country.

On a smaller scale, we have the evidence from the late 1970s when the right hon. Member for Chesterfield (Mr. Benn) tried to set up a workers' co- operative at Meriden. That showed that we must not specify too much the type of model in which we want people to be involved. It must be left to people to decide the type of employee share ownership scheme best suited to their needs and those of

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the industry. I suggest that we should create a tax environment that takes account of as many different models as possible and that we allow individuals to decide which one to follow.

The Budget recognises that the thrust of economic policy must be to continue to fight inflation and recognises the increasing importance of demographic changes and the environment as factors in economic decision making. I am especially pleased with the comments made by my right hon. Friend the Chancellor on unleaded petrol. This tax reduction is a beneficial environmental move which I hope will result in a large uptake of unleaded petrol in the coming months. The most important feature of the Budget is that it will be remembered as the one that finally put employee share ownership schemes on the map.

8.42 pm

Mr. Richard Caborn (Sheffield, Central) : I endorse everything that my hon. Friend the Member for Denton and Reddish (Mr. Bennett) said, because he reflected many of the worries in my constituency both before and after the Budget. As an inner-city seat, my constituency faces all the major social problems that my hon. Friend described. I want to deal with regional policy, the north-south divide and the structural weaknesses in the economy, especially our manufacturing base. We hope that the Single European Act will work to our benefit, but I have grave doubts about the Chancellor's short-sightedness in looking only at the straight balance sheet rather than to this country's future and ability to create wealth. As the hon. Member for Wyre (Mr. Mans) said, we must make our economy and industrial base much more competitive and productive. There are major discrepancies in our transport infrastructure alone. A golden opportunity was lost to upgrade that infrastructure so as to move goods to and from the continent as efficiently and effectively as possible.

The Channel tunnel project could have as significant an impact in our northern regions as the French wish it to have in their northern regions. They have tackled infrastructure development with considerable public investment. In the United Kingdom, however, the Opposition struggled five times to include in the Channel Tunnel Bill provision for consultation with British Rail and the Channel Tunnel Group on the tunnel's impact. We see no light at the end of that tunnel and no sign that the Government will move in a concerted way to ensure that the regions are serviced by that innovation. There has been a decline in training and education. On average, people involved in management have about two days' training a year. We are woefully lacking compared with our major competitors. We are bottom of the league in terms of ability to co-ordinate on technology transfer with industry, academic institutions, local authorities and trade unions.

Conservative Members have argued about investment in small and medium-sized businesses, especially in the venture capital market. Only yesterday an article in the Financial Times on British venture capital groups stated :

"Mr. John Nash, chairman of the British Venture Capital Association, said yesterday that the rise in the volume of investments outside the south-east of England was encouraging, but there had been a drop in the percentage of funds going to technology-related companies from 16 per cent. in 1987 to just 9 per cent. last year.

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The fall in technology-related investments emphasised concerns the association had about the number of new, innovative, wealth-creating companies being generated in the UK, Mr. Nash said. The association has begun a study of the difficulties of finding high -risk seed-capital finance for small and technology-related projects.

The announcement of the investment patterns of venture capitalists came a few days after Lord Young, Trade and Industry Secretary, criticised venture capital organisations and the banks for failing to invest enough in high- technology business."

That is a statement by those who are trying to organise venture capital, yet the reduction of nearly 50 per cent. in one year does not bode well.

The Minister said that public expenditure in Scotland per head of population was 28 per cent. higher than in the rest of the United Kingdom. I suggest that he look at the form of many of the grant regimes for Scotland resulting from the work of the Scottish Development Agency, which has been effective in co-ordinating an overall strategy. In England, the regional grant regimes have been abolished and there has been a reduction in grant in real terms. There has been a reduction also in local authority expenditure--£22 billion since 1980--much of the money having gone previously into infrastructure development of education, transport and so on. The Government talk of their great plan for the inner cities and of urban regeneration, but we have merely seen two or three Ministers throwing a few crumbs from the Department of Trade and Industry, Department of Employment or Department of the Environment and going round developing task forces or urban development corporations. The Government's inner-city policy has been unco-ordinated and expenditure has been reduced. When departments have not been able to tackle the problems, they have abrogated their responsibilities by handing them to the private sector. As even Conservative Members have emphasised, training has been put wholly into the private sector's hands.

Last week, the European Commission was considering the European grant regimes for the next three or four years. Objective 2 concerns eligibility criteria, unemployment, the severity of industrial job losses and industrial decline. The Commission laid down the criterion that only 15 per cent. of the population of the Community should be covered, so that the money could be targeted. We find that the funds cover 50 million people in the Community of whom 20 million are in the United Kingdom. That means that about 37 per cent. of that part of regional structural fund expenditure is coming to the United Kingdom, simply because our industrial base has been undermined to such a large degree that even the Commission has decided to try to come to the rescue. The Government's policy is totally

unco-ordinated.

The Government make much play of partnerships ; they rely heavily on that concept. Opposition Members have nothing against partnerships--we encourage partnerships between the private sector and local authorities or trade unions and try to make them work--but in some areas partnerships have difficulty in developing because of lack of resources. I would go further than that. Many of the developments in the regions are based on the old transport and education infrastructures and we are having difficulty in replacing that infrastructure so that we can develop new ideas for the 1990s and beyond. Technology transfer,

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