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Mr. Pat Wall (Bradford, North) : This year, as last year, the Chancellor may have left excise duty on alcoholic beverages alone, but in economic terms the bacchanalian binge for the rich from last year's tax cuts have been succeeded by a Budget of relative sobriety. Even last year's celebrations were enjoyed by a very small section of the population--in the board rooms of banks and finance houses, in the large monopoly companies, by the stock exchange and property speculators and by other assorted rich spivs, by the 1 per cent. of the population who received more in tax cuts than the bottom 70 per cent. of taxpayers--some £1,880 million compared with £1,730 million. Those on more or less average incomes-- in terms of prosperity, the medium band--found that their modest glass of wine soon turned sour during the year as inflation, interest rates, rents and mortgages rose for most families.
As for the 6.6 million earning what by any civilised standards must be regarded as low wages, the most that they have received have been crumbs from the rich man's table, despite the cuts in national insurance payments in this year's Budget which, incidentally, has brought 150,000 people into the payment band for the first time. Any gains can be offset against the plight of those who have to survive on the workfare schemes, which the Government suggest are some kind of training programme, and those who lose the protection of wages councils. Millions of others--the unemployed, the sick, the disabled and many pensioners--have been excluded from any benefits conferred by last year's or this year's Budget.
It is, indeed, surprising that at the height of what the Chancellor calls the first ever post-war boom this "reforming" Chancellor should find it necessary to eschew reforms. It is even more remarkable that a Chancellor who claims to be tax-cutting should increase the overall tax burden to 37.5 per cent., compared with 34 per cent. in 1978-79. The spectre that haunts the Conservative Benches above all else, however, is the balance of trade deficit, which the OECD estimates will rise from its present level of £14.4 billion to £15 billion in 1989 and £16.5 billion in 1990. On the basis of last month's figures projected for a year it could reach around £20 billion.
Column 798The Government claim particular credit for their period in office. Between 1980 and 1988 exports increased by one third, roughly in line with the performance with the rest of the manufacturing world. At the same time, however, imports increased by two thirds--twice the rate in the leading economies in the Group of 7 and the OECD countries. In the so-called first ever boom years since 1985, exports have increased by 12 per cent. and imports by 39 per cent. As my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) pointed out in a recent speech, in the past 12 months exports increased by only 0.5 per cent. while imports increased by 14 per cent.
That presents a picture of grave deterioration. Between 1985 and 1988-- excluding oil and energy products, which are declining in any event-- manufacturing exports rose by 23 per cent., while imports rose by 48 per cent., but that is not the only deficit problem that the Government face. In the first nine months of 1988, the net outflow of direct investment amounted to £6.3 billion. To that has to be added £5.6 billion of portfolio investments abroad. If that is rounded up on a yearly basis, the deficit amounts to about £15 billion. Taken together, that deficit on trade and capital outflow abroad--about £30 billion--is 6 per cent. of gross domestic product. Sir Donald MacDougall said recently that a £10 billion surplus on the trade account is required to finance the current level of capital outflow. The Chancellor of the Exchequer dismisses that argument. He says that our fiscal reserves stand at £30 billion. That is a dangerous confidence trick to play on Britain's economic wellbeing. It rests on the fact that we attract foreign investment because of our current high interest rates. That has led to an over-valued pound. The result is that exports continue to lag behind imports. The Chancellor's confidence trick rests entirely on our ability to attract foreign investment. A lack of confidence in the pound could wipe out our entire capital reserves within a year. There would be a run on the pound, which would have a disastrous effect on Britain's economy, but not just a return to stop-go and stagnation. The IMF would have to intervene. There would be a reversal of the downturn in unemployment and working people's wages would have to be cut. The signs are already there, in the fall in the value of the pound both against the dollar and against the basket of world currencies. The Government boast about unit labour costs. In 1986, they rose by 4.8 per cent., compared with 3.1 per cent. in OECD countries. In 1987, the Government achieved a reduction in unit labour costs of 3.1 per cent. against an increase of 3.1 per cent. in OECD countries. In 1988, however, the increase in unit labour costs was 5.7 per cent. and it is still rising, compared with a rate of 3.3 per cent. in OECD countries. During that period, labour costs remained static in America but fell by 4 per cent. in Japan and by 2 per cent. in France. The British economy is not, therefore, competitive. It is not succeeding in world markets or against its major competitors, so any loss of confidence when the pound stands at an artificially high level will lead to a serious deterioration in Britain's economic outlook.
The British economy is part of the world economy, which is dominated by the problems faced by the United States. The US budget deficit stands at $155 billion, its trade deficit has been reduced but is still about $130 billion, and there are enormous corporate debt problems.
Column 799Merger mania in America is not properly financed and these are problems facing US savings and loans banks, which are similar to those which face building societies in this country.
Third-world debt creates great problems and it has been suggested that overseas aid should be cut. During 1988, the net outflow from the poorest countries in the world to the wealthiest industrial countries amounted to £46 billion. That has had political repercussions, with a swing to the Left in the Mexican general election and riots in Venezuela. The Government boast that capitalist policies are being followed in China, Russia and eastern Europe and are the way out of the problem, but the reality of the market economy is that millions of people are starving, the world is divided between north and south and in countries such as Britain there are millions of poor people, with a handful of very rich people growing ever richer at the expense of the poor.
I am pleased that there have been demonstrations this week in support of a candidate in the Russian parliamentary elections. I refer to Boris Yeltsin in Moscow. Tens of thousands of people demonstrated in the streets, though not in favour of capitalism. Boris Yeltsin says that Russia needs a society where there are no perks for the bureaucrats and no privileges at the expense of ordinary people. He says that land is needed for the peasants and that factories should be controlled and owned by the workers. I believe that the British people, too, will see through their Government's flawed policy and will see the need for change in society. That change will be brought about only by a change of Government. Only in that way will a democratic society be created in which wealth is shared equally and fairly among all.
Mr. Tim Janman (Thurrock) : There have been some interesting speeches in the debate. My hon. Friend the Member for Richmond, Yorks (Mr. Hague) made an excellent maiden speech. He has much more common sense than my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) who has been a Member of this House for far longer than my hon. Friend the Member for Richmond, Yorks.
The Budget is contained within a rather dull crown, albeit of necessity, but there are some shining jewels hidden within it. The changes to national insurance contributions, corporation tax, charitable donations direct from the payroll and petrol tax--which will act as a stimulant to motorists to change to lead-free petrol--are examples of those jewels. The most important, in the long term, and the most pleasing aspect of the Budget, is the fact that my right hon. Friend the Chancellor of the Exchequer is coming back on course to monetary policy.
I was pleased to hear that there are to be targets for MO, and that they will be kept to, and that the annualised rate of growth of MO over the last six months was only 3 per cent. I echo what was said by my hon. Friend the Member for Tatton (Mr. Hamilton), that MO and its close monitoring and targeting are not enough. I hope that when he replies to the debate my right hon. Friend the Chancellor of the Exchequer will provide more detail about how much weight is to be placed on broader supplies of money. That is important. I accept, however, that in a
Column 800free economy--we now have the freest economy in Europe, with the exception of Switzerland--that is more of a challenge than it used to be.
The changes to national insurance contributions are particularly to be welcomed. They will be good for people on low, below-average and average incomes. I am disappointed, however, that the tax-cutting momentum has not been continued in the Budget. If the Chancellor had taken another penny off the standard rate of income tax, I do not believe that a warning note would have been sounded by the money markets. Tax cuts are not inflationary. It cannot be inflationary to let people keep the money that they earn. Inflation has been caused by the irresponsibly low interest rates of a year or so ago and by too much meddling and interference with the exchange rate, particularly with reference to the deutschmark.
I echo the comments of my hon. Friends the Members for Tatton and Bridlington (Mr. Townend). Not to reduce tax by 1p in the Budget only gives credence to the economic illiteracy of the Opposition. The 1988 Budget was excellent. It was certainly not inflationary. The figures that were given earlier by my hon. Friend the Member for Tatton prove that point excellently. The standard rate of tax should have been reduced by 1p to show our detractors that we do not intend to be blown off course and that we intend to move away from the "they will" society to which the Opposition wish to return.
There are many small and medium-size companies in Thurrock and the corporation tax changes will enhance their profitability. That will enhance employment and job security in the area. It is a pity, perhaps, that local government taxes cannot also be related to profitability. Many small businesses, especially those in the retail sector, continue to face huge rate bills. The Government's reform of commercial rates will, I am afraid, fail in many cases to resolve this outstanding issue.
The Budget is, to some extent, borne out of a climate of inflationary fear. That is good. We must never take our eye off the ball of inflation. The Opposition are hypocritical and confused on the subject and about the right level of taxation. In at least two speeches today, Opposition Members have called for tax cuts that would benefit people on lower incomes, but last year they trooped into the Lobby to vote against 2p off the standard rate of income tax. Any party which, when in government for five years, presided over an inflation rate of 15.5 per cent. is in no position to lecture the present Government about their record on inflation. Nevertheless, like many of my colleagues, I believe that 7.5 per cent. or 8 per cent. inflation is far too high. Our target should be not 5 per cent. or 4 per cent. but nil per cent.
The economy is fundamentally sound. The statistics prove that. We need only take the example of output per person in manufacturing, or productivity. Anybody can make something. What is important is whether it is made cost effectively. Productivity is the key measure. The increase in productivity in manufacturing during the entire term of the previous Labour Government was 5.8 per cent. Just from 1987 to the fourth quarter of 1988, there has been an increase of 10.3 per cent.--nearly double what was witnessed under Labour.
We have also built up huge overseas assets, second only to Japan, and a huge fiscal surplus, and public expenditure is going down in real terms. The state is taking a smaller proportion of gross national product. That is something which we have always been elected to achieve.
Column 801Nevertheless, public expenditure is increasing in real terms. There have been no cuts. Public expenditure continues to rise in crucial areas such as health and the fight against crime.
My right hon. Friend the Chancellor is to be congratulated on a well balanced Budget. It is important that we do not lose the momentum to return to individuals more of the money that they earn so that they can be less dependent on the state. The Leader of the Opposition spoke of our record and said that the Government had created a "me, now" society. His alternative is a "they will" society in which individuals lose their sense of responsibility for themselves and turn to the great they, whether it be local government, central Government, social services or the Department of Social Security to take on their individual responsibilities in life. The Government have a duty to ensure that there is a safety net and that citizens do not fall below it, but they also have a duty to maximise the amount of money that people can keep and spend as they wish. Although the Budget is excellent in many other ways, we have lost an opportunity to keep our tax-cutting momentum going. 8.23 pm
Mr. Win Griffiths (Bridgend) : We are debating a Budget that has been created in the shadow of storm clouds caused by all the miscalculations on which the Chancellor's last Budget was based. The Chancellor's forecasting record is such that, if he was an economic analyst or financial executive of a privatised Great Britain Ltd, he would have been sacked a good while ago. His inflation figures proved to be 100 per cent. out, his forecast for the balance of payments deficit was a quarter of what it has turned out to be, and the same is true of the Budget surplus. It is therefore extremely difficult to enter a debate with the Chancellor on the basis of his forecast this year for what is likely to happen in the coming financial year. We have to take his forecasts with a pinch of salt and hope that he has learnt something from all the mistakes of the last year.
Will the Budget strengthen the economy and create jobs? We have to answer that question with a resounding no. The continuing underlying trend of weakening in the manufacturing sector will continue. During the past decade, Britain's share of world trade has decreased by more than 10 per cent. We have managed to convert a £3.7 billion surplus when Labour was last in power to a £16.4 billion deficit today--some economic miracle. Even allowing for invisibles, which we are often told we have to bear in mind when considering the whole economy, the deficit has doubled.
Those figures show an appalling performance. The economy has been saved only by the Chancellor being absolutely resolute about pushing up interest rates time and again to bring hot money into the country. We must remember that it can just as easily leave. In the meantime, home owners and businesses, especially small and medium-size businesses, face the difficulty--and sometimes the misery--of coping with the extra costs that high interest rates involve. Those interest rates are the creation of the Chancellor alone as he tries to make up for some of the mistakes of last year's Budget. The Chancellor told us in his Budget statement that he will maintain high interest rates for as long as is necessary. No doubt he will increase them if he considers that necessary.
Column 802At the beginning of today's debate, the Secretary of State for Employment made great play of the Government's job creation record. His view was blinkered and short-sighted in terms of recent history. I intervened in his speech, but he was unwilling to accept the figures that I produced, which are based on answers given by his Department to questions about how the economy has developed. I shall remind the House of those rather stark figures. During the past decade, jobs have been created, but they have been created in the south-east, East Anglia, the south-west and the east midlands. In those areas, 580,000 jobs have been created for men and 433,000 jobs have been created for women. They are all full-time jobs. Just over 1 million jobs have been created in the area below a line drawn from the Severn to the Wash. However, in the west midlands, the north, the north-west, Yorkshire and Humberside, Wales and Scotland there are 650,000 fewer jobs for men and 149,000 fewer full-time jobs for women.
Therefore, as a result of the economic miracle of the past decade, there are almost 800,000 fewer jobs north of the line from the Severn to the Wash. The only bright spot is the west midlands, where there are 8,000 extra full-time jobs for women. Therefore, the Government should not be proud of their record on jobs. By the Chancellor's own admission, the situation is unlikely to improve in the coming year. The squeeze which is meant to affect the southern part of the country is more than likely to affect the north and will mean that while the south gets a cold the north and the west will get influenza. We have to take the Chancellor's predictions with a pinch of salt because he was so wrong last year. He predicts that the growth in GDP will slow done from 4.5 per cent. in 1988 to 2.5 per cent. in 1989, and that domestic demand will slow down from 6.5 per cent. in 1988 to 2.5 per cent. in 1989. Yet at the same time he predicts no fall in the current account deficit or import penetration when the economy is supposedly slowing down. He predicts that the more sophisticated GDP deflator will be 5.5 per cent. in 1989-90. That must mean a decline in the rate of growth of earnings and profits which are moving well ahead of inflation at present. It would be interesting to know from the Minister exactly how the Government plan to achieve that target. It is very difficult to perceive that the economy, which is running away on the credit boom, will slow down without an extremely hard landing.
Much has been said about the extension of PEPs and ESOPs. While ESOPs are to be welcomed, PEPs appear to be an attempt to bribe people to buy shares in water and electricity--a way in which the Government hope to get out of the hole which they have dug for themselves in attempting to privatise water and electricity, neither of which has been accepted by the public as a suitable industry for privatisation.
After last year's Budget, the Chancellor was hailed as Wonderman, but within six months he has been described as Blunderman--a blunderman who, in his Budget speech last week, appeared to have no confidence in the ability of British business to increase its share of the domestic market or overseas market. If he had, he would be predicting a drop in import penetration into Britain. The Chancellor is so scared stiff of the credit- based consumer boom that he unleashed in his last Budget that for yet another year he has refused to index duties on alcohol and cigarettes, showing the scandalous disregard for the health of individuals that he showed for the health of the nation
Column 803in his Budgets in the past couple of years. If the Chancellor cared for the nation's health, he would never have ended up with a £14 billion Budget surplus this year or be planning a similar or bigger surplus next year.
There are ways of spending the Budget surplus without stoking up inflation. For example, having got rid of the earnings rule for pensioners, the Chancellor might have struck an even bigger blow for the standing and the prosperity of pensioners by giving them back the £4 billion that was taken from them in the past decade. Such an investment in the state pension would not have unleashed the inflationary credit boom that we have experienced in the past year. A great deal could have been spent on infrastructure, the Health Service and education, and that would not have been inflationary. By its nature, such spending is used for products made in the home market, and that would have benefited British industry.
Miss Ann Widdecombe (Maidstone) : I have listened with increasing disbelief to the catalogue of whining, whingeing, moaning and groaning which has eminated from the Opposition, as I did last year. They really are very bad losers. They recognise the Government's achievements but try to find fault with them. One has to admire their ingenuity in managing to find fault where practically none exists. The hon. Member for Banff and Buchan (Mr. Salmond) said that people would regard with nausea the way in which the Government have continued to help the same friends they have helped in the past. That is true. We have consistently helped pensioners and we have done so again this year. The abolition of the earnings rule and the raising of the age allowance presumably are greeted with nausea by the electorate of Banff and Buchan, if we are to believe the hon. Gentleman. We have consistently aided charities and this year we have doubled the limit for charitable giving, yet we have been led to believe that that will be regarded with nausea. We have made the most significant contribution of any Government in the past decade to the financial independence of women, and this year we have helped them through assistance with savings schemes as women are often the savers in the family. Yet that is supposedly greeted with nausea. Once again we have helped the lower paid by raising the tax thresholds, and particularly by the reforms of national insurance contributions. We have also helped small businesses through corporation tax changes, so we have helped our friends as we have in the past. I cannot believe that pensioners, charities, women, the lower paid and small businesses regard the Budget in quite the same light as the hon. Member for Banff and Buchan does.
The hon. Member went on to say that Government policies militate against those living in the north, particularly in Scotland, and favour those in the south. But his examples were rather peculiar. First, he quoted mortgage tax relief. I nearly did a double take because the level of relief is the same whether one lives in the north or south, but property prices are very much lower in the north. I should have thought that the system of mortgage tax relief would encourage the purchase of property in the
Column 804north and migration to the north. That is not a regional policy to be deplored if the hon. Member for Banff and Buchan wants to encourage investment in the north.
To my utter amazement, having been involved in it recently, the hon. Gentleman then mentioned the Channel tunnel and its attendant rail link. He said that somehow that was of vast benefit to the south. He should try telling that to my constituents who fought hard not to have it. We are witnessing the devastation of the southern environment to bring prosperity to the north.
We need a regional policy, but it must be a policy connected with regional pay which would finally enable those in the south to recruit as they deserve. It is a poor show for the hon. Member for Banff and Buchan to talk about regional discrimination when we discriminate heavily in favour of Scotland in terms of public expenditure. I am sorry that the hon. Member for Banff and Buchan is no longer in the Chamber to hear what I am saying.
Another hon. Member who is no longer in the Chamber talked about inflation and what he called the balance of payments crisis and the iniquitous level of interest rates. He appeared to think that such things were indicative of general failure. It is a tribute to the achievements of the Government and of my right hon. Friend the Chancellor that we now get hysterical at the thought of an inflation rate of 8 per cent. Over the past five years the average rate of inflation has been 5 per cent. When the Opposition were in power it was 15 per cent. and they tolerated 20 per cent. or more. They did not appear to regard it with anything like the hysteria they are trying to work up over a mere 8 per cent.
We are facing the problem of success. The Opposition do not understand that because they never have success and do not understand the problems associated with it. Yes, we have a balance of payments problem but it has not been brought about because exports have fallen. In fact, exports rose by 5 per cent. and are predicted to rise by another 7.5 per cent. We are facing the problems of a prosperous country whose inhabitants can afford to buy overseas. We are facing the problems of prosperity, not poverty. The Opposition know well how to address the problems of poverty and failure because they have had to cope with them for so long. They do not understand the problems of success and they cannot masquerade our outstanding achievements as Government failures.
The Opposition fail to acknowledge that interest rates have been low for several years. Therefore, when they have to rise, it looks painful. Over the past 15 years, interest rates have been higher than they are now and they have seldom been as low as they have been in the past couple of years. Once again, we are suffering from the reputation we have built ourselves of being able to have low inflation, low interest rates and an extremely successful economy. The slightest blip is greeted by the Opposition as proof that somehow our policies are not working. Our economy has never been more buoyant and we have never had a greater boom.
The only slight degree of sympathy I felt with anything said by Opposition Members was when the hon. Member for Bridgend (Mr. Griffiths) said that he wished the excise duty had been increased on drink and cigarettes. I sympathise and want to control the consumption of both those commodities. I am particularly alarmed at the increased incidence of uncontrolled drinking among the young and the increase in smoking among young girls.
Column 805However, we have to be practical. A few extra pence on the price of a packet of cigarettes or a bottle of whisky will not make any real difference to consumption. Somehow, if such commodities are a regular part of someone's life, people seem able to afford them regardless of what happens to taxation. We need a campaign of public information and health education, particularly among the young. We already have some such campaigns but I should like to see more. However, that is a matter for another debate.
In summary, the Opposition cannot recognise the difference between success and failure. They do not recognise that we have looked after, yet again, those least able to look after themselves. They fail completely to recognise what we have done for the financial and social status of women and for our pensioners. That failure of recognition reflects only their total lack of morale. They know that they could not achieve what we will have achieved and that the electorate will never give them an opportunity to try.
Mrs. Teresa Gorman (Billericay) rose-- Mr. Deputy Speaker (Sir Paul Dean) : Order. The wind-up speeches are expected at 9 o'clock sthe hon. Member for Billericay (Mrs. Gorman) can have a little more than 10 minutes if she wishes.
Mrs. Gorman : I, too, wish to congratulate my right hon. Friend the Chancellor and his predecessor on the amazing changes that they have brought about in our economy in the past 10 years. Those changes have restored people's incentive to go to work and to invest their money in creating new jobs. That is why I am doubly disappointed that the Budget did not do more to help women, who now form a most important part of the labour force. Almost half the people who go to work are women, and many of them have to carry out domestic duties as well. They need help with those duties if they are to fulfil both roles satisfactorily.
The Budget did not give any tax advantages to women who employ domestic help. In fact, it threatens to make life more difficult for those who employ people at relatively low rates of pay in domestic and other jobs. In a nasty little piece on page 46 of the financial statement, we are told that the Government intend to give the Inland Revenue increased powers to chase up people paying fairly modest sums of money directly to others. It is well known that if one employs domestic help, or a part-time gardener or someone who occasionally cleans out the gutters or the drains and generally helps to support the structure of the family unit, one usually pays in cash and it is usually relatively small amounts of money. It seems, however, that the Inland Revenue intends to beef up its attack on such arrangements. One can imagine the spectacle of a tax inspector with his ear to the letter box listening for the noise of children and perhaps of a babyminder scolding them. He will knock on the door and burst in, waving his little plastic card and asking the babyminder how much she is earning. If it is more than £50 per week, he will demand to know whether the harassed mother is operating PAYE and national insurance deductions. If I were the mother, I would empty the baby's chamberpot over the inspector's head.
Column 806I wonder whether the new strictures will apply to gentlemen who keep mistresses, which is a favourite topic just now. Will gentlemen who support a woman full-time, wholly and singularly, be visited by the same tax inspectors and be asked whether they are paying national insurance and operating PAYE on the money that they spend in support of their mistresses? That is the kind of legislation that we can well do without. It is a nasty aspect of the growing authoritarianism that we are seeing in taxation legislation.
The Inland Revenue seems to have the idea that those jobs will exist whether or not it spends its time chasing up employers, but I do not believe that they will. If we make it more difficult to employ a live-in cook, housekeeper, or whatever, fewer people will be employed in those roles. The hassle of operating the bureaucracy involved with those relatively modestly paid jobs puts people off. If hon. Members do not believe me, they should go to their local supermarket. One has to pack one's own shopping because the supermarket does not think the hassle of tax and national insurance worth while for relatively modestly paid packers. If one goes to the cinema, one stumbles down the aisle because the cinema owner does not consider it worth paying relatively modest sums and then taking income tax and national insurance to have somebody with a torch to show people to their seats.
Such jobs will not exist, and nor will people want to do them. When the Inland Revenue goes on the rampage after such groups of people, the people and the jobs usually disappear. A good example of that was when the Inland Revenue had a purge on people doing casual work in horticulture in Norfolk and Suffolk. The casual workers came now and again to carry out carrot topping, leek washing or strawberry picking. The Inland Revenue came with all its battalions to chase those people to find out whether they were paying tax and national insurance on their relatively modest incomes-- which, over the year, did not amount to taxable pay, but which in the odd weeks when they were working went over the limit at which tax and national insurance began--and the result was that the crops rotted in the fields that year. The new imposition set out in the financial statement is likely to create a similar situation.
Such jobs will not exist and that will be a great pity for young people, many of whom come to cities and obtain jobs with accommodation attached by doing domestic work such as helping with children and the household. Such jobs will not exist for many older people who have part-time jobs helping with gardening, cutting grass, washing cars and cleaning out gutters and drains. Such odd jobs will no longer be a useful help to the family, but will disappear as a result of an authoritarian tradition making life more difficult. The penalty for being found to be paying somebody more than £50 a week without operating one of the schemes is to be increased from £250 to £3,000. That is enough to scare some people into thinking that they would rather do without the extra pair of hands. One of the proposals that I sent to the Chancellor, and which he ignored, along with most other people's, was that it was time we treated the family as a taxable unit--Mr. and Mrs. Average Taxpayer plc--and that jobs necessary
Column 807to help the family function, including domestic work, should be tax deductible. At present, if one has people to do jobs for one, one has to pay them out of taxed income. I pay £80 for domestic help, spread over two people in the course of a week. I have to pay that out of my taxed income. If I have to start keeping PAYE records and national insurance records, I shall not only have that extra work, but I shall have to earn the money to pay those wages. If I do not have help, my life will be made much more difficult. My right hon. Friend the Chancellor should either say that all those domestic jobs are tax deductible, which they are not at the moment, or he should concentrate on raising the base level at which tax starts to be paid.
Before the last war, the starting point for income tax was the equivalent of around £30,000 in today's money. We have gradually drawn lower-paid people into the tax net, which has not helped them or those who need assistance. Women are needed in the labour market. We say increasingly that we want their skills and time, yet we are not willing to do much to help them by allowing them to offset the costs of the domestic help that they need. I do not advocate creches, and I do not believe that the taxpayer should be expected to pay, but if a mother goes out to work and puts her baby into a creche or pays for a babyminder or home help, she should be able to deduct that from the money that she earns in the same way as her husband does if he pays for a secretary. If a mother pays for a secretary, she is allowed to deduct that from her earnings as well.
I hope that my right hon Friend the Chancellor will pay a great deal more attention in the next Budget to the special needs of women. They are wanted back in the labour force as well as being expected to continue their domestic role of supporting their husbands and families and creating comfortable and reasonably organised homes. 8.55 pm
Mr. Anthony Coombs (Wyre Forest) : I welcome this cautious, sensible and responsible Budget, the effect of which will be to reduce inflation, improve currency stability and reassure the financial markets. My right hon. Friend is correct to emphasise further improvements in the supply side of the economy by ensuring that the lower rate bands for corporation tax for small businesses move from £100,000 to £150,000. He is also correct to reform the national insurance system and to improve the operation of the earnings rule, so that pensioners are not penalised for working to supplement their pensions.
However, the Budget will be judged primarily by its success in reducing inflation to the targeted 4.5 per cent. in the second half of next year, thereby reducing retail expenditure, which takes 75 per cent. of our imports. The balance to be achieved is to reduce aggregate demand without damaging investment, which will fuel the 2.5 per cent. growth rate expected in the economy next year.
The measures taken by my right hon. Friend will work more quickly and effectively than anticipated, for three reasons. First, we hear much about the savings ratio being only 1.3 per cent. of disposable income in the consumer sector, but historical trends show that, when there is higher price inflation, the savings ratio in the consumer sector has
Column 808been offset by a higher savings ratio in the public sector, which is now 3.3 per cent. of GDP against 1.5 per cent. in 1980, and in the industrial sector, where savings as a proportion of output are 12.1 per cent. against only 8.9 per cent. in 1980. The overall effect is that national savings, as a percentage of nominal GDP, are 23.1 per cent. Despite what we hear about the savings ratio in the consumer sector, it is the highest it has been since 1981.
Consumer spending will come down for the simple reason that, as the FSBR shows, it has been boosted by high asset values as people have had confidence that house values are rising and so have maintained their consumer spending. Now that the property market is flat, and is declining in some areas, such as London, it will have a significant effect on consumption. It is important to ensure that that fall in aggregate demand does not have an adverse effect on industrial profits. That is why the Confederation of British Industry urged a reduction of corporation tax to 25 per cent.
It should be remembered that, although there have been huge increases in productivity--ours has grown faster than that of any other industrialised country since 1980--although there was a large increase in output and exports last year and although manufacturing productivity is rising fast, a higher proportion of GDP--3.9 per cent.--goes in corporation tax, which is 2 per cent. in France, Germany and the United States. To that extent, I can see some justification for the CBI arguing for cuts in corporation tax, but I believe that until we can see how fast aggregate demand falls as a result of the increase in the savings ratios, such a policy would be premature and I believe that my right hon. Friend the Chancellor was right to resist it.
I should like to make one plea in terms of improving the savings ratio over the longer term and to urge my right hon. Friend the Chancellor to consider better treatment for friendly societies which increase self-reliance, enterprise and charitable works among lower income groups. Although I am pleased that share ownership, personal pensions and employee share schemes have been boosted by tax exemptions rising to £4,800 per year for personal equity plans and £2,000 per year for employee share schemes, I should like to know why the tax exemptions for saving plans with friendly societies still remain at a £100-per-year annual premium level.
I should like to know why the Revenue did not like the innovation of baby bonds that the friendly societies wanted to introduce recently, and I should also like to know why friendly societies, which represent 7 million people, were not allowed to widen their commercial activities as they wanted in the past few years. I understand that they made representations to the Chancellor and to the Economic Secretary in July and November last year, and I believe that they are worthy of consideration.
Mr. Gordon Brown (Dunfermline, East) : Today's Budget debate has been distinguished by many excellent speeches, from a former Prime Minister and from three former Treasury Ministers, two from the Opposition and one who is the Chairman of the Select Committee on the Treasury and Civil Service.
Perhaps most of all, the debate has been graced by a distinguished, memorable and much applauded maiden speech from the hon. Member for Richmond, Yorks (Mr.
Column 809Hague), the youngest Conservative Member. In making one theme of his speech the interests of the elderly and in putting the case of pensioners so eloquently when he closed his speech he, least of all, could be accused of self-interest, and he found an echo for his sentiments among hon. Members of all parties. I must tell him that when I arrived here as a young Member of Parliament I was described in The Times as being 58 years old and a Labour party veteran. The hon. Gentleman has come here with a great reputation, having given advice to the Prime Minister at the age of 16, and no doubt he has a great future ahead of him. I noticed from his curriculum vitae that he has been a former speech writer for the Foreign Secretary. I can only say that his speech shows that his humour and content have improved immeasurably over the years. We look forward to many distinguished speeches from him as he speaks up, as he did today, so eloquently on behalf of the needs of his constituents.
This is a Budget at the end of which, by common consent, hon. Members of all parties have said that the biggest beneficiaries are not home owners struggling with high mortgage payments, not mothers facing price rises having witnessed the freezing of child benefit, not pensioners on basic pensions--despite the welcome changes in the earnings rules and the age additions--and not working mothers who have lost out because the Chancellor has refused to remove the tax on workplace nurseries. Despite the welcome changes in national insurance, most of all the beneficiaries are not the low paid because as a result of the combination of the tax and national insurance changes, sombody on £70 per week will receive only about 21p per week extra. As the Chancellor well knows, the biggest beneficiaries are those couples in BUPA, who have private medical insurance and who are over 60, who can receive tax benefits of up to £800 or £900 per year if they use the system properly when one small part of the Finance Bill is passed after we debate it later. The benefit will be £18 or £19 per week for a couple in BUPA, £3 per week for those paying national insurance through those reductions and, as the Chancellor well knows, only £1.50 per week for those earning less than £100 per week, and there will be nothing for many part-time workers. When the choice is between helping the low paid of this country and the rest, it is perfectly clear, as this Budget shows, that the Tories will not help the low paid ; they will help those most well off most of the time.
However, our complaint about the Budget goes deeper than that. The Budget is wrong because it reflects and exposes an economic strategy that is wrong. It is a Budget that does nothing to meet the problems of the present, such as the high interest rates and high mortgage rates that many families and many industries face. It is a Budget that has done nothing to meet the challenges that we must face in the future, such as the skills shortages, the technology bottlenecks, the regional imbalances and the problems that we face as we move towards 1992. Most of all, it is a Budget that will do nothing for the problems of the present and nothing to meet the challenges of the future because it is the Budget of a Chancellor who is imprisoned and haunted by the mistakes of his past.
Before the Budget we had the highest inflation, the highest interest rates and the highest trade deficit of all our major competitors in Europe. After the Budget, with the Chancellor's new forecasts, we still have the highest inflation, the highest interest rates and the worst trade deficit of our major competitors in Europe. I shall tell
Column 810Conservative Members what the position in Europe really is. Inflation is at 3.3 per cent. in France ; 2.6 per cent. in West Germany ; and, outside Europe, it is 1.4 per cent. in Japan and 4.7 in America, but inflation will move to 8 per cent. in the next few weeks in Britain. Interest rates are 10.75 per cent. in America, less than 7 per cent. in West Germany and less than 5 per cent. in Japan, but they are 13 per cent. here--twice the level of the interest rates in both Japan and West Germany.
We also have a trade deficit that is unparalleled in our history, yet this is the Chancellor who came to the House last March and told us at the end of the Budget debate that he was presiding over an economic miracle. He told us that our prospects had never been better and that we were experiencing an economic transformation, an industrial resurgence, a British renaissance and a miracle that he compared to that of Japan. Even in the past 10 years, the economic performance of Britain has been so unlike that of Japan that Japan has grown at twice the rate of Britain. Japan's rate of investment growth has been twice as high as ours ; its growth in industrial production has been four times as high and its growth in manufacturing output has been five times as high. The great achievement of the past 10 years is not that we have managed to rival Japan or West Germany, but that having fallen below France, we have now fallen below Italy on almost every indicator.
The Britain that the Chancellor tells us will enter the 1990s-- [Interruption.] If the Chancellor does not think that that is true, I shall give way to him now-- [Interruption.] Yes, the Chancellor will speak later and I hope that he will answer the point because the Common Market's own forecasts not only show that Italy has surpassed us in national income, in growth rate and in the growth of exports, but that over the next year and into 1991 the growth rate of our economy will be slower than that of almost every other economy in the European Community.
Mr. Ian Taylor (Esher) : Does the hon. Gentleman recognise that, in terms of investment, Britain's rate of growth is faster than that of any other member of the European Community and that this country in the 1980s compares extremely well with the position when the Labour party was in power in the 1970s?
Mr. Brown : I shall have to give the hon. Gentleman my statistics because he fails to appreciate what hon. Members of other parties seem to know--that the real value of manufacturing investment is still below that of 1979 when this Government came to power. That is what the latest figures confirm. As for the share of investment in our national income, it is well known that it is lower in Britain than in almost any other European country, with the exception of countries such as Belgium, and I advise the hon. Gentleman that Japan has been investing 30 per cent. of its national income while we have reached the figure of 18 or 19 per cent.
Not only have we the highest interest rates, the highest inflation and the worst trade deficit of our competitors now, but on the Common Market's predictions our growth rate over the next two years will be lower than that of France and Italy, lower than that of Belgium, the Netherlands and Eire and even lower than in Greece, Spain and Portugal. Those are the facts produced by the European Commission.
Column 811The hon. Member for Esher (Mr. Taylor) might also be interested in the facts on investment. For 1990 and in the run-up to 1992, it is expected that investment in Spain, Portugal and Greece will grow at roughly three times the rate of investment in the United Kingdom, at 10 per cent. in Portugal, 9 per cent. in Spain, but at about a third of that in Britain, according to the figures that the Chancellor has produced for Britain in his Budget statement.
Our case against the Chancellor is not only that he engineered a consumer boom based on credit and tax cuts which, without a proper, sustained and adequate increase in investment, was bound to lead to the problems that have been created and was bound to be unsustainable, but that he has failed to learn from his mistakes. Having failed to learn from his mistakes, he now intends to repeat them, and nowhere is that more obvious than in his attitude to what is to happen to the Budget surplus.
It is a surplus that he did not forecast. It is a surplus that he acquired by selling our national assets and by breaking the link between pensions and earnings. It is a surplus that he admits he cannot use now but which he is to use this year only to pay off the national debt. The worst thing about the surplus--the Chancellor made it absolutely clear in his Budget speech, and perhaps the Prime Minister made it even clearer when she spoke to the Conservative council on Saturday--is that, even when we know that we have 1 million schoolchildren in classrooms that were built before 1914-- [Interruption.] Many classrooms have been declared by the Audit Commission to be unsafe and should be closed down.
Mr. Brown : If the hon. Lady is satisfied with the condition of the schools in her constituency, that is one thing, but the implications in the report by the Audit Commission about the safety risk of old schools being kept open without investment in them are very clear. They worry many Opposition Members.
It is not only schools that are affected. Two thirds of hospital wards were built in the days of voluntary and charity hospitals. Many of our roads have a life of less than 10 years without proper new investment. We know what must be spent to deal with the problems of pollution and the environment. Most of all, we know that if we do not invest in training and in the supply side of the economy in this decade, the money that we refuse to invest will have to be spent on unemployment and redundancies in the next decade.
The worrying thing about the Chancellor's surplus is not only that most of the surplus will not be used for public investment now, but that he has absolutely no intention of later using it for proper investment in the economy. As we now know and as was made clear on page 7 of the Red Book, public spending fell in real terms last year. It was £300 million less on the railways alone, when people are concerned about safety. But the answer that the Chancellor gave in his Budget statement is clear. His first priority is not the reduction of the national debt, the reduction of pollution, congestion or the risk to safety on the roads or on the railways, or the reduction of the waiting lists for health services or housing ; it is the
Column 812reduction of taxes for those people who are already wealthy. To discharge the Tory party's historic mission to the very rich of our country, the Chancellor is less interested in paying off the national debt. In future years he will be more interested in paying off his political debts to those who support the Conservative party. The 1989 Budget is an interlude between act I of the Chancellor's top rate tax cuts and act II. He is not a Chancellor who has learnt from his mistakes--he is merely giving himself a pause between them. Any other Government would make investment in this country the priority both now and in the future.
Mr. John Redwood (Wokingham) : How does the Labour party propose to contain the inflationary consequences of a major increase in capital investment demand for an over-pressed building industry on top of the large increases already proposed by the Government?
Mr. Brown : I am grateful to the hon. Gentleman for that intervention. The House will remember his famous statement about this time last year, suggesting that £5 billion to £6 billion in additional public money might be spent. I will not take the hon. Gentleman's lectures on whether public spending is inflationary. The CBI has made it clear that the neglect of investment in this country, skill shortages, congestion and the overheating in the south-east are responsible for much of the inflation. That inflation was not created directly by the Chancellor. I refer to electricity and water price rises and everything else. The neglect of investment in our country is not the only issue in this debate. The issue is the Government's unfair and unjust policies.
Even after the national insurance changes, 2.4 million of the lowest paid workers will get no benefit at all. Four million will receive anything between nothing and £1.51. For many of them, their national insurance gain will be taken away by losses in family credit and housing benefit. The "tax-cutting" Chancellor ends a Budget by actually putting another 160,000 of our low paid into income tax when, for the low-income people in this country, the share of the bottom 10 per cent. from the Budget gains is only 3 per cent., while for the top 20 per cent. it is about 30 per cent. this year alone. Last year, the Chancellor could give £3 billion to the rich, and give it in March. This year, he can give less than £1 billion to the poor, and give it only in October. With his colleague, he is to remove wage protection for millions of our workers under wages councils in the next few months. This Budget does not correct the errors of last year--it compounds them.
Is it not typical of the Conservative party that, even when a Budget is advertised as a Budget for the low paid, the higher paid in the country do best out of it at the end of the day? It completes a decade when the gap between rich and poor has been growing at a faster rate than at any time since the war--the rich getting richer while many of our citizens are seeing their living standards fall in real terms. Slowly but surely, the two nations that the Government have created are drifting apart as a result of the Chancellor's policies.
Just as the Budget does little for low-income Britain, it will do little for any part of Britain. The Chancellor still promises us zero inflation. In the next few weeks, we shall see rates rise by 8 per cent. and electricity charges rise by 6 per cent., making 15 per cent. over a year and a bit. We shall see water costs rise by anything from 10 per cent. to
Column 81330 per cent. We shall see gas prices rise, television licence fees rise, prescription costs rise, and new health charges introduced. By one measure in this Budget alone, we shall see bus fares increase again. What does the Chancellor say to that? I remind him of what he said in his Budget statement last March. When he spoke to the House on that Tuesday, with his usual modesty, he said :
"it is a testimony to the soundness of our policies that the present strong and sustained upswing, unlike almost all of its predecessors, has not led to any resurgence of inflation."--[ Official Report, 15 March 1988, Vol. 129, c. 994.]
Yet our inflation is above the European average for the fourth year running, twice what it was at this time last year, and higher than when the right hon. Gentleman first proclaimed to the House that he would eliminate it. As he tells us in his Budget forecast, while France's inflation will be 3 per cent., Germany's less than 3 per cent., and Japan's 2 per cent., his great success will be to have brought inflation to 5.5 per cent.
Every forecast that the Chancellor has made has gone wrong. His forecast about prices, the deficit, the money supply, savings--all were wrong. Even his prediction that this would be the first Budget to be televised was wrong, and how fortunate he is in that respect. Perhaps his worst forecast of all is that by staying on for a year as Chancellor after the Budget last March, when he finally goes to the City his market value will somehow be enhanced. One test of a successful Tory Budget was laid down by no less an authority than the Prime Minister herself a few years ago. She said :
"The markets have already given their verdict. Already there has been a welcome fall in interest rates and mortgage rates." On top of price rises, home owners in this country are facing mortgage payments that have risen on average by £40 per month, by £50 for young home owners, and for home owners in the south-east they have risen by £70 since the Chancellor's last Budget. The Governor of the Bank of England, who wrote that celebrated letter to the Chancellor a few weeks ago, in a public speech only a few days ago said that the mortgage and credit card debts that we face in the 1980s remind him of the problems with Third-world debt in the 1970s. When the Governor talks about the further squeeze on household finances, no wonder the Prime Minister is no longer talking about a Chancellor who is brilliant and marvellous and wonderful ; no wonder she now appears hardly able to bear to mention his name. A quarter of a million people are estimated to be in arrears, and 500,000 are having to turn to the citizens advice bureaux for advice about their mortgages. There have been 20,000 repossessions--a figure that the Governor of the Bank of England, in his speech, said would undoubtedly rise. Perhaps the one repossession with anything to offer the nation--the eviction of the Chancellor from 11 Downing street--cannot be expected immediately, not because he has been doing well but because his potential successors, the Secretary of State for the Environment and the Secretary of State for Energy, have been doing so badly.
Let me tell the Chancellor something about the current thinking of his friend Sir Alan Walters. I understand that at a meeting at the Mansion house--about 300 people were charged £100 a time--Sir Alan gave his verdict on the Budget. I understand that he praised what he called the architect of Britain's economic revival--the Prime Minister. The Chancellor will be pleased to know that Sir
Column 814Alan welcomed the Budget too. But let me tell the Chancellor that Sir Alan praised the Budget not because interest rates would come down but because they would stay up, because he believed that recessions should not be avoided ; they can be good for the economy. No doubt the Chancellor cannot wait to have the benefit of Sir Alan's full- time advice.
What of the trade deficit? Predicted to be £4 billion last year, it was £11 billion by the time of the Autumn Statement, and is now £15 billion. I suppose the good news is that it has stabilised ; the bad news is that it has stabilised at £15 billion. The Chancellor still calls this a problem of success--freak figures caused by an investment boom. It is a second-grade problem, self-correcting, he tells us, but it is a problem big enough now for him to seek to doctor the statistics. All that is needed to convince us that a real problem exists is a multi-million-pound advertising campaign, led by Lord Young, telling us that it has been solved, or an announcement from 10 Downing Street that the Prime Minister is about to take personal charge.
If the Chancellor does not think that the trade deficit is a problem, what of other Ministers? I have here a press release from the tourism Minister. Entitled "Your Country Needs You", it says : "Hopefully the British public will increasingly appreciate that holiday taking in the United Kingdom is not only a stimulating and enjoyable experience but will help our balance of payments as well. With the cumulative tourism deficit of nearly £1.8 billion, compared with £1 billion for the same period last year, perhaps the time has come to say to the British holidaymaker "Your country needs you."
A problem not serious enough to delay the Chancellor is sufficiently worrying to the tourism Minister to prompt him to tell millions of holidaymakers that their country needs them--not in Majorca but in Margate, not in Benidorm but in Blackpool--with all the impact that that would have on his £15 billion deficit.
Perhaps the Chancellor remembers what the Foreign Secretary, who was then Chancellor, said in the first Budget of this Government 10 years ago. No one supported the then Chancellor more strongly than the current Chancellor. No one was as great an advocate of his policies as the right hon. Member for Blaby (Mr. Lawson). What did the now Foreign Secretary tell us in that Budget speech? He said : "Progress internationally will not cure the deep-seated weaknesses of own domestic economy. Nor will North Sea oil." He went on to say that North Sea oil
"must not be allowed to conceal the grim truth about what has been happening to the balance of our own trade, particularly in manufactured goods." [ Official Report, 12 June 1979 ; Vol. 968, c. 238.]
A problem that the current Chancellor says is unimportant was one of the themes of the Budget of 1979. Should we now conceal what the present Foreign Secretary called the grim truth when we have a trade deficit of £15 billion--a £15 billion deficit in manufactured goods? The truth is that the Chancellor has no policy to sort out the problems of the trade deficit. The truth is that the trade deficit will be with us for many years to come if his policies continue. No industry is better off as a result of the high interest rates and the high exchange rate that the Chancellor is pursuing. No community is better protected. No family feels at the moment that it is doing better.
But is it not the saddest of all commentary on this Government that Ministers could complete a National