|Previous Section||Home Page|
Order for Second Reading read.
[Relevant document : Second Report of the Treasury and Civil Service Committee of Session 1988-89 on the 1989 Budget (HC288)]
Mr. Speaker : Before I call the Minister, I must announce to the House that a very large number of right hon. and hon. Members wish to participate in this debate. In view of the late start, I propose to limit speeches between 7 and 9 o'clock to 10 minutes, but I hope that hon. Members who may be called before that will bear the limit in mind.
This Bill embodies the legislation that flows from my right hon. Friend's Budget. Over the past 10 years we have seen a transformation in economic policy and performance. Policies of demand management and state intervention that failed have been replaced by policies of free enterprise within a sound medium-term framework that have succeeded. The underlying performance of the economy has improved dramatically as a result.
The evidence for this is overwhelming : output has expanded by over 20 per cent. since 1979, business investment has risen to its highest ever level as a proportion of GDP, the public finances are now in large surplus and not in large deficit and there has been a marked rise in productivity and employment and a drastic reduction in inflation. As a result, real living standards are now much higher than they were 10 years ago and have every prospect of improving further.
There are two measures that illustrate the improvements we have seen. First, the performance of our economy has been transformed compared with its own performance in earlier years ; but, secondly, and equally importantly, it has also been transformed when compared with the current performance of our competitors. That is why in the 1980s output and investment have grown faster here than in any other major European Community country, a marked contrast to earlier decades, particularly the 1960s and 1970s ; and manufacturing productivity has grown faster here than in any other major industrial country, including Japan. In all these measures the United Kingdom was bottom of the league of performance in the 1960s and 1970s. Our position has now dramatically improved.
Also, in the 1980s, small businesses are being created at an unprecedented rate. In the year to March 1989 the net increase in the number of firms registering for VAT was nearly 70,000, an increase of over 40 per cent. on the previous year, which was itself a record. This means that on average over 1,300 new firms are being established every week. I cannot imagine that this has ever happened before in this country. It is noticeably higher than the 1,000 new firms a week we previously claimed.
This is by any yardstick an outstanding record of success and this year's Budget seeks to build on it. But there are difficulties as well which we acknowledge. The Budget was framed against a background of an
Column 818unwelcome increase in inflation at home and abroad. Inflation in all the major nations is currently at its highest level for three and a half years. In the United Kingdom, current inflationary pressures, although much exaggerated by the perverse effect of mortgage interest payments on the RPI, had their roots in the events of October 1987. At the time of the stock market crash commentators feared that is would precipitate a world wide slide into recession, as it had done in 1929. That fear was shared by many right hon. and hon. Members. It was precisely to avoid that risk that we, along with the other major industrialised countries, deliberately made sure that monetary conditions at that time were not too tight. We were successful in that aim, in that the effects of the crash were not remotely as bad as we, or anyone else, including Opposition Members, feared. It is clear that the current strength of the world economy owes much to the prompt and co-ordinated action taken by the major nations in the wake of the crash. But it is also clear that in response to the inflationary pressures there has been similar prompt action to tighten monetary policy around the world. I hope, believe and expect that that reflects a worldwide determination to get inflation under control, and to keep it under control.
The Budget was also framed against the background of the current account deficit. This largely reflects an excess of private sector investment over private sector saving, and not the reckless public spending which was the hallmark of previous deficits. It is thus fundamentally different from those of the 1960s and 1970s. The investment boom we are now experiencing underlines the confidence which domestic and foreign investors have in the United Kingdom economy and will stand us in good stead for the future.
Against an international background of rising inflation, this had to be and was a prudent and cautious Budget. That was undoubtedly the right judgment, and it is generally shared. Our long-term aim is a balanced budget, but in the current circumstances my right hon. Friend judged it appropriate to budget for a further year of substantial debt repayment. That means that, in three years, we will have paid back roughly one sixth of the public debt accumulated over two centuries, thus saving about £3 billion a year in interest payments. That saving will continue in each and every future year. The burden of debt interest as a share of GDP will be the lowest since 1915. That both lightens the burden on the shoulders of future taxpayers and, at the same time, leaves room for further tax reductions, further debt repayment or for higher spending on areas we judge to be priorities, and those decisions can be taken in each successive year.
Much of the economy's success is a direct response to the favourable tax structure created by my right hon. Friend and his predecessor in the past 10 years. Successive Budgets have broadened the tax base, lowered tax rates and made the tax system more coherent, more intelligible and a great deal simpler. The tax climate is undoubtedly a significant factor in attracting the stream of welcome inward investment recently and magnificently continued by Fujitsu, Bosch and Toyota. That inward investment, as a result of tax and other changes, should be welcomed by hon. Members in every part of the House-- [Interruption.] --or nearly every part of the House. The 1989 Budget made further progress. It contained a major reform of national insurance contributions and the abolition of the pensioners' earnings rule. Those two
Column 819measures were considered during the Report stage of the Social Security Bill yesterday. Both have received widespread support. Both will remove significant distortions and disincentives. The reform of national insurance contributions will also increase take-home pay for the majority of those in work by about £3 a week ; and the abolition of the earnings rule, long necessary and now effected, will give significant help to pensioners, who will also benefit further from other measures in the Bill.
In his 1987 Budget, my right hon. Friend recognised the special needs of older pensioners by introducing a new and more generous age allowance for those aged 80 and over. Clause 29 extends this higher allowance to people aged between 75 and 79. This will take an additional 15,000 elderly single people and married couples out of tax altogether. In real terms, the age allowance for those aged 75 and over will be 19 per cent. higher than in 1978-79. Three quarters of all those aged 75 and over will not be liable to income tax at all.
The clause also reduces the rate at which the age allowance is withdrawn for those with incomes above the income limit. It is clearly right to concentrate the benefits of the age allowance on elderly people with relatively modest incomes, but we received a number of representations from hon. Members calling for a reduction in the marginal tax rate faced by those with incomes in the withdrawal band. I am pleased that the Budget met these concerns, which were expressed forcibly by hon. Members--among others --in Committee on last year's Finance Bill.
These changes ensure that pensioners keep more of their own money. They also build on what is already an impressive increase in pensioners' incomes. Between 1979 and 1986, the average net incomes of pensioners increased by 23 per cent. in real terms. By contrast, despite the concern I know exists among Opposition Members, pensioners had an increase of only 3 per cent. in the years of the Labour Government between 1974 and 1979.
The Budget has been hailed as a Budget for the elderly-- [Interruption.] --a view endorsed by the director general of Help the Aged in a recent letter, which I will quote for the benefit of Opposition Members. He wrote :
"I thought you would appreciate hearing how much we applaud the actions you have taken in your Budget to help pensioners. We are especially pleased at the abolition of the age related earnings rule and are grateful too for the changes you have made in VAT regulations in connection with charities. This will be of considerable assistance to us in our efforts to help elderly people, both in this country and overseas."
That letter was from Mr. John Mayo-- [Interruption.] --and I read the whole of the letter.
This Bill contains one other measure to help the elderly. Clauses 51 to 54 will give tax relief for private medical insurance premiums for the over- 60s. Unlike Opposition Members, I do not want to endow this measure with a false importance. It accounts for just 1 per cent. of the tax reductions announced in the Budget. It addresses a very real problem, and I make no apology for the measure, for I fully support it.
In recent years, employers' health insurance schemes have expanded rapidly, and I welcome that. It is attractive to see independence and choice increasing, and I regret that Opposition Members are hostile to that. It is largely due to such schemes that some 50 per cent. more people are covered by medical insurance schemes today than in 1980. But membership of these schemes usually ends on
Column 820retirement. People are then faced with a double increase in costs : not only do their employers cease to pay their premiums, but the premiums tend to rise at precisely the moment when people's incomes fall.
We have had a large number of representations over the years from people caught in this trap who did not think it was fair that they should suffer this double penalty. I agree with them, and the relief is designed to deal with that specific problem. It also encourages the overall provision of health care and investment in it, and thus eases the demands in that fashion on the NHS.
Indeed, in a curious way, the greater the take-up of this relief, the more that effect will be apparent. In particular, pressure on waiting lists will be eased, which will benefit all of us who continue to depend overwhelmingly on the NHS for medical treatment. Even non-taxpayers will benefit because they, too, will pay their premiums net of tax relief.
The medical insurance industry has begun to introduce policies which are aimed at those who cannot afford, or do not want to take out, more expensive cover. Some of the policies are intended specifically for people in retirement, and I welcome that extension of choice for them.
Although this measure is important, it needs to be seen in perspective. Our public expenditure plans mean that, overall, the NHS will have an extra £2,500 million in 1989-90, and a further £2,500 million in 1990- 91--a total of £5 billion--before resources for it are reconsidered in subsequent public expenditure rounds. The cost of tax relief is nothing in 1989-90 and £40 million in 1990-91--less than 2 per cent. of the increase in planned spending on the NHS. I must say to the Opposition in all charity that if they have chosen to target their attack on the Budget on this measure, it serves simply to underline how little they find to criticise both in the Budget and the Bill.
Mr. John Battle (Leeds, West) : Can the Chief Secretary tell the House why the Secretary of State for Health and the Minister of State for Health welcomed the measure in lukewarm fashion, saying that, at best, it was an interesting detail in the Bill, and, at worst, would damage attempts to sell the White Paper on health about which the Government are struggling to convince the country?
A dominant feature of the Bill is the improvement of the taxation of savings. It contains a series of measures to increase and deepen the ownership of shares, especially by employees and smaller investors. In the post-war period up to 1979, there was one clear trend in the composition of personal savings and that was the dramatic decline in direct share ownership. In 1957, shares and unit trusts accounted for around 20 per cent. of personal sector wealth. By 1979, their proportion had fallen to 8 per cent. That decline had nothing to do with the pre-tax return on equities because, historically, they have tended to out-perform other savings instruments. But it had a great deal to do with the post-tax return that investors received on their investments.
In contrast to saving through large tax relieved institutions, such as occupational pension schemes, direct equity investment subjected the saver to a range of punitive taxes. A top rate of tax of 83 per cent., combined with an investment income surcharge of 15 per cent.,
Column 821meant that direct investors in equities could receive as little as 2p in the pound of dividend income. On top of that, they were taxed not only on real capital gains, which I am afraid were few and far between from 1974 to 1979, but also on inflationary gains, which were in considerably more plentiful supply. If the investor wanted to hand on his shares to his children, he was subject to yet another confiscatory tax in the form of capital transfer tax, where rates could be as high as 75 per cent. It is hardly surprising that direct share ownership went out of fashion in the 1970s ; the only surprising thing is that it survived at all. Since 1979, my right hon. Friend and his predecessor have given share ownership a dramatic boost.
The trend has changed--I hope irreversibly. Shares and unit trusts now account for a growing share of personal wealth. Moreover, share ownership has widened dramatically. There are now 9 million shareholders. That represents 20 per cent. of the adult population, compared to only 7 per cent. in 1979. That has come about partly through a programme of privatisation which has proved immensely successful and which will continue in this Parliament and the next. But even more important for the longer term has been the creation of a more sensible tax system. Now that no tax rate is higher than 40 per cent., investing in shares is again a worthwhile proposition. We believe that it is right to go further to promote private saving through equity investment. Direct share ownership must be allowed to compete with institutional saving. That is why my right hon. Friend introduced personal equity plans in 1986 and further improved them in the Budget. The increase in the overall investment limit from £3,000 to £4,800 and in the unit trust and investment trust limit from at best £750 to £2,400 will give PEPs an additional impetus. Unit and investment trusts allow investors to spread risk and are a good introduction to equity investment for the small saver. Along with the important PEP deregulation measures announced by my right hon. Friend, the changes have been widely welcomed. More plan managers are setting up plans and a number of new products are being marketed. As the chairman of the Unit Trust Association has said :
"PEPs should now be the major success that for investors they deserve to be."
We all look forward to that.
Employee share schemes are specifically designed to encourage direct share ownership by workers in their own companies. As such, I know that such schemes have supporters in each and every part of the House. They have the particular advantage of giving employees a direct stake in the company that they work for, and have been an important factor in breaking down the "them and us" mentality which pervaded British industrial relations, resulting in great damage, in the 1960s and 1970s. That mentality is going, and good riddance to it. The sooner it is gone, the better. The House will know of the success of all-employee share schemes, 1,600 of which have been approved to date against only 30 in 1979. Clauses 59 to 62 are designed to give them added impetus by increasing the limits for relief and relaxing the material interest rules.
Employee share ownership plans, known generically as ESOPs, provide an alternative means of encouraging employee ownership. Clauses 64 to 71 and schedule 5 provide a statutory basis for tax relief for company contributions to those plans. For some companies they
Column 822offer more flexibility than normal all- employee share schemes. The point is that ESOP trusts can borrow to acquire shares rather than relying entirely on funds provided by the company. That enables a substantial number of shares to be held in trust for longer-term distribution to employees. Those clauses ensure that payments by a company to an ESOP trust, set up to acquire and distribute shares to its employees, will qualify for corporation tax relief, provided that certain qualifying conditions are met.
The most important of those conditions is that the shares must be distributed to employees within a maximum of seven years of their acquisition by the trust, and on an all-employee, similar terms, basis. ESOPs have a number of enthusiastic supporters on both sides of the House, and I am sure that those clauses will be welcomed. As the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) said on Second Reading of the Finance Bill three years ago : "I wish to make it clear that I support genuine extensions of share ownership schemes which enable and encourage employees to acquire stakes in their companies. The schemes that I want would carry voting rights proper to share ownership, and would be available to all company employees".--[ Official Report, 29 April 1986 ; Vol. 96, c. 819.]
I hope that the right hon. Gentleman will use his voting rights to support this measure because I agree with what he said three years ago and it is contained in this Bill.
The changes to the taxation of pension schemes set out in clauses 72 to 74 complement the wider share ownership measures. They will increase pensions choice and encourage greater personal responsibility for pension provision. They will also deregulate an area of savings which has become excessively and undesirably circumscribed by Inland Revenue rules.
The Government's record on improving private pension provision has been substantial over recent years. We have introduced personal pensions and free-standing additional voluntary contributions. We have made it easier for employees to contract out of the state scheme if they wish to do so, and we have improved the rights of scheme members, in particular those of early leavers.
Those clauses build on that record. The rules for additional voluntary contributions, or AVCs, will be greatly simplified, reducing the administrative burden on employers' schemes ; and the anomaly whereby successful investment performance of the AVC led to a reduction in the employee's occupational pension will be ended. In future, excess AVC funds will be returned to the employee subject only to a special tax charge.
Ending the link between Inland Revenue limits and the maximum pension payable by employers also makes the pensions regime more flexible. Employees and employers will now be free to negotiate whatever pension package they jointly think is appropriate. Inland Revenue rules will no longer constrain the size of the pension, only the extent of the tax relief.
The cap on tax privileged pension benefits completes the changes begun by my right hon. Friend the Chancellor in 1987. Based on earnings of £60,000, the cap has been pitched at a generous level. It will still be possible to receive a privileged pension of £40,000 a year, or, where benefits are commuted, a maximum tax-free lump sum of £90,000. Moreover, the limit will be indexed annually to prices. The transitional arrangements are equally generous. Only new
Column 823schemes and new members of the existing schemes will be subject to the cap on benefits. Most ordinary scheme members will simply not be affected.
I believe that a cap is necessary. Although we are committed to widening private pension provision, that should not be at an ever-increasing cost to the majority of taxpayers who do not receive such large pensions themselves. There is a limit beyond which tax-privileged saving is unfair and crowds out other ordinary saving. Other tax reliefs are subject to monetary limits, and it is time the tax relief for pensions was put on a similar basis.
These changes have also provided an opportunity to redress the balance between occupational and personal pension schemes. Many members of personal pension schemes start contributing late in life, for reasons well understood in the House. They have no access to the accelerated accrual available in the best final salary schemes, and often have lower pensions in retirement as a result. Although tax-relieved contributions to personal pension schemes will be subject to an annual cash limit, we also propose that the limit on contributions be raised as a percentage of earnings for those aged 36 and over.
To take the example of someone aged 56, under the old rules he received relief on contributions up to 22.5 per cent. of his earnings ; under the new rules he will receive relief up to 35 per cent. of his earnings. This change will give a further boost to personal pensions and will be of special value to those who, in their earlier working life, need to plough back every penny available into building up their business. On Budget day, my right hon. Friend the Chancellor reported that more than 1 million people had taken out personal pensions by the end of 1988. I am pleased to tell the House that that number has risen to 1.5 million.
The Bill also contains important measures for business. In his first Budget my right hon. Friend introduced a major reform and simplification of corporation tax which enabled the main corporation tax rate to be reduced to 35 per cent., one of the lowest in the industrial world. That low rate, together with the removal of the old bias against employment inherent in the old system, has made a significant contribution to rapid economic growth, employment growth and the high investment that we have seen in recent years. Of no less importance was the reduction in the small company corporation tax rate from 42 per cent. in 1978-79 to 25 per cent. today. It is now right to extend the benefits of that rate to more companies. Clause 33 therefore raises the profit limit by 50 per cent., far more than was required to keep pace with inflation. That measure will enable firms to make profits of up to £750,000 a year before paying the average rate of 35 per cent.
Mr. Dennis Skinner (Bolsover) : In this and in other Budgets in recent years, many in the Government would argue that they have given large sums of money through taxation relief to the top salaried people. The last set of figures shows that the salaries of company directors have increased by 26 per cent. Does the right hon. Gentleman take the view that those company directors who have been fed pretty well by the Government in the past few years are perhaps biting the hand that feeds them? What has the right hon. Gentleman to say about the 26 per cent. increase when low-paid workers are being packed off with increases of 4, 5 or 6 per cent.?
Mr. Major : We have made significant changes in taxation affecting people at all levels of income and not just those on high incomes. The basic rate of taxation, which affects all the 20-odd million people at work, has been reduced from 33 per cent. to 25 per cent. The hon. Gentleman will know--perhaps in view of what he has just said he will support it-- that it remains our objective to reduce that as soon as we prudently can from 25 per cent. to 20 per cent. I am pleased that he thinks that that is a desirable objective. I hope that he carries the support of his colleagues.
Mr. Gordon Brown (Dunfermline, East) : Will the Chief Secretary confirm that the very people who have been calling for wage restraint from the workers have seen their standard of living rise, after tax, by 26 per cent. in the last year? Is he aware that, according to the British Institute of Management, the standard of living of senior directors has risen by 47 per cent. in a year and that, according to another study, the standard of living of those on unearned income has risen by 87 per cent. in one year alone? Will he condemn those rises?
Mr. Major : The hon. Gentleman should bear in mind that payments to directors of companies are not a matter specifically for the Government. Taxation rates are legitimately a matter for the Government to determine. Incomes are not directly under the control of the Government. I have no intention of responding in detail and directly at the Dispatch Box on each of those points.
Mr. Neil Hamilton (Tatton) : Does my right hon. Friend agree that that little exchange shows with the greatest possible clarity the difference between the Opposition and we on this side of the House on taxation? Opposition Members see taxation as a fine on success regardless of whether it brings more money to the Treasury. The decrease in taxation rates on higher levels of income has increased the amount of money brought into the Treasury, which is then available for redistribution to those on lower incomes.
Mr. Major : My hon. Friend is entirely correct in what he says about the tax yield. It is equally true to say that under the management and guidance of the people criticised by the hon. Member for Bolsover (Mr. Skinner) there has been a dramatic increase in investment, employment, the profitability of companies and the general well-being of people in this country. We see tax changes, at both the upper and the lower level, as supply-side measures, and they have proved to be so over recent years.
Mr. James Lamond (Oldham, Central and Royton) : What my constituents in Oldham cannot understand is that, in the midst of this success story which the Minister has just told us about, last year, when they went on holiday to Spain, they got 202 pesetas for their pound, while this year they are getting only 192.5 pesetas. Does that reflect a strengthening of our economy?
Mr. Major : What the hon. Gentleman misses out of that interesting illustration is how many more of his constituents have been able over the past 10 years to afford to go abroad as a result of the policies of this Government.
Returning to the necessary, if perhaps esoteric, area of small companies corporation tax from which I was unruly ripped, I was about--
The measure in clause 33 will enable firms to make profits, as I reminded the House a few moments ago, of up to £750,000 before paying an average rate of 35 per cent. What is relevant about this is that it strengthens once again Britain's claim to have the most favourable tax regime in Europe for small companies and it has been very widely welcomed by business men and managers, who, as the director general of the British Institute of Management wisely said--and the Opposition should listen to this
"prefer stability and good sense to histrionics."
How wise the director general was.
A substantial chunk of the Bill will complete the reform of the administrative framework for the main taxes, which began with the setting up of the Keith committee in 1980. Clauses 138 to 165 simplify and update the system of interest and penalties for tax offences and revise the information powers of the Revenue. They will help to ensure that the operation of the tax system is effective and efficient, while at the same time remaining fair and just. They are the product of an almost unprecedented degree of consultation on tax matters and have been widely welcomed in responses as achieving a proper balance between the rights and obligations of the taxpayer and between the powers of the Revenue and safeguards for the citizen. Clauses 17 to 21 implement last June's judgment of the European Court on VAT zero rating. As my right hon. Friend said in his Budget statement, we have made every effort to minimise the unwelcome burden of tax that we have been obliged to impose on businesses and, more especially, charities. Again, we have consulted widely with those who will be affected ; indeed, consultation began on a contingency basis even before the judgment was given. I am glad to say that my right hon. Friend was able to meet their main proposals for minimising the judgment's impact. We have delayed implementation for as long as is possible and the transitional arrangements are said to be and are generous.
One of our main concerns has been the effect of the judgment on charities. We have managed to ensure that for their basic non-business activities charities will continue to benefit from zero-rated construction services and fuel and power. Homes for children, the elderly and the disabled will continue to be zero rated. In addition, charities will be relieved from VAT on fund-raising events, classified advertising and sterilising equipment for medical use. These measures have met with the approval of many charities. As a Royal National Lifeboat Institution spokesman put it :
"We stage all sorts of fund-raising events where the admission charge carries VAT. It will mean a good few thousand saved for our coffers."
I certainly hope so.
Mr. Robert Sheldon (Ashton-under-Lyne) : The right hon. Gentleman has been speaking for more than half an hour in dealing with the details of the Finance Bill much more fully than is normal on Second Reading. When will he turn to the critical report of the Treasury and Civil Service Committee?
Mr. Major : The right hon. Gentleman is entirely correct in saying that I have been speaking for half an hour, but a considerable part of that time has been taken up by interventions. He says that I am dealing in detail with the Finance Bill. That is what we are discussing, and it is a courtesy to the House to deal with what we are discussing.
There are a number of other provisions in the Bill which will benefit charities. Clause 25 exempts from car tax vehicles leased to the disabled. This will reduce the cost of each car by £400 and it has been widely welcomed. I quote from the deputy chairman of Motability :
"Without doubt this measure will help to enhance mobility for disabled people, especially those with very limited resources." As a former Minister of State for the disabled, this gives me particular pleasure.
The best way to help charities is to encourage people to contribute to them. In recent years in budgetary measures we have improved relief for charitable covenants, introduced relief for companies making one-off donations and, most recently, introduced relief for payroll giving.
The response has been encouraging. Between 1978-79 and 1987-88 covenanted giving to charities grew by 140 per cent. in real terms. Payroll giving has also grown steadily since its introduction in 1987. There are now over 3,600 schemes in operation covering 100,000 participants. Clause 55 gives a further encouragement to this form of charitable giving by doubling the limit for relief. I am delighted that this measure has met with considerable approval among charities. It also shows that tax reductions and growing net incomes have increased charitable giving and that we are by no means the selfish and materialistic society that the Opposition sometimes claim. Finally, and perversely, I would like to draw Members' attention to clause 1. This contains the measures designed to promote unleaded petrol, which have met with universal approval.
Despite the growing availability of unleaded petrol, its lower price and clear environmental benefits, at the time of the Budget it still accounted for only around 5 per cent. of petrol sales. That was, frankly, extremely disappointing and it prompted my right hon. Friend to try a new approach. He made it clear that he expected the full tax reduction of 3.6p a gallon on unleaded to be passed on to consumers. This has happened. The price differential at the pumps between four-star and unleaded is now generally between 9p and 10p per gallon compared with 6p before the Budget. Furthermore, the increase in duty on two and three-star has raised prices to at least the level of four-star, leading to a reduction in the market for these two grades and creating more capacity for unleaded. All the signs are that those changes are having the desired effect. The proportion of garages now selling unleaded petrol is close to 40 per cent. and is expected to top 50 per cent. by mid year. I hope and expect that that will increase still further. The onus is now firmly on individual motorists--be they two, three or four-star users--to ensure that, where they can, they switch soon to the cleaner fuel. I hope that they will do that.
The Bill contains a series of measures to improve the taxation of savings, to widen share ownership, and to help small businesses. It will simplify and modernise the administration of the tax system. It underpins the continued strength of our public finances, takes forward
Column 827our programme of tax reform, and improves the supply performance of the economy. It is a Bill well worthy of support, and I commend it to the House.
Mr. Gordon Brown (Dunfermline, East) : We welcome some of the measures contained in the Finance Bill as explained in what I suppose the press may call a less than robust defence of the Chancellor's policies by the Chief Secretary to the Treasury.
We welcome and will support the improvement in the age addition for pensioners and the change in the earnings rule for pensioners. We welcome and will support the differential in unleaded petrol, although many of us believe that the Chancellor could have gone further in that. We welcome and will support, with regard to the Chancellor and the Bill, the changes in the management of the Inland Revenue recommended by the Keith committee. Although we do not believe that they go far enough, we will welcome the changes in national insurance set out in the Social Security Bill.
However, we cannot support a Finance Bill, an economic strategy and a Budget which has done little for the vast majority of people throughout the country and which will do nothing to tackle the underlying weaknesses of the British economy.
Ten days ago inflation crept up to 7.9 per cent. when at this time last year it was half as much at 3.9 per cent. Tomorrow, even if the best hopes of the Chancellor are realised, we will still be running the worst trade deficit in our history and certainly a worse trade debt than our European competitors.
Ten months after interest rates began rising, home owners could be excused for hoping that it was time that they came down. However, once again they fear that interest rates are in danger of rising, even when interest rates are 5 per cent. in Japan, 6.5 per cent. in Germany, 10 per cent. in America, but are already 13 per cent. in Britain.
Interest rates have been at 13 per cent. for five months and they have been above 10 per cent for nine months. Inflation has been rising for 13 months in a row. The balance of payments deficit has been worsening for just about all the time that this Chancellor has been in office. As a result of the need to finance that deficit, the high interest rates have meant that 9 million mortgage holders have had to pay on average an extra £40 a month in mortgage repayments. In the face of all that, people will want to know why, after 10 years of this Government, after 10 years of North sea oil revenues when the Government have received £76 billion in tax returns from the North sea, we are going to end this decade with the highest inflation, the highest interest rates and the worst trade deficit of our major competitors. Is it not therefore surprising that the Treasury and Civil Service Committee, whose report I will mention even if the Chief Secretary to the Treasury would not, said that the Chancellor is walking on a tightrope? Is it not also surprising that almost all the expert evidence which the Committee has been able to assemble has been critical of the Chancellor's policies? I commend the Chairman and his Committee for doing such a thorough job in examining the economy.
Is it surprising that at least one Cabinet Minister has deigned to come above board and criticise the full thrust
Column 828of the Chancellor's policies when referring to the Chancellor's high interest rate strategy and the impossibility of one simplistic economic dogma solving a nation's economic problems? The Secretary of State for Wales called for regional and industrial investment and expressed his fears about what is happening in the economy at the moment. He said :
"Capitalism could be severely damaged if we continue a system where currency exchange rates fast fluctuate as a result of the decisions not of Governments or of major industrialists but of those who command the vast flows of hot money circulating throughout the world."
The Chancellor has brought us to that as a result of his policies. Perhaps the most astonishing criticism among the growing criticisms of the Chancellor was that made in a recent speech by the director general of the Confederation of British Industry, Mr. John Banham-- [Interruption.] The Chancellor may laugh at Mr. Banham, but Mr. Banham may read the report of our debate in Hansard.
Mr. Banham compared Britain in the 1980s, not, as the Chancellor does, with Japan in the 1980s, but with Britain in the 1930s. He said that the Chancellor's policies reminded him of Churchill's phrase about the 1930s-- the "locust years." He questioned whether the "locust years" was a term which could be applied to the 1980s. He questioned also whether we are in danger of making the same terrible mistakes today and being guilty of the same short-termism for which we have rightly criticised Chamberlain and Baldwin.
"cautious responsible budget with some useful measures for business which will help smaller companies in particular."?
How is that consistent with the slashing attack which he has recently given?
Mr. Brown : Mr. Banham was referring to the kind of measures which we have welcomed. Mr. Banham, in his speech of 16 March, criticised the Government for bringing us to a position where the 1980s may be the "locust years."
Mr. Banham has been even more critical of the Government's record on inflation. He blamed the Government for water and electricity price rises as being the single most important factor in pushing up inflation. He said that the Government are creating inflation in a way which will postpone vital investment which could deal with the underlying causes of inflation. The hon. Member for Daventry (Mr. Boswell) cannot look for much comfort in Mr. Banham's comments. He should reflect on the remarks by the CBI. He should also consider the results of surveys like that carried out in Scotland which showed that investment intentions are now the worst for 18 months and that there are worries that manufacturing employment may fall.
We have the highest interest rates of our competitors, the highest inflation rate and the worst trade deficit in our history. I believe it was the Chairman of the Treasury and Civil Service Committee who first said in November that