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Column 860hospitalisation and cold or non-urgent surgery. Insurance schemes have generally not been able to grasp the nettle of chronic illness or continuing care.
Successful dental care is based on routine and regular visits to the dentist, who will provide continuing care and preventive advice and treatment so that substantial tranches of heavy treatment do not suddenly become necessary. One of the problems of the present method of NHS remuneration is that it encourages short-lasting piecework and discourages prevention. Piecework mitigates against quality. It is worth noting that the best insurance against oral cancer is regular routine visits to the dentist. Oral cancer has become particularly prevalent among the over-60s who, because many of them have full sets of dentures, are less than assiduous in visiting the dentist. A six-monthly check-up would lead to a much greater likelihood of early diagnosis of oral cancer for the over-60s.
What is needed, therefore, is a scheme which offers continuing care by way of a contract between patient and dentist and which also insures against unforeseen dental misadventures, including those suffered abroad, in return for a regular modest premium paid monthly, so that preventive care by the dentist brings the reward of having less work to do later. The company which I have lately advised has developed such a scheme, which combines continuing care with insurance against traumatic episodes. Interestingly, treatment is free at the point of delivery and is given in return for a regular monthly contribution which averages £6 to £7. Individual contracts between patient and dentist are made irrespective of whether payments are made under individual or corporate schemes and the participating dentists monitor one another's quality by a unique system of peer review. This is a good scheme which has achieved accreditation from the British Dental Association.
Rumour has it that dentistry is to be excluded from tax relief on medical insurance premiums for the over-60s and that only traditional insurance- based schemes are to be eligible. That would be a shame because I believe that continuing care schemes which have been pioneered in dentistry could be developed into a most important contribution to primary care provision. What is good for 3,200 dentists and 45,000 of their patients could well develop into general practice and other branches of medicine and paramedicine. The wide definition of what constitutes a scheme eligible for tax relief and the inclusion of dentistry would give continuing care schemes a fillip. The resulting reduction in the burden on the NHS would allow earlier treatments for those not able or willing to pay private medical insurance. Only the ideologues on the Opposition Benches would oppose such a benign measure as the tax relief proposed in the Budget.
Dr. Lewis Moonie (Kirkcaldy) : When the hon. Member for Gillingham (Mr. Couchman) referred to a unique form of care, I thought that he was going to talk about dentists operating on their own teeth. That would certainly be a unique form of care review. Apart from that, I will leave my comments on the merits or otherwise of private medical insurance to another debate.
The Bill and the Budget proposals from which it stems must be considered in the context of the current economic situation and the prospects for the future. It is easy to be
Column 861wise with hindsight, so I propose to do just that and consider what the Chancellor should have done last year and would have done had he been aware then of what he is aware now. It is easy to be wise with hindsight because it is difficult to forecast what is going to happen. Our economic indicators are so unreliable that forecasting is a discipline which is fraught with uncertainty and something on which we would not want to place too firm a reliance.
It is harder to say what the Chancellor should be doing now than what he should have done a year ago. When I read the Chairman's draft report of the Treasury and Civil Service Committee, I thought that it was remarkably anodyne. I was therefore surprised to read the press reports over the past few days stating how severely and stringently we had criticised the Chancellor and his team. Nevertheless, it is clear from the evidence which the Committee received that the present economic cycle has peaked. We must now ask how far we will slide down the other side, how deep will the trough be and how quickly will we fall into it.
The cliche of the Chancellor walking a tightrope has been mentioned several times. One slip and off he goes. Perhaps in the Chancellor's case, one decent job offer and off he goes--and perhaps not in the too distant future.
There is an awful inevitability about all this. Chancellor after Chancellor has tried to buck the trend, and to avoid falling into the trough which follows the peak, and failed. The Chancellor's problem is perhaps analogous to a surgeon who decides to conduct a delicate operation on the brain, reaches round to his instrument table and finds that he has only a saw and a sledgehammer. In addition, the quality of the team which he has with him is obvious.
It does not help to have blunt instruments, and most of the tools available to the Chancellor are sadly blunt instruments. It might help if he used more than one at a time. The effects of his blunt instruments take an indeterminate time to be felt and the total level of their effect is hard to predict.
The tightrope is not a very accurate description. Perhaps it would be better to describe the Chancellor as a man standing at the top of a very narrow peak with pitfalls on all sides. A tightrope would suggest only one or two sides--
The Chancellor is standing on top of such a pinnacle and he is surrounded by potential disasters. The end point is recession, but the pitfalls include a multitude of inter-related factors such as inflation, capacity constraints which our economy has clearly run up against over the past year, the balance of trade, the value of the pound, the level of domestic demand, the level of investment and the rising level of wages.
The pre-election boom of 1986 and 1987 has come and is about to go and we are left with its after-effects. Excess demand has led to capacity constraints in the economy and to our worst ever balance of trade deficit in manufactured goods, and in construction materials to the extent of £2 billion last year. In order to make themselves more
Column 862competitive, factories in my constituency must go abroad to find the machinery with which to retool. That is a result of the Government's policies.
Inflation has risen and will continue to rise. The abandonment of any coherent regional policy has meant that the south-east has attracted most of the investment and is now facing a critical and growing shortage of labour, while Scotland, the north of England and Wales still have unemployment levels of over or around 10 per cent., even using the Government's doctored figures.
The problem is compounded by our continued failure to retrain unemployed workers and by the present demographic trend with which I accept the Chancellor has very little to do. The number of young people entering the job market is falling. There is also a critical shortage of housing in the boom area of the south-east which makes it impossible for an unemployed worker in my constituency in Scotland to move here in search of work and bring his family with him. It is therefore hardly surprising that wage increases are accelerating with the inevitable consequence of higher prices and increasing inflation. To cure the over-heating which has resulted from his policies, the Chancellor has selected his blunt instrument--interest rate policy--with the intention of choking domestic demand. He is predicting that the demand will switch to exports and that will reduce our current trade deficit. It is very difficult to find any economic analyst who agrees with the Chancellor about that.
I want to quote from some of the advice that was given to the Treasury and Civil Service Select Committee and which is included in the report :
"Finally the balance of payment deficit now faced by the United Kingdom is larger than at any previous cyclical peak. There seems little reason from the point of view of supply performance to believe that the deficit will be easier to eradicate than in the past. Furthermore, while the deficit is running at present levels, the risks of a really hard landing for the economy will remain. There has been no instance of a major economy successfully running a deficit on this scale for any length of time, at least not without substantial depreciation in the exchange rate."
Interest rates at their present level have unfortunate side effects. They maintain the value of the pound and make us less competitive abroad. They increase industry's costs, making borrowing for investment more difficult. They increase the cost of mortgages, putting even greater pressure on wages, and that is compounded by the higher prices for water and electricity, as my hon. Friend the Member for Dunfermline, East (Mr. Brown) said earlier. The recent increases in petrol prices will not help. All those factors will drive inflation higher and place further pressure on wage levels. High interest rates also attract hot money from abroad ; money which could equally well flow out if conditions change. We are heading for the worst possible situation where the Chancellor will find that his crude weapon smashes domestic demand, which will lead to recession, increasing unemployment and inflation. The beneficiaries will be West Germany, the United States of America and Japan.
What about this Bill? The Government's policies have fuelled domestic demand and pushed up inflation, as a direct result of the Chancellor's folly. He has told us that he will not increase duty on tobacco and alcohol this year as that, too, would increase inflation. The result is a dangerous blow to people's health which, as he
Column 863barefacedly admits in his interview with the Treasury and Civil Service Committee, he holds less important than fighting inflation or presumably his own political future. Frankly, I would rather he had concentrated his energies on avoiding the price increases in electricity and water, brought about as a direct result of privatisation, and on increasing the price of alcohol and tobacco. The Chancellor has done nothing about the availability of credit. Conservative Members say that nothing can be done about it. I accept that, as we approach 1992 and the internationalisation of our finance market, it is becoming more and more difficult to do so. However, when I see advertisements such as those yesterday in the popular press offering people loans of up to £10,000, secured on their houses, with nothing to pay until April 1990, I refuse to believe that it is impossible for the Chancellor to do anything about that type of abuse of personal credit. There is no way on earth that such loans are justified and no way on earth that Conservative Members can say that nothing can be done about it. Something can be done to choke off the worst abuses of the credit system, even if general credit squeezes cannot, or will not, be applied by the Government.
If the Chancellor were sensible, he would have given some recognition in the Budget to the need for a proper regional investment policy to reduce the imbalances between the south-east and the rest of the country, and, hopefully, to allow the economy to continue to expand as it could do if those imbalances were redressed. He could have redressed the imbalance between rich and poor and done much more for those at the lower end of the earnings scale. He could have signalled his intention to increase capital investment and encourage saving rather than consumption. He has done none of those things, and therefore we must sit and await the consequences of his folly.
Mr. John Heddle (Mid-Staffordshire) : As I wish to address my brief remarks to two specific points--the cost of mortgages and house prices, and value added tax on buildings and land as contained in clause 17 of the Bill --it is appropriate for me to declare two interests. First, I am vice- president of the Building Societies Association. I agree with the hon. Member for Kirkcaldy (Dr. Moonie) that there is no doubt that great hardship has been caused, particularly to first-time buyers such as young married couples, who have been induced and persuaded to borrow more on mortgage than they can afford. Due to the lack of rented accommodation, they have hitherto perhaps had no alternative. Therefore, in some cases, they have borrowed more than was prudent or sensible.
Like the hon. Member for Kirkcaldy, I deplore the sort of irresponsible advertisements to which he referred and which I too saw in yesterday's popular press. Day after day other loan companies continue to lend money on consumer credit and take charge of the unwary borrower's house.
My hon. Friend the Member for Beaconsfield (Mr. Smith) kindly allowed me to intervene in his speech after he had answered a question put to him by the hon. Member for Hackney, North and Stoke Newington (Ms. Abbott) about the cost of borrowing on mortgage. Over the past three or four years, some banks, both national and
Column 864international, and some building societies have done the house buyer no service and no favour by encouraging him to borrow money to a greater extent than was prudently sensible.
When I practised as a surveyor before becoming a Member of the House, most building societies, and most members of the Building Societies Association, encouraged members to borrow only two and a half times their incomes, or two and three quarter times their incomes if their wives were also working. Now advertisements encourage purchasers to borrow up to four times their annual income. This inevitably means that many borrow beyond their means which, because of the current level of interest rates, causes unnecessary hardship. Purchasers borrow beyond their means and, because more money goes into the housing market, it pushes house prices higher and higher. With the current level of interest rates, I sincerely hope, as I know does my right hon. Friend the Chancellor, that the leapfrogging has stopped.
I shall repeat what I said in my earlier intervention. I am certain that any borrower in my constituency who puts before me his current housing difficulties, born out of the current level of interest rates, has only to go to the branch office of his building society and explain the facts simply and honestly to receive a sympathetic hearing. The building society will reschedule the mortgage, freeze the capital repayment, and perhaps spread the borrowing over a longer period.
Secondly, I must declare my interest as a consultant partner to a firm of surveyors. I hope that the House will accept that I bring a modicum of practical sense to an apparently theoretical problem in the Finance Bill. That problem involves the imposition of value added tax on non-domestic construction work, which was brought about not at the behest of the Government but by a ruling of the European Court, published on 21 June last year.
I pay tribute to my hon. Friend the Economic Secretary to the Treasury who, in conjunction with the Customs and Excise, published on the same day--21 June last year--a consultative document explaining the practical implications of the European Court's ruling and suggesting certain measures to bring transitional relief. Following the publication of the consultation document, there was a consultation period which, I believe, expired at the end of September last year.
I pay tribute to the officials of the Customs and Excise who listened understandingly to the many representations. I pay particular tribute to my hon. Friend the Economic Secretary, whom I know from personal experience of taking constituents and others to see him to explain the practical effects of the ruling. He listened with sympathy and understanding. I also know that certain amendments were made to the transitional arrangements, because they were incorporated in the draft clauses published in February.
I put it to my right hon. Friend the Financial Secretary to the Treasury that the Treasury has not gone far enough in accommodating a number of schemes which, and contractors who, do not fulfil the conditions contained in the transitional arrangements. I relate my remarks particularly to schemes of inner city renewal, which are such a vital plank of the Government's manifesto. Any scheme which was legally committed by 21 June-- the date of the European Court's judgment--will not be subject to VAT. A number of schemes, although not legally committed, were commercially committed. It is in the
Column 865nature of inner city redevelopment, and development generally, that the contractor will spend a considerable amount of money on infrastructure, planning, design and rerouting roads, under the broad umbrella of a head of agreement or a letter of intent that will fall short of a legal commitment. The imposition of value added tax, as contained in clause 17 and schedule 3 of the Bill, will cause considerable hardship and, no doubt, loss to a number of schemes committed to inner city regeneration.
I ask my right hon. Friend the Financial Secretary to consider with officials in the European Commission whether transitional arrangements can be extended--as I am sure they can--to ensure that those inner city schemes, which may well show a loss for the contractor, are included in the transitional arrangements. 7.38 pm
Mr. Ieuan Wyn Jones (Ynys Mo n) : Earlier, the hon. Member for Wanstead and Woodford (Mr. Arbuthnot) eulogised about last year's Budget, which I thought was thoroughly irresponsible. This year, he complimented the Budget in part, which I did not think was much to write home about. I declare an interest because, like him, I am a solicitor involved in estate tax planning. I share his concern about the effect of clause 167 of the Finance Bill which has serious consequences for small businesses and many of the people whom we have heard mentioned in tonight's debate. When I refer to small businesses, I do not mean those run by the sort of people mentioned by the hon. Member for Beaconsfield (Mr. Smith) who wish to invest £1 million. In all my experience, I have never had a client who wished to invest £1 million. I am talking about small farmers and business men, shopkeepers, those involved in manufacturing, and all who make up the fabric of rural society and who are in danger from the clause. In recent years, many owners of businesses have sought advice on how best to ensure that their families succeed to those businesses on their deaths. Their concern is a result of the incidence of inheritance tax--formerly capital transfer tax--on death and also capital gains tax on lifetime transfers if a transfer was contemplated either on retirement or owing to ill health. Giving advice on such matters is not simply a case of considering the tax implications ; many other factors must be considered, such as the ages of children, the assets that might be available to a surviving partner and the relationships within families. Nor is it a case of merely looking at tax advantages : it is a case of weighing up the available advantages and giving the best all-round advice, considering all the relevant factors.
Most proprietors of small businesses whom I know have only one thought in mind--how they can make arrangements that are in the best interests of their families and businesses. That is the sole criterion. If they can settle their affairs in such a way as to ensure the smooth transfer of the business to the next generation without being subjected to substantial capital taxation on death, or on lifetime transfers, they will be content.
I want the House to understand--I make this point time and again--that I am not talking about wealthy landlords or City whizzkids. I am talking about ordinary people in rural areas who have a small or medium-sized venture, the value of which has risen in recent years as a
Column 866result of roaring inflation in the property market. They cannot be blamed for that, and they do not seek to exploit it to realise their assets. They have few liquid assets on which they can lay their hands ; all their investment is linked with the business, and all the capital is unrealisable.
Those with access to expert tax advice normally arrange their affairs in the way that I have described, and in such cases no problems usually arise. Circumstances, however, can and do change, and as such changes cannot be predicted there must be a period during which alterations can be made to meet the new circumstances without families being penalised.
Let us take the case of a farmer and his wife who have two sons and a daughter. At the time when the arrangements are made, one son farms at home and the other is at school, while the daughter is married and living away. It would perhaps be appropriate for the bulk of the estate to be left to the son who is at home, with separate arrangements being made for the other son and the daughter ; but, as I have said, circumstances change.
Let us say that both the father and the eldest son are killed in an accident. The family may want to make new arrangements in such tragic circumstances. They may want to rearrange the estate so that the other son- -who, say, is now at agricultural college--will have the bulk of the estate. Unfortunately, owing to the changes in clause 167, that cannot happen because of the resulting tax implications : in other words, the changed circumstances will mean that the family will lose out. Possibly the asset will have to be sold on the open market and divided among the rest of the family. They will have cash, but a family asset will have been destroyed. That surely cannot be the Government's reason for introducing the clause, but that will nevertheless be its effect.
We are not talking only about changing circumstances. We are also talking about people who have not the resources to gain access to expert tax planning advice, or who choose not to do anything about it. Those people themselves are not being penalised ; they have left the scene. It is the families left afterwards who will have to face the crippling circumstances.
In my experience over the years, the variation rules are used not for tax avoidance purposes--as is claimed by the Government--but as an opportunity to solve two kinds of problem. First, they are used to put families in a position no worse than would have resulted had proper arrangements been made ; secondly, they are used to take into account changes that have occurred since arrangements were made which there has been no opportunity to amend.
In my opinion, tax avoidance schemes are stitched up well in advance. They do not rely on discussions after a death, which can often be traumatic, hazardous and difficult to predict. All the variations that we are talking about require the consent of all the parties who are to benefit. Some will lose out : clearly, if there is a variation, there will be some gainers and some losers. It is very difficult to obtain consensus within a family after a death, and the Bill will make it impossible for any such arrangements to be made. The real tax avoider would not leave it to chance.
The Treasury, in my view, is aiming at the wrong target. The provision must be reviewed ; otherwise, for the sake of an insubstantial gain for the Treasury in duty, many small
Column 867businesses will be driven to dispose of their assets, and the fabric of some of our rural communities may be endangered. I believe that that is entirely unnecessary.
Mr. William Hague (Richmond, Yorks) : I wish to speak only briefly, but in so doing I shall give my reasons for supporting what I consider to be a very good Finance Bill, and to raise a few questions that Treasury Ministers may wish to consider.
Many right hon. and hon. Members have discussed the overall economic position at length, and I do not intend to follow them. Let me say merely that if it is true, as I believe it is, that our key economic objective at present is to restore low inflation--low, that is, by international standards--we should understand that the Treasury's current policy is heavily focused on that objective. We have the tightest fiscal and monetary policy that we have had for many years--tighter than many people appreciate. The instruments of that policy--public sector debt repayment and high interest rates--have come in for considerable attack, and no doubt the policy has its risks, as the Treasury Select Committee has pointed out. I believe, however, that the emphasis has been rightly placed on dealing with inflation, and that that will be shown to be so. All the other arguments that we may advance about competitiveness, employment and output eventually depend on it.
The Bill deals with the overall level and indeed the detailed structure of taxation. The reason I support it so strongly is that it takes us nearer to the point at which taxation is structured so as not to discourage people from earning more, working harder or achieving success, whatever their income levels. That, I believe, is the main principle on which taxation should be based ; it should raise the required amount of revenue, with the minimum interference with the industry and efforts of the people.
To many outside the House, that may seem a statement of the obvious, but it is a new development for the tax structure in Britain to be consistent with that principle. Not many years ago the reward for success was to be penalised by massive marginal income tax rates : it cannot be many years ago, for even I can recall it. Those tax rates were presumably designed to discourage the payment of high salaries. Certainly their objective was not to obtain the required revenue, as the total revenue from the highest earners went up considerably after the rates were reduced.
It was only last year that people stopped losing more than half of any increase in their pay if they were paid more than a certain amount. Only following this year's Budget will some low wage earners cease to face their own excessive marginal tax rates, as represented by national insurance contributions. The changes that are to be made in national insurance contributions are welcome, as they concentrate what are in effect reduced tax rates on many of the lowest wage earners. Even so, it is hard to view national insurance contributions today without wondering about their long- term future.
Mr. Battle : Is it not the case that when the analysis is done what has been gained in the national insurance changes by people on lower wages is in fact taken away if they claim the family credit allowance, so that they do not gain a penny as a result of the changes and people are not taken out of the poverty trap?
Mr. Hague : It does deal with the excessive marginal impact of the national insurance contributions. However, we will always need to do more work in that area. Clearly further action can be taken to improve the situation.
The integrating of income tax and national insurance contributions would be an immense administrative task, given the contributory principle behind the benefit system. In the long run, we must ask whether the contributory principle is worth the trouble of having two types of income tax whose combined effect is to cause the payment of tax to start at a lower level than might otherwise apply, to produce some very strange ups and downs in the marginal rates at higher levels of income and, indeed, to make the benefits system more complicated.
I believe that the abolition of the pensioners' earnings rule also fits the same theme. Few of those penalised were earning a fortune. The change made in the age allowance is also very good. Previously some pensioners paid more than a 40 per cent. marginal tax rate, while the rest of the country had ceased to do so. Again, people will now have a greater incentive to earn a bit more. The changes in corporation tax for small companies are also part of this theme. People will have an incentive to do a bit better and earn a little more.
Thus, this Bill can be seen as part of a continuing and, I believe, healthy process. Last year's Budget did much to move the tax system away from stamping on effort and success ; this year's Budget takes a few more steps in that direction. It is a Budget that does not menace, frighten, threaten or act out any vendetta against any section of the population. Having regard to some of the tax legislation in previous decades, this Budget therefore represents a rather refreshing and considerable achievement. We have not yet obtained a perfect tax structure, as even my right hon. Friends on the Treasury Bench would concede. It would be good in future to see fewer people pay tax and to see many doing so at a lower rate. As my hon. Friend the Member for Beaconsfield (Mr. Smith) said, it would be good to get rid of some of the taxes currently paid.
We cannot complain that this Bill lacks anything in volume. It is a daunting sight even to one who has never set eyes on such a Bill before. Clearly some changes which are buried within it and which have been spoken about by my hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot) and the hon. Member for Ynys Mo n (Mr. Jones) have not yet received wide publicity but merit careful consideration. They referred to changes in clause 167, which refers to deeds of family arrangement. As I understand it, the effect of the Bill will be that people who would have had a chance to reorder the affairs of a deceased person by general agreement will no longer have that opportunity. The people most likely to be adversely affected are not the super rich who could have their wills rewritten every other day if they so wished, but the small farmer or business man who has never been rich but who has considerable assets in his business and who made his will many years before his death. The intention of the will may be frustrated in such cases by economic or legal changes in the meantime. There may be good arguments for the clause, but we need to hear them.
Members on both sides of the House accept that taxation is used still as an instrument of social and environmental policy. The increased differential between leaded and unleaded petrol is an example, and is widely applauded in the country. Another example is the imposition of duty on tobacco. I hope that the possible
Column 869impact of the increase in duties on retail price inflation is the only reason why my right hon. Friend has not taken more action on that this year.
The encouragement of charitable giving is another use of tax policy for social purposes. The doubling of the amount allowed under the payroll- giving scheme is an excellent proposal. However, I wonder whether the time will come before long to consider further tax incentives for charitable giving on a larger scale. I also wonder whether the Treasury has exhausted the limits of examining whether it is necessary for VAT to be imposed on village halls. Much is being said about the age of the active citizen, so it will be good if we could do a bit more sometimes to encourage the active citizen in his activities.
In summary, then, I applaud the Bill which, with appropriate caution, takes us closer to a fair structure of taxation in this country and deserves the support of the House.
Mr. Tony Worthington (Clydebank and Milngavie) : My attention was directed yesterday to an article about the Secretary of State for Energy who was billed as the top table Tory who probably understands industry best. It was interesting to read the article, because it may well refer to the thoughts of the next Chancellor of the Exchequer, given that the present one is clearly on borrowed time. It was depressing to read the words of the Secretary of State for Energy because, if he became Chancellor, judging from those words there would not be any change in thought about the respective roles of manufacturing and service industries.
I found it depressing to read that the Secretary of State for Energy saw manufacturing industry very much as a phase from the past. He was saying that if we looked at the trend worldwide we could see that we would never need the same number of people in manufacturing to produce an absorbable quantity of goods.
It is important that he should say that, because it contradicts the experience in Japan where, over recent years, a growing number of people have been employed in manufacturing industry. The Secretary of State for Energy was told, in the article, that whole sectors of British industry, for example, machine tools, had never come back. He was asked whether he considered that that mattered. It is interesting that if one goes around the country visiting factories one cannot find a British machine tool industry, and there seems no willingness in this country to find the means by which it would return. In answer to the question asked by the interviewer, the Secretary of State for Energy said :
"Comparative advantage has to be the basis on which you trade. If other people make things better than we do and we deny ourselves the opportunity of buying for some false nationalistic reasons, we just put ourselves at a disadvantage."
Indeed, we certainly have put ourselves at a disadvantage in recent years. When one looks at the consumer goods in one's life, one can see how few come from this country. We must challenge the idea that there is a maximum number of goods that can be produced or absorbed. I cannot imagine that Japanese industry is saying that it must hold back because the world cannot absorb any more of its products. The idea that we can just leave manufacturing
Column 870and that services industries will take over is specious. The idea that fewer and fewer people should be involved in manufacturing as being a measure of the strength of the economy is specious. The idea that people will turn their surplus funds to the use of the services of people is also specious.
I have already referred to the increase in the number of people in Japan who are involved in manufacturing. In the United States as well there has been a negligible decline. It seems that service industries depend on manufactured goods--that they are packed full of manufactured goods. I assume that we shall continue buying from abroad. All the services that I can think of will ultimately be replaced by goods. There is a tendency constantly to development technology which will allow the provision of a service to be by machine.
We used to have laundries, but they have been replaced by machines that do the same work. Dry cleaning is a service industry that will disappear once a machine is developed for use in the home. Cinemas--although there is a degree of recovery--are being replaced by video production. Many manufactured goods are designed to provide a service, and people choose to buy such goods rather than have those services provided by people. One does not go into a bank, for example, but draws cash from a machine outside it. There is no longer the need for the cashier inside the bank that there used to be. The interval between car services grows longer.
It is unlikely that there will be a growth in the number of people required in service industries in future. In the financial services industry, for example, people will be progressively replaced by machinery and by goods. It is essential that we change our attitude about manufacturing. The service industries cannot replace manufacturing industry, particularly in respect of exports. There has been a massive expansion in air travel, for example, whose export earnings are equivalent to what was earned in the past from the motorcycle industry. However, service industries cannot be exported in the way that manufactured goods can.
We must follow the Japanese pattern of spotting the manufacturing future. I refer to the home entertainments industry as one example. We cannot leave it to be continually dominated by the Japanese. We know that in future we must look more seriously at the whole area of fibre optics, high definition and digital television, if we are to operate on a European scale and ensure that we claw back our share of that industry.
The Government appear to take a hostile attitude to manufacturing. In particular, we are massively under-equipped in terms of work force skills. In 1985, the number engaged in manufacturing training was only one quarter that of 1968. In Scotland, Scottish Enterprise will rely on the private sector to provide better training, but the private sector has conspicuously failed to deal with that aspect in the past.
I cannot but be fearful about the future, when the Americans eventually get around to dealing with their own budget deficit. There may be some idea around that they are tackling that aspect. Recently, I have been very impressed by the publication by William Cline dealing with the global impact of the American trade adjustment. As an outsider, he has no reason to be deceitful. He observes that when the Americans get around to sorting out their budget deficit, it will be extremely worrying for the British because the weakest external sector outlook is
Column 871that of the United Kingdom, which stands in a class of its own. When the recession hits, as it is almost certain to do, then because of the way in which the Americans will have to operate--by raising interest rates, or by protectionism, or by using other means-- Britain, which already has a considerable budget deficit, will be hit even harder. It is possible to forecast a further decline in Britain's manufacturing industry.
We find ourselves in the situation we do because of our historical neglect of manufacturing industry by Governments of both parties over a long term. We have not given our workers enough training, and neither have we invested enough in research and development. We have fallen behind. The only reason why investment per person in recent years has not plummeted is that we have one third the number of people employed in manufacturing industry that we had in the past. It is a simple fiction to think that in future we shall have low unemployment because service industries will take over. That is not true. We must tackle the problems of manufacturing industry with vigour and with a sense of interventionism that is conspicuously absent from the Government's proposals in the Bill.
Mr. William Powell (Corby) : I am sorry that my right hon. Friend the Paymaster General has just left his place because I intended to begin my remarks by commenting that I suspect that for him the most important and interesting pages in today's newspapers are the cricket pages. I must confess that for me they are the racing pages--not only for their intrinsic interest but because the racing pages in both the national newspapers and the specialist press subject their writers and tipsters to the relentless discipline of having their forecasts checked there and then, that day, by the actual result on the race course. I cannot help thinking that if only the economic tipsters were subjected to the same relentless discipline, we might see a great deal more caution, and much more humility, among those who forecast in the House and outside it.
Let us take that notion one stage further, and reverse the situation so that the economic writers become the racing tipsters and the racing tipsters become the economic forecasters. I imagine that the quality of information that would then become available for national policy making would be a great deal better and more reliable than it is at the present time.
We have listened to a great deal of speculation--and that is all it is-- about what might be happening in our economic life. We know perfectly well that most of last year's speculation was wrong--often badly wrong. The Chancellor was criticised, but most of his critics were just as badly wrong as he has ever been. We should bear that in mind. Economic policy is not determined by short-term factors of the kind so often identified this afternoon and this evening, but by much longer-term factors. The British economy in the 1980s is very dependent upon what happened in the 1970s. What happened in the British economy in the 1970s was totally dependent on what happened in the 1960s. What happens in the 1990s will be the product of what happens in this decade.
The House will bear in mind my interest in the racing pages when I forecast that there is a rich harvest to be gathered for this country in the 1990s as a consequence of the fundamantal structural changes made during the present decade. My hon. Friend the Member for Horsham
Column 872(Sir P. Hordern), in describing the speech of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), used the expression "charming". I extend that expression to cover the speech of the right hon. Member for Llanelli (Mr. Davies) because he and the right hon. Member for Ashton-under-Lyne had responsibility in the Treasury in the 1970s, and they may look back with nostalgia upon their success during those days.
However, those successes were not viewed as such by the rest of this House, nor are they so viewed by the rest of the country at the present time. At that time they were not viewed as successes, and the position does not look good in retrospect either. So that those two right hon. Gentlemen are welcome to go down memory lane, but they should not imagine that they deceive anybody in the Opposition, anybody on the Government side of the House, or anybody outside. The right hon. Member for Ashton-under-Lyne talked about how one third of the manufacturing industry in his constituency had been wiped out--so he said--in 1980 and 1981 by this Government. My constituents remember March 1979, when the Labour Government announced that Corby steelworks, which employed three quarters of the population of the main town in my constituency, was to close. My constituents do not look back with nostalgia upon the so-called golden days of the 1970s--far from it. That kind of analysis deceives nobody.
What my constituents do notice now are the enormous changes brought about by the investment that has taken place in the 1980s. At first, those changes were rather fragile, then they gathered steam, and now they amount to a raging boom. Every single week, when I return to my constituency, I see still more factories being constructed. Each week, changes are taking place--and this in an area that undoubtedly experienced some of the highest unemployment levels in this country earlier in the decade. That is why I am so confident that there is a rich harvest to be gathered in the next decade as a result of the structural changes that have been made in our economy during the course of this decade.
I welcome this Finance Bill. I welcome most of its proposals with very considerable enthusiasm. However, I have to say to my hon. Friend the Economic Secretary to the Treasury that there are aspects of it that I find disappointing, and one or two aspects that are unwelcome. I will deal first with those that I find unwelcome. My hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot) and the hon. Member for Ynys Mo n (Mr. Jones) mentioned clause 167. We shall have to look again at that clause, and the criticisms by two people who are experienced practitioners in this field will have to be taken on board. In the course of the deliberations of the Standing Committee, I shall certainly do my bit to see that these matters are looked at again very carefully.
I agree entirely with the criticisms of my hon. Friend the Member for Horsham in his very wise and perceptive speech, and of my hon. Friend the Member for Beaconsfield (Mr. Smith) about whether tax relief should be extended to people over 60 who have private health insurance. As the argument stands, I shall be unable to join the Government in the Lobby when these matters come to a vote in due course. I say so on the basis that it is entirely wrong to extend tax reliefs further and further unless there are the most profound reasons of national endeavour for doing so. At this stage I am not persuaded by the arguments that have been put forward for this extension.
Column 873I am disappointed by the inheritance tax provisions in the Bill. My hon. Friend the Member for Beaconsfield identified tax abolition as an entirely noble and proper course for Chancellors in their Budget speeches and in the ensuing Finance Bills. I have to say that it is time that the inheritance tax was abolished. It brings in only just over £1 billion a year. There are already enormous exemptions, and the fact is that, because of its arbitrary nature, it is capable of doing immense damage, particularly to the business fabric of this country. My hon. Friend knows of my interest in unquoted and family businesses. In the case of these businesses, inheritance tax can be paid only out of active assets. That leads to take-overs, sell-outs and centralisation of a most undesirable sort.
If we are to have the sensible regional policy for which a number of hon. Members have called during this debate, we must face up to the implications for regional policy of inheritance tax and its predecessors. Over a generation, enormous damage has been done to our regions by nationalisation, by the huge and burgeoning growth of pension funds based in London and using London as the base for their investment decisions, and by the subsidy to public companies taking over private companies, usually in the form of roll-over relief--that itself being necessitated by capital transfer tax, inheritance tax, estate duty, or whatever it may have been called.
I want to make two final points. First, I welcome the ESOP provisions that have been introduced in this Budget, but I hope that my right hon. Friend the Chancellor will not regard them as a panacea. They will be useful in encouraging employees, in giving incentives to certain types of companies, but many family businesses will find them irrelevant to their necessary task of ensuring that their employees too enjoy the kind of incentives that are increasingly widely available outside family businesses. I warn my hon. Friend the Economic Secretary that when we come to discuss in detail the Finance Bill's proposals for the abolition of the closed companies legislation I shall make it clear that I do not think that my right hon. Friend has selected the best means of doing this. There are potential nasties in the scheme that he has put forward, and we will need to look very closely at the proposals.
Lastly, I welcome very strongly the added incentives to motorists to use unleaded petrol. I am one of a growing number of people who, since the Budget, have taken advantage of that incentive, and I hope that many thousands will follow. They will not only benefit from lower prices but do their own little bit to see that further damage to our environment is limited to the greatest extent.
Mr. John Battle (Leeds, West) : Opening the Second Reading debate the Chief Secretary to the Treasury used again the oft-repeated tale about booming Britain. He talked about a dramatic improvement ; he said that the country had never been in such a good position ; he spoke of its outstanding record of success. I suggest that such descriptions have developed a very hollow echo for millions of people in Britain, who are not experiencing what the hon. Member for Corby (Mr. Powell) referred to as "a rich harvest".
Column 874During yesterday's debate on social security, hon. Members on the Government side, faced with evidence of social security reductions for those on the lowest incomes, had real difficulty in claiming that real living standards are rising. We are entitled to ask whether all the people in our society are participating in this much-vaunted boom in Britain. Are all getting their share of this increasing wealth? Recently, The Sunday Times published a comprehensive study of Britain's richest people. That may give us some idea who has been gaining as a result of this Government's finance policies. The next day one of the tabloids published an article under the banner headline
"It's still the posh that's got the dosh".
In view of the grammar, I hardly need say which tabloid it is. A sub-head says :
"Try Eton or the Guards if you want to get rich"
[Interruption.] Is the hon. Member suggesting that his name was in the list? I fear that it may not have been.