House of Commons Hansard Debates for 21 Mar 1990

The Chief Secretary to the Treasury (Mr. Norman Lamont) : We have heard a speech from the right hon. and learned Member for Monklands, East (Mr. Smith) which, as always, had its entertaining moments. We know from him that he sees it as his function to entertain. In a newspaper interview the other day he said that unless he entertained, he could not hold the attention of his colleagues. They should be warned that he has a low opinion of the attention span of most of his colleagues. We can certainly say of his speech that it was almost up to his usual level of entertainment and certainly up to his consistent level of content.

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The Budget is right for our economic circumstances. It is cautious, prudent, firm and neutral, but accompanied by a tight monetary policy that the Government are determined to maintain until inflation is markedly reduced. To those who say that the Budget has not been tight enough, we point to the large fiscal surplus which is unequalled by any country, except Japan. The background to the Budget has been an economy which has shown extraordinary resilience. It is wholly misleading of the right hon. and learned Gentleman to say that in one year Britain will be bottom of the growth league when we have been grappling with the problem of too high growth. He should know that, even when we take account of the lower rate of growth predicted by my right hon. Friend the Chancellor of the Exchequer in his Budget statement, in the 1980s Britain will have grown faster than France or Germany. That could not have been said in the 1960s or the 1970s, so he was misrepresenting the position.

Our economy needs to slow down after the extraordinary growth of recent years. Clearly, the process has begun, but it needs to slow down further. It is not too much to ask British business or the British people to accept a period of pause after a period of such rapid and extraordinary growth for so many years.

Mr. Nigel Griffiths (Edinburgh, South) : Although the Government are forcing British industry and the British public to slow down, are not Germany, France and Japan, our competitors, speeding up, flooding this country with imports and meeting markets that we cannot meet because of the damage that the Minister and his party have done to industry?

Mr. Lamont : If the hon. Gentleman had been listening, he would have heard me explain that for a whole decade we have been out-performing our competitors in growth. The fact that we shall have one year of slower growth in no way denies that achievement. The tax measures are broadly neutral. It is a remarkable testimony to the Government's tax-cutting record that this Budget is the first since 1981 to reduce neither income tax nor national insurance contributions. My right hon. Friend avoided the temptation of fiscal finetuning. Many people will agree that merely to increase taxes by £1 billion, £2 billion or £3 billion in an economy of over £500 billion would be marginal and make no difference.

It must be obvious to everyone that the present increase in inflation has its origins in monetary policy. It is partly the result of interest rates being cut too much in 1987 in response to the stock market crash. At that time the right hon. and learned Gentleman urged us not only to cut them further, but to give a fiscal stimulus to the economy to increase public spending. Part of the problem has been caused by the British people's confident outlook for the future. The boom of the past few years has owed absolutely nothing to any fiscal stimulus from the Government. Government spending has increased only slowly over this period and it is a convenient fiction, which the right hon. and learned Gentleman wishes to nurture, that the 1988 Budget cut taxes massively. Many argue that the 1988 Budget, which generated a larger than expected surplus and increased revenues, could be described as increasing taxes and creating a budget surplus of a kind that we had not seen for many decades.

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The growth in demand in this country has been the response of United Kingdom firms and individuals to financial deregulation. The private sector, both companies and individuals, has borrowed heavily and moved into financial deficit on a scale not seen for years. This rapid growth in private sector spending has been essentially an expression of confidence about the economy and its prospects. Companies went into deficit to finance an investment boom. In 1987 and 1988 investment grew by 23 per cent., its fastest-ever growth in a two-year period and twice as fast as consumption. So it has not been just a consumer boom. It has been too much growth across the whole economy. That has been an expression of confidence, because firms do not invest if they do not have confidence in the future. Clearly, this remarkable growth in demand has been a monetary one. That is why the response should also be a monetary one, of higher interest rates. This is not so much a question of one-club golf as of not attempting to play golf with a cricket bat or to play cricket with a golf club. We would not get far against the West Indies' bowling if we dangled a No. 2 iron in front of our wicket. Against that background, the response of the Government has been entirely appropriate.

The right hon. and learned Gentleman suggested that the reliance on interest rates is obscure dogma not followed by other countries. He seems to forget that a few years ago the United States had to put up interest rates to over 20 per cent. to cope with a temporary surge in inflation. Australia currently has them at over 17 per cent. Interest rates are, of course, a means to an end. The right hon. and learned Gentleman seems to regard them as an end in themselves. At times, our interest rates may have been higher than those of some other countries, but that has not--despite the fact that we have used interest rates consistently to control the economy--prevented us from having a faster rate of growth than the rest of the EC. It has not prevented us from having a better performance on investment and productivity than the rest of the EC. Our reliance on interest rates has not prevented us in the past few years from having a far higher rate of employment growth than the rest of the EC.

The right hon. and learned Gentleman returned to the question of credit controls. He seems to be in two minds about that, but there is no lawyer who cannot argue two sides of a question simultaneously. In his interviews on radio and television, he sometimes expresses reservations about them. He and the Leader of the Opposition use a curious phrase. They say, in effect, "We recognise that credit controls cannot be hermetically sealed." The right hon. and learned Gentleman has used the curious phrase "hermetically sealed" three times and the Leader of the Opposition four times. I do not know whether they have been memorising a brief, or whether it is pride of ownership. They seem to be saying that they recognise that, in the end, credit controls will break down ; but they hope that they will work for a little while.

I see little attraction in following a policy which one recognises from the word go is doomed eventually to break down. Credit controls were abandoned in this country before the City of London had become as international and as deregulated as it is today. It would be far more difficult to make them work today. We cannot have credit controls without the reimposition of exchange controls. Perhaps that is what the right hon. and learned Gentleman

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has in mind. Of course, he would not tell us or the markets, but without the reimposition of exchange controls, they would not work. Opposition Members have said that it would not be easy for the average consumer or shopper to open a bank account in an offshore bank. That may be so, but that is not the point and it is not necessary. It is easy for a store, finance house, retailer, wholesaler or manufacturer to borrow from abroad and to extend credit domestically. The right hon. and learned Gentleman is wrong to advocate credit controls, and he knows it.

The right hon. and learned Gentleman welcomed some of our savings measures, and there has been a warm welcome in the country for the many imaginative and far-reaching proposals in the Budget to help us to raise our savings ratio. There has been a fall in our savings ratio, as there has been in a number of countries, including the United States, Germany and Japan. One reason for that fall is the increase in borrowing which reflects the spread of home ownership. To some extent, the perceived fall in the savings ratio is merely the spread of home ownership through increased mortgage borrowing. But we need to increase our savings ratio, and that is what the Budget measures are designed to achieve.

Mr. Peter L. Pike (Burnley) : The Government may want to help savers, but why do they not recognise that many people in Britain cannot afford to save? In my constituency and in many other parts of the country millions of people will not be able to pay their poll taxes, their increased rents and their mortgage payments, let alone save, so the Government's measures will be no use to them at all.

Mr. Lamont : The hon. Gentleman is close to saying that there is no point encouraging anybody to save because nobody can afford to save. The whole point of the new tax-exempt special savings account is that it is designed not for the stock exchange investor or the wealthier person, but for the person who wants to save modest amounts. The tax-exempt special savings account will help the individual with a small capital sum--for example, the person approaching retirement--and it will enable the younger saver to accumulate capital, even if he is earning only a modest amount and can regularly put aside only a small sum. I am sure that the 34 million people who put money into banks or building societies will find the tax advantages of this new facility very attractive.

Mr. Dennis Skinner (Bolsover) : The point is that measures to encourage savings cannot be hermetically sealed. In other words, they will affect some people, but not everybody. The British people want to know how on earth the Government can continue a policy that is based on high interest rates but, when anybody puts forward an alternative, such as credit controls or exchange controls, the Government cast it to one side. The Government's policy is based on a 15 per cent. interest rate which has lasted nigh on 12 months, looks like lasting another 12 months and might be 18 per cent. before the end of the year, yet will bring down the balance of payments deficit by only £5 billion. That policy is leading to chaos. The wheels have dropped off it.

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Mr. Lamont : The hon. Gentleman is a bit off his trolley. High interest rates have brought down inflation in the past, and they will do so again.

Another measure that is designed to encourage savings and which I think will be warmly welcomed is the abolition of stamp duty. As my right hon. Friend the Chancellor explained, the stock exchange will move to a new paperless system of transactions, and even the most ingenious would find it difficult to levy stamp duty on non-existent documents. We hope that the abolition of stamp duty will improve the City of London's competitiveness and give a further boost to wider share ownership. I am sure that my hon. Friends were extremely encouraged that my right hon. Friend the Chancellor was able to announce yet another increase of 2 million in Britain's share owners--no less than one in four of the adult population--following the flotation of the Abbey National.

By abolishing the composite rate tax, the Budget has also removed what many people--including the hon. Member for Berwick-upon-Tweed (Mr. Beith)--have regarded as a long-standing injustice. In the past, the composite rate tax has applied even to those people with incomes below taxable level. That may have been tolerated in the past, but the introduction of independent taxation threw into relief the injustice that would be done to many married women, especially those with small savings incomes. Therefore, its abolition will surely be widely welcomed.

I had hoped that the Labour party would give a warmer welcome to some of the measures, but it has never been the party of the saver. It seems to have the odd idea--both in its policy and by its past action--that saving can be encouraged by the curious notion that deferred consumption should be more heavily taxed than present consumption. That was the thinking behind the investment income surcharge. We all know how badly savers did when the Labour party was in government. It bequeathed to us an economy in which pensioners were robbed of a large part of their savings ; real interest rates were low and often negative ; and those who put money in a building society in 1974 would have seen the real value of their savings fall by 20 per cent. by 1979. It was a cruel injustice, and one that we must never let happen again.

Mr. John Smith : If the Conservative party is such a party for the saver, why has the savings ratio dropped so alarmingly during the past decade?

Mr. Lamont : The right hon. and learned Gentleman's attention span is obviously the same as that which he ascribed to his colleagues. I have explained at considerable and, no doubt, rather tedious length that the rise in mortgage borrowing has much to do with the fall in the savings ratio.

Perhaps the right hon. and learned Gentleman does not really understand what the savings ratio is. Perhaps he will tell us about his policy for savings. The other day he warmly endorsed a Fabian Society report urging a future Labour Government to reintroduce an investment income surcharge for those under pension age, by charging national insurance contributions on savings incomes ; to tax the income and capital gains of pension funds ; to charge--this is really bizarre--national insurance contributions on capital gains ; and to end retirement relief for small business men. That is not a very convincing way to

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encourage savings. It may or may not be Labour party policy, but it is curious that it should be given even the most modest encouragement or endorsement.

Mr. Norman Tebbit (Chingford) : Sitting where I do, I have a slight advantage over my right hon. Friend. I distinctly heard the right hon. and learned Member for Monklands, East (Mr. Smith)--who speaks for the Opposition as shadow Chancellor--say that those proposals were not Labour party policy. Will my right hon. Friend give the right hon. and learned Gentleman the opportunity to say now, clearly and distinctly, that no Labour Government of which he might be a member would introduce such policies?

Mr. Lamont : I gave the right hon. and learned Gentleman that opportunity, but--as always when he is asked to answer a question--he merely asked another question.

Another proposal that has been widely welcomed has been the change in the capital limits that apply to income-related benefits, including community charge relief.

Mr. Dick Douglas (Dunfermline, West) : As the Minister knows, the Budget is a matter for the Government as a whole. We in Scotland are interested to know what part the Secretary of State for Scotland played in agreeing that the cut-off would be at £16,000 for England and Wales, but with no retrospective action for Scotland. Did the Secretary of State for Scotland learn of that in Cabinet and, if so, what was his posture?

Mr. Lamont : Obviously, that point was considered carefully. It would not be practical to implement the change retrospectively in Scotland, as it would create all sorts of administrative problems and anomalies, and could be done only on the crudest basis. People's incomes, savings and even place of abode may have changed considerably. It would be extraordinarily difficult to introduce such a change retrospectively.

But there is another argument against retrospection. The capital limits apply not just to community charge benefit but to housing benefit and income support. The rebate that applied to the community charge in Scotland last year applied also to ratepayers in England. If a change were to be retrospective, it would be extremely difficult to justify not making further changes for ratepayers in England as well.

Mr. Alick Buchanan-Smith (Kincardine and Deeside) : Will my right hon. Friend give way?

Mr. Lamont : I will give way once to my right hon. Friend. However, as there will be a chance to debate this point later, I do not wish to go much further on it.

Mr. Buchanan-Smith : I accept that retrospection would involve the problems that my right hon. Friend mentioned, but does he realise that the community charge has brought far more people within the net of local government taxation and that many people, particularly elderly people with savings, have seen the level of their local government taxation rise far above the rate of inflation? In practical terms, therefore, there is an anomaly, an unfairness, which is felt by Conservative Members as well as Opposition Members. If my right hon. Friend cannot do something

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retrospectively, is there not some other concession that might be considered with a view to compensating for this unfairness?

Mr. Lamont : I note what my right hon. Friend has said, as, I am sure, will my right hon. and learned Friend the Secretary of State for Scotland. I have explained the problems, which I believe are overwhelming. I do not think that we can make the concession, although I understand the concern of my right hon. Friend. But there will be a chance to debate the matter later.

Mr. John Smith : I should like to make what I think may be a practical suggestion. I understand that, because of the late arrival of transitional allowances, no payments have been made in Scotland for the current financial year, which has only three weeks to go. In any event, rebates will have to be recalculated. Would it be possible, in that process, to take into consideration changes relating to the previous year, so that account might be taken of the suffering endured during that year?

Mr. Lamont : One problem is that it is not possible to split community charge benefit from housing benefit. That cannot be done if we introduce the scheme this year, as we want to do. Of course I will study what the right hon. and learned Gentleman has said, but my position and the Government's position remains as it has been stated. That is all that I will say on this subject at the moment.

Mr. Tony Worthington (Clydebank and Milngavie) : On a point of order, Mr. Deputy Speaker. This is quite outrageous. We are supposed to be having a debate, but this is not a debate. The Minister totally refuses to answer the reasonable points made by Opposition Members.

Mr. Deputy Speaker (Sir Paul Dean) : Whether the Minister gives way is a matter for him.

Mr. Salmond : On a point of order, Mr. Deputy Speaker. Bearing in mind the fact that the Government have already agreed to backdate the transitional payments, which are equally, if not more, complex, is not the Minister in danger of misleading the House in arguing that these payments cannot be backdated?

Mr. Deputy Speaker : That is not a point of order ; it is a matter for debate.

Several Hon. Members rose --

Mr. Deputy Speaker : Order. I will take points of order if they are genuine, but the ones that have been made so far have been points for debate.

Mr. John Battle (Leeds, West) : On a point of order, Mr. Deputy Speaker. We are in difficulty when a representative of the Treasury addresses the House on social security matters without the Secretary of State for Social Security being here to confirm what he is saying. It seems to me that there is a real danger--

Mr. Deputy Speaker : Order. These are perfectly legitimate matters for debate, but not points of order for the Chair.

Mrs. Maria Fyfe (Glasgow, Maryhill) : On a point of order, Mr. Deputy Speaker. As has been said by other hon. Members, the Minister is misleading the House. It is

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perfectly possible to calculate housing benefit and poll tax rebate. Local authorities in Scotland have been doing it for the past year. It involves no difficulty at all.

Mr. Deputy Speaker : Order. It is clear that these are not points of order. We should get on with the debate.

Mr. Nigel Griffiths (Edinburgh, South) : On a point of order, Mr. Deputy Speaker.

Mr. Deputy Speaker : If it is a genuine point of order, I shall take it.

Mr. Griffiths : It is genuine, Mr. Deputy Speaker. By what mechanism would it be in order for the Secretary of State for Scotland to come to this House and explain whether he is going to fight for the backdating of this benefit? Thousands of senior citizens and other people in Scotland have been penalised over the past year because of the unfair way in which the tax has been applied.

Mr. Deputy Speaker : It is not for the Chair to advise the hon. Gentleman on tactics.

Mr. Lamont : The analysis of the British economy by the right hon. and learned Member for Monklands, East is wholly flawed. The right hon. and learned Gentleman seems to have an infinite capacity for grabbing the wrong end of any stick that happens to be around. He believes that our economy is beset by long-term structural problems, with a weak supply side, demoralised businesses, and a work force crying out for Government intervention. One thing is clear : these are not the problems of the British economy.

The right hon. and learned Gentleman's analysis is wrong, so, inevitably, his prescription is wrong. Our problems are precisely the opposite of those that he described. Our supply performance has been strong, and confidence is high. As I said earlier, the growth of the economy has been too strong. Even taking account of the slower growth that we expect in the coming year, the United Kingdom will have recorded higher growth since 1980 than either France or Germany. That is a demonstration that the British economy has transformed itself and is doing better than ever.

The right hon. and learned Gentleman referred to manufacturing. From 1980 to 1989, the output of United Kingdom manufacturing industry grew faster than that of either France or Germany. The right hon. and learned Gentleman is looking at the wrong problems and is therefore putting forward the wrong solutions. But the Opposition's solutions are always the same : more public spending on training, research and development, and education. The reality is that many of these matters are being tackled by Government and by business. Already, employers are spending £20 billion a year on training. On top of this, Government expenditure is about £2.5 billion a year. Companies spend £5 billion a year on research and development. Indeed, they increased their spending by 46 per cent. between 1983 and 1988. The evidence that the supply side of our economy is strong is clear. The right hon. and learned Gentleman's analysis is wrong. The right hon. and learned Gentleman made no mention of the measures in this Budget to help smaller businesses. We know that the Labour party, with its corporatist approach, is interested only in large businesses

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--it cannot focus on small businesses. The fact that 300,000 out of 350,000 businesses in this country pay the small rate of corporation tax means that the changes in my right hon. Friend's Budget will help many parts of British manufacturing and other industry.

This Budget will be judged by what it does for inflation. The Government have brought inflation down from the disastrous levels that it had reached under the Labour Government, of which the right hon. and learned Gentleman was a member. The battle against inflation has to be fought year after year, but it is not one that the right hon. and learned Gentleman has ever shown any willingness to fight. In an interview with The Daily Telegraph recently, he said that getting inflation down was not his top priority ; it was just one of several priorities. To the Government, it is more important than that : inflation remains our top priority.

The right hon. and learned Gentleman is also wrong in his comments about the current account. The current account deficit is a symptom of our excess demand, not of weak supply side performance. If that were not true, we should not have the extraordinary resilience in British exports that has been shown in recent months. As demand has slowed, exports have rebounded strongly. In 1989, the volume of manufactured goods exports rose by 11.5 per cent., the highest recorded rise since 1973.

The truth is that our problems now are modest compared with those that the country faced in the past, and modest compared with the problems when the right hon. and learned Gentleman's party was in office. He would have given a lot to have had some of our present problems when he was in office : too much growth, too much investment, and inflation under 8 per cent. In one of the right hon. and learned Gentleman's speeches, he congratulated the Labour Government on having got inflation down to under 8 per cent. For us, inflation at its present level is a setback, not a matter for self- congratulation.

Our economy is certainly strong. The right hon. and learned Gentleman's analysis is not correct. However, the real question is whether the policy is succeeding in slowing down the economy enough. At this point sometimes the good news can become the bad news and the bad news the good. Is it good news or bad news that employment growth was slowed? Is it good news or bad news that last year growth reached almost 3 per cent.? Mr. Samuel Brittan, commenting on the recent retail sales figures, said :

"A nation whose main economic problem is the shops are too full of goods which people can afford to buy is hardly experiencing a tragedy."

Our citizens have experienced very sharp increases in living standards, and in recent years a period of extraordinary growth. Sometimes when I listen to Opposition Members I get the impression that they do not realise what the purpose of economics and economic policy is. The purpose is not to achieve a particular level of investment ; it is to increase living standards. In that respect, the Government have been conspicuously successful.

It is curious that not just the previous Labour Government but every Labour Government have found that goal wholly elusive. Since the second world war there have been 17 years of Labour Government and 27 years of Conservative Government. In the 17 years of Labour Government, living standards rose by 14 per cent. In the 27 years of Conservative Government, living standards

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rose by 78 per cent. Can one suggest that that is a coincidence? The reason is clear : all Labour Governments make the same mistake. This time, however, we are told that it will be different. Quite how it will be different remains obscure because the right hon. and learned Gentleman will not tell us.

The right hon. and learned Gentleman is the leading Scotsman in his party but, when asked what he would do, he always repeats the excuse of the Irishman : "I would not start from here." When asked what he would do in his first Budget, if he became Chancellor of the Exchequer, he says, "It is too early to say." This is the man who said in an interview in The Daily Telegraph :

"I have a passion for detail. In detail you find the answers to difficult problems."

If the right hon. and learned Gentleman is so interested in detail as the answer to problems, perhaps he will answer a few of the questions that journalists and broadcasters have been unable to get him to answer about Labour's tax policy. The other day, poor Mr. Giles Keating of Credit Suisse Boston incurred the wrath of the right hon. and learned Gentleman for asking him some questions about Labour's tax policy. Because he would not answer them, Mr. Keating came to his own conclusions, which were that, as a result of the right hon. and learned Gentleman's policies, many couples without children but below average earnings would be worse off, that those earning only one and a half to two and a half times average earnings could, over time, find themselves paying up to another £4,000 a year in tax and that marginal tax rates would go up from 25 to 50 per cent. What would be the result of this great redistribution? Everybody earning below £18,000 a year would get another £100 a year.

The right hon. and learned Gentleman says that he believes in fair taxation. To some of us, it seems like the same old incorrigible spite that we have always had from the Labour party. We know that we shall not get any answers from the right hon. and learned Gentleman, because the Labour party is dominated by public relations. It has made a god out of public relations. Quite how dominated by the public relations industry the Labour party is was made clear in a book published recently--"Labour Rebuilt", written by political correspondents of The Guardian and The Independent.

The book details the use made of a shady group of consultants, known as "the agency," and the use of image-making services as a substitute for policy. Details are given in the book of how Front-Bench Opposition spokesmen have been given advice on how to dress. On page 59 we are told of the analysis given to the hon. Member for Peckham (Ms. Harman). She was asked how she wanted to look. She replied, "Like a confident, assertive, self-possessed woman capable of running things." She was then told, we read, to go and buy a dark suit with shoulder pads--which she did the next day. I do not know whether the right hon. and learned Gentleman has made use of that service. We read in the book that the service is used more by men than women but that the men do not talk about it. However, it is clear that the right hon. and learned Gentleman has been given his instructions by the image makers. They are, "Brush your hair, brush your shoes and, above all, don't say anything."

Mr. D. N. Campbell-Savours (Workington) : On a point of order, Mr. Deputy Speaker. Will not those who are watching proceedings today feel that what is happening is

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a disgrace to the House of Commons? This is supposed to be a speech on the Budget but we are getting nonsense from a Minister.

Mr. Deputy Speaker : That is not a point of order for me.

Mrs. Fyfe : On a point of order, Mr. Deputy Speaker.

Mr. Deputy Speaker : Is it a point of order?

Mrs. Fyfe : That will be for you to judge, Mr. Deputy Speaker. I am worried in case the Minister falls foul of the Prime Minister when he talks about image-making.

Mr. Lamont : No amount of advice on public relations is a substitute for policy. No policies have been put forward by the right hon. and learned Gentleman. Asked on television last night what he would do about inflation, what did he say? He said that he would not put up taxes but that he also wanted to bring down interest rates. If that is the way to deal with inflation, we know that the only result of a Labour Government would be runaway inflation.

My right hon. Friend the Chancellor of the Exchequer did not dodge the problems in his speech. He put forward the solution to them. He also emphasised that our problems today should not obscure the real gains that our economy has made in recent years. They include improved productivity, high investment, strong profitability, an end to the decline in our share of world trade, effective control of public spending, improved industrial relations, a fast rise in employment and the lowest national debt relative to gross domestic product since the first world war. The over-rapid growth of the past few years requires a pause. It began last year and will continue this year. However, once the excess demand has been removed, the economy will once again resume its upward trend, with a lower inflation rate.

Pain there may be, but gain there will also be. By this time next year, the prospects will be distinctly brighter. I commend the Budget to the House.

4.58 pm

Mr. A. J. Beith (Berwick-upon-Tweed) : If the test yesterday had been the presentational qualities of the first television Chancellor of the Exchequer in presenting his first television Budget, he would have come away with full marks. But there was a great deal more at stake : not only his own political future but that of his Government and, in particular, that of his Prime Minister--and, moreover, the ability of the country's economy to weather the next 12 months and the ability of many families to cope over the next 12 months with the enormous pressures on them. I do not believe that the Chancellor passed those tests.

The Budget will have been greeted with the same great disappointment in many households as it has clearly been greeted in the City and in sections of the press which are normally sympathetic to the Government. If the Chancellor read through the editorials of some of the major national newspapers this morning, he will have read some pretty disappointing news.

Mortgage payers and poll tax payers will feel that sense of disappointment most acutely, as will the markets to which we look for confidence in the economy and in our currency. The Chancellor has shown that he understands the psychology of his own Back Benchers and his own party. The delight and joy on Conservative Back Benches

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when he reached the end of the Budget was a demonstration that he knew what they needed and he gave them just a little dose of it. But he has not shown the understanding of the psychology of markets that one would have expected from a Chancellor with banking experience, and he will have to reflect on the absence of that delirium from the City today.

The fatal weakness of the Budget's strategy is not primarily of the Chancellor's making. It is the Prime Minister's determination that we will not join the exchange rate mechanism of the European monetary system so long as she has the capacity to stop us. That is at the heart of the Budget strategy ; and the repetition by the Chancellor yesterday of the same old formula about how long we will have to wait before we enter the exchange rate mechanism did nothing to satisfy voices in so many quarters that are now calling for our entry into the EMS.

Alongside that was the Chancellor's total failure to face the need for a tight fiscal strategy which would require increases in taxation. In that respect, the Chancellor shares the attitude of those on the Opposition Front Bench. They, too, have not said very much about it and still shown no signs of doing so. They still seem to believe that we can have lower interest rates, a lower exchange rate deficit and lower taxation all at the same time. There seems to be an inability to face the fact that a strict fiscal policy would be particularly needed if we were in the European monetary system. But if we were, it is generally agreed that we could achieve lower interest rates which would help all those mortgage payers who are suffering so badly at the moment and would give a badly needed fillip to industrial investment. But if we are to do so we need a much stronger fiscal policy.

It is not sufficient for the Government to draw attention to the size of the Budget surplus. It is only half the Budget surplus that they forecast, and it will not meet the problem that will be created by the demand in the economy.

The Chancellor's speech yesterday gave no sign of a clear and secure policy to deal with inflation. Despite the assertion that inflation would be the judge and jury, the zero inflation for which the Prime Minister aims and the falling inflation which the Chancellor promised only six months ago, there is still uncertainty over monetary policy. It is not quite clear to me from what the Chancellor said yesterday or from the Red Book whether there is any serious monitoring of broad monetary targets. There are certainly none of the tough taxation policies which I have mentioned. One of the things that the Chancellor could usefully do is to creep into the residence next door one evening when the Prime Minister is not looking fish out of her wastepaper basket the proposal from the right hon. Member for Blaby (Mr. Lawson) for a more independent central bank and place it back on the Prime Minister's desk with a little note saying, "Please read this again." There may be much merit in having a more autonomous judge of our monetary policy and an institutionalised battle against inflation. We will get that under European monetary union, but why not have it in the meantime by giving the Bank of England greater independence?

Judgments about these aspects of the Budget are being made in this place and in the City, but judgments about different aspects of it are being made in ordinary homes.

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The biggest taxation change to have affected many people in Britain for many years is the poll tax. It is a quite dramatic and terrifying change. The Chancellor has done something to alleviate the burden. He has removed a capital limitation which will benefit many pensioners who have savings. That is to be welcomed, but I regret that he has not dealt with the problems faced by people in Scotland who had to bear the full brunt of the poll tax a year earlier. He will have to look at that issue again ; it will not go away, and will continue to be raised. He will have to do something to provide justice for people in Scotland.

The Chancellor must also recognise that he has not done anything for the large majority of poll tax payers who are disqualified from any relief, not by any capital or savings, as they do not have any, but by their incomes even though their incomes are very low. In the past few days, I have attended some very large poll tax meetings in my constituency attended by some very angry people. In the village of Widdrington Station, the meeting was attended by a quarter of the population. I have received a mass of correspondence particularly from people in the Castle Morpeth borough in my constituency, where the poll tax is particularly high. One part of the borough is relatively poor and another part is relatively rich. Therefore, under the Government's safety net scheme, poor people in that area are paying into the safety net to help people who are better-off in other areas.

I have come across case after case of people who are paying hundreds of pounds a year more in poll tax than they paid in rates. One couple whose income is just over the limit--the man works as a joiner earning £136.89 a week--and whose rates were £255 a year will have to pay poll tax, after all reliefs, of £672 a year. Where can those people find another £400 a year on an income of £136.89 a week? They have no savings. There are millions of people in that position. If the Chancellor intended to do anything about the poll tax for most people, he would have had to provide some extra Exchequer relief for the safety net system for this year and then cleared the way for a sensible income-based tax for next year. Even now, at this late stage, as he has been prepared to make changes to the capital limits, he should have been making changes affecting the majority of people suffering from the impact of poll tax, particularly those who have faced huge increases.

Mr. Ronnie Campbell (Blyth Valley) : Did the hon. Gentleman advise those people not to pay the poll tax, or will they have to pay it?

Mr. Beith : What they told me was that they could not afford to pay the poll tax. Unlike some Labour Members, I am not prepared to back a campaign of non-payment of the poll tax. I am not prepared to put in the firing line pensioners who can least afford and least cope with court summonses. I do not believe that many Labour Members are prepared to do that either.

Mr. Eric Martlew (Carlisle) : Will the hon. Gentleman give way?

Mr. Beith : No. I have just given way and I am answering my near neighbour, the hon. Member for Blyth Valley (Mr. Campbell). I listened to the Labour chairman of the Northumberland county council finance committee saying that he was not prepared to back a campaign of

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non-payment. He can see what the impact would be on the finances of the county council as it tried to provide social services. The Chancellor must realise that many of those people cannot pay and they will be issued with summonses not because they are engaged in any political demonstration, but because they do not have the money out of their income to pay such a high tax.

The Chancellor made an interesting point about credit. He said that the banks ought to stop the high-pressure advertising of credit. I welcome that, but I suggested it two years ago as one of the ways of trying to limit the credit boom without indulging in ineffective and unfair credit controls. Why was that not said when the Chancellor was Chief Secretary to the Treasury, at the height of the Lawson boom? That would have been a more useful time to make that comment, as that was when most of the credit advertising was pouring through people's letter boxes.

I welcome what the Chancellor said about savings. The measures that he has introduced are very useful. I particularly welcome, having argued for it last year, the abolition of the composite rate of taxation on building society and bank interest. It is a manifest injustice that pensioners and other non-taxpayers should have tax taken from them to which they are not liable and which they cannot reclaim.

I am very pleased that the Chancellor decided to change that. If he had made that decision a year ago and not resisted my new clause to last year's Finance Bill, he could have done the preparatory work last year and we would not be in the current position that for one year it will be in the interests of many married women, for example, to open offshore accounts in banks and building societies in Jersey, Guernsey and the Isle of Man. The Chancellor clearly does not want that to happen on a large scale, because he has told banks not to advertise that facility. Nevertheless, I welcome the decision that he has taken, which his predecessor failed to take.

I welcome the concession on pools duty, which will benefit football clubs at a time when they very much need it, not least as the stand and terrace covering at Berwick Rangers football ground has had to be removed because it was unsafe. I hope that the Football Trust will contribute to the provision of good, safe and comfortable facilities at that ground before too long.

For a Government who claim to have green credentials, there was an enormous green gap in the Budget. There was little in it apart from the measure on company cars. The Chancellor increased excise duty on petrol, but that partly compensated for not increasing vehicle excise duty. Why did he not take the opportunity to introduce a range of vehicle excise duties that penalise large high-consumption cars? Why did he not seek a tax means to discourage the high consumption of fuel?

Why did not the Chancellor make progress on taxes on pollution? He may say that he wanted to wait for the White Paper from the Secretary of State for the Environment, but why was there not at least a commitment in his speech to such taxation measures in principle? He could have offered incentives for waste recycling, and given the indication that was so lacking in the Autumn Statement that there will be be sufficient investment in the railways to ensure the access to the Channel tunnel and to ports that industry will need to compete successfully in Europe after 1992.

As my comments will show, and as other hon. Members have said, there are good and useful small measures in the

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