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Mr. Ronnie Campbell : Before the election.
Mr. Budgen : Yes, the one opportunity that this Chancellor has to do so before the election. Everyone knows that he uses two main weapons : monetary policy--in shorthand, interest rates--and fiscal policy--in shorthand, taxes.
It is all very well to say that it is possible to squeeze inflation out of the system by monetary policy alone--I remember acutely the row when interest rates went up to 15 per cent. I can only assert that I do not think that it would be politically possible to raise interest rates much above the present 15 per cent. The political row that would ensue if, for the sake of argument, interest rates were banged up by another 1 or 2 per cent. at the present time would be enormous.
If I am right in saying that, then it was necessary in the Budget to raise taxation somewhat. Here I marginally disagree with my right hon. Friend the Member for Chesham and Amersham. He is in favour of an increase in
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the standard rate ; I think that it would have been perfectly adequate not to index the personal allowances. What was necessary, however, was to show some fiscal tightening. Here I disagree with the approach of the Chancellor, who said that he did not wish, on the one hand, to underdo it, but nor did he wish, on the other, to overdo it and run the risk of tipping over into recession. Our society enjoys and encourages inflation. It is rubbish to say that inflation is unpopular. The present Government were very popular indeed when they created inflation between 1986 and 1988. What the British people dislike is the check upon inflation, not its creation.What we require now is to run the risk of overdoing it--the risk of underdoing it scarcely ever exists in our society. We should have taken the risk of perhaps raising a bit too much taxation. The result of being unprepared to take the risk of overdoing it is that the last chance before the election may well have been missed. The Chancellor's estimate of inflation in 1991 is that it may be 5 per cent. I hope that he is right, but it must be said that Treasury estimates of future inflation have nearly always proved to be under-estimates. Even if the Chancellor is right, one thing is clear : there is no room for a pre-election boom and reflation based upon a 5 per cent. rate of inflation.
6.12 pm
Mr. Robert Litherland (Manchester, Central) : I am pleased that the emphasis in the debate has been placed on manufacturing industry, because, once again, the Budget has miserably failed to tackle the reason for our floundering economy. The Chancellor, like his predecessors, has missed the opportunity to revitalise our manufacturing and industrial base, which has eroded rapidly in the past 10 years in a collapse that has affected some regions more than others.
For proof, we have only to see the vast tracts of industrial wasteland in the north of England, especially in the north-west, where we have witnessed the evaporation of large labour-intensive manufacturing firms, household names, now gone for ever and with them the hopes of many people still adrift in the sea of unemployment. Job losses in this area from the collapse of manufacturing industry such as light and heavy engineering, textiles and chemicals have been almost double those in the south-east. In spite of the Government's cosmetic statistics, my constituency, where most of the heavy manufacturing and industrial firms were situated, still has 30 per cent. male unemployment.
The concept of replacing manufacturing industry with service industry is a fallacy. The unemployed recognise far better than the Chancellor that once a manufacturing base disappears it never comes back. It is a myth that the country can sustain a buoyant economy on the back of the service sector-- deterioration to an underdeveloped economy is unavoidable without a strong manufacturing base. The service industries in my constituency that once provided the requirements of the manufacturers have now become obsolete because there are no longer firms who need their services.
These jobs have to be replaced with less essential, low-paid, part-time jobs such as hotel work, fast food shops and employment in pubs and bars. All these try to fill a void, but they fail to solve the problem. The service
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industry has failed to offset manufacturing job losses. The Greater Manchester low pay unit has recently produced a report that emphasises that service industries are not a panacea for all the economic ills in our area. Miss Gabrielle Cox, the author of the report and the unit's project co-ordinator, said :"Our whole economy in this region is under threat. Over the past decade there has been a massive reduction in the number of employed. Higher paid production and construction jobs have fallen by 30 per cent. Opportunities in service jobs have increased by 5 per cent., but often these are very lowly paid. We cannot rely on tourism to revive our local economy. That is not a viable tactic for survival. This region must be more than a museum of our glorious industrial past. What we need is an industrial future. There is an urgent need for significant investment in new industries and technologies." The Budget has once again failed to tackle the long-term problems of the economy--no new measures to regenerate manufacturing industry and no real capital investment.
I will say this, however : in all the Budgets that I have experienced since I became a Member in 1979, the biggest beneficiaries have always been the wealthy, with gains from tax concessions on their investments, on stock exchange deals or on their inheritance. The losers are always the poor and unemployed. Tax changes to these people are meaningless. They are the people who have meagre incomes and little prospect of employment.
It adds insult to injury when the very services that these people need-- services that are essential to the needy, the public services--have been drastically cut. This exposes another myth. Chancellors always insist that to provide public services, taxpayers have to dig deep in their pockets. What Chancellors always fail to mention is that, in order to provide the massive tax handouts to the rich, public expenditure on essential services for the poor has to be cut. As public sector services have declined, so, once again, the deprived in our society have been hit the hardest. If one ever has to switch from public spending to private pockets, someone gets hurt--and in every instance it is someone who can least afford the burden. Mr. Michael Jack (Fylde) rose--
Mr. Litherland : I am sorry, but my time is limited and others want to speak.
The Budget does nothing for the poor. It makes a mockery of individuals and families who struggle day by day to exist, the elderly, the homeless and families who have the spectre of the poll tax looming. If it is said that we cannot spend what we cannot afford, it is equally true that these people cannot save what they have not got. Those people also suffered during the so-called 1988 economic miracle.
To call this the savers' Budget is insulting to the majority of my constituents, because saving always assumes that people have money to spare. So far is that from reality that many must borrow to make ends meet. The loan sharks thrive in inner-city areas. The Budget is without hope and without vision, and once again it appeases the wealthy in society. If, after 11 years in government, this is the best that the Government can do, they are an abject failure. The sooner we boot them out and replace them with a Labour Government, the better.
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6.20 pmMr. Andrew MacKay (Berkshire, East) : I commend my right hon. Friend's Budget, particularly because it is such a good Budget for savers.
I was disappointed when the hon. Member for Clydebank and Milngavie (Mr. Worthington) said that through the community charge rebates the Government were helping only those with plenty of savings and not the genuinely poor. He completely fails to understand that pensioners with no other income are already receiving substantial rebates up to a maximum of 80 per cent. Those who are suffering or are likely to suffer because of the community charge are those who have saved a nest egg and are not eligible for a rebate. There has been a major disincentive to save which has aggravated many people. That needs to be re-emphasised because it was not sufficiently picked up by the newspapers following yesterday's Budget statement.
My main concern is for people who have never earned much money, but who have been thrifty and each week or month saved a little so that they have a nest egg of about £8,000 or £12,000 for a couple, for their old age. Throughout their working lives they may have lived next door to a couple who have chosen a different route and spent the money that they earned. Some would describe such a couple as feckless.
Mr. Martlew : Will the hon. Gentleman give way?
Mr. MacKay : No, we have only 10 minutes for our speeches. For those who have saved, it is adding insult to injury to see their neighbours getting an 80 per cent. rebate on housing benefit, council rents and community charge. They can ill afford to pay the full community charge and find difficulty paying the full rent. The Chancellor of the Exchequer is to be commended for doubling the savings limit from £8,000 to £16,000.
People who live together and are not married will not now be disadvantaged. All hon. Members will have come across this further anomaly. A husband and wife who have saved a little more that £8,000 may live next door to another elderly couple, perhaps a widow and widower who are brother and sister, who, obviously, are not married and are not eligible for a rebate on their community charge. That was patently unfair. My right hon. Friend has erred on the generous side by raising the individual savings limit to £16,000. I imagine that he did so because if he raised it to £8,000 per individual, a millionaire pensioner could move all his savings from his wife, who would than receive an 80 per cent. rebate on the community charge. That would be disgraceful--some would describe it as obscene--and it certainly was not intended.
I am worried about a further group and I hope that my hon. Friend the Minister will take note for the future. Counties such as Berkshire have suffered from an unrealistic standard spending assessment which I hope can be corrected, although we may have to debate that another time. I am worried for my constituents who earn just above the level at which they would receive family credit or income support and who have wives who look after the children and therefore cannot work. Incidentally, any young mother in the Thames valley who wants to work will be able to find a job because we have negative
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unemployment and because of the help that my right hon. Friend has provided by scrapping the benefit in kind tax on workplace nurseries.The families that I have referred to will find it extremely difficult to pay the community charge. Those couples need help in the form of rebates, similar to that which pensioners have received. I hope that my hon. Friend the Minister will bear that in mind when he considers further changes in rebates.
My hon. Friend may ask how I would pay for that and I have a suggestion. It is unwise to ask the Treasury for extra money without explaining where it will come from. I must be somewhat critical of my right hon. Friend the Chancellor because the increased duty of 10p on 20 cigarettes is insufficient. If we are serious about preventive medicine and health care, we should provide major disincentives to smoking. I should have liked a 20p increase on cigarettes. I suspect that there is only one reason why the Chancellor did not do that and that is because it would have had a remarkable effect on the RPI and therefore on inflation.
As all hon. Members strongly oppose encouraging young people to start smoking and support preventive medicine, perhaps we can agree across across the Floor of the House that the best way to reduce the long-term cost to the NHS is to take tobacco and cigarettes out of the RPI. Incidentally, I should also like to see mortgage repayments taken out of the RPI, but Labour Members-- [Interruption.] --as the hon. Member for Blyth Valley (Mr. Campbell) characteristically points out, would yell "Sham" and "Fix". I would not necessarily expect all-party support on that. I hope that if my hon. Friend the Minister were assured of all-party support to remove the cost of cigarettes and tobacco from the RPI, he would undertake to consider it seriously. It would be in the interests of health care and would make a great deal of sense.
The provision on workplace nurseries will help my constituents, but I should like to nudge my right hon. Friend to go a little further next year. I have already pointed out that the lack of
benefit-in-kind charges on workplace nurseries will be of great help to many young mothers who wish to return to work and to employers who have skills shortages, especially those in the Thames valley, but let us be absolutely honest about this : there are not many workplace nurseries in my constituency, and I can see hon. Members on both sides nodding in agreement. There are few.
I hope that the concession in the Budget will increase the number of workplace nurseries, but I fear that it will increase them only among large employers. I imagine that large firms in my constituency who complain that they cannot find people for vital jobs will invest in one, but small firms cannot. If we are realistic, we must concede that the great majority of employees will not find a job in a firm with a workplace nursery. Instead, they will pay for the child to be cared for, either in an ordinary nursery or by a child minder. If we are serious about giving an even break to young mothers who want to return to work--the Chancellor was right to say that we should not be in favour or against mothers going back to work ; in a free society, it is for them to decide, but we must end barriers that prevent them from returning to work--if we are serious about improving skill shortages and if we are serious about finding people to
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take up jobs where there are vacancies that cannot be filled from the existing work force, as is happening now in the Thames valley, we must do more.A good start has been made. As the next step, mothers should be given tax relief or partial relief on the expenses that they incur in placing their children in nurseries or paying child minders. Mrs. Fyfe rose--
Mr. MacKay : I am running out of time, so I cannot give way. It is clear that workplace nurseries cannot be established at every place of work. I commend the Budget, which is sound. I hope that the next Budget will take into account my mild criticisms and will cater for all the requests that I have made.
6.30 pm
Mr. William Ross (Londonderry, East) : I watched the Chancellor's performance yesterday with some fascination. He was brilliant and he is to be congratulated on his performance. I am sorry that he is not in his place to hear me say that. On the other hand, perhaps it is as well that he is not, because it was a brilliant performance in trying to make a silk purse out of a sow's ear.
The situation in the economy is grim. The Chancellor was dealt a poor hand and, although he handled it superbly and sold his and the Government's case to the country well, the underlying problems will remain for some time. To give credit where credit is due, he tried to place the few goodies that he had to distribute with those in the greatest need. On behalf of the Ulster Unionist party, I welcome the help for charities, inheritance and capital gains tax indexation, the disappearance of composite tax, the introduction of tax-exempt special savings accounts and the changes in VAT.
The tax allowances for blind people are especially to be welcomed, and I hope that, having dealt in that way with that group of the disabled, the Government will go further and consider other disablements. I hope that they will look with particular care at the needs of blind students, because the special equipment that they require imposes extra costs on them. They have fewer job prospects at the end of their training and education and they will experience considerable difficulty over the student loans scheme. That issue must be examined with care and in detail.
We on this Bench welcome the social security changes. I listened with interest today to the hullabaloo that arose during the speech of the right hon. and learned Member for Monklands, East (Mr. Smith), who claimed that the Government had forgotten Scotland. Those who accuse the Chancellor of that seem to forget about the one part of the kingdom where rates are still the norm for local government finance. In Northern Ireland there is no poll tax, or community charge, or whatever it may be called. We have not yet had spelled out to us what the effect of that change will be on the ratepayers of Northern Ireland. I hope that before the end of the debate we shall be given a clear understanding of that.
I was glad to see independent tax for women finally coming into operation, although that change was prophesied last year. That procedure has been followed in a number of other goodies this year ; we were told that they
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would be coming next year or, in the case of TAURUS, at some future time, perhaps never. As I do not invest much in the stock exchange, never having had that sort of money, it will not affect me. Indeed, that goodie will not feature much in the eyes of the general public. I welcome the Government's commitment to the further repayment of central Government debt, and I particularly welcome the fact that there has been no wild rush to European monetary union, because on this Bench we have not shifted much in our opposition to the Common Market and all its works. As for the desire of the farmers' union to enter EMU, let us remember that that union advised farmers to vote for entry into the Common Market years ago. I thought that that decision was wrong then, it was proved later to be wrong, and the farmers' union did not get all the benefits for the farming community that were sought. I have no doubt that the union is wrong again now. We cannot hide away from the blasting winter gales that the economy of this country faces, either in EMU or anywhere else. We must get out there, manufacture, sell and earn our own living in the world. I object to the petrol and diesel tax increase. Hon. Members will not be surprised to hear that, because I represent a largely rural community where a car is a necessity and not a luxury. Nor does the tobacco tax increase meet with general approval on this Bench, since many jobs in Northern Ireland depend on the tobacco industry. I regret that further help has not been announced for investment by manufacturing industry. The hon. Members for Manchester, Central (Mr. Litherland) and for Clydebank and Milngavie (Mr. Worthington) dealt with that issue at length. We need manufacturing industry. The hon. Member for Clydebank and Milngavie described what was in effect an assembly line rather than a manufacturing line in the sense that so much of the basic and high-value materials used were imported. We should be trying to manufacture more of those items at home, for the basis of this country's wealth is manufacturing industry. More help should be given to inventors, many of whom are individuals rather than organisations. They have problems in financing their inventions through to the market place. They have difficulty with patent costs, achieving production, money flow, obtaining grants, and so on. Their difficulties in Northern Ireland are especially great because of the effects of terrorism. I hope that the Government will take further interest in that matter. The Chancellor did not have many goodies to distribute. One could say that he had a few Polo mints to dispense. An outstanding characteristic of Polo mints is that they have a hole in the middle. Much of the Budget is like that, because it is designed to paper over some cracks.I was concerned whenever the Chancellor spoke about a strong pound. I was wondering what that was and came to the conclusion that it was a pound that would retain its value against the currencies of the other major industrial economies with which we are in competition. The pound would not need support from the Bank of England--it needed it today--and could float successfully, and I am left wondering what has happened to the whole concept of a floating pound. Is the pound at present floating?
There are many other matters to which I wish I had time to refer. The Chancellor has been described as a one-club man in that it is said that he has only interest
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rates to use. There are other things that he could use, such as income tax rates and action on public expenditure. Does he believe that the minimal steps that he has taken will be sufficient to correct the problems of the economy? Is it his perception that private expenditure is going down fast and far enough to bring down inflation? Why has he ignored public expenditure if he really wants to squeeze out inflation?While we hear much about local government spending, no attempt has been made to decrease central Government spending, which, we were told on 15 November, would rise from £168 billion this year to £203 billion in 1992-93, a small increase of £35 billion. That increase, of nearly 21 per cent., concerned me at the time and my concern has not lessened in the intervening weeks.
The last time that the Government started to squeeze out inflation, in 1981, they allowed inflation to run at roughly 5 per cent. for years in order to cushion those who had bought ahead of themselves in the expectation that inflation would roar ahead. I wonder whether there is the same carry-on today. If so, I strongly advise the Government against it. Inflation is an evil hydra which needs to be crushed out of existence and kept out of existence. That will not be achieved simply, easily or painlessly.
The Chancellor's judgment may well have been coloured by electoral prospects. If his judgment is right and inflation comes down, victory will flow from the measures that he announced yesterday. If he is wrong, he will curse the day that he did not follow more closely the example that Brazil set him only the day before.
6.40 pm
Mr. Robert Boscawen (Somerton and Frome) : No one will disagree with the hon. Member for Londonderry, East (Mr. Ross) that inflation is a monster and must be crushed out of existence. I whole-heartedly agree, and I am delighted that my right hon. Friend the Chancellor put that objective at the head of his opening remarks in his Budget yesterday when he said that he would use every method to bear down on inflation.
As is usual these days, and has been for as long as I can remember, when we have had a Budget the financial pundits race to their microphones to give long-term guesstimates of what the Budget will do, and one guess proves as indifferent as another But it is usually many months before we see the results of the measures announced by the Chancellor.
I can say unreservedly that the Chancellor's performance in the presentation of his Budget yesterday was exceptionally skilled. He had few cards to play, but he appeared to play them effectively. Few Chancellors in recent years have had such a poor hand before coming to the Dispatch Box. I am grateful for the talents that my right hon. Friend displayed.
I am amazed how many commentators have been calling for an easier time, particularly on interest rates. They have called for interest rates to come down and for the Chancellor to take risks with inflation so as to ease the pressures on family budgets, on medium and small firms and on farmers, of whom I have many in my constituency. Farmers have been among the first to call for the easing of pressure on interest rates.
Many people seem to have forgotten how the effect of inflation soon turns up in high unemployment. Thank
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goodness, my constituency has low unemployment--about 4 per cent. The hon. Member for Clydebank and Milngavie (Mr. Worthington) said that, sadly, in some places in his constituency it was 20 per cent. Such differences in unemployment have been the most persistent long-term problem during my adult life. There may be rising inflation in one area and unacceptably high unemployment in another. No Government, certainly since the war and before the war--it was worse before the war--have been able to overcome the discrepancies in Britain's labour markets. Easing up on inflation in the more prosperous areas will do nothing but harm to areas such the one that as the hon. Gentleman represents. My right hon. Friend the Chancellor has no alternative but to persist in bearing down heavily on inflation in the quickest and most direct way by raising the price of money.In most of Britain there has been great improvement in unemployment, and that is welcome. Above all, we must keep it that way. Having a job to go to, a career to follow and a lifetime in a particular calling is the most important benefit that young people can ask for and that we can give them. The short-term effect of interest rates on mortgages, family incomes, and so on, can be lived with, but if we let inflation get out of hand, the unemployment that would follow would do immense harm to the Government and even more harm to our young people.
It is also of great importance that my right hon. Friend tackled the problem of savings in the Budget. There are no prizes for anyone who guesses why savings have been virtually completely squeezed out from people's normal habits. There were the huge inflation rates of the 1970s, the ludicrous tax-and-tax-again policies on savings of the Labour Government, and the ridiculous measures that were taken against savings for administrative reasons, such as the composite rate tax, which should have gone long ago. My right hon. Friend was right to try his best once again to encourage the ethos of saving in Britain. Saving is so much better than taxation. I hope that the Opposition will put behind them all the ideas about those who saved too much being parasites on society.
My right hon. Friend has made some excellent suggestions for overcoming some of the anti-saving devices of the past, and he has done a great service to the small saver with his new scheme for saving relatively small sums of money provided that the savings are held for 10 years. I hope that his new-found friend TESSA will be a popular girl. I have already mentioned the composite rate, and the ending of that is good news for those whose incomes are too low to pay tax.
Too many people come to my surgeries and say that when they were young it was impossible to save. That was true in many cases. This year my right hon. Friend has made a good start in trying to revert that trend, as his predecessor did with his personal pension plan. I see my right hon. Friend the Chief Secretary to the Treasury in his place. He should ensure that the rats in the Inland Revenue do not get at the new schemes in the same way as they did to the personal equity plan scheme which they made so difficult and so complicated that it was hardly taken up to begin with. They are getting it better now, but will my right hon. Friend do what he can to ensure that the rats do not get at it and the good intentions are not lost? I hope that people will say that the 1990s were a good time to save and so to acquire the sense of independence that adds so much to the character of any society.
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I commend the Chancellor's Budget to the House, and I give it my full support.6.50 pm
Mr. Ronnie Campbell (Blyth Valley) : This Budget seems to be that of a Government in their death throes. There was nothing for anyone, other than those with a few pounds to save. There must be one in a thousand who are not paying poll tax, or who are paying high interest charges and have any savings left.
The Chancellor made it plain that he intended to raise interest rates this year, if need be by 2 per cent. That is an indictment in itself. Obviously, by the end of the year, the interest rate will be about 2 per cent. higher than it is now.
Let me say to my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) that a Labour Government will inherit that problem and have to put it right. The Government are making such a mess of things that it will be one big black hole by the time the Labour party gets into power. The Conservatives will lose the by-election on Thursday, and they will lose the next general election. There is no way that the Government can regain the initiative, and a Budget like this will not help.
As a result of the Budget, more people will be means-tested. Some 5,000 will be drawn back into income support ; 1.2 million will be brought into housing benefit ; 85,000 people will be brought into tax who did not pay it before. The Government try to say that they are taking people out of taxation, but this Budget brings them in. The Government constantly say that they are the party that does away with taxes, or reduces income tax. However, since 1979 the tax burden has shifted from income tax to national insurance, value added tax and indirect taxation. People are being hoodwinked : the taxes that they were paying under the last Labour Government were no different from those that they are paying under this Government. The only difference is that they are not included in direct taxation.
Those earning £157 per week are now on the low-pay threshold. Some Conservative Members might think that that is a lot of money ; they might be lucky enough to get it in their tax rebate. However, some families earn that amount in a week. People on that wage will lose £10 a week. In the north-east of England, there are many people on low wages, and £157 is considered to be a low wage.
Poverty has been continually growing in this country since the Government took office in 1979 : 9.4 million more people are now believed to be living on or below the poverty line, and 2.25 million of them are children. There was no charity or giveaway for the people on low wages and income support in the last Budget or the one before that--the "giveaway Budget." Since coming to power, the Government have done absolutely nothing for the poor. The official poverty line has increased by 55 per cent. which is another indictment of the Government. Since 1979, some 100,000 families have lost their homes ; mortgage payments have risen ; and repossessions have increased by 800 per cent. Yesterday the Chancellor said that interest charges will increase even more, which will mean that even more people will lose their homes.
Before I left my office for London on Monday, I saw two families with housing difficulties--they could not afford their mortgage payments. I could do little for them,
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apart from telling them that they must present themselves as a homeless family. It is another indictment of the Goverment that so many people must lose their homes.In January, a parliamentary question asked how many people would benefit if capital loans were abolished. The DHSS said that it would affect only 166,500 people, but the Chancellor suggested that 225,000 people would gain. I do not know who is right, the DHSS or the Chancellor. Perhaps someone can answer that question later. Even if the Chancellor is right, and the figure is 225,000, only0.8 per cent will gain. We could abolish it altogether and, according to the estimates, it would cost only £136 million.
It would have been better for the Chancellor to throw the capital loans out altogether, thereby saving on administration, and so give the local authorities at least a chance. The local authorities have had a hell of a job to get the poll tax and the rebates off the ground. Everybody believes that he is entitled to a rebate. What is not realised is that, even with a rebate, everybody will have to pay at least 20 per cent. of the poll tax.
What does this Budget do for pensioners who do not have loads of money? For those who do have loads of money, there are some fancy savings schemes, but what about the others? We hear constantly about what a good Government we have. Some people would try to make us believe that things have been wonderful since 1979. But in that 10-year period the income of pensioners has been cut. The Government have removed the earnings link and, as a result, single people have lost £12 a week and married couples £19 a week. In this way the Government have saved £4 billion
Madam Deputy Speaker (Miss Betty Boothroyd) : Order. The hon. Gentleman has had his 10 minutes.
Mr. Campbell : I will now wind up.
Madam Deputy Speaker : Order. I am afraid that, as the hon. Gentleman has had his 10 minutes, I cannot allow him to wind up. Sorry-- another time.
7 pm
Mr. John Townend (Bridlington) : I think that most people agree that the Chancellor, in presenting his first Budget, faced a daunting task. I congratulate my right hon. Friend not only on his presentation of the Budget in the House but on his excellent performance on television last night.
With the retail prices index still rising--albeit as a result of technical factors rather than the underlying rate of inflation--my right hon. Friend clearly had little room for manoeuvre this year. The Budget judgment this year is critical for the Government. I believe that, if the Chancellor has got it wrong, we can say goodbye to the next general election. He had to satisfy the market by continuing a tight fiscal stance--possibly even tighter than before--but he had to avoid being too tough, as that would have pushed the economy into severe recession. As a result of being boxed in, he was faced with the prospect of presenting a very boring and dull first Budget. I am delighted that that has not happened. We have had an innovative Budget with some imaginative ideas.
In particular, the Chancellor, at long last, has tackled the United Kingdom's major problem--the decline of thrift. As to the overall judgment, the Chancellor has opted for a marginally tighter fiscal stance, taking out just under £0.5 billion extra in taxation this year. Clearly this
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will not put us into a recession. Only time will tell whether it is sufficient, but I think that, on balance, my right hon. Friend has got it right. The initial reaction of the markets today and last night was that the Budget should have been tougher, but markets often react rather nervously after a Budget, and I am afraid that a number of the financial scribblers have been trying to talk down the market and the pound.This week we shall get another set of balance of payments figures and another set of retail sales figures. I feel that, after last month's blip, these will be more favourable, and, as a result, the pound could rally. However, it would be foolish not to appreciate that the next few months will be critical. If we can get to the autumn without having to raise interest rates again, we will be through to clear water. Inflation will start to come down, and the Budget will be seen as a triumph for the Chancellor.
I want to turn now to the effect of the Budget on small businesses. In Committee on the last Finance Bill, my hon. Friend the Member for Dover (Mr. Shaw) and I pressed the Treasury Ministers to increase from £500,000 to £750,000 the limit on the amount that BES trading companies may raise. We are absolutely delighted that the Chancellor has done so this year. We hope that during the passage of this year's Finance Bill he will accede to our other two suggestions regarding BES schemes, by reducing the limit from five years to three years and by allowing salaries for investor directors.
We welcome the changes in VAT regulations, which will enable businesses to reclaim VAT on bad debts much earlier. We welcome also the increase in the VAT threshold and the simplification of the rules for traders. The fact that VAT registration will now be based on a simple rule--the previous year's turnover--will mean that small businesses may register later and make some cash savings. In the case of corporation tax, the increase of £50,000 in the limit for the small companies rate will be welcomed by medium-sized businesses but will not help small businesses that make a profit of less than £150,000. I strongly urge the Government to consider allowing the first £5,000 to £10,000 profit of small companies paying the small rate of corporation tax to be tax-free so long as the profit is retained in the company. This would be of very great help to young companies, which are often desperate for capital once they have become established and start to expand.
There is another concession that I should like the Government to consider giving to small businesses. It concerns inheritance tax. I think that the principle has been accepted that it is of no benefit to the country that successful small businesses should have to be sold in order to pay inheritance tax. Even if such businesses do not have to be sold, substantial sums of capital have to be provided to pay inheritance tax when the entrepreneur dies. I know that it is now easier to give shares away, but that is not always practicable. Indeed, sometimes people die out of turn. My suggestion is that inheritance tax on the shares in a private company should be rolled over until those shares are sold or until the company goes public. As many right hon. and hon. Members have said, one of the problems in our economy in recent years has been the propensity of the British to save less and to spend more than the people of other industrialised countries. One of the reasons for this is the previous economic success of this Government. People have been more prosperous and have
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felt more secure under this Government, and therefore have not felt it necessary to save. They thought that they could spend their money as they earned it. It is vital that that trend be reversed. A Budget for savers was absolutely essential, and that is what we have got. In this respect, the Chancellor has performed brilliantly by encouraging new savings and by removing impediments to saving.The tax-exempt special savings account--TESSA--is particularly welcome. This is a simple, unsophisticated brother--or sister--to PEP. PEP encourages investors. The increase of 25 per cent. in the annual limit is welcome, but PEP does nothing at all for the saver who does not want to take any risks. TESSA fills the gap, and that is very important. It is very simple. It will be easily understood by everybody, and will be readily available to every saver in the land. I believe that, over the years, it will have an enormous effect on efforts to bring thrift back into fashion.
The Chancellor has dealt with a number of impediments to saving. I welcome the abolition of the composite tax rate, which was long overdue. This not only is a bonus to savers on low income but removes a clear injustice. In my own mind, I could never justify low-income savers not liable to tax having to pay tax merely for administrative convenience. This change will help many pensioners and married women in my constituency.
The abolition of stamp duty on securities not only removes an unnecessary investment cost but will improve the competitive position of the City of London and give it a tremendous boost to become the securities centre of Europe.
One of the greatest impediments to saving has always been the belief that, if one saves for one's old age, one will lose all the benefits that are available to those who have been less prudent. With the introduction of the community charge, this problem has been brought home to all hon. Members. Like many of my colleagues, I have been pressing the Government to increase the £8,000 capital limit per couple to £8,000 per person, making it £16,000 for the couple. I am delighted that, although the Chancellor has not accepted that suggestion, he has doubled the limit for a couple to £16,000, thus achieving basically the same result. That shows that we have in No. 11 a Chancellor of the Exchequer who listens to Members of Parliament.
However, I ask him to take no notice of the Scots. The concession should not be retrospective. It applies to housing benefit as well as to the community charge. To be retrospective, it would have to cover England, Wales and Scotland. The administrative problems would be enormous. It would set a dangerous precedent. Retrospective tax changes, whether they increase or reduce taxation, can be dangerous. I agree with the Chancellor that credit controls are impracticable. However, many people are upset with the banks and other financial institutions for having thrust credit on people. Many of them cannot afford it. It is especially objectionable when circulars arrive for 16 or 17-year-olds. I am delighted that the Chancellor said that from now on he will use his influence, and that he will get the Bank of England to use its influence. Influence can work.
The Chancellor has made a brilliant start. It was a Budget for women, savers, small businesses, the blind and football. I support it whole- heartedly.
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7.10 pmMr. Eric Martlew (Carlisle) : I should like to put the Budget in the context of the real world--not the world of the stockbroker who is delighted that stamp duty has been removed from share dealings, or the world of the multi-millionaire who, on a whim, may give £5 million to charity. I want to put it in the context of the people who come to see me in my surgery every week. They are worried about the bills that drop through their letter boxes--the increasing size of the electricity, water and gas bills, and now the poll tax. Then there is the letter from the building society. In the last two years they have had seven, or perhaps eight, such letters. My authority is Labour controlled. The poll tax will be £365. If the Conservatives had been in control, it would have been £350. The amount would not have been all that much different, but if the Conservatives were in control there would be some nasty cuts.
In a typical family, the husband works full-time. He is a skilled worker. His wife works part-time. They have two children and they live in a semi- detached house. They left the Labour party in 1979 and voted Conservative and they have returned the Conservatives to power ever since. If they had come to me last Saturday, I should have said, "Don't worry ; the Chancellor will help you next week. He will solve the economic problems and give you the help you need. That's why you voted Conservative last time. He's supposed to help people like you."
If they come to see me next weekend, what shall I say to them? Will I say, "You're lucky, as top rate taxpayers ; your tax rate has not been increased"? A typical family earning £16,000 a year is never likely to pay the top rate of income tax. Will I tell them that they are lucky not to have a company car and that therefore they will not have to pay the extra 20 per cent? Will I say to them, "With independent taxation you will have two capital gains tax exemptions of £5,000 each, so you can sell one of your valuable assets and realise a tax-free profit of £10,000"? But their only asset which is worth over £10,000 is their home, which they may have to sell because of increased mortgage repayments. But in any case their house is exempt from capital gains tax. So they will not be very happy if I tell them that.
I could say to them, "Why don't you look on the bright side? Think of all the benefits you will get as a saver. You'll be able to open your own TESSA account. You'll be able to invest £150 a month for five years and the interest will be tax-free." I can imagine the reply : "For the last two years we've been unable to save anything. In fact, we've had to take out a second mortgage to make ends meet." It would be useless to tell them that they can increase the amount that they invest in a personal equity plan from £4,800 to £6,000 a year. I know what they would say about that.
I could say, "The answer to all your problems is that the composite rate tax on savings has been abolished," but I am sure that that would not help them. I could say to them, "The Chancellor abolished stamp duty on share dealings, didn't he? That will help you." They would say, "Yes, we used to have some shares in British Gas but we had to sell them six months ago to pay the gas bill." I could also say, "You'll get tax relief on workplace nurseries." Their answer would be, "That's all very fine, but there are no workplace nurseries." Mrs. Typical is not too keen on workplace nurseries. They are an extension of the tied
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cottage principle--once in, one cannot get out. The only employers with workplace nurseries are banks. Few of my constituents work in banks.The only Budget change that the typical family can see that will help them relates to charities. The husband is thinking of having his children registered as charities so that they can go begging round stately homes and board rooms for money.
The typical family will suffer as a result of the Budget. Duty on cigarettes and petrol is to be increased. That will increase inflation. The Chancellor has predicted a 1 per cent. growth in the economy. That will mean unemployment. Mr. Typical could soon be out of a job because of the Budget. If we accept that industrial productivity must grow by at least 4 per cent., growth at only 1 per cent. means that three out of every 100 employees will be made redundant next year. This is a Budget for unemployment.
My constituents are typical of many others throughout the country, from Finchley to Mid-Staffordshire. The Budget has been billed as a Budget for savers. It will do little to encourage spenders to become savers. It will only benefit existing savers. Disposable income will be eroded by high interest rates, inflation will continue, the rich will become richer, and the poor will pay for it.
To anyone who has been prepared to listen to him, the Chancellor has said, "Don't panic." It reminded me of a television series : we have a shell- shocked Chancellor in a "Dad's Army" Government. The sooner they surrender the better it will be for Britain.
7.17 pm
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