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The Chancellor of the Exchequer (Mr. John Major) : The hon. Member for Derby, South (Mr. Beckett) ended the Opposition's contribution to this debate in much the same manner as her right hon. and learned Friend the Member for Monklands, East (Mr. Smith) opened it on Wednesday. Her speech was amusing, occasionally opaque, statistically selective, strong on criticism, but almost totally devoid of any detailed alternatives.

In the hon. Lady's statistical selections there were, alas, some facts that she missed. She missed the fact that between 1980 and 1989 this country grew faster than any

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major European country except Spain. She missed the fact that, even with slower growth forecast for 1990, the United Kingdom will have recorded higher growth in the past 10 years than either France or Germany. She missed the fact that, since 1980, the United Kingdom's manufacturing output has grown faster than that of either France or Germany, in stark contrast with the 1960s and 1970s when the United Kingdom was bottom of the growth league. Those are just a small selection of the facts that the hon. Lady missed.

Opposition Members have now been in opposition for a decade or more. After such a lengthy period, it is a little puzzling that they have so little constructive to say about the future. Either they do not have policies or they will not say what those policies are. I know that the right hon. and learned Member for Monklands, East is an intelligent and perceptive politician and, therefore, after 11 years of being an intelligent and perceptive politician he must have policies. If he does not have policies after 11 years, he is too incompetent to be in government. If he does have policies and he will not say what they are, he is too shady to be in government. The Opposition are now secretive to the point of deception.

There is a new tendency in the Labour party. The "don't say, won't say" tendency is now running the Labour party from the Opposition Front Bench. That tendency is led by the right hon. and learned Member for Monklands, East --a distinguished Queen's counsel--and under his guidance the Labour party has opted for the right to silence, for fear that it will incriminate itself by telling people its policies. Labour Members are not silent only in the House. These days they are also silent in the media. When did we last see a significant interview with the right hon. and learned Member for Monklands, East, with the right hon. Member for Islwyn (Mr. Kinnock) the Leader of the Opposition, the hon. Member for Dunfermline, East (Mr. Brown) or any of the Opposition Front Bench in which they have exposed themselves to discussion of their policies? Not having seen such an interview for some time, can we ever expect to see one again?

Over the past few days, we have had a wide-ranging debate. There have been a number of compelling speeches to which I wish to refer. Today there were a number of outstanding speeches to which a reply is merited. My right hon. Friend the Member for Blaby (Mr. Lawson) made two specific points in a compelling speech. First, he said that a tax increase at present would be unwise and I will refer to that later, as the right hon. Member for Ashton- under-Lyne (Mr. Sheldon) and others also referred to that issue. Secondly, my right hon. Friend the Member for Blaby called for early entry into the exchange rate mechanism of the European monetary system, and that call was echoed by my hon. Friend the Member for Horsham (Sir P. Hordern) and others.

I reaffirm to my right hon. Friend the Member for Blaby and to my colleagues that progress is being made towards entry and that we will enter the exchange rate mechanism when the conditions that we have set out are met fully. As my right hon. Friend the Member for Blaby will be aware, we wish to see inflation fall before we enter the mechanism. That concern is not shared simply by us ; it is shared also by the governor of the Bundesbank. When sterling enters the exchange rate mechanism, it may well be turbulent not only for us, but for our European partners.

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There should be no doubt that join we will, when the conditions that my right hon. Friend the Prime Minister set out have been met. My right hon. Friend the Member for Blaby also referred to the Opposition's policy--or lack of it--on the exchange rate mechanism. Of course the Opposition say, "We will join the exchange rate mechanism", although the hon. Member for Newham, North-East (Mr. Leighton), in a speech that I was sorry to miss, apparently has a different view about that. The Opposition's promise is so hedged by codicils as to be almost meaningless. They are not so much proposing to join the exchange rate mechanism as to abolish it. Their conditions for entry would drive a coach and horses through the existing system. Last year the right hon. and learned Member for Monklands, East told the House that the conditions that the Labour party attaches to joining the mechanism, apart from the difficult condition of joining at the effective rate--which he did not identify--are that there should be adequate swap arrangements between the central banks, a well- organised regional policy within the Community and that the thrust of economic policies within the Community should be for growth not for deflation.

As Brian Walden pointed out to the hon. Member for Dagenham (Mr. Gould)--

Mr. Paul Boateng (Brent, South) : Brian Walden is the Government's friend.

Mr. Major : Mr. Walden was a distinguished member of the Opposition Benches.

Mr. Walden said that Labour's terms for entry are much tougher than the Government's. For instance, he said that Labour wants a huge regional policy. It wants a guarantee that weaker currencies will be defended much more effectively than at the moment. Labour wants the whole purpose of the exchange rate mechanism to be changed. The truth is that Labour's commitment to the mechanism is a sham. It is an attempt to take a soft option, but the exchange rate mechanism is not a soft option. As my hon. Friend the Member for Horsham made clear, it is a discipline, not a soft option. Financial discipline is something that the Labour party never has understood and never will understand. We understand it, and, in due course, we will join the exchange rate mechanism.

Mr. A. J. Beith (Berwick-upon-Tweed) : Will the Chancellor say here and now whether we will join as long as the right hon. Lady is Prime Minister?

Mr. Major : For the hon. Gentleman, that question is

uncharacteristically cheap. My right hon. Friend the Prime Minister made the decision that we would join and, in Madrid, set out the terms under which we would join.

My hon. Friend the Member for Croydon, South (Sir W. Clark) also made a powerful speech in which he particularly welcomed the introduction of the tax-exempt special savings account. I was sorry to learn recently that my hon. Friend will retire at the end of this Parliament. Conservative Members will miss him and his contributions to our debates. As he said, the new tax -exempt savings scheme represents a considerable incentive for saving. We have already seen the success of personal equity plans, the brainchild of my right hon. Friend the Member for Blaby, in encouraging saving in shares. TESSA offers similar incentives. It is tailored for savings with building societies

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and banks which, for many people remain, and will remain in future, the most convenient and popular vehicle. I hope that the tax privileges of TESSA will get many people started on the saving habit and enable many more people to feel that it is worth building up savings for the future. I am glad to see that banks and building societies have responded positively to this innovation. For example, the Royal Bank of Scotland said :

"This is what the banks and building societies have wanted for years. It will do a great deal to encourage the small saver and we will be aiming to introduce the TESSA account as soon as possible." I hope that many others will follow that lead and that many people will take up the new savings incentive to build security and independence for themselves and their families.

During the span of the debate, a number of Opposition Members have chosen to quote relatively disobliging remarks from brokers' circulars and from other sources. Tempting though it is, I will not respond by quoting what some of those very same people recommended just a few days before the Budget, but it is striking how warm a welcome the Budget has received from business and industry.

Mr. Jack Straw (Blackburn) : What about the electors of Mid- Staffordshire?

Mr. Major : The trouble with the hon. Member for Blackburn (Mr. Straw) is that he fears that the strategy will work, and he is right--it will.

The particular help that the Budget offers for smaller businesses has been acknowledged not only by Opposition Members but by the Association of British Chambers of Commerce, which welcomed "the combination of a powerful boost to savings with control of inflation."

It added :

"the business community should be well pleased with it." The Confederation of British Industry, the Institute of Directors and others have offered their full support for the determination to bring down inflation.

There was support, too, from many business leaders such as Sir Denys Henderson of ICI, Mark Boleat of the Building Societies Association, and many others, including Peter Morgan of the IOD. Most of those people know that, in present circumstances, we cannot offer this as a giveaway Budget, nor do I think at present that business would thank us for one.

Businesses know that the one overriding risk to our economy and to everyone in it would be to give up the battle against inflation. They remember only too well that rapidly rising prices in the past have destroyed planning, investment and motivation, and, above all, industrial relations, because inflation is the mother and father of industrial conflict. They know, too, that that was in the 1970s--not the 1980s--when the Labour Government were in power.

Business men know that with increasingly open markets and tough competition in the future, Britain simply cannot afford that sort of self-inflicted wound. That is why business understands and approves both a tight fiscal stance and a tight monetary stance. I offer my right hon. and hon. Friends the promise that that is precisely what we will keep--in the short term, in the medium term and in the long term, because we are determined to bring inflation down and to keep it down.

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British business does not contain many adherents of the sado-masochistic school of economic policy--those who think that the first Budget to put up taxes since 1981 did not put them up enough. It is not surprising that that doctrine has more supporters among those whose business is writing than among those whose business is business. Not many people in British industry would derive much comfort from a gratuitous helping of fiscal austerity.

City fashions come and they go. At the moment, the fashionable view may be that the fiscal brakes should be jammed in an emergency stop. However, that ignores all the evidence of recent years about the way in which fiscal policy works, as my right hon. Friend the Member for Blaby made clear. If one looks at our economic history, it is clear that when Governments have attempted to fine-tune fiscal policy to beat the cycle, more often than not that has turned out to be precisely the wrong thing to do at precisely the wrong time. Contrast that with the highly beneficial effects of stable or falling tax rates on the supply side of the British economy. It does not make any sense to set them at risk by a panicky fiscal reaction which, in retrospect, might turn out to be overdone.

I make no apology whatsoever for the fiscal judgment that I made when I framed the Budget. The right hon. Member for Ashton-under-Lyne spoke in his usual thoughtful and gracious way. In doing so, he questioned both the Budget judgment and the fiscal judgment and referred to market difficulties, as did the hon. Member for Durham, North (Mr. Radice). In so doing, they did not mention--although I reminded the right hon. Gentleman of this--that even as they spoke sterling was higher than when I delivered the Budget speech last Tuesday. When I pointed that out to the right hon. Gentleman in an intervention, he said that we must await the longer term. Of course that is right--and perhaps the Budget's critics would be wise to wait for the longer term as well before making their criticisms. In all our debates, the one substantive criticism has been that fiscal policy was not tight enough. The right hon. Member for Llanelli (Mr. Davies) made that same point. I agree neither with the right hon. Gentleman nor with the critics. Sometimes the right thing to do is to stand still with a neutral fiscal Budget. That is what I chose to do on this occasion. If I had judged that it was necessary to raise taxes, I should have raised taxes, but I did not reach that judgment. My right hon. Friend the Member for Worthing (Mr. Higgins) shares that view. He accurately pointed out the difficulties of making such a judgment at present, not least difficulties with the statistical base, which I am considering how to improve.

Let us consider the fiscal position and record. In recent years, the country has been repaying its debts year after year. No. G7 country, except Japan, either is doing that or has been doing it in recent years. Moreover, the sheer scale of our repayments has already made a sizeable inroad into our public sector debt.

As for the future, under the fiscal judgments that have been reached, fiscal policy will knock out a further £17 billion of debt over this year and the next two years. As a result of that, we shall have reduced national debt, which stood at the beginning of this year at around £160 billion, by massive sums in total. That is the reality of the fiscal judgment. Our fiscal strength also means that debt as a

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proportion of GDP will continue what has been a headlong fall--from 50 per cent. in 1979, to 32 per cent. in 1989 to a forecast of 28 per cent. in 1990. It is now down to levels not seen since the beginning of the first world war. It is hard and intellectually indefensible to suggest that the fiscal position is neither satisfactory nor tight. It is tight for other reasons, too, for we plan to repay £7 billion this year--and £7 billion next year. Even though this year has had the benefit of cyclically stronger growth than next year, the debt repayment next year will remain the same. The reason why it turned out at £7 billion and not £14 billion this year was not because fiscal policy was artificially relaxed. There has been no change in tax rates or structure. It was the one-off effect of the corporation tax shortfall as a result of the build-up of allowances for high investment, of the results of the national insurance rebates, as so many people took out personal pensions, costing the PSBR £2.5 billion, of the result of slightly lower privatisation proceeds than we had imagined and of the result of truly massive overspending of local government as councils sought to avoid new capital controls. To call that a loosening of policy is a perversion of logic. It may fill the columns of newspapers, but it ought not to fill minds as being the reality of what has happened. [ Hon. Members-- : "Oh."] If Opposition Members listen, they may learn something.

Mr. Boateng : We need no lectures from you.

Mr. Major : It is, I grant, unlikely that they will listen, but we shall try.

My right hon. Friend the Member for Worthing pointed out what advocates of higher taxation would say if such taxation generated either lower growth or higher wage demands. He was, as ever, both perceptive and right. My right hon. Friend also welcomed a number of other measures in the Budget and especially the abolition of composite rate tax, as did my hon. Friend the Member for Isle of Wight (Mr. Field). As my right hon. and hon. Friends know, composite rate tax was introduced because it brought substantial administrative savings. The Inland Revenue did not have to check the interest on millions of accounts to collect what were often small amounts of tax. Instead, tax was automatically deducted at source. I have no doubt that we are right to abolish the composite rate. I can think of no other example where tax is collected from people who have no liability to pay it and where, in no circumstances, can it be reclaimed once it has been deducted. Once independent taxation comes into force, as many as 14 million people would have paid tax that they did not owe on their interest.

However, let me say a word about the scale of the task of abolition. There are some 34 million interest-bearing bank and building society accounts and, during the year, many of the people holding them will change from being taxpayers to being non-taxpayers. Therefore, we shall need to negotiate with the banks and building societies with the aim of introducing a simple scheme of self-certification to allow non-taxpaying savers to receive their interest gross. Those who cannot self-certificate for any reason will be able to reclaim tax. Such arrangements are not easy to introduce and it will be a great challenge to have them in place by next April. Many felt that it would take at least two years to put them in place. It is for this reason, and for

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this reason only, that composite rate tax cannot be abolished immediately. If it had been possible to do so, I would have done so. A number of the measures that I introduced in the Budget last week have been widely welcomed throughout the House and outside. I am especially pleased by the widespread welcome that has been given to the proposal for a reduction in pool betting duty to contribute to the cost of safety improvements at football grounds. As we have been in the business of quotes today, particularly from Opposition Members, I shall quote the chief executive of the Football Association, who called it

"the start of a new era for football".

I hope that that is true, especially in terms of the conditions in which fans have to watch the game.

It is surely a measure of success that the Opposition appear to be queuing to take credit for having thought of the scheme. I have no objection to that and no party points to make about it. At Wembley yesterday, with the hon. Member for Newham, North-West (Mr. Banks), who may not care to admit to the company that he was in, and with the hon. Member for Middlesbrough (Mr. Bell), it was clear that the change is widely appreciated by both fans and administrators. The House may wish to know that the Football Trust and the pools companies will be meeting tomorrow to discuss the arrangements. I hope that they can agree on the details speedily so that we can reduce the duty without delay.

There has been a considerable welcome from charities for the new gift aid scheme. A number of charities have said that they receive a substantial number of one-off gifts of £600 and over. In future these gifts will carry the bonus of tax relief for the charity. This alone will increase their income, but I have no doubt that if the scheme is promoted actively many more people will be encouraged to give generously to a range of good causes. As the director of the Charities Aid Foundation commented :

"This package of measures is the best ever by any Government." He added that the package should be worth £50 million a year if charities pull themselves together and market it properly. I hope that he is right. The CAF was joined in its welcome by the Imperial Cancer Research Fund, the National Council for Voluntary Organisations, the Charities Value Added Tax Reform Group, the National Arts Collection Fund and the Royal National Lifeboat Institution. We now have a proper structure for charities and for giving. There are covenants for the regular giver over years, a payroll giving scheme to be deducted and paid weekly or monthly, and gift aid to provide, for the first time, for one-off gifts of cash. It is the best system of charitable giving, I suspect, of any nation in the European Community.

The measure to exempt the benefit of workplace nurseries from income tax has been widely welcomed. I have been informed today that a number of employers are responding already by announcing plans to open workplace nurseries for their employees. For example, it is reported that BP will be setting up workplace nurseries for its 30, 000 staff following the Budget. There are a number of other employers who will be doing likewise, notably the Midland bank, which is proposing to set up 200 workplace nurseries. That is an extremely sensible response to the labour market conditions that many employers now face. I hope that the scheme will be taken up widely.

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I made it clear in my Budget speech that I wished to encourage savings and I introduced incentives to do so. I know very well the difficulties that many people face with interest rates. I wish that it were possible to promise that interest rates would come down again soon. I cannot promise that they will do so and nor can I rule out a further rise if I judge that necessary. If they have to rise, they will rise. I can promise the House, however, that interest rates are working. They are encouraging saving and discouraging spending and borrowing. I have no doubt that they will get the economy back on track, and in the time scale that I set out in the Budget judgment. Opposition Members who doubt that should not underestimate the crucial importance of savings. Higher saving is not merely a short-time objective. On the contrary, I believe that high levels of saving will be extremely important throughout the 1990s if the British economy is to compete as it should.

If there is a high level of savings, we can sustain a high level of investment, which we all wish to do. The tax changes add considerably to the armoury of measures already in the system to encourage saving, and which have already resulted in massive culture changes in British society. Some 11 million shareholders and millions of other people will, I hope and believe, be able to save free from the victimisation that they suffered under the policies of the Labour Government. I find it ironic that Opposition Members mock the savings incentives in the Budget. Let people be warned--if there is ever a Labour Government again, the savers can forget about keeping up with inflation or obtaining a decent return on their money.

We hear a great deal about how the Opposition have changed. The right hon. and learned Member for Monklands, East and his loyal lieutenant the hon. Member for Dunfermline, East tell us, in every newspaper that we open, that Labour has changed and that as they lunch their way around the City, as they do day after day, they are finding a very appreciative audience. [Interruption.] They look very good on it. They sit on the Front Bench, the house pets of the board room in the 1990s. I have no doubt that the right hon. and learned Gentleman is an extremely entertaining lunchtime companion. We have never questioned his entertainment value, but I wonder whether he is deluding himself about the esteem in which he is held. I was amused by an article by the City firm Goldman Sachs--which is not exactly run by closet Conservatives--entitled :

"Meeting the Challenge?--Labour's Policy".

Goldman Sachs said that it did not very much like what it had seen of the right hon. and learned Gentleman's policies. It said : "Monetary, fiscal and exchange policy will be used to promote the competitiveness of British industry This implies a willingness to depreciate."

They are devaluers today just as they always were. Indeed, the policy review states that Labour will end the reliance on high interest rates and an uncompetitive currency. Goldman Sachs concludes :

"this seems to undermine Labour's commitment to join the exchange rate mechanism of the EMS and to threaten its counter inflationary policy."

Indeed it does. Labour has no counter-inflation policy. The problem with Labour's economic policy is the lack of any means to control inflation. There is no incentive for people to control costs. Labour is now in the age of glitznost--let the glitter be the substance. There has been a great deal of fraud and a few facts during the debate. My right hon. and hon. Friends should make no mistake--we

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have seen all that we are going to see of Labour's plans to deal with inflation. On that they are implementing Labour's election strategy--smarten up and shut up.

How many basic rate tax payers will be worse off? Labour Members will not say. How many people will suffer from the increase in the national insurance ceiling? They will not say. How much will people lose by the loss of the married couples allowance? They will not say. That is the reality. They will not vote for a policy that will reduce inflation and recreate growth. In this Budget we have a policy to bring down inflation and to create growth. I commend it to the House.

Question put : --

The House divided : Ayes 338, Noes 228.

Division No. 139] [9.59 pm

AYES

Adley, Robert

Aitken, Jonathan

Alexander, Richard

Alison, Rt Hon Michael

Allason, Rupert

Amery, Rt Hon Julian

Amess, David

Amos, Alan

Arbuthnot, James

Arnold, Jacques (Gravesham)

Arnold, Tom (Hazel Grove)

Ashby, David

Aspinwall, Jack

Atkins, Robert

Atkinson, David

Baker, Rt Hon K. (Mole Valley)

Baker, Nicholas (Dorset N)

Baldry, Tony

Banks, Robert (Harrogate)

Batiste, Spencer

Beaumont-Dark, Anthony

Bellingham, Henry

Bendall, Vivian

Bennett, Nicholas (Pembroke)

Benyon, W.

Bevan, David Gilroy

Biffen, Rt Hon John

Body, Sir Richard

Bonsor, Sir Nicholas

Boscawen, Hon Robert

Boswell, Tim

Bottomley, Peter

Bottomley, Mrs Virginia

Bowden, A (Brighton K'pto'n)

Bowden, Gerald (Dulwich)

Bowis, John

Boyson, Rt Hon Dr Sir Rhodes

Braine, Rt Hon Sir Bernard

Brandon-Bravo, Martin

Brazier, Julian

Bright, Graham

Brown, Michael (Brigg & Cl't's)

Bruce, Ian (Dorset South)

Budgen, Nicholas

Burns, Simon

Burt, Alistair

Butcher, John

Butler, Chris

Butterfill, John

Carlisle, John, (Luton N)

Carlisle, Kenneth (Lincoln)

Carrington, Matthew

Carttiss, Michael

Cash, William

Chalker, Rt Hon Mrs Lynda

Channon, Rt Hon Paul

Chapman, Sydney

Chope, Christopher

Clark, Hon Alan (Plym'th S'n)

Clark, Dr Michael (Rochford)

Clark, Sir W. (Croydon S)

Clarke, Rt Hon K. (Rushcliffe)

Colvin, Michael

Conway, Derek

Coombs, Anthony (Wyre F'rest)

Coombs, Simon (Swindon)

Cope, Rt Hon John

Cormack, Patrick

Couchman, James

Cran, James

Critchley, Julian

Currie, Mrs Edwina

Curry, David

Davies, Q. (Stamf'd & Spald'g)

Davis, David (Boothferry)

Day, Stephen

Devlin, Tim

Dickens, Geoffrey

Dorrell, Stephen

Douglas-Hamilton, Lord James

Dover, Den

Dunn, Bob

Dykes, Hugh

Eggar, Tim

Emery, Sir Peter

Evans, David (Welwyn Hatf'd)

Evennett, David

Fairbairn, Sir Nicholas

Fallon, Michael

Farr, Sir John

Favell, Tony

Fenner, Dame Peggy

Field, Barry (Isle of Wight)

Finsberg, Sir Geoffrey

Fishburn, John Dudley

Fookes, Dame Janet

Forman, Nigel

Forth, Eric

Fowler, Rt Hon Sir Norman

Fox, Sir Marcus

Franks, Cecil

Freeman, Roger

French, Douglas

Fry, Peter

Gale, Roger

Gardiner, George

Garel-Jones, Tristan

Gilmour, Rt Hon Sir Ian

Glyn, Dr Sir Alan

Goodhart, Sir Philip

Goodson-Wickes, Dr Charles

Gorman, Mrs Teresa

Gorst, John

Gow, Ian

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