House of Commons Hansard Debates for 20 Mar 1991

Sir Peter Tapsell (East Lindsey) : If the Secretary of State for the Environment has been leaking like a sieve, why was everyone so astonished by the announcement about VAT?

Mr. Smith : The hon. Gentleman who, albeit unsuccessfully, worked assiduously for the Secretary of State for the Environment in the recent contest in the Conservative party--

Mr. Julian Brazier (Canterbury) : Why not answer the question?

Mr. Smith : I am asked to give advice on something that is happening in the Conservative party, not about Labour party policy. I was asked to give my opinion about what the Secretary of State for the Environment was talking about. Well, he was not actually talking about VAT. He did not get that one. But he sought to capture publicity before the Chancellor's announcement about VAT. The wicked thought crossed my mind that he was trying to bounce some of his Cabinet colleagues into taking a decision at a particular meeting by drumming up support here and there for his proposals. As far as I can see, no one in the Government is denying that that process of leaking went on. But it is for the Government to decide how Ministers behave in their Administration.

The 16 per cent. increase in that indirect tax will mean that, when we buy the wide range of goods to which the tax applies--household equipment is an obvious example--or pay for services such as in our telephone bills, we will all be paying a poll tax surcharge. It is not clear to me--unless the hon. Member for East Lindsey (Sir P. Tapsell) can give me an opinion-- whether the VAT proposal is intended to bury the poll tax or to keep it alive.

Conservative Members know perfectly well that many among them see in the Chancellor's VAT increase a possible lifeline for the continuation of the poll tax in one form or another. But of course the House of Commons has

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not been shown the whole prospectus. It does not know whether the poll tax is to go or stay, what is the proposed allocation of services between central and local government or what financial burdens have been allocated and to whom. We get Budget proposals one day, we are told that a Bill will be presented on another, and although the House has not been told what the legislation contains, it is told that the normal processes of legislation will be steamrollered to suit the political convenience of a Government running hither and thither in a desperate attempt to extricate themselves from a poll tax fiasco of their own creation.

Enormous changes in the relationship between central and local government, of great significance to the balance of our constitution, are revealed in insidious leaks by the Secretary of State for the Environment and are then packaged in a panic form to be bulldozed through Parliament. Was there ever an example of more foolish or ill-considered government?

The latest burden in VAT increases is just the most recent cost of the poll tax fiasco. Hundreds of millions of pounds--I am generous in that estimate- -have been wasted in the constant changes in local government administration and finance which have been imposed by the Government. The tragedy is that all the money could have been used to improve the services which local government exists to provide and which are the real victims of the Government's ludicrous incompetence.

Let it not be said, as I understand the Chancellor to claim, that the VAT increase that he proposes will not affect the cost of living. The system of retail prices indexing may be such that the effect of VAT increases can be statistically disguised, but, as many newspapers today have pointed out, that is little more than sleight of hand. The price increases will be real. They will be paid by our constituents, who will not be impressed. They are well capable of spotting another inflationary own goal coming in their direction.

Of course, the retail prices index will fall in the months ahead. That is statistically inevitable as previous price rises fall out of the calculation. One effect of flattening the economy and causing unemployment to rise is that inflation will fall. It would be wise for the House to look with some care at the detailed figures in the Red Book. The gross domestic product deflator, which measures inflation in the economy as a whole, rather than the limited bundle of goods contained in the retail prices index, remains almost unchanged, easing only from 7.75 per cent. in 1990 to 7 per cent. in 1991. That is still well above the equivalent GDP inflation rates of the other major European Community countries. Again, we must be wary of the Government's optimistic forecasts, in the light of the information buried in the statistics which they themselves have presented.

During the past 12 years the Government have indulged in the economics of the roller-coaster. We are back to the cycle of boom and bust, back to the stop, go and stop again policies which have been the chief characteristic of Conservative economic policy for decades. In the 1960s we saw the Maudling dash for growth, in the 1970s it was the Barber boom and in the 1980s the right hon. Member for Blaby and the present Prime Minister organised their own spend now, pay later credit spree.

There has been a Conservative boom and bust in each of the past three decades. Why on earth should anyone

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believe that another Conservative Government in the 1990s would behave any differently from what they have done three times before? The Budget confirms how little the Government and the Conservative party have learnt from their experience. I am sad to say that it is yet another missed opportunity. Sooner rather than later I hope that we shall elect a Government who are committed to making the breakthrough to economic success which is so desperately needed for our country in the 1990s. We need it if we are to secure our living standards and to help us build a more decent society. It will fall to that Government to present a Budget for investment and recovery. We in the Labour party look forward to that opportunity.

5.1 pm

The Chief Secretary to the Treasury (Mr. David Mellor) : Yesterday, my right hon. Friend the Chancellor charted the course of the British economy during the next decade and proposed measures designed to help business through the current recession and to maintain the momentum of a decade of supply-side reform. He introduced proposals to make the tax system fairer and to enhance the quality of life. Finally, my right hon. Friend announced a massive switch between local and central taxation--a switch that lays the foundation for a lasting solution to the problem of local government finance.

History will show that my right hon. Friend's first Budget was right for its time, right for the economy and right for Britain, and it certainly was not dull either. That is the almost universal view of today's press, the mood of which is well summed up by the Financial Times which, in the opening words of its editorial, said that the Chancellor

"has played a difficult hand bravely and skilfully."

What is clearly recognised in that editorial, as in so many others, is that this Budget puts the long-term health of the British economy and British business first.

Mr. Giles Radice (Durham, North) : Will the right hon. and learned Gentleman give way?

Mr. Mellor : It is very early in my speech, but I shall.

Mr. Radice : As he was quoting from the Financial Times , the right hon. and learned Gentleman might also have quoted the article by Mr. Samuel Brittan which said that this is not a Budget for business but a Budget to reduce the poll tax. That is the truth, is it not?

Mr. Mellor : It is not. It is a Budget for business and to reduce the community charge, and it succeeds magnificently in both. I shall come to the chapter and verse. It is to the discomfiture of Opposition Members that it succeeds so well.

So far in this debate we have heard speeches from the Leader of the Opposition, who, alas, is no longer present, and the shadow Chancellor--a winning combination, the Labour party would have us believe. I do not know whether they are familiar with the old Russian proverb about partnership, of which I am irresistibly reminded when listening to both of them. The Russians say that there are two people in every partnership--the one who chops the wood and the one who does the grunting. I do not know which was which. They were hotly competing for the title of the grunter, but it will be interesting to see how both of them have shaped up in this debate.

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The Leader of the Opposition's performance was quite astonishing. I have watched him, as have my hon. Friends I am sure, for some years carrying out that task. It is certainly a difficult one. It is a real ordeal to have to respond immediately to a complex Budget. It is a difficult speech to bring off and it is the particular facility of the Leader of the Opposition to make it seem impossible.

Let me make clear exactly what I mean. First, most of his speech had been typed up well beforehand. [ Hon. Members :-- "So is yours."] If ever there was the wrong speech, by the wrong writer for the wrong occasion, that was it. It is a speech that we have already heard-- [Laughter.] Opposition Members may wish to hide their discomfiture about the performance of the Leader of the Opposition, but-- [Interruption.] I thought that Opposition Members were supposed to be behaving well in speeches these days, Mr. Deputy Speaker, and showing us up.

I shall come to the chapter and verse of why the Leader of the Opposition was unwise not to discard his script. Everything in my script is predictable because of the predictable speech by the Leader of the Opposition, who said nothing new.

The Leader of the Opposition said that he had been listening to a "tinkering" Budget. Whatever it is, it certainly is not tinkering. I would like to hear the Leader of the Opposition's definition of a radical Budget if this is tinkering. However, it is a fitting tribute to the right hon. Gentleman's forensic skills that because his script said tinkering he continued to call it tinkering, although, as is perfectly obvious to everyone, this Budget is very different. When it came to the spontaneous bits, the Leader of the Opposition was unable to keep up with his pre- prepared description of a tinkering Budget from a Government that he said "will not learn" because he went on to say that our child benefit proposals were "another spectacular somersault", and he had to describe the reduction in the community charge as

"the biggest climb-down in political history."--[ Official Report, 19 March 1991 ; Vol. 188, c. 182.]

He should make up his mind--is it tinkering or a U-turn? After all, he is supposed to be the decisive one. Mind you, Mr. Deputy Speaker, it cannot have been easy for him. All his favourite foxes were shot--the level of the community charge, mortgage relief, offshore trusts, and company cars. Perhaps the right hon. Gentleman should have been congratulated merely for continuing to stand there while all those rugs were pulled out from under his feet.

I wish to return to the substance of what the Leader of the Opposition said so that I have the attention of the right hon. and learned Member for Monklands, East (Mr. Smith) and to some of the matters mentioned by my right hon. Friend the Secretary of State for Social Security, which appeared in the Labour party's shadow budget. That has exposed, once and for all, Labour's claims to be the party of fiscal responsibility. Despite saying that the child benefit proposals were another spectacular somersault, the Leader of the Opposition went on to say that he wondered that the right hon. Gentleman had "the gall to come" to the House to announce them, but those measures will cost £450 million in a full year. Indeed, when taken together with the increase that is coming into effect next month, the full year cost is more than £700 million. I should have thought that the real gall is to say that one is financially responsible and then sneer at that level of

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financial commitment. Heaven knows what would happen if the Leader of the Opposition were in charge with that sort of thinking.

Mr. A. J. Beith (Berwick-upon-Tweed) : Will the Chief Secretary give way?

Mr. Mellor : I will in a moment.

I would like to return to the point made by my right hon. Friend the Secretary of State for Social Security about the measures costed by the right hon. and learned Gentleman in the shadow budget. The right hon. and learned Gentleman will be aware that our proposals alter the income support level so that the poorest families, with a quarter of all children, receive the full benefit of the increase in child benefit. The right hon. and learned Gentleman sought to fudge what was said in the shadow budget. The trouble with publishing documents is that we read them and subject them to scrutiny. What do we find? We find the costing of his child benefit proposal at £775 million.

The right hon. and learned Gentleman is perfectly at liberty to intervene if I have got that wrong. However, it is clear that he knows only too well that £775 million is the costing if no allowance is made for families on income support. If he was to give the full benefit to the poorest families, the total cost would be over £1 billion. Once again, the figures just do not add up.

The right hon. and learned Gentleman seems to be studiously engaged in discussions with the hon. Member for Newcastle upon Tyne, East (Mr. Brown) to avoid the argument. If he wants to stand up and make it absolutely clear what he meant, I shall be happy to give way. Were the poorest quarter to be better off or not? Were the poorest quarter to have their income support varied on the right hon. and learned Gentleman's calculations or not? [ Hon. Members-- : "Silence!"] As I have said to the right hon. and learned Gentleman before, we hear plenty of quarter sessions huff and puff from him, but when we look for the beef, it simply is not there.

The right hon. and learned Gentleman has published a shadow budget riddled with errors and inconsistencies. We have already exposed the hole in the middle of the child benefit proposals, but there are more. There is the repudiation, which he acknowledged this afternoon, of Beckett's law, which stated that Labour had only two priority spending pledges--pensions and child benefit. We know, and he has acknowledged, that a raft of additional measures on training, capital allowances, temporary work programmes and so on was included in the shadow budget.

When it comes to paying for all that, the whole thing begins to fall apart. The right hon. and learned Gentleman may want to clarify other points in the shadow budget, and that would be helpful to us all. First, £1 billion of the cost of the shadow budget was to come from withdrawing mortgage tax relief from top-rate taxpayers and reducing the subsidy on company cars. We have done that, and money cannot be spent twice. What is next in line? Sooner or later the right hon. and learned Gentleman may have to return to the subject that always embarrasses the Labour party so much-- the level of income tax. Labour Members have been anxious not to commit themselves on that topic since the fiasco of their promise at the last election that income tax would have to go up to 29p in the pound.

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Mr. Harry Ewing (Falkirk, East) : Will the Chief Secretary give way?

Mr. Mellor : No. I want to deal with the right hon. and learned Gentleman's shadow budget ; I shall give way after that. There will be plenty of time.

Mr. Ewing rose--

Mr. Mellor : I will give way when I have finished dealing with the shadow budget. That is perfectly fair. The hon. Gentleman must be patient.

Mr. Ewing rose--

Mr. Deputy Speaker : Order. The Chief Secretary has made it clear that he will not give way.

Mr. Mellor : According to the shadow budget, £619 million for investment and recovery will come from ending the 2 per cent. personal pension incentive. That figure has a nice ring. It sounds accurate, because it is not a round figure, and some people might be taken in by it. As has been made obvious this afternoon, they should not be.

The right hon. and learned Gentleman may benefit from what I am saying next time he has a go at the same exercise. The elimination of the 2 per cent. personal pension incentive would yield, not £619 million, but about £10 million a year. Where, then, does this little pot of gold come from? As my right hon. Friend the Secretary of State for Social Security has made clear, it comes from the retrospective removal of the 2 per cent. rebate that has already been given to 4.3 million of our fellow citizens who have opted out of the state earnings-related pension scheme and taken up private pensions. I shall make myself available to the right hon. and learned Gentleman if he wants to correct any of what I have said. I shall be happy to give way to him.

Mr. Ewing : Will the Chief Secretary give way?

Mr. Mellor : No. These diversionary tactics are useless. I am keeping my eye on the Opposition Front Bench.

Mr. Ewing rose--

Mr. Mellor : I will not give way. I am sorry that the hon. Gentleman does not want to hear the rest of my argument. I shall give way to him after I have finished dealing with this passage in the shadow budget.

The retrospective removal of the 2 per cent. rebate would rob a man on average earnings of a £272 contribution to his pension scheme for this year alone, and would slash his pension contributions by £5 per week. Is that really what the Labour party wishes to do to millions of working people up and down the country?

Mr. Ewing rose --

Mr. Mellor : The hon. Gentleman has been in the House long enough to know better.

The Labour party is in considerable disarray on this point. I do not know to what extent the hon. Member for Oldham, West (Mr. Meacher) is privy to the discussions that result in the shadow budget, but he assured my right hon. Friend the Secretary of State for Social Security that the proposal was only for the future. Is it, or is it not? Does the right hon. and learned Gentleman wish to intervene to tell me the answer? If so, I am anxious to give way to him. Surely the Labour party should know what its policy is.

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Mr. Ewing rose --

Mr. Mellor : Diversionary tactics are no use. Is the proposal for the future, or is it not?

Silence speaks volumes ; sometimes it speaks louder than words. The right hon. and learned Gentleman will not intervene, even with a lengthy, lawyer- like evasion. Labour will have to sort the matter out. It is clear that if Labour wishes to persist with the idea that £619 million will be saved, it will have to face the wrath of 4.3 million of its fellow citizens whose money will be taken back from them. If the removal of the rebate is not retrospective, however--if it is only for the future--the £619 million figure becomes £10 million, and knocks a hole in the heart of this so-called responsible document, the shadow budget. [ Hon. Members : -- "Give way"] No. I am still dealing with the shadow budget. I shall be happy to give way later, but I have not yet finished discussing the anomalies in the document. For instance, it refers to closing the tax loophole available through offshore trusts. Labour implies that that would be worth £1 billion. As the right hon. and learned Gentleman knows, we have closed that loophole. The Inland Revenue's estimate of the benefit to be gained from closing it is £100 million--

Mr. John Smith : That is the Government's estimate.

Mr. Mellor : The right hon. and learned Gentleman, who is recovering his composure and voice, says insouciantly that it is our estimate. It is not our estimate. It is the Inland Revenue's estimate--the same Inland Revenue as would have to advise him if he were Chancellor.

Our proposal will be more professionally drafted than the right hon. and learned Gentleman's proposal for closing the same loophole last year, and it is more far-reaching than his, yet it yields only one-tenth of the amount that the shadow budget says will be forthcoming. In one of his more memorable phrases, the Leader of the Opposition said yesterday that the Government's plans were a con. The biggest con in this debate is the Labour party's shadow budget. Until we get answers--we certainly have not had any this afternoon--it will not just be Conservative Members who think that it is a con. Mr. Ewing rose--

Mr. Mellor: I shall give way.

Mr. Ewing : Such generosity bewilders me, but I am grateful to the Minister for giving way. From his briefings, will the right hon. and learned Gentleman tell the House and the country what percentage of an average income is now paid in direct taxation--income tax and national health insurance--as opposed to when the Government took office? Is the Minister aware that many of my constituents would be over the moon to pay a higher rate of income tax if they could get a job to enable them to pay tax? The Prime Minister has done away with many jobs since coming to power.

Mr. Mellor : Direct taxes are down. If the hon. Gentleman wants to talk about the average family--the man on a national average wage with a non-working wife--he must be aware that after five years of Labour government that man was one pound a week better off. After 12 years of Conservative Government he now has £58 more in his pocket. That is the reality. [Interruption.]

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I have answered the question. If the right hon. and learned Member for Monklands, East answered questions so candidly, we should have got a bit further this afternoon.

Mr. Ian Stewart (Hertfordshire, North) : Will my right hon. and learned Friend monitor the shadow Chancellor's broadcast tonight to make sure that he does not mislead viewers in the same way that he has misled us by using phoney figures in the shadow budget?

Mr. Mellor : Unless the right hon. and learned Member for Monklands, East has already recorded the broadcast, he will have some time to rethink some of the points that have been made.

In the time that remains I shall return to the central proposition in the Budget. [Interruption.] I have answered the question of the hon. Member for Falkirk, East (Mr. Ewing) and in a way that discomfited him. I provided a statistic that the hon. Gentleman is unable to disprove. I said that the average working man is £58 a week better off after 12 years of Conservative government. I am prepared to answer that question 10 times every day because it does not embarrass me.

The right hon. and learned Member for Monklands, East properly spent time discussing the environment for business. The Chancellor predicted that inflation will fall to 4 per cent. by the end of the year and that will provide a great fillip to national self-confidence and morale. It is a clear sign we are on the right track. Obviously there is no painless or quick way to conquer inflation, but this time there will be sustained progress and the low figure will be maintained. The decision to join the ERM last October was a clear signal of our overriding commitment to stay the course and to stick to the task until inflation is decisively defeated. The prospect of sharply falling inflation provides the assurance that business needs that the recession will soon be behind us. The Budget provides more than reassurance for business ; it provides action.

This is a good Budget for business.

Dr. Lewis Moonie (Kirkcaldy) : Will the Minister explain in his preamble on economic success how a contraction of 10 per cent. in fixed investment provides an effective springboard for that?

Mr. Mellor : The hon. Gentleman realises that there has been an unprecedented expansion in business investment over the past decade--80 per cent. over eight years and nearly 50 per cent. in the three years from 1986 to 1989. Inevitably, from that very high plateau, there has been some falling off. This is a Budget for business, which increases companies' liquidity and will allow investment to rise again. As the hon. Gentleman knows, there is no such thing as a straight line in these matters.

Mr. Beith : Will the right hon. and learned Gentleman give way?

Mr. Mellor : I want to push on a little more. I shall give way to the hon. Gentleman later. If I give way, I shall simply spend my whole time giving way and not making the points that will allow some of my hon. Friends and other hon. Members to intervene.

Our proposals look forward to the next decade. They build on the major reforms carried out by my right hon. Friend the Member for Blaby (Mr. Lawson) who, in a reform of business taxation in 1984, cut corporation tax

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from 52 per cent. to 35 per cent. and removed accelerated investment allowances and gave tax relief at rates that more closely reflected commercial depreciation.

As I have already said, we were told that that was the end of capital investment as we knew it. It was, but in a way different from that assumed by the critics. There was an unprecedented increase in company investment not only in terms of money expended, but in terms of quality--investment that was not distorted by the availability of allowances and that made the investment seem good, whether or not it was profitable. Today, the entrepreneur makes his own decision on whether to invest and he reaps his reward--if he gets the decision right--by having a low taxation business economy. Those reforms have stood industry and commerce in good stead. They have been good for the entire nation.

Over 3 million jobs have been created since 1983 and we have become an attractive place to invest, not only for British entrepreneurs but for entrepreneurs from Japan and the United States. In recent years, the Americans have put two-thirds of their investment in the European Community into Britain and the Japanese have invested over 40 per cent.

Mr. Robert Sheldon (Ashton-under-Lyne) : I understand the right hon. and learned Gentleman's point about investment being related to profitability. However, in the case of capital allowances, only 25 per cent. is allowed in the first year. To think that one can use a piece of equipment for one year and sell it for 75 per cent. of its worth is nonsense in many areas of capital equipment purchase. That 25 per cent. is probably eaten up by the commission for the seller. We are getting not a capital incentive but a disincentive. It is the removal of that which is important.

Mr. Mellor : It is a better rate than commercial depreciation. The right hon. Gentleman knows that the record of the past 10 years is that there has been an upsurge of investment. It is better to look at the outcome of policies than at academic points. [Interruption.] The facts speak for themselves. The level of business investment in Britain has never been higher. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) spoke about disincentives. When he held responsibility, the incentive was to invest, whether good or bad. That is not an improvement.

In the Budget we have seen major changes in corporation tax. The first change is to reduce corporation tax rate in two stages to 33 per cent., which means that once again we have the lowest company taxation rate in the developed world. It also looks after the smaller businesses. Over 4 million businesses do not pay the main rate of corporation tax. We have already done much to help them in times past but now, building further on the enterprise culture that has been created in the past decade, my right hon. Friend the Chancellor has dramatically raised the profit limit for the lower rate of corporation tax. He has also pushed up the VAT registration threshold by no less than 40 per cent. to £35,000. He has cut down bureaucracy and tax forms and helped cash flow by delaying PAYE, national insurance contribution payments and so on.

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What does all that mean in terms of improved cash flow to business this year? Some £380 million is to come from corporation tax, and that is only the 1990-91 retrospective cut, not the cut that is to come next year ; £150 million is already due to come from bad debt relief, now there is a further £190 million on top, and £210 million is to come from later payments of PAYE and national insurance contributions. A further £25 million will come from the lifting of the VAT threshold, and a further £30 million from the reduction of the serious misdeclaration penalty. All that represents a transfer from the Exchequer to business of almost £1 billion, directly benefiting business across the spectrum. That is where companies will find extra resources to invest.

Mr. Beith : Welcome though the changes are, does the Chief Secretary accept that the "Financial Statement and Budget Report" reveals that £2.2 billion extra will be paid by business next year under the uniform business rate?

Mr. Mellor : The hon. Gentleman knows very well that the uniform business rate removes the uncertainty that was created by the extraordinary changes in the business rates imposed by a number of local authorities. He also knows that business rate increases cannot be above the rate of inflation, whereas, during the past decade of local authority control of business rates, they increased by 40 per cent. over the rate of inflation. The hon. Gentleman does not make a good point if he suggests that we may have been wrong to change the system.

Given that this is a Budget for business, what matters is not what the Opposition say--they have an interest in deriding what is said and done-- but what is said by the business community. Rarely has the business community greeted a Budget with such a chorus of approval. Sir Brian Corby, the president of the Confederation of British Industry--[ Hon. Members : -- "Scotland?"] He is the president of the CBI nationally, and we are one nation. Sir Brian Corby said : "This is almost precisely the Budget that the CBI recommended--a Budget for soundly based recovery, for saving and for investment. The prospect for further reductions in interest rates, a resumption of growth and low inflation are better tonight than they were this morning. The Chancellor has listened to those who create the nation's wealth."

The Chancellor has taken the action that the Institute of Directors asked for--on corporation tax, VAT, bad debt relief and the carry-back of losses. The relief to business will be a major help to those with cash flow problems. The IOD said of the Budget :

"It addresses the immediate economic ills of business as part of an imaginative long term fitness campaign and the promotion of the individual in the market economy."

Mr. Paul Boateng (Brent, South) : Jeffrey Archer wrote that one.

Mr. Mellor : I am sure that the hon. Gentleman would find it helpful if he applied his mind to these matters a little more seriously.

The National Federation of Self Employed said :

"This is a Budget to bring a smile to small businesses." When did the organisation last say that about a Labour Budget? The Association of British Chambers of Commerce said :

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"He really listened to everything we had to say. Chambers are delighted at the practical measures of support to help businesses during a difficult time. This was a Budget for business we needed." My right hon. Friend the Chancellor deserves congratulations for eliciting such praise, which is not often given readily and which is given in genuine appreciation of his achievements.

Mr. John Garrett (Norwich, South) : Will the Chief Secretary explain why the Red Book shows such a remarkable increase in labour productivity in the coming 18 months coupled with such a remarkable fall in productive investment?

Mr. Mellor : We shall see. [Hon. Members :-- "No, we will not."] The hon. Member for Norwich, South (Mr. Garrett) asked a serious question and I shall give him a serious answer. He knows very well that the expansion in business investment which has already been referred to--it has almost doubled over the past decade--will feed through into increases in productivity. That is the basis for that investment, which will not be distorted by bogus allowances. Such genuine investment will maximise production opportunities. That is the answer to the hon. Gentleman's question, although it may not be to his taste.

What does the Budget do for the supply side? One of the great strengths of the past decade has been the supply-side reforms to which the Government have paid so much attention. Our record speaks for itself. We took a machete to the jungle of banana-republic controls that existed under the Labour Government. Pay, price and dividend controls all went. Hire purchase controls were swept away and foreign exchange controls were abolished.

All those reforms liberated British industry and brought benefits that will last well beyond the end of the decade. Yesterday, we took a further major step forward in the supply side. My right hon. Friend gave profit-related pay a further important boost when he announced that, in future, the profit -related element would be entirely free from tax. That is particularly important when profits are under pressure and firms may be tempted to shed labour. Profit-related pay helps companies to contain labour costs without losing jobs, and provides the work force with incentives, which the Chancellor's proposals for share schemes will also do. We are not keeping share schemes in the boardroom. We have given incentives for them to spread to the shop floor. That is an example of the Conservative party's approach to industrial democracy which, in the long run, will prove far more efficacious than anything that the Opposition propose.

Mrs. Edwina Currie (Derbyshire, South) : Is my right hon. and learned Friend aware that in areas such as south Derbyshire and Derby, where major engineering industries continue to do well and are optimistic about the future, employee share ownership schemes play a major part in ensuring that employees not only understand the way in which their businesses work but are committed to them, which enables businesses to do well?

Mr. Mellor : That is absolutely right. That is why my right hon. Friend the Chancellor introduced those measures.

We have heard a great deal from the Opposition about training. It is a good thing if there is a commitment to training on both sides of the House, but it is a bit rich for our record to be criticised given that our expenditure on

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