| Previous Section | Home Page |
The Chancellor of the Exchequer (Mr. Norman Lamont) : This Budget brought about the biggest switch in taxation for more than a decade. Not surprisingly, that has dominated a very large part of the debate. I agree with the hon. Member for Derby, South (Mrs. Beckett) that the heart of the debate ought to be the economic prospects of the country for the next year. The economy has been in recession since about the middle of last year [ Hon. Members :-- "Oh."] The very moment I became Chancellor I admitted that businesses--particularly many small businesses--were having a difficult time. However, as I predicted at this time last year, the pain has brought gains. Inflation has been falling. It is now down by two percentage points from its peak last autumn, and is set to fall to about 4 per cent. by the end of this year.
Equally dramatic has been the very considerable improvement in the current account. It was noticeable that no Opposition Member chose to mention today's current account figures. Normally the hon. Member for Dunfermline, East (Mr. Brown) is on the box every hour, almost every minute, telling us about the trade figures.
Mr. Rhodri Morgan (Cardiff, West) : Will the right hon. Gentleman give way?
Mr. Lamont : I will give way in a moment.
On this occasion, the silence of the hon. Member for Dunfermline, East was very noticeable. Today's announcement of a £200 million deficit was obviously welcome. I have always said that the figures on the current account ought to be treated with some caution and
Column 697
scepticism. That is not the position that has been adopted by the Opposition ; they attach importance to every month's figures. Of course, the trend in the current account has been clear for some time. The deficit in the latest three months was less than one fifth of the deficit in the third quarter of 1989. Part of the improvement has come from so-called invisible trade--but there has also been a remarkable turn-round in manufacturing trade. Again, manufacturing trade usually concerns Labour Members, but we did not hear very much about it today. The deficit in manufactures has fallen to £1.2 billion in the latest three months. That is less than 1 per cent. of gross domestic product, and the lowest since 1985. Despite the slow growth in demand abroad--we are not the only country facing a slow-down in growth of demand- -many industries have expanded their exports. There has been a dramatic rise in car exports in Britain. Indeed, exports have increased by about 45 per cent. in a year.Mr. Morgan : If we have a trade deficit of about £2 billion a month during a period of boom, and during a period of recession we have a deficit of about £500 million, at what stage in the trade cycle shall we ever have a trade surplus under this Government? That is what puzzles Opposition Members.
Mr. Lamont : As I have said on many occasions, and as my predecessor, the right hon. Member for Blaby (Mr. Lawson) said, the sort of deficit that we are running--about 1 per cent. of GDP--is one that is common to many countries. Only two or three countries have a surplus. There are many countries in deficit, and every surplus has an offsetting deficit. We can easily cope with a deficit of 1 per cent. of GDP.
It is clear that the inflationary pressures and excess demand that appeared in 1988 have been reversed. As they have disappeared and as inflation has come down, so we have been able to reduce interest rates. I know that many Opposition Members and many of my right hon. and hon. Friends want to see further reductions in interest rates, but I shall not take any lectures from Opposition Members about such reductions. We all know that their view is that, whatever the position of the economy, whatever the level of the interest rates and whatever the policy should be, they will be in favour of reducing interest rates from whatever level they may have reached. That is always their policy.
I make no apology for being cautious in policy. Inflation is coming down and the prospect is good. We cannot take risks, however, either with the exchange rate or with inflation at home. Too often in the past we have assumed that we have won the battle against inflation. The very moment that we have let up has been the moment that inflation has been rekindled. The way in which we can retain the confidence of the market is essential to any recovery, and that is why we have been able to reduce interest rates again by 0.5 per cent. in the past week.
I make no apology, either, for continuing the sound approach to Government finances, and especially that of my predecessor, my right hon. Friend the Member for Blaby. I was grateful to my right hon. Friend for saying that it was wholly right and proper that at this stage of the cycle the Government should run a deficit, and the fact
Column 698
that the Government were doing so was no departure from previous policy. He said that, provided the Government aimed, as we do, to balance the Budget over the cycle, that was entirely in keeping with his policies and those of my right hon. and learned Friend the Member for Surrey, East (Sir. G. Howe).We shall see a return to deficit as a result of the recession. I know of no one who would seriously argue that we should try to hold the Budget to balance at this stage of the cycle. I repeat that we shall aim to balance it over the whole cycle. I agree with my right hon. Friend the Member for Blaby that it is vital that we continue to keep a tight control on public spending. That is at the heart of the Government's economic policy.
Opposition Members have had a lot of fun at the expense of the economic forecasts. I do not begrudge them that, although I believe that it is wrong to attribute to economic forecasts any spurious scientific accuracy. The forecast that I published last week is, in many respects, more cautious about growth than the consensus of outside forecasts. I am not in the business of publishing forecasts that are more optimistic than I think is the case, as that leads us nowhere. It is better to put the facts before Parliament and the country.
As a result of the fall in output that we have already had, output is below the average for 1990. Therefore, the fall of 2 per cent. that I forecast for 1991 does not mean that output will continue to fall for long. There is every reason to expect that growth will start again towards the middle of the year. I cannot be certain about that, but there are a number of persuasive and compelling reasons why it is likely to be so, and I put them to the pseudo-realists in the Opposition who argue that the outlook is more gloomy.
First, the start of the recession was followed quickly by the Gulf war, which had a tremendous dampening influence on confidence and on particular industries. That has ended and is beginning to affect the economy. Secondly, we have been through a period of exceptional weakness in the dollar, which has made life difficult for some export companies. That, too, has changed markedly in the recent past. Thirdly, nobody seriously disputes our forecast that the fall in inflation will continue and there is widespread agreement that RPI inflation will be down to about 4 per cent. by the end of the year. The other side of that fall in inflation will be a rise in real incomes.
Lastly, as usual in a recession, industry has cut back its stocks. We expect that to slow down and contribute to growth as more of the demand for goods is met directly out of production. That view is widely shared. Again, I was grateful to my right hon. Friend the Member for Blaby for confirming that he felt that the recession would not be so bad as the one in 1980-81 and would be relatively shallow and short-lived.
Mr. Paul Flynn (Newport, West) : Does the Chancellor of the Exchequer agree with the right hon. Member for Blaby (Mr. Lawson) that a Government who cannot choose are no longer fit to rule?
Mr. Lamont : The Government have chosen. Of course I agree with my right hon. Friend, although it is rather sad that he did not put the remark in the original French in which it was made. The Government have made their position on the issue crystal clear.
Column 699
It was against the prospect that I have outlined that I decided that the centrepiece of the Budget should be a package of measures to help businesses to weather the recession and encourage them to invest for the longer term. In total, the Budget will add some £0.75 billion to businesses' cash flow, and that benefit will continue in future years.In designing that package, I listened carefully to hon. Members and my hon. Friends, and to the representations made by business men. Although the hon. Member for Derby, South (Mrs. Beckett) and the right hon. and learned Member for Monklands, East (Mr. Smith) said that the package is no good for industry or commerce, they did not say what the CBI, the Institute of Directors, the Association of British Chambers of Commerce or the National Federation of Self Employed and Small Businesses said. All those organisation, without qualification or reservation, welcomed the Budget as a Budget for business.
The hon. Member for Derby, South quoted extensively from the Financial Times but not from the two editorials which said that it had been a first- class Budget. She simply quoted odd remarks from articles that she found on page 31 of the newspaper.
It is all too easy, when discussing a Budget for business, to concentrate on the multinational companies, the household names. That is something that the Labour party tends to do, but there are millions of small businesses employing perhaps only two or three people. Those are the businesses that I tried to help with my measures. One such measure, which has been welcomed in the debate by many hon. Members, was to reduce the waiting period for VAT relief on bad debts to one year and raising the VAT threshold by 40 per cent.--the largest increase ever in real terms, so that up to 150,000 more businesses could be taken out of the VAT net.
Mr. John Battle (Leeds, West) rose --
Mr. Lamont : I shall not give way just now.
I also proposed measures which mean that the very smallest businesses have more time to pay their PAYE payments to the Inland Revenue, which will relieve about 700,000 employers of an administrative burden.
I did two things for the larger companies. First, for what we tend to call the small company but which is, in reality, medium sized, I upped the lower and upper profit limits for the second year running of the small companies' corporation tax, which will help many medium-sized businesses.
Lastly--this has been asked for by some of the business organisations--I not only cut by two percentage points the rate of corporation tax, giving us one of the lowest in the world, but reduced it retrospectively. That means it will help companies immediately in a year when their needs are greatest and they have the greatest difficulty with cash flow. I note that Opposition Members have said on previous occasions that they do not agree with cutting corporation tax and want investment allowances and capital allowances. The House will recall that my right hon. Friend the Member for Blaby got rid of capital allowances, and since he did that, corporation tax has been reduced by 20 percentage points. We can only bring back significant capital allowances if we raise the rate of corporation tax again. If Opposition Members want to bring back capital allowances, they
Column 700
should tell us, and those in industry who want to know, what rate of company taxation they have in mind. If the right hon. and learned Member for Monklands, East wants to intervene now to tell the House and the country what the rate of corporation tax would be, I will gladly give way to him. He makes no reply. Perhaps the hon. Member for Leeds, West (Mr. Battle) will give me the reply.Mr. Battle : Will the Chancellor explain why the measures that he is proclaiming in the House are not getting through to industry on the ground? That is so much so that one of the medium-sized firms in Leeds today--GKN, a well-established company--is making 200 people redundant because it says that the recession is biting hard. How will the Chancellor's measures prevent that firm from laying off people, allow it to renew its investment and ensure that it gets orders?
Mr. Lamont : The measures will get through and help British business. That has been recognised by the Confederation of British Industry, chambers of commerce, the Institute of Directors and every business organisation in the country.
The hon. Member for Dunfermline, East made a dour speech. It seems that he is more ready to publicise bad news than to celebrate good news. Normally, he digs out about five press releases a day for each month's trade figures, but this month, when we have good trade figures, incomprehensibly he did not get to the Dispatch Box to tell us about them. I cannot recall seeing a single press release from the hon. Gentleman welcoming some of the events that have happened in recent months. There has been no press release welcoming the fact that inflation has fallen by almost two percentage points since October or that the United Kingdom's inflation differential with the European Community has very much narrowed in recent months. We have had no press release from him celebrating and accepting the fact that our share of world trade in manufactures rose both in 1989 and 1990. As usual, we had from the hon. Member for Dunfermline, East a cornucopia of obscure statistics from around the world. If Nicaragua increases its exports, the hon. Gentleman is quick to note it. When he finds that there are hundreds of thousands of students in institutions of higher education in Korea, he tells us all about it. He does not tell us what loans or grants they have or what the pupil-teacher ratio is in Korea. He does not tell us about the good news and the good things that are happening in this country. That was epitomised at the point at which I challenged the hon. Gentleman this afternoon--the response of the shadow Chancellor to my Budget broadcast when the Labour party put on a broadcast purporting to make international comparisons in training between this country and other EEC countries.
The comparison and tables in that broadcast were based on a study from the EEC, but they had no common definition of training, no common definition of skilled or unskilled, and were therefore utterly worthless. That comparison purported to show that Greece had higher standards of training than the United Kingdom, and Germany as well. That is the comparison that Opposition Members were prepared to put before millions of people in this country. What do they think that that does for foreign investment in this country ? Is that a good advertisement
Column 701
for this country ? Opposition Members should be ashamed of themselves and apologise to the British people for insulting the labour force of this country.The Budget is very much the logical extension of the policies that have been carried out. A large part of the debate has concentrated on the switch between the community charge and VAT. The reduction in the community charge has been very widely welcomed and people understand that it has to be financed. In assessing the cost of the switch from local to central taxation, we have planned for an increase in grant to local authorities of £5.6 billion, offset by savings on benefits and relief of £1.3 billion, and that will permit some improvements in the community charge reduction scheme. My hon. Friend the Minister for Local Government and Inner Cities will give fuller details of the changes later this evening.
Ms. Joyce Quin (Gateshead, East) : Exactly how much of the VAT increase will go to the poll tax reduction? Of the £4.5 billion that has been mentioned, is it not possible that about £2 billion could be clawed back through reduced benefits and reduced payments under the community charge reduction schemes? Will the Chancellor give the exact figures now?
Mr. Lamont : It is wrong to hypothecate one tax. [Interruption.] Of course it is. Before Opposition Members burst out laughing, they should hear what I am about to say. The increase in VAT by itself in this first year does not pay for the total reduction. That is why other taxes will have to go up as well. Next year the reduction is covered by the increase in VAT.
Mr. Salmond : I am sure that the Chancellor will be relieved when I drag him away from his debacle with the poll tax and ask him the question that was put earlier this evening. Is it the case that the official Scottish Office estimate of the take-up of privatisation proceeds of the Scottish electricity companies is no more than 25 per cent., meaning that 75 per cent. of those companies as at the flotation procedure will immediately be owned externally?
Mr. Lamont : I want lots of Scots to apply for the shares and the privatisation to be a great success. The hon. Gentleman can put his question to my right hon. Friend the Secretary of State for Scotland.
The right hon. and learned Member for Monklands, East is always careful not to commit himself if he can avoid it. He rarely ventures beyond the slogan to give us a specific policy. However, this year he ventured into print with a set of proposals and revealed to everybody why he normally sticks to evasion. The longer the debate has gone on, the less we have heard from the Opposition Benches about Labour's proposals.
Labour's Shadow Budget, as revealed by the Shadow Chief Secretary, was a complete and utter fiasco. As my right hon. and learned Friend the Chief Secretary and my right hon. Friend the Secretary of State for Social Security showed only too clearly on the first day of this debate, the sums set out by the Labour party simply do not begin to add up. The Shadow Chief Secretary did not appear to have the remotest idea what her proposals would involve.
Labour propose to restore child benefit so as to give help to low income households, but the Opposition's
Column 702
costings assumed that the increases in child benefit would be fully offset against income support so that the poorest families would gain nothing at all.Mrs. Beckett rose --
Mr. Lamont : The hon. Member for Derby, South made that clear earlier. I will give way to her in a moment. The Opposition's position is not a good basis for criticising our proposals as inadequate and mean, because at least they gave some priority to the poorest families in the country.
Mrs. Beckett : Our proposals were costed at £775 million and the Chancellor's proposals at about £200 million. We are therefore right to call his proposals inadequate. I demonstrated with absolute clarity that our figures were 100 per cent. correct--
The Prime Minister (Mr. John Major) indicated dissent.
Mrs. Beckett : It is no good the Prime Minister shaking his head--he was not here and he does not know what he is talking about. The figures that we gave for the increase in child benefit, not fed through to income support, the policy that we urged on the Government, were correct. [Interruption.] The figures came from parliamentary answers, so if they are not correct, that is the Government's problem. The figures that we gave for personal pensions were also completely correct, and so was the justification. The Chancellor can find no holes in our policies or our figures.
Mr. Lamont : The hon. Lady claims that the figures were right. Perhaps they were, but the truth is that she put forward a rotten policy.
We also heard about the savings from the tightening up on offshore trusts. Opposition Members simply plucked the figure of £1 billion out of the air to finance whatever expenditure they thought needed to be made. The best advice of the Inland Revenue is that our measures for countering tax avoidance and evasion in offshore trusts will save about £100 million, and our proposals go much further than Labour's proposals for the Finance Bill.
We then heard the sad and sorry story in which the hon. Member for Derby, South explained the ending of the 2 per cent. personal pension incentive payment. The hon. Lady twisted and turned and gave her explanation this way and that. I give her full marks for trying to justify her point, but she was making it crystal clear that Labour intends to interfere with the contracts that 4 million people have taken out for personal pensions. The Labour party is dashing the hopes, expectations and contracts of millions of people. That is typical of Labour's approach.
Labour always underestimates what it costs to deliver its commitments, and Labour Members over-estimate what they can raise by increasing taxes. That is why, when they were in power, they found that even when they had to increase taxes, and even when they had pushed borrowing to a ruinous level, they still had to rat on their spending promises. That is why Labour will not be in power for a long time to come.
One point in the debate interested me. There has been much debate about local government finance. Does the House know what the right hon. Member for Birmingham, Sparkbrook, (Mr. Hattersley) said the other day? He said that he was against a local income tax because income tax had a disincentive effect. That is what the Labour party thinks about a local income tax. If that is its view on a local
Column 703
income tax, why is it not also its view on a national income tax? Why does the Labour party remain the party of high taxation? This is a bold Budget, a Budget for business, a reforming Budget and a Budget which responds to the serious concerns about the levels of the community charge. It is a Budget dedicated to the long-term health of the British economy. It is the Budget of a Government dedicated to the prosperity of our people. I commend it to the House.Mr. Stuart Bell (Middlesbrough) : That must have been the worst speech ever--
Question put :
The House divided : Ayes 336, Noes 226.
Division No. 100] [10 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, Sir Thomas
Ashby, David
Aspinwall, Jack
Atkins, Robert
Atkinson, David
Baker, Rt Hon K. (Mole Valley)
Baker, Nicholas (Dorset N)
Baldry, Tony
Banks, Robert (Harrogate)
Barnes, Mrs Rosie (Greenwich)
Batiste, Spencer
Beaumont-Dark, Anthony
Bellingham, Henry
Bendall, Vivian
Bennett, Nicholas (Pembroke)
Benyon, W.
Bevan, David Gilroy
Biffen, Rt Hon John
Blackburn, Dr John G.
Blaker, Rt Hon Sir Peter
Body, Sir Richard
Bonsor, Sir Nicholas
Boscawen, Hon Robert
Boswell, Tim
Bowden, A. (Brighton K'pto'n)
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)
Buchanan-Smith, Rt Hon Alick
Buck, Sir Antony
Budgen, Nicholas
Burns, Simon
Burt, Alistair
Butler, Chris
Butterfill, John
Carlisle, John, (Luton N)
Carlisle, Kenneth (Lincoln)
Carrington, Matthew
Carttiss, Michael
Cartwright, John
Cash, William
Chalker, Rt Hon Mrs Lynda
Channon, Rt Hon Paul
Chapman, Sydney
Chope, Christopher
Clark, Rt Hon Alan (Plymouth)
Clark, Dr Michael (Rochford)
Clark, Rt Hon Sir William
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
Currie, Mrs Edwina
Davies, Q. (Stamf'd & Spald'g)
Davis, David (Boothferry)
Day, Stephen
Devlin, Tim
Dickens, Geoffrey
Dicks, Terry
Douglas-Hamilton, Lord James
Dover, Den
Dunn, Bob
Durant, Sir Anthony
Dykes, Hugh
Eggar, Tim
Emery, Sir Peter
Evans, David (Welwyn Hatf'd)
Evennett, David
Fairbairn, Sir Nicholas
Fallon, Michael
Favell, Tony
Field, Barry (Isle of Wight)
Fishburn, John Dudley
Fookes, Dame Janet
Forman, Nigel
Forsyth, Michael (Stirling)
Forth, Eric
Fowler, Rt Hon Sir Norman
Fox, Sir Marcus
Franks, Cecil
Freeman, Roger
French, Douglas
Fry, Peter
Gale, Roger
Gardiner, Sir George
Garel-Jones, Tristan
Gill, Christopher
Gilmour, Rt Hon Sir Ian
Glyn, Dr Sir Alan
Goodhart, Sir Philip
| Next Section
| Home Page |