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Monro, Sir Hector

Montgomery, Sir Fergus

Morrison, Rt Hon Sir Peter

Nelson, Anthony

Neubert, Sir Michael

Nicholls, Patrick

Onslow, Rt Hon Cranley

Page, Richard

Pattie, Rt Hon Sir Geoffrey

Porter, Barry (Wirral S)

Powell, William (Corby)

Price, Sir David

Raffan, Keith

Riddick, Graham

Roe, Mrs Marion

Rowe, Andrew

Sayeed, Jonathan

Shaw, David (Dover)

Shaw, Sir Michael (Scarb')

Shersby, Michael

Skeet, Sir Trevor

Smith, Tim (Beaconsfield)

Smyth, Rev Martin (Belfast S)

Soames, Hon Nicholas

Speed, Keith

Stanbrook, Ivor

Stokes, Sir John

Taylor, Ian (Esher)

Taylor, Rt Hon J. D. (S'ford)

Thornton, Malcolm

Townend, John (Bridlington)

Tracey, Richard

Tredinnick, David

Ward, John

Warren, Kenneth

Watts, John

Wheeler, Sir John

Woodcock, Dr. Mike

Tellers for the Noes :

Mr. Teddy Taylor and

Mrs. Teresa Gorman.

Question accordingly agreed to.

Bill ordered to be brought in by Mr. Tony Banks, Mr. Bruce Grocott, Ms. Dawn Primarolo, Mr. Don Dixon, Mr. David Winnick, Mrs. Alice Mahon, Mrs. Maria Fyfe, Mr. Paul Flynn, Mr. Martin Redmond, Ms. Diane Abbott, Mr. Jeremy Corbyn, Mr. Dennis Skinner and Mr. Harry Cohen.

Abolition of Political Honours

Mr. Tony Banks accordingly presented a Bill to abolish political honours ; and for connected purposes : And the same was read the First time ; and ordered to be read a Second time upon Friday 19 May and to be printed. [Bill 150.]

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Orders of the Day

Finance Bill

Order for Second Reading read.

[Relevant document : Second Report of the Treasury and Civil Service Committee of Session 1990-91 on the 1991 Budget (HC289)] 4.1 pm

The Chief Secretary to the Treasury (Mr. David Mellor) : I beg to move, That the Bill be now read a Second time.

The Bill implements the measures introduced by my right hon. Friend the Chancellor of the Exchequer in his Budget. As background to today's debate, the House has the benefit of the report of the Treasury and Civil Service Select Committee on the Budget--a thoughtful and thorough document. I am glad that so many members of the Select Committee are here for the debate. I hope that its Chairman and others will succeed in catching your eye, Mr. Speaker. We are studying its recommendations carefully and will respond fully in due course. This is not the place to comment in detail, but perhaps I might briefly address one point made by the Committee. It was apprehensive in its report about the pace and strength of recovery. It is always difficult to forecast a turning point, but there is now accumulating evidence of one. Retail prices index inflation has fallen 2.7 points from its peak in 1990. Recent surveys show a rise in business and consumer confidence. Only this morning the CBI's quarterly trends survey showed a marked increase in optimism and output expectations. In the three months to February, private housing orders were up 12 per cent. over the previous three and exports, excluding oil and so-called erratic items, grew 2 per cent. in the year to March. That is firm evidence of the underlying strength and competitiveness of British business.

Mr. A. E. P. Duffy (Sheffield, Attercliffe) : The engineering employers association for Sheffield has just published its April quarterly survey of its members. It is as contemporary as the report that the Chief Secretary is quoting in his aid. It offers no support for his view about a recovery in business confidence among engineering employers in south Yorkshire.

Mr. Mellor : If that is the case, I regret it. We can rely only on the national survey that was published today and on other evidence from which it is clear that there is a recovery of confidence. We are confident that that will lead to an increase in activity. All the business organisations have stated that the growth in the strength of so many companies in many different areas of economic activity during the 1980s means that the British economy is now far better equipped to come out of a recession than it was during the previous recession. I appreciate that that fact does not suit the Labour party's case, but it is what all the business organisations are saying and it is a matter of fundamental significance to this debate.

Mr. Giles Radice (Durham, North) : The right hon. and learned Gentleman will have noted that the chairman of the CBI said today, when commenting on the report :

"We should not underestimate the severity of the current recession and its impact on industry."

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The right hon. and learned Gentleman would do well to listen to those words.

Mr. Mellor : I imagine that the hon. Gentleman is referring to a quotation from Sir Brian Corby--

Mr. Radice : From Mr. David Wigglesworth, the chairman of the CBI's economic situation committee.

Mr. Mellor : Well, the president of the CBI, Sir Brian Corby, said this very month :

"Underlying confidence in the strength of British industry and commerce is much stronger than in the early 80s--quite rightly in the light of the improvements in productivity and profitability that we have seen over the past decade This is a better picture than is currently believed to be the case. Indeed, part of the problem that manufacturing industry faces in the UK today is that perceptions lag behind reality."

That is the crucial point.

Mr. David Winnick (Walsall, North) rose --

Mr. Mellor : I have already given way twice and so that I do not unnecessarily detain the House, I shall continue for a while and then give way.

Mr. Winnick : Will the right hon. and learned Gentleman give way on this particular point?

Mr. Mellor : The hon. Gentleman is extremely persistent. I hope that he will appreciate that it will not be evasion if I do not give way so many times later in my speech, but I shall give way to him now.

Mr. Winnick : I am grateful to the Chief Secretary. Was he in his place during Prime Minister's Question Time when my right hon. and learned Friend the Member for Warley, West (Mr. Archer) referred to what is happening in the black country and throughout the west midlands? Is the right hon. and learned Gentleman aware that hardly a single day goes by in my region without some news of further redundancies or closures? The west midlands fears that it will go through the same sort of thing under this Government as in the early 1980s. Will that be the case?

Mr. Mellor : I have said that many companies are passing through difficult times, but I have also said that it is undeniably true that the exports figures to the end of the first quarter of this year show an increase over the preceding year of 2 per cent. Once again, that pays tribute to the underlying strength of the economy. If, as Sir Brian Corby said, perception is lagging behind reality, some Opposition Members must take their share of responsibility for any perception of gloom, given their enthusiasm for talking down the British economy.

Mr. John Watts (Slough) : Does my right hon. and learned Friend agree that the recovery will very much depend on a revival of confidence and that Opposition Members who seek to talk down the economy and to pour gloom and despondency on the country are doing nothing either to aid the recovery or to further the interests of their constituents, not least their prospects of better jobs?

Mr. Mellor : I entirely agree with my hon. Friend. His point is even more relevant when one considers what Opposition Members would try to do if they were ever elected to Government. They would make whatever situation they inherited far worse, but I have no doubt that we shall come to that later in the debate.

Mr. Roger King (Birmingham, Northfield) rose --

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Mr. Mellor : I give way to my hon. Friend-- [Interruption.] I have already given way to three Opposition Members. This is only the second intervention from a Conservative Member. Perhaps the right hon. and learned Member for Monklands, East (Mr. Smith) will keep to that ratio in his speech.

Mr. King : I am extremely grateful to my right hon. and learned Friend for giving way and will seek to press the problems of the British car industry at a later stage. However, is he aware that in the first few months of this year, its production is already running at 6 per cent. more than in the first quarter of 1990, which in itself was level with the record production of 1989? In terms of exports, therefore, the British car industry is doing better than ever before.

Mr. Mellor : I was glad to give way to my hon. Friend the Member for Birmingham, Northfield (Mr. King) and I was even more glad to hear the point that he made. He is exactly right. If one industry has shown more clearly than almost any other what happened to the British economy in the 1980s as opposed to the 1960s and 1970s, it is the car industry, its rebuilding and its record of export achievement. In the 1960s and 1970s, nothing exhibited more clearly the folly of the fudge and mudge of corporatism under a Labour Government than what happened to the car industry, which is now recovering.

Several Hon. Members rose --

Mr. Mellor : The blood pressure of the right hon. and learned Member for Monklands, East would not stand my giving way to anyone else. He is always passing responsibility to others, but I shall shoulder the burden of refusing to give way to my hon. Friends. I wish to press on.

We were discussing the underlying strength of the British economy, which I assert and on which my hon. Friends agree. More significantly, hosts of business organisations also agree, notwithstanding the difficult times through which we are passing. It may be worth dwelling for a few moments more on the transformation of the British economy in recent years.

Before plunging into the thicket of detail rightly contained in the Finance Bill, we must remember how far we have come from the stagnant economy over which the previous Labour Government presided. Lest I be accused of excessive partiality and as we have already heard the Opposition cite one CBI officer, let me remind the House of a striking passage in a recent publication by the CBI which was called "Business Agenda for the 1990s". It states :

"It is all too easy to forget what the situation was like in the late 1970s. Industrial disputes, apparently regarded as inevitable, were exacerbated, if not caused by wage and price controls and over regulation. Tax avoidance and grantsmanship' were growth industries. Wealth was being destroyed rather than created, with negative real returns in many businesses. Investment in all its forms--new plant, innovation and skills-- fell back. Britain's share of world trade was declining, seemingly inexorably. Failure was almost expected, success a surprise."

That is the CBI's comment on what happened in the 1970s and that was what we inherited.

The strength of the British economy since then has surprised many people because, despite the current recession, the past 10 years have been a success story. We have cut through the tangle of unnecessary controls which immobilised industry. We have reformed the tax regime

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for business and for individuals and that process is taken a stage further in the Finance Bill. Tax rates, which were punitively high under Labour, have been reduced and we have already done away completely with six taxes. We have made far-reaching changes to trade union law, while keeping a firm grip on expenditure. As a result, the nation's finances have been transformed and the budget brought back into balance, far from the days when the right hon. Member for Leeds, East (Mr. Healey) might have echoed the words of President Hoover : "Blessed are the young for they shall inherit the national debt." The results were dramatic by any standards. For eight years, the United Kingdom economy grew by an average of 3 per cent. a year. Dr. Lewis Moonie (Kirkcaldy) rose --

Mr. Mellor : I shall finish this point. [Interruption.] I was saying that President Hoover would have lined up with the right hon. Member for Leeds, East in his addiction to the national debt and its growth and to saddling future generations with the cost of borrowing to sustain unsustainable public expenditure. The right hon. Gentleman was a member of the Government in 1975 when the public sector borrowing requirement was--in today's cash terms--£60 billion. It is against that background that we might find ironic criticism of the limited PSBR that we shall be running this year.

Mr. John Smith (Monklands, East) : As the right hon. and learned Gentleman has been claiming that the Government have been successful during their period in office, will he comment on an answer given by one of his colleagues? When asked what was the annual average economic growth for 1979 to the end of 1981, the answer was 1 per cent. Is that a creditable record?

Mr. Mellor : In the first two years, we dealt with the recession caused by the economic mayhem of the previous Labour Government. The question that perhaps should be asked is about the position since 1982, as the benefits of our policies came into effect.

Mr. Smith : That is ridiculous.

Mr. Mellor : The right hon. and learned Gentleman would say that. However, when did a Labour Government last give us eight years or even five years of sustained growth of more than 3 per cent. with investment, much of of it in productive capacity, at 80 per cent.? When did a Labour Government last give us that kind of record on productivity, output and on all the indicators in which we used to be bottom of the league during the 1970s, but in which we have been top of the league during the 1980s? When, under a Labour Government, did the British economy grow faster than the economies of the majority of the G7 countries? The right hon. and learned Member for Monklands, East would be hard pressed to find a precedent.

Mr. David Shaw (Dover) : Has my right hon. and learned Friend the Chief Secretary had time to consider the latest Labour party document and the costings carried out by people in the City of the Labour party's programme showing a total of £50 billion? Are there any Treasury

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estimates of the level of interest rates required if the public sector borrowing requirement was increased by £50 billion a year?

Mr. Mellor : A very interesting story will be told quite soon about the cost of Labour's programme. That story will be a revelation. My hon. Friend the Member for Dover (Mr. Shaw) referred to Labour's policies. In their enthusiasm, for electoral or other reasons, to ditch the neo- Trotskyists of the early 1980s who dominated so much of Labour's thinking we are back--in the words of Sam Brittan upon which I cannot improve--to the soft collectivism of the 1960s and 1970s which failed under Wilson and Callaghan. That involved national assessments, interference, quangos, the things that were solemn and binding and the minimum wage. Although all those matters are probably more properly the subject for another debate, Tory Members approach them with some relish. There is precious little evidence that Labour Members can say anything about the state of the economy today that would in any way be improved by the remedies that they propose. Indeed, it is hard to think of a remedy that was not tried in the 1960s and 1970s which did not fail catastrophically.

In the 1980s the United Kingdom's GDP, investment and manufacturing productivity grew faster than that of Germany or France. Our ability to compete was restored internationally. Profitability reached a peak in the late 1980s and was at its highest level since 1973 living down the problems of the late 1970s. Combined with dramatic improvements in capital productivity, there is clear evidence of the higher quality of investments as well as of higher levels. That basic underlying strength is pulling the British economy through this recession.

I wish to consider the Bill against that background. I recall that happy phrase, "To govern is to choose." The Budget is full of wise choices. The Budget's first priority is to help businesses of all sizes both immediately and as they plan for future recovery. Clauses 22 to 24 deal with corporation tax.

Mr. Michael Grylls (Surrey, North-West) : There is a very imaginative proposal in the Budget about carrying back corporation tax from losses against profits in earlier years--from one year to three years. That is very helpful because it gives a cash injection at a time of recession. We all welcome it because it will help companies in a difficult position. Obviously my right hon. and learned Friend the Chief Secretary to the Treasury will not be able to answer my question now. However, will he consider putting that date back further because the date of 31 March 1991 announced in the Budget would mean that the cash injection for those companies would not arrive until 1992? One needs a lifeboat when one needs it, not when the storm is over. If that date could be brought back to 31 March 1990, companies would receive the cash this year when they most need it.

Mr. Mellor : I shall certainly reflect on what my hon. Friend said, knowing that few hon. Members have more knowledge of what is happening with business, particularly small business, than he has. I now refer to the principal clauses, 22 to 24, on corporation tax. Clause 22 cuts the main rate of corporation tax for 1990 to 34 per cent. That allows companies to keep £380 million in profits which they were expecting to pay in tax. Clause 23 goes a step further by

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cutting the rate for 1991 to 33 per cent. That double cut will benefit 80,000 companies to the tune of £830 million in 1992-93. That will increase the reward to profitable investment without subsidising uneconomic investment. It represents what I hope the House will consider to be a worthy further step along a road on which we so dramatically set out in 1984 when the main rate of corporation tax was cut from 52 per cent. to 35 per cent. Of course, that gave us the lowest taxes on companies of any economy in the industrialised world. Other countries then followed our example. Now we are setting the pace again. That is a worthy point with which to start our detailed consideration of the Bill.

Mr. A. J. Beith (Berwick-upon-Tweed) : The Chief Secretary will set the matter in context, will he not, and compare the gains from that useful measure with the £1.6 billion additional spending by business on the uniform business rate, which has gone up by an amount much higher than the actual rate of inflation?

Mr. Mellor : That is not a fair statistic. The hon. Gentleman knows that what we have done for business is to remove the vagaries of local government decision-taking that we can see in London. Perhaps it resulted in booms in business in sensibly run areas such as Wandsworth, where I have my constituency, but it left large swathes of London denuded of industrial investment. People were not prepared to invest because of the increase in business rates imposed by left-wing authorities. The hon. Gentleman will know also that, although there is a difficult transitional period--there was bound to be--the maximum increase for the business rate is tied to the rate of inflation. That is the maximum. Over the past decade, the actual increase in business rates was 40 per cent. above the rise in inflation. We know that, in 1978, in boroughs such as Ealing and Waltham Forest, rates were put up 50 per cent. overnight. That was the reason. It is worth noting that the policies of the Labour party are to give back to councils that power to raise taxes locally from business. I am sure that that point will not be lost on the business community.

Clause 24 raises profit limits for small companies and, of course, the limit for marginal relief both by 25 per cent. That will benefit about 30,000 companies. It means that the limit for small companies rate has now been raised by 150 per cent. in the past three years--a real help to small companies. Of course, as well as rewarding success and allowing companies to keep more of their profits, as my hon. Friend the Member for Surrey, North-West (Mr. Grylls) pointed out, we have made arrangements so that those who temporarily make a loss can recover back taxes paid in the three previous years.

It is worth noting also that all levels of business are important and that all levels of business require assistance. That is why, in clause 64, my right hon. Friend helps small firms as well as larger ones with losses by allowing unincorporated businesses to set off trading losses against capital gains, just as companies may already do. That is a help.

The total value to British industry and commerce of this package of measures relating to company taxes is £1.1 billion next year--money that can be used for productive investment. Of course, we have gone beyond that and

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made other efforts to change the way in which the tax system works when those in business who have to operate it told us ways in which it could work better.

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