House of Commons Hansard Debates for 30 Apr 1991

Sir Robert McCrindle (Brentwood and Ongar) : In directing his attention not only to small companies that need assistance but to large companies, will my right hon. and learned Friend include building societies? If that is the case, will he be prepared to look again at clause 50? People are saying to me and, I suspect, to other hon. Members that that clause is a vehicle not only for retrospective legislation but for double taxation. As this stems from a court victory by one building society, would not it be extremely unfair that it should result in the Government's gaining about £250 million in taxation? That would represent a reduction in the capacity of the building societies to lend, just at a time when we hope that the housing market is beginning to prosper again, and it would have an adverse effect on investment.

Mr. Mellor : As the immortal Jim Hacker would have said, I am glad that my hon. Friend asked me that question. It gives me an opportunity to deal with a point that is giving rise to concern among a number of hon. Members. I shall deal with clause 50 as thoroughly as I can. As my hon. Friend knows, the Finance Act 1985 made changes in the manner in which building societies pay tax on the interest paid to their investors. Previously those money had been rendered up in one lump sum on 1 January each year. The change meant that, from the tax year beginning in April 1986, those moneys had to be rendered up quarterly, as had been done for some time in the case of banks and other financial institutions.

Regulations to deal with a problem that was very openly signposted at that time were laid before the House. Building societies have different year ends, and we needed to cover the period between the end of their 1985-86 year and the beginning of April 1986, when the new arrangements were to come into force. The regulations charged building societies at the 1985-86 rate of tax. One case went all the way to the House of Lords, which determined that, while it was lawful for the Government to make arrangements for those moneys to be liable to tax, it was ultra vires that we should apply, by way of the regulations, the rate that prevailed in 1985 -86. It was only right that tax should be rendered up on moneys withheld from interest payments to investors. The court's determination was that it was lawful--of course, it must be--for tax to be paid, but not lawful for a rate to be applied. That is the present position.

The Bill will put us in the situation in which we understood ourselves to be before the House of Lords gave its judgment, and will apply the 1985-86 tax rate. Without it, a number of building societies would make windfall profits, as the moneys that they had withheld--perfectly properly--from interest payments to their depositors would not then be liable to be rendered up. The moneys would not go to depositors. There is no question of double taxation ; the issue is whether there should be taxation at all. The amount involved is £250 million. This is the basis of clause 50.

Sir Robert McCrindle : I followed with great interest the technical explanation that my right hon. and learned Friend offered, and I accept at least a goodly part of it. Irrespective of the position for investors, it is extremely difficult to deny that if this £250 million ends up under

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Government control, money that would have been available for future mortgages, at a time when, we hope, the housing market is beginning to move, will be in the coffers not of the building society but of my right hon. and learned Friend.

Mr. Mellor : With great respect to my hon. Friend, whose return to vigour and effectiveness in the House all of his hon. Friends welcome so much--I say that genuinely as someone who has admired and respected him throughout my time in Parliament--I cannot agree with his point. The money was interest due to depositors with building societies. If it were not for the fact that there was a tax liability, all that money would have had to be paid to investors. Moneys were withheld on the basis that they would have to be rendered up to the tax authorities. But for the fact that a change was made from annual to quarterly payment, those moneys would have been paid to the Government without argument.

In making the change, there was a transitional period for which we thought provision had been made, between the end of the financial year of the building society through to the beginning of the financial year in which the new arrangement would come into effect, in which the tax rates prevailing for 1985-86 would apply. The only consequence of no tax being applied would be that moneys had been deducted by building societies from interest properly due to their investors which, because they were not rendered up to the taxation authorities, would go, in my judgment quite undeservedly, into the coffers of the building societies themselves. That is the position. All that we are doing is restoring the position to what everyone understood it to be until it was subject to legal challenge. Several Hon. Members rose--

Mr. Mellor : I will give way once more. The fact that so many hon. Members want to make points is precisely the reason why we have a Committee stage, which will give hon. Members a chance to explore the matter further.

Mr. Peter Bottomley (Eltham) : May I try to help my right hon. and learned Friend? Is not the position that the money which was withheld from depositors would have been paid in tax in a subsequent year because the tax to be paid in the actual year had already been paid? Is not it also the position that people who had mortgages with the Woolwich or who had lent money to the Woolwich--I do both--have got their £90 million, and that all other building societies have been treated differently? Was it not the House of Lords' judgment that it was restrospective and double taxation, which the House had authorised, without knowing that it had done so? Would not it be better for the Government to think again and drop clause 50?

Mr. Mellor : Plainly there will be plenty of opportunity in Committee to explore the matter. The position is that but for the action which the Government are taking, no tax whatsoever would be levied on a substantial sum that fell due between the end of the financial year 1985-86 --whatever month that was for the building society concerned--and 6 April 1986. I take the view that that would not be acceptable. I am sorry if it is held against us, but we are expecting the normal rules of the game in regard to the Woolwich. If the Revenue loses a case, it does not

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seek to take back from the litigant the benefit that has been gained. When one is dealing with £250 million, which, but for this, should have been in the pockets of depositors, there is no reason why other building societies should gain the benefit.

I appreciate that others take a different view on the matter. One reason for Committee stages is that people apart from me will be able to justify the policy in Committee. My hon. Friend the Financial Secretary, a man of infinite resource, is ready and available, as is the Economic Secretary. They will be willing to entertain the Standing Committee at whatever hour of the night appears appropriate to deal with the matter.

I shall deal briefly with some other major points in the Budget. VAT relief on bad debts was widely welcomed when the scheme came into operation in April. It is worth noting that clause 14 will halve the waiting period to one year. That will boost cash flow by some £340 million--a vital way to help growing firms on whom the burden of bad debt can be particularly heavy.

On the serious misdeclaration penalty, clause 17 responds to widespread representations about the VAT penalty regime. I hope that it shows the value to the House of the detailed representations that hon. Members make on behalf of the business community.

Sir Eldon Griffiths (Bury St. Edmunds) : May I suggest to my right hon. and learned Friend, and indeed to the Financial Secretary, that there is likely to be a good deal more bad debt in VAT if nothing is done to help the racing industry? Will he, in the course of this Finance Bill, perhaps in Committee, give the Minister of State an opportunity to report to the House on how she is getting on in her search for a solution to a problem that is seriously damaging an important industry?

Mr. Mellor : My hon. Friend the Minister of State will meet representatives of the industry next week to discuss this very point. I understand that it is because the great town of Newmarket is within my hon. Friend's constituency that he speaks as he does.

I am anxious not to detain the House for too long, so I shall pass over a number of items in the Bill to which I might otherwise have drawn attention.

On vocational training relief, I think that it has been widely welcomed that those who wish to improve themselves by financing training out of their own pockets will now get tax relief for it. I believe that that is a help to the work force.

I should just pause over the policy for the family which is furthered in this Budget. Although business was the central theme of the Budget, my right hon. Friend made room for measures to benefit families. The rise in child benefit is already well known and I need say no more about it. It deals with an issue that has caused a great deal of interest in the House in recent years. I hope that this sets us on a course which the whole House will appreciate as being wise and necessary.

There are also, of course, measures for the elderly. Clause 21 provides for the married couple's allowance generally to be unchanged, but the normal indexation provisions will continue to apply to the married couple's allowance for the elderly. For a couple over 75 the increase this year could be worth up to £4.47 a week.

With regard to health and the environment, I am personally pleased that in the Budget we recognise the

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need to make further substantial increases in the taxes on tobacco. Clause 2 raises the duty on tobacco products by 15 per cent. That puts an extra 16p on a packet of 20 king-size cigarettes--in itself the biggest cash increase in taxes on tobacco since 1981. This, with the VAT increase, makes the total additional tax burden on 20 cigarettes about 22p. I believe that in raising the real level of total taxes on tobacco to the highest since the mid-1960s we have done the right thing for the future health of the nation. The duties on alcohol are increased in line with inflation. There are changes in clause 6 to the way in which we tax beer. The new system will be simpler and fairer, because the duty will be related more precisely than it is at present to alcoholic strength, so some strong beers and lagers will bear more duty. I believe that that is right, and anyone who is concerned about the problems of lager louts, particularly the extent to which strong lagers have come into fashion among youngsters today, might think that this a step in the right direction which is capable of being built on in the future. On the environment, this was not the year to burden industry with a tax on carbon. It was certainly not the year for the Government to strike out or take unilateral action to put our businesses at a competitive disadvantage. Nor, I thought, was it the year to introduce new complexities, such as different rates of car tax, graduated vehicle excise duty, and so on. But we have put up the cost of car use in what I believe is an acceptable way but which nevertheless leans in the direction of a policy that deals with some of the problems of pollution. The increase in fuel duties offers all of us a choice : pay more and forget about it, or think more carefully about our use of vehicles and cut costs. Of course, it adds to the incentive to buy a more fuel-efficient car, which I think is a responsible stance for us to take.

One of the successes of the use of tax incentives to environmental ends has been the growth in the use of unleaded petrol. Four years ago the share of unleaded petrol in the United Kingdom market was negligible. A gallon of unleaded cost more than a gallon of leaded. My right hon. Friend the Member for Blaby (Mr. Lawson) introduced a tax differential to offset the cost disadvantage. Then he widened it to give motorists a positive incentive to convert to unleaded fuel. In last year's Budget, my right hon. Friend the Chancellor widened it still further. Now, just a few years later, unleaded takes 39 per cent. of the market. This year's proposal will widen the tax differential again. It now stands at 4p a litre.

Mr. Keith Mans (Wyre) : Bearing in mind my right hon. and learned Friend's comments about unleaded petrol, does he believe that there should be a move in the direction of diesel, which is also environmentally friendly, and that we should encourage its use as much as possible?

Mr. Mellor : We always consider such issues at the time of the Budget. I know that my hon. Friend appreciates that others argue against that approach, but I shall certainly have regard to his points.

I should not end my comments on the Budget's effects on families without mentioning the relief that my right hon. Friend the Chancellor gave community charge payers. We have already enacted legislation to give effect to that. There cannot be a free lunch. The Bill implements the other parts of the switch from local to central

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Government taxation. Clause 12 raises the rate of VAT to 17.5 per cent. In the circumstances in which we found ourselves, that was an appropriate step to take.

VAT is a proportionate tax--the more we spend, the more we pay. Our zero- rated range is wider than that of any other European Community country. When we buy zero-rated items, we pay no tax. On average, half our spending on goods and services is on zero-rated items. Those are weighted heavily towards the necessities of life. I cannot improve on the comment in The Guardian after the Budget : "Using VAT to pay for the reduction in the poll tax was thus a broadly progressive measure."

On that occasion at least, The Guardian was right.

Mr. John Battle (Leeds, West) rose--

Mr. Mellor : With respect, I have given way a lot. I have probably more than outstayed my welcome and I must conclude. If one gives way, one always faces the danger that people will say, "He spoke for far too long."

Mr. John Smith : No, carry on.

Mr. Mellor : I wish to draw attention to two points. Despite the injunction of the right hon. and learned Member for Monklands, East for me to carry on, I shall resist temptation. On fairness, clause 26, which limits mortgage interest relief to the basic rate of tax, means that the same mortgage now receives the same relief, irrespective of the home buyer's income. That is fair. It has been compensated for in clause 20 by raising the basic rate limit to take account of most of it.

I am grateful to those in the press who drew attention to the problems of non-resident trusts. We have devised an effective way of dealing with them so that they cannot be used unfairly to avoid tax. That provision is made in clauses 71 to 80.

Fairness, families and business were the themes of the Budget introduced by my right hon. Friend the Chancellor. They are faithfully given effect to in the Finance Bill. I hope that we can fully discuss any problems in Committee. I commend the Bill to the House.

4.43 pm

Mrs. Margaret Beckett (Derby, South) : For the past year or more, my right hon. and hon. Friends and I have spent a great deal of time not just talking to people in industry and commerce but listening to them speak about the specific measures that they argue would promote success. One of the most noticeable features, especially in the past few months, is that, as those conversations develop, certain questions keep emerging--questions which came into my mind when I listened to the Chief Secretary to the Treasury.

I find that I am continually being asked, "Do the Government really believe what they are saying about the state of the economy? If they do, why do they believe it? If they do not, why do they keep saying it?" I can answer the last question. It is clear that the Government keep saying it because they hope that, if they do, someone else will believe it. It appears from the Finance Bill that perhaps the Government believe what they are saying-- that there is little need for action by them.

The Government claimed in grandiose terms that this was a Budget for business. However, the Institute of Fiscal Studies and one of the advisers to the Treasury and Civil Service Select Committee suggested that that was

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overstating the consequences for business. S. G. Warburg said that it was difficult to find a list of positives for business in the Budget, although it had no difficulty finding a list of negatives. The measures in the Budget that alleviate business costs through the reduction in the rate of corporation tax are almost offset by the introduction of national insurance contributions on company cars. As the hon. Member for Berwick-upon-Tweed (Mr. Beith) said, those measures must be set against the decision to increase the business rate by 10.9 per cent., the decision to increase business costs by reducing the share of statutory sick pay that the Government are prepared to fund--quite apart from the administrative charges incurred--and the charges on mobile telephones, which the Chief Secretary did not mention.

We welcome some of the help that is given in the Finance Bill to small businesses. We particularly welcome the bad debt provisions, which we proposed in the debate on last year's Finance Bill, and the measures that include some movement to deal with the loophole involving offshore trusts. We give a whole-hearted welcome to the ending of the freeze on child benefit, even if we have reservations about the way in which the Government have done that. We welcome these and other measures for which we called either in debates on previous Finance Bills or in our proposals.

We note the rejection of the argument, widely made by industry, that the most effective help for investment would have been to improve investment allowances. We note also--the Chief Secretary touched on this point--the minuscule help given in the Budget for training. That is particularly astonishing if both those measures are set against the considerable and continuing cuts in Government support for industry and training in this year of recession.

Mr. John Butterfill (Bournemouth, West) : Would not the Labour party's proposal to put a payroll tax of £1.25 billion on industry to help pay for training be disastrous at a time when employers are trying to reduce costs?

Mrs. Beckett : As we have no such proposal, I do not propose to dwell on that intervention. [ Hon. Members-- : "Oh."] The hon. Member for Bournemouth, West (Mr. Butterfill) may be referring to another proposal--that those who do not train at all and make no contribution, other than to poach on those who train, would have to contribute through training or through a contribution to a training fund. That is eminently sensible. Competitor countries have similar policies, which they have no difficulty in policing. We believe that that proposal will strengthen training and the position of the many people, to whom clearly the Government did not listen, who desperately resent the fact that while they invest in training, their competitors poach from them. The evidence of the Bill, and what it would do, must be examined in the context of what the Government say about the state of the economy.

At long last, the Government have been forced, by a rising tide of incredulity, to admit that we are in recession, although they continue to claim that this recession will not be as bad as their last one in the early 1980s. They argue that not only we but many other countries are in recession

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and that our recession is caused by the problems of excessive success, and we are on the way towards recovery. I believe that yesterday the Chancellor said that recovery was "around the corner". The argument about recession being caused by the problems of success is particularly hard to follow, especially as the Government contend that other countries are in a recession that is not as deep as ours. They argue that we have had such wild success that we found ourselves in recession and that other countries are in not as bad a recession because they have not been as successful as us. That is a peculiar argument, even for the Government. As to recovery being "around the corner", I share the view recently expressed by chambers of commerce that the Government were "over-optimistic" in their belief that inflation has been beaten and that the end to the recession is in sight. The Chief Secretary today made the same comment about cumulative evidence. I refer him to a Greenwell Montagu bulletin that states that it can find

"few convincing signs that the recovery has yet begun." The Chief Secretary said that many organisations had claimed otherwise. Perhaps whichever Minister winds up will identify them. In an address recently to the Institute of Directors, the Chancellor of the Exchequer drew attention-- this was very honest of him--to his 12 years' continuous service in Government, five of them as a Treasury Minister. It is a welcome change for a member of the Government to admit some responsibility for the state of the economy. He also made interesting remarks about the difficulty of forecasting when recovery will come. He spoke of his sceptical attitude towards forecasts, and, with his experience, who can blame him? However, he admitted to having a lot of respect for data, and made particular reference to surveys of business and consumer attitudes.

It may have struck the Chancellor that there was a problem with that observation, and that perhaps he had launched yet another boomerang, because he hastily added that such surveys and data must be carefully interpreted. Although I read the Chancellor's speech with care, it was difficult to make out the points that he was trying to convey, but I will attempt to summarise them. The Chancellor said :

"Lagging indicators will go on signalling recession when the economy has begun to recover Once these points are understood, it is possible to reconcile the notion that recovery is on the way with a continuing flow of gloomy statistics."

He went on to comment on unemployment. It is increasingly clear that the Chancellor is arguing that forecasts are okay as long as they are favourable, but not if they are gloomy, and that the same is true of results. Apparently, therefore, we should ignore unemployment figures, but believe forecasts of recovery.

The Chancellor of the Exchequer decided yet again to fiddle with our inflationary expectations by making changes to value added tax. Only a few short weeks ago, Ministers stood at the Dispatch Box, one after the other, to tell the House that what mattered was not the headline rate of inflation but the underlying rate, leaving out mortgages and the poll tax. Now the Chancellor argues that the underlying rate is "utterly meaningless". Under pressure, he promised--in Committee, I believe--to take the underlying rate into account, along with a range of other indicators. But if he thinks that the underlying rate is fairly meaningless, it is also fairly meaningless for him to say that he will take it into account. He means that he will

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ignore it because it might reveal the risks that he has been running with the underlying rate of inflation while talking loudly about his great concern for it.

Mr. Quentin Davies (Stamford and Spalding) : Does the hon. Lady deny that unemployment is a lagging indicator, that it increases after falls in output, and that increases or reductions in unemployment follow, but do not precede, a revival in output?

Mrs. Beckett : There is something in what the hon. Gentleman says, but I do not recall him making the same point in 1979, when unemployment stood at 1 million. Today, the figure is 2 million, even after 30 changes to the way in which it is calculated. Nor did the hon. Gentleman make that comment when unemployment was falling. The Chancellor wants to assume that Britain is enjoying a recovery, no matter what the indicators suggest. He cites unemployment precisely because he expects it to go on rising, but for how long? Perhaps the hon. Member for Stamford and Spalding (Mr. Davies) can tell the House. Will unemployment continue to increase for a year, or longer? It will certainly rise for some time to come, and at considerable cost to many of our constituents.

The Government's partial, self-selection of statistics created the problem in the first place. Just before the Budget, an economist with S.G. Warburg Securities, commenting on Government statistics produced at the time, said that the economy was

"much weaker than the Government thought at the time".

That cast doubt on the policy of keeping interest rates so high for so long. Another indicator of the economy is the 70 per cent. increase in business failures in the first quarter of this year, which is the highest level for many years. Unemployment has shown a cumulative rise of almost half a million over the past year, and the figure for last month was the highest since the second world war. The Government will not listen to any point of view that they do not share. In the words of the song, they are not listening still ; perhaps they never will.

Whatever the Government choose to hear, the people of this country have a right to learn some of the alarming evidence that Ministers discount. A recent analysis by Midland Montagu contrasted the comparisons that are continually being made between the current recession and that of the early 1980s. The actual results, which the Chancellor prefers, that are contributing to the developing economic pattern parallel exactly the downturn of the early 1980s. Sadly, the improvement is all in the forecasts. Perhaps it was after examining the same evidence that the chambers of commerce made their comment about the Government being over- optimistic, said that they do not expect a recovery until 1992, and warned that Britain is in a "deep recession" that no amount of talking will lead us out of. The Engineering Employers Federation drew attention to the increased investment in manufacturing needed for a sustainable recovery, and to the requirement for a higher level of skills in the existing work force and among potential recruits. The federation asserts that, even in a recession, skills shortages are a matter of continuing concern.

Mr. Butterfill : Does the hon. Lady accept that if there is to be industrial investment, there must be savers whose money can be made available for such investment? If so, is it not curious that Labour proposes a tax on savings?

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Mrs. Beckett : Our proposal is only to treat unearned income in the same way as earned income, which seems a fair change. Our intention is to impose a 9 per cent. charge, equivalent to that made in respect of national insurance contributions. For that reason, it will not be applied to the incomes of those who have retired--to pensioners.

Sir William Clark (Croydon, South) : I well understand the difference between earned income and unearned income-- [Laughter.] I understand that the 9 per cent. charge will apply to salaried persons, but will someone who is well over the existing £3,000 on investment limit and earning a large salary also have to pay 9 per cent. on any excess income?

Mrs. Beckett : Indeed. On income from investments of about £30, 000--which would result in income that exceeded £3,000--they would pay a charge of 9 per cent. on the extra income in just the same way as someone who earns that extra money would pay that charge. However, that does not arise from the case that I seek to make in this debate and so, if the hon. Gentleman does not mind, I shall not pursue it. The position is quite clear.

Sir William Clark : Does that mean that the highest rate of tax that can be levied on an individual is not 59 per cent. but 68 per cent. if that person has additional investment income?

Mrs. Beckett : That is ingenious, but no.

Mr. Quentin Davies rose --

Mrs. Beckett : I shall not give way to the hon. Gentleman as I have already given way once to him.

Like the chambers of commerce, the Engineering Employers Federation suggests that there is unlikely to be any real recovery until at least mid- 1992. The CBI's forecast some little time ago, with which I think that all the House is familiar, of a fall in investment of about 16 per cent., would take the level of manufacturing investment below the level that the Government inherited in 1979. Despite the background of the Government's claims for the economy, the Treasury Select Committee expressed the view that

"adverse international factors have been relatively unimportant in"

shaping the recession. The Governor of the Bank of England said in evidence to the Committee that the recession is "somewhat homegrown". Whatever the Prime Minister may argue, the Chancellor said in evidence to the Select Committee that there is not a worldwide recession as there was the first time round.

Against the background of those comments, I shall examine some of the evidence that those learned commentators may well have had in mind, especially since the Chancellor said in his speech to the Institute of Directors that we need to see our current difficulties in the context of what has been achieved since 1979--a view with which I whole-heartedly agree.

The Government make many extravagant claims for the growth that has been enjoyed in the 1980s, as if peak growth were enjoyed in every year of that decade. However, a quick canter through the results--the Chancellor has told us that he gives great credence to results--of what happened between 1979 and 1991 does not give quite the picture that the Government paint,

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especially if their claim is that Britain had a better performance in the 1980s relative to that of our competitors, which is what they said the other day.

Let us consider the rate of growth of gross domestic product per head between 1979 and 1991. In the European big four--Italy, Germany, France and the United Kingdom--we came fourth ; in the Group of Seven, we came seventh ; in the European Community 12, we came 10th, as we beat the Netherlands and Greece ; in the Organisation for Economic Co-operation and Development countries in Europe, we came 16 out of 19 ; and in the OECD 24, we came 20th, and this time we managed to beat Iceland and New Zealand as well as the Netherlands and Greece. So much for our claims to startling relative success in the 1980s, during which--as the Economic Secretary admitted the other day--our growth rate was below the rate that we enjoyed in the much- abused 1970s, when we lacked the advantage of North sea oil.

Let us look a little nearer to the present day--at last year's results and at the signs of recession, although I think that the Prime Minister would prefer to call it weakening activity. There are some signs of recession in other English-speaking economies--in the United States, Canada and Australia--but not among our colleagues in the European Community, with whom we have to compete most directly after 1992. There are increasing signs of unemployment among those other economies but not among those with whom we must compete directly in Europe. In 1990, Britain had the slowest growth in GDP of all the OECD countries except Iceland. That shows our success in that decade and in the last year for which we have figures.

However, there must be something in the Government's optimism. I decided that I had better turn to the forecasts because the Chancellor said that sometimes it was all right to look at forecasts. Midland Montagu point out that the forecasts for 1991 which were given in the Budget

"represent a complete reversal of those given only four months ago in the Autumn Statement."

The Budget Red Book shows a fall in total investment and the Government usually prefer that figure to the figure for manufacturing investment.

In terms of total investment, the Red Book shows the largest year-on-year decline in total investment in the economy since the year of the great depression in 1931-32--which is as revealing as it is alarming. That takes account of the measures in the Budget which are supposed to have done so much to improve our position. The forecast shows that we shall have the slowest growth in GDP in 1991 of all OECD countries and the greatest decline in business investment, to which the Government are normally so wedded, in the OECD. The International Monetary Fund forecasts that the United Kingdom will have the lowest growth of all G7 economies for 1989, 1990 and 1991 and that, along with Canada, we are forecast to have a decline in growth in 1991.

What is especially worrying is that, apart from that forecast of decline in investment in the Red Book--10 per cent., which is bad enough--the results so far, taking the year from the first half of 1990 to the first half of 1991, are greater than the Red Book forecast, at more than 12 per cent.

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That brings me to today's survey results from the CBI, to which the Chief Secretary referred. [Interruption.] I am not surprised that Treasury Ministers do not want to listen ; I would not want to if I were them. Let us set the CBI's survey results in context. There is a slight increase in optimism. In other words, people are not quite as pessimistic as they were in January. That might have a little to do with the Gulf war, but let us be generous and say that it is all to do with the signs of recovery that the Government detect. Whatever the levels of overall optimism, the survey shows that indications for investment, training, innovation and employment are still deeply alarming. Expectations for investment are worse than they were when the last survey was published in January. Expectations for training and innovation are no better than they were when the last survey was published--in other words, a continuing, although not worsening, decline in investment in training and innovation is expected. The expectations of unemployment are worse than they were in January. Orders and industrial output are expected to fall.

In that context, it is especially alarming to note that the CBI tells us that the survey in January, although it was bad, understated the case and was too optimistic compared to the fall in orders that took place. No wonder that the CBI says--whatever the Chief Secretary says--that although the trend in output appears to be levelling out it is

"too early to speak of recovery"

and it will take a long time

"to recover this lost ground."

That is what the Chief Secretary called firm evidence of a recovery. Let me remind the House that these are forecasts. Somewhere in all these figures for outturn, figures for results and the figures that I have just given for a variety of people's forecasts, the Government are finding the source of optimism that they so repeatedly preach to us all in the House.

Ms. Diane Abbott (Hackney, North and Stoke Newington) : They make it up.

Mrs. Beckett : I think that my hon. Friend is right.

It is hard to see what, other than a desperate attempt to obscure responsibility for the recession, fuels the optimism to which the Government lay claim. Since they admitted the existence of recession, late and grudgingly, they have been saying that it is nearly over. I shall consider the pattern of the Government's observations--one might call it the seven ages of a Treasury Minister.

First, the Government said that there was no recession and they got very shirty with people who said that there was, claiming that they were trying to talk us into one. That was the first stage, although the Prime Minister, when he was Chancellor, said that things would not be easy. In the second stage the Government began to admit to a weakening of activity around the time of the autumn statement. The third stage was when they admitted that the recession had arrived but that they hoped that it would be, in the Chancellor's words, "shallow and short-lived." The fourth stage came with the recent admissions that the recession has turned out to be deeper than the Government thought. I regard it as the fifth stage that the Prime Minister identifies the fact that other people are on their way into recession because they have not been as successful as we have for as long as we have, so they were not so lucky as we were to get into the recession as fast as

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we did. That bears no relation to any facts that I can discover. The sixth stage is that recovery is "around the corner", as the Chancellor says.

The Treasury and Civil Service Select Committee says that it detects at present

"the absence of any firm evidence that recovery is taking place." It is also concerned that recovery is so heavily dependent upon a revival of consumer confidence and consumer expenditure, which may falter if unemployment continues to rise. That is borne out by other comments. Midland Montagu says that the onus of proof lies on those who see signs of recovery and that the prime risk is on the other side. There is also a seventh stage, the other side of the hurricane--all the winds diminished, blissful calm beginning to appear but, on the other side of the eye, the winds beginning to rise again.

I have no doubt that the forecasts that the Government would most prefer to discount are those that suggest that after a time, with inflation low and interest rates lower than they have been, once the recovery is under way the balance of payments deficit will begin to deteriorate, inflation may well begin to deteriorate and pressure will come on interest rates again. The tragedy of all this is that even the recovery that the Government suggest, delicate though it is, is not a recovery led by investment or exports. The danger is that that recovery may well be shallow and short- lived, as the balance of payments constraint re-emerges.

Perhaps the most revealing as well as the most notable aspect of the Budget was the decision to raise between £4.5 billion and £5 billion through the increase in value added tax--revealing because it was a decision that had nothing whatever to do with long-term planning for the structure of local government, and nothing to do with long-term planning about what the balance should be between the moneys raised from local resources and from central Government, but everything to do with the timing of the election and the Government's desperate need to defuse the unpopularity of the poll tax. Between £4.5 billion and £5 billion is to be raised by means of this surcharge, but there will not be a single teacher, home help, cleaner or caretaker to show for it. On the debit side, yet again there is the risk of more inflationary own goals.

With this Finance Bill, the Chancellor of the Exchequer is treading water. The only suggestion in the Bill that there is a long-term strategy behind what the Government are doing is their choice, when they decided to give some help to business, to focus on the rate of corporation tax rather than on allowances of one sort or another. It highlights the long-term direction set out by the Chancellor in his speech to the Adam Smith Institute--the long-term direction called for by bodies such as the Institute of Directors, which asked for cuts in the rate of taxes in order gradually to erode and allow for the disappearance of the welfare state. In that speech the Chancellor said :

"The need to reduce the size of the public sector remains at the top of the Government's agenda. It is only by keeping spending under control that we will be able to deliver the income tax cuts to which we are committed."

Yet again I am pleased to see that Conservative Members share that view whole-heartedly, and yet again, as throughout the Government's period in office, we see their determination to use the resources that become available to cut the rate of income tax, although that distributes resources most heavily to those who need them least. I am mindful that the cumulative cuts that the Government

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have made in income tax mean that someone whose earnings amount to £70,000 a year has made £34,000 out of those cumulative income tax changes.

The pursuance of that policy and the increases in VAT and national insurance contributions have already led to an increase during this Government's period in office in the overall tax burden for an average family, with one wage earner and two children. The income tax cuts that they have made have been almost outweighed to a penny--certainly to a couple of pounds--by the increases in national insurance contributions and the effect of the freezing of child benefit. On top of that, we have had not only the increase in VAT but also the poll tax.

The Finance Bill will not do a great deal of harm, but it will not do much good, either. During the past few years, our economy has fallen into the hands of a group of joyriders. Like most joyriders, they grew more and more reckless as time went on and, as the excitement mounted, more and more convinced of their own skill and infallibility. Like so many joyriders, they have ended up in the ditch. Some of the casualties will never be the same again. It is evident, from both the Budget and the Finance Bill, that to us will fall the task of getting the vehicle out of the ditch and back on the road. That job will have to be done before we can even assess the full extent of the damage. The Finance Bill shows that it will not be done by this Government. The sooner they move out of the driving seat and let us get on with the job, the better.

Several Hon. Members rose--

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