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in VAT forms and the difficulty that that brings until they are established, until their turnover increases and until they are able to launch out and participate in the normal run of tax collections as they get bigger. I appreciate the raising of the threshold, but we should consider whether it could be even further improved in the years to come.One issue mentioned in the Budget was the declaration--and it was a declaration--that larger companies must pay smaller companies on time. It is absolutely disgusting that some large companies have bled small companies white by using their power and muscle and by not paying bills on time. It would be invidious to name those larger companies, but they are household names. I go out of my way to avoid buying their products if I have an alternative. The comments by my right hon. Friend the Chancellor about small businesses being paid on time were necessary. I know a small business man who is in desperate trouble because a large company is refusing to pay a very large outstanding bill. All I can say to the larger company is, "Shame on you".
The consideration in the Budget of the cost of appeals to the special commissioners is another move in the right direction. Too often when small businesses have made claims they have met intransigence and it has cost a fortune to fight a case. At the end of the day, the costs have not been recoverable, but now a step has been made in the right direction, and that can only be beneficial.
Mr. John Butterfill (Bournemouth, West) : Does my hon. Friend agree that it is wrong that taxpayers should be intimidated by the thought that they might not be able to recover their costs when they have a legitimate case to take to appeal and that consideration of that anomaly is long overdue?
Mr. Page : My hon. Friend puts the case in a nutshell. I know of instances in which people have said that the game was not worth the candle because it would take too long, and the intransigence of some tax inspectors has wrongfully won the day. Again, I know of a case in my constituency which is proceeding on exactly those lines, but now my constituent will be able to take action. I have considered his case and it is genuine. He will now know that he has the opportunity to recover some of his costs.
My right hon. Friend the Chancellor also listened to the problems of people handing on their companies to ensure that they are not broken up. We all know of the vast costs involved in getting a company started and of the impact of inheritance tax on those who have built a business and want to ensure that it stays in one piece and that it retains its essential individual character. They have the opportunity to do so--now, such companies will not necessarily be swallowed up and become part of yet another branch of a large conglomerate.
It would be wrong of me to speak about the help for the car industry without declaring an interest. What is being done in this context will be a fillip to get motor manufacturers going and will, of course, have a ripple effect across the country. I believe that many people deferred their buying decisions until today, and perhaps what has been said today will encourage them.
My last point might be slightly contentious. Although I welcome what is being done for the British film industry--the one third write-off on a straight line over three years--I have to say that what is sauce for the goose is sauce for the gander. I wish that we could in some way extend that
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provision to manufacturing industry. If one removes from our manufacturing industry the inward investment and the investment by a few large companies such as British Gas, British Aerospace, Rolls-Royce and ICI, one finds that very little manufacturing investment is being made in this country. In fact, until 1988-89 the growth rate since 1979 works out at only 1 per cent. In a world of increasing mechanisation, of more robotics and more automation, it is absolutely right that we should have increased growth in investment. However, we have a culture in this country whereby we do not invest, and the hon. Member for Newport, East (Mr. Hughes) mentioned the lack of commitment to training and to research and development. I am afraid that that strand runs through this country and it must be broken. Our foreign competitors have a different culture. We suffer from short-termism, which is unhealthy for long-term survival. Let us consider, for example, Germany. It gives a 20 per cent. allowance against tax for dividends, but no more. If one pays a dividend of more than 20 per cent., one begins to eat into the residual profit of a company. Perhaps we could have some guidance to help to gain investment in our companies.That issue has what could be described as more insidious consequences because German Members of Parliament are given a specific allowance of more than £650 a month which is ring fenced for equipment such as computers, word processors and faxes. That is the way that they think--they think of investment in automation and of using equipment to ensure a more efficient operation.
The Government have set the seal on the Conservative party proceeding to the general election. Over the years, cutting the rate of tax has left us with more taxes to put into hospitals and schools but, at the same time, we have managed to leave more money in real terms in people's pockets for them to spend as they think fit. That is the opposite of the double whammy. I have absolutely no doubt that the success of the Budget was evident in the faces of members of the Opposition, and it will be reflected in the results of the election. 5.57 pm
Dr. David Owen (Plymouth, Devonport) : Coming prior to an election, the Budget must face the acid test of whether it is irresponsible in budgetary terms and pure electioneering. As I understand it, the Chancellor has added to the public deficit £1.6 billion, which is rather less than many people had thought.
I judge that, by limiting the amount of tax changes, it can fairly be called a prudent Budget and should, in a rational world, allow the Chancellor to reduce interest rates by at least per cent. I strongly wish they could be reduced by a full 1 per cent. in the next couple of days. Whatever was said in the Budget, what will greatly help the British economy and British industry is a further reduction in interest rates. That must be the main essential of any strategy. It would be irrational of the markets to exclude a reduction in interest rates in the next few days. I profoundly hope that a reduction is possible.
As for overall economic strategy, the fundamental requirement for the economy seems to be to improve its competitiveness. Inflation shows every sign of dropping to 3.2 per cent. or 3 per cent. by the end of the year. We must not only achieve but maintain that level of inflation if
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British industry is to compete in the next three to four years. Those will still be difficult years for our economy because we must overcome the disadvantages of entering the exchange rate mechanism at a rate higher than was attractive for British industry.The errors of the past five years in handling the economy have been fairly considerable and were predicted. The pre-election Budget of 1987 fed inflation. Then, of course, we had the miscalculation following the stock market collapse in the autumn of 1987. I am less censorious of the right hon. Member for Blaby (Mr. Lawson), the then Chancellor, than many people.
First, I thought that the right hon. Member for Blaby was right to respond to prevent recession and lack of confidence. It has to be said that most people believed that. They believed that the world response was an enlightened response. Nevertheless, we all got it wrong. But the right hon. Member for Blaby, as well as the right hon. Member for Finchley (Mrs. Thatcher), cannot escape serious criticism for their Budget judgment of April 1988. That Budget was grotesquely irresponsible. I and many others said so at the time.
But it was worse than that. It was the one opportunity that we have had to restructure the tax system, abolish the threshold for national insurance contributions and take the steps that the hon. Member for Eltham (Mr. Bottomley) rightly suggested today to bring the tax and social security systems into an integrated pattern. Abolition of the national insurance contributions threshold must be done but must be done at a buoyant time. The right hon. and learned Member for Monklands, East (Mr. Smith) will have great difficulty with his proposal on national insurance contributions if he implements it at a time of economic difficulty. It is a structural change that must be made and it should have been made in 1988. It would have been appropriate in 1988 and the disadvantages could have been offset by changing the 60 per cent. tax rate to only 50 per cent.
However, it is no use looking back. The basic facts were that in 1989, with inflation running as high as it was, we had to rein back the economy. I sometimes think that the Prime Minister is too embarrassed by the phrase that he coined at the time, "If it isn't hurting, it isn't working." There was no escape from the fact that, having fed and stoked up inflation so irresponsibly in 1987 and 1988, coming to grips with inflation in 1989, 1990 and 1991 would be painful. It does not serve anyone's purpose to deny that it would be difficult. But the question is whether we compounded that difficulty.
As I said, we went into the exchange rate mechanism at too high a rate. But we all know that the political difficulty of persuading the then Prime Minister to accept that we should enter the ERM was formidable. We should have entered it in the early 1980s, and certainly when the right hon. Member for Blaby wanted to do so in 1985. There are penalties for having entered the ERM so late. I wish that some of the people who have so glibly advocated a single currency in the past few months and yet have railed against the constraints of the ERM would face up to the reality that the constraints of a single currency system would be far greater than anything that we have experienced in the past two years inside the ERM. I and the Social Democratic party advocated entering the ERM during the whole of the party's existence. I believe that that
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discipline is necessary. It is uncomfortable, but it is no use trying to get out of that discipline. It is the price that one pays for being within the ERM.In the summer I hoped that we might reduce interest rates somewhat faster than we did. But these are difficult judgments and clearly the Chancellor of the Exchequer, certainly with an election approaching, felt that it would be damaging to confidence to reduce interest rates and then risk being forced to raise them again. So he has adopted a cautious approach of per cent. at a time. It is a matter of the utmost importance that we reduce interest rates in the next year to 9 per cent. or perhaps lower.
Another problem is unit costs. Britain simply must face pressure to reduce unit costs for three to four years. That is where we come to the strategy on tax reductions. Listening to the Leader of the Opposition, I must confess that I was nonplussed as to whether the Budget that he would propose in six days would have a reduced public sector borrowing requirement. Certainly the effect of what he said was that he would come in with a reduced PSBR.
Mr. Stuart Bell (Middlesbrough) : How did the right hon. Gentleman work that out?
Dr. Owen : There was constant reiteration of the problem of borrowing to reduce taxation. By implication, he said that the borrowing requirement was too great and, therefore, would have to be restricted. However, we await his Budget.
If we are to keep unit costs down, the section of the labour force who do not have large earnings must be given the greatest relief. That means concentrating tax relief on not only the lower paid but those who receive average pay in manufacturing industry. It is from that section that the pressure always comes to pay ourselves more than can be justified by increases in productivity. This is where we come to the reduced rate band.
In redistribution policy, the best way of helping the poorest section who pay tax is undoubtedly to raise personal tax allowances and take people out of paying tax altogether. However, experience shows that that has little effect on the bargaining position of people in work. They do not feel that they have had a tax reduction when personal tax allowances are raised. A reduced rate band is an interesting way of grappling with the problem of keeping down unit costs and keeping wages in line with productivity.
The Chancellor seemed to suggest in his speech that he intended to use a reduced rate band as a structural mechanism for taking income tax down from 25p to 20p in the pound. Obviously, there are several options, but I hope that he will take that one. I know that it is difficult technically, but I hope that the Chancellor will gradually take more people into the 20p rate band but come at it from below--from the lower paid up through the system. We have never done it like that before. We have simply taken slices of 1p or 2p off the standard rate. Such a reduced rate band would be an interesting development and one to be welcomed.
I am pleased that the Chancellor did not shift the married man's tax allowance. If the tax and benefits systems are to be integrated, the allowance will have to go. The only acceptable way to do that is to allow it to wither on the vine and not to increase it.
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In the past two years the Government have shown themselves ready to see child benefit increase. The hon. Member for Eltham described a child cash allowance. That was a good description of the system that we must move towards. We must put child benefit into the tax system but retain the advantage of paying it to the woman, usually the wife, in cash.To the business community, the alleviations in the Budget are extremely helpful. The one that I am most pleased about is the reduction by 5 per cent. of the new car tax. I should like to see the whole thing go, but it is very expensive and it will already cost more than £600 million to take it down by 5 per cent. The car industry has been preferentially hard hit and therefore needed preferential help. The measures on the unified business rate, VAT and others are small, but they have been sensibly designed to ease where the shoe is pinching in business and to give small businesses in particular, which have certainly felt the recession quite acutely, some welcome alleviation.
Those matters are all small in comparison with cuts in interest rates. If we continue having to keep our interest rates as high as we had to keep them throughout 1991, the recession will bite very deeply in this country. It is already biting harsher than in many other countries. I assume that the Chancellor is confident that, although the Treasury forecasts of coming out of recession have been too optimistic, there is now a real prospect of coming out of the recession in the second half of next year. I hope that that will happen, but the world is still in a difficult state to make any prediction, not least because of the protectionist pressures that are building up.
We have still failed to have a successful general agreement on tariffs and trade negotiation--it hangs over us. There are already in the United States, as evidenced in the presidential elections, very strong protectionist measures. As yet there has been little sign of the European Commission being ready to make the necessary changes in our GATT negotiating position in relation to agriculture. The GATT negotiations are probably the single most crucial matter in ensuring that the world economy starts to move forward.
For all those reasons, we cannot and should not have expected too much from the Budget. This is a difficult time. There is no doubt, too, that, while an election hangs in the air, there is, in terms of international confidence, a tendency to hold back until the election is over. It is probably true that, whatever the result of the election, the markets will view the British economy in a more settled way after it.
This is the last time on which I shall speak to the House, and I do so with a certain sadness but also with the belief that it is high time I went. No right hon. or hon. Member can leave the House without paying tribute to his or her constituency. I was born in the city of Plymouth, and I have represented it in the House for nearly 26 years. That has been a great privilege and something on which I shall always look back with pride. I have also managed to beat the record of Nancy Astor, and I am now the longest serving Member of Parliament in Plymouth's history.
My great gratitude to my constituency goes back to one single thing. The House was brought up on a dictum that Disraeli apparently taught about politics--"Damn your principles and stick to your party." That dictum has obviously been successfully followed by many people. I have turned it upside down, and I have no regrets about that. The House and parliamentary democracy survive
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because, from time to time, people understand that issues and principles go far beyond party and go to the root of how we regard representation in the House. It should be about how we regard and represent the best interests of our country. That must always come before our constituencies. However, at the end of the day, we must justify those decisions to our constituencies. The one thing that I shall always hold dear is that, when in 1983 my constituency was asked to endorse my decision to put what I thought were my principles before my party, it endorsed me.6.14 pm
Mr. Ray Whitney (Wycombe) : It is a great privilege to follow the speech of the right hon. Member for Plymouth, Devonport (Dr. Owen). As he said, it was likely to be his last speech in the House. It is a privilege because all hon. Members recognise his distinguished career and the contribution that he has made to British political life over a number of years. I know that the right hon. Gentleman will not take offence, but there is some irony in the light of that privilege. I was a public servant in the Foreign and Commonwealth Office when the right hon. Gentleman was Foreign Secretary. The reason I decided to make the extraordinary leap from the warm bosom of the Foreign Office to the hurly-burly of political life was that I was appalled at the state of Britain under the Labour Government of which the right hon. Gentleman was a distinguished member. I often say that the right hon. Gentleman himself was responsible for my coming to this place. I was happy to agree with much of what the right hon. Gentleman said. However, in his criticism of the policies that were followed by my right hon. Friends in 1987 and 1988, the right hon. Gentleman was luxuriating a little in the benefits of 20 : 20 vision which the advantage of hindsight gives to observers. I say that as someone who can honestly claim that in January 1988 I was one of those--there were not many of us-- who were warning about the dangers of relaxing the fiscal stance, whereas my right hon. Friend the Member for Blaby (Mr. Lawson) was under pressure from Opposition Members to reduce interest rates to relax the stance still further.
The indicators that were available to the Treasury and to my right hon. Friend suggesting that the air was going out of the balloon were inaccurate. That shows that Chancellors of the Exchequer, of whatever political complexion, need better indicators, but that matter is for the past.
I agree with the right hon. Member for Devonport about the undoubted difficulties that there will be in achieving a single currency. I am positive about Europe and optimistic that we can achieve that happy state in a relatively short time, but it will undoubtedly take a number of years. There will undoubtedly be the difficulties to which the right hon. Gentleman referred. The facile Labour party, having twisted its policy on Europe six times, has now leapt into the single currency issue. That is another manifestation of its unfitness to govern.
The right hon. Gentleman is absolutely right to suggest that this is a responsible, prudent Budget and that the tax changes which have been announced and which seem to add about £1.6 billion to the PSBR should be well regarded by the financial markets and should give the
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opportunity for a further reduction in interest rates, which is badly needed. I hope that the right hon. Gentleman is right, and I endorse his sentiments.Undoubtedly, Britain faces a difficult economic situation, as does the rest of the industrialised world. When all the political cant is swept away, right hon. and hon. Members must recognise that, if they are to treat the present difficult situation with the gravity and responsibility that it deserves, it does no good to pretend that it is just a British problem. Sadly, the problem may be exacerbated if we cannot make proper progress in the Uruguay round of the GATT negotiations, as my right hon. Friend the Chancellor of the Exchequer pointed out. From my humble position on the Back Benches, I strongly endorse my right hon. Friend's argument. I urge some of our European partners, particularly our friends in the French Government, to consider their policies and attitudes carefully and take account of the needs of the world trading community.
It is not only the European Community that has to make a move ; America and other countries involved in the negotiations must also do so. We all have a responsibility, particularly the Heads of Government of the G7 nations who, when they last met under the leadership of my right hon. Friend the Prime Minister, gave a personal pledge that they would do all in their power to ensure that the Uruguay round was successful. That pledge has yet to be honoured.
It is against that background that we should decide whose hands are required on the tiller of the nation's economy at this difficult time--with the Budget and an imminent general election. I have no doubt that today's events and what has been said in the House, by Opposition and Government Members, make that answer crystal clear as has the Government's overall sound record of economic management since 1979.
My right hon. Friend the Chancellor was faced with an extremely difficult problem. As many of my right hon. and hon. Friends continually and rightly stress, it is true that conditions have now been created for the economic recovery that we so badly need. Inflation is down to an encouraging level, and the forecast given by my right hon. Friend the Chancellor of further reductions in inflation is greatly to be welcomed.
The interest rate cuts--we have already had eight in 18 months--are also to be welcomed. In addition, the rise in company and personal savings has set in place the conditions for recovery. Now we need the restoration of confidence, which means a general election and a Conservative victory. I have no doubt that my right hon. Friend's Budget will contribute mightily to that.
As for my right hon. Friend's judgment, all of us with an instinct for financial rectitude will consider carefully the fact that we have a public sector borrowing requirement of £14 billion this year, which will move to about £28 billion next year. In order to be satisfied that that is the right policy, one has to take a close look at the facts. I am absolutely convinced that it is the right policy, and a glance at the record of past years serves to highlight that. Try as they might, politicians can never eliminate the trade and business cycles. We are in the dip of a particularly severe trade cycle. It is due to the depth of that recession that we must take a flexible approach to public sector funding and borrowing, albeit always within the
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tight parameters of a responsible fiscal stance. Our achievements since 1979 give us every right to take credit for adopting the proper approach.The Hansard report of 6 March, at column 322, makes it clear that, from 1984 until this financial year, there was no net borrowing requirement. That is the background against which to judge that our country's finances are strong enough to take the £28 billion public sector borrowing requirement now in prospect. It is interesting to compare that figure of £28 billion--if it is reached--to the sort of figures to which we grew accustomed in the years of the Labour Government.
In terms of 1991-92 prices, in 1974-75 the public sector borrowing requirement reached £38.9 billion and the next year it rose to nearly £40 billion, before the International Monetary Fund had to step in and help the then Labour Government back on to the path of the straight and narrow. Therefore, it ill became the Leader of the Opposition, in an extraordinary and lamentable response to my right hon. Friend the Chancellor, to talk about bribing and borrowing to bribe. Such remarks came from the leader of a party which now proposes a shopping list of £37 billion more of expenditure, which boasts and glories in the fact that it intends to increase taxes and which would clearly increase interest rates and destroy jobs and the economy. Therefore, there is no doubt that the Labour party is incompetent to handle the economy. That has for long been demonstrated by its abysmal record when in government and, again and again, by its pathetic policies--despite the fact that it changes them all the time.
The Labour party's incompetence was underlined this afternoon when, not having had the benefit of a briefing from his colleagues, the Leader of the Opposition was not clear as to whether the Labour party would reject the imaginative and extraordinarily helpful decision by my right hon. Friend the Chancellor to produce the 20 per cent. tax rate. The Leader of the Opposition left the House with the impression that the Labour party would eliminate that 20 per cent. tax. The 4 million people in this country whose total tax payable would be reduced from 25 per cent. to 20 per cent. would be interested if it turned out that the Labour party did intend to eliminate that 20 per cent. tax. When discussing the tax equation, the Leader of the Opposition seemed to have no understanding of our experiences since 1979, which show that lower tax rates result in a higher tax take, a higher tax revenue. That proposition, which seems simple to most of us, seemed beyond the grasp of the Leader of the Opposition. The decision that the country should take is clear at any time, but particularly at this extremely difficult time of economic challenge for this country and for all other countries of the developed world. The idea that the economic tasks that we face can be left to the Opposition to solve is unthinkable ; such tasks must be left to my right hon. Friend the Chancellor.
I greatly welcome all the measures put forward by my right hon. Friend, particularly the help given to pensioners on low incomes, the provisions on savings, inheritance and business rates and the help for the car industry. All those policies add up to a great package, which must be added to the significant additional spending set out in the autumn statement. I have great pleasure in congratulating my right
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hon. Friend the Chancellor and his colleagues on what they have achieved, not only for the Conservative party but for the country. 6.28 pmMr. Stuart Bell (Middlesbrough) : It is a pleasure to follow the hon. Member for Wycombe (Mr. Whitney)--not least because he will not be retiring at the next general election. The same cannot be said of the right hon. Member for Plymouth, Devonport (Dr. Owen), who I am glad to see still in his place, and the hon. Member for Halesowen and Stourbridge (Sir J. Stokes).
The hon. Member for Wycombe was right to refer to the GATT negotiations and to the important and significant personal pledge made by the Government leaders that they would intervene to ensure that those negotiations reached a successful conclusion. Was that promise genuine, as I hope it was, or just another sound-bite promise, made of the moment to impress people and to allay their fears, but amounting to little?
The hon. Member for Wycombe asked whose hand was on the tiller. We will quickly know that answer, and it may come as a surprise to the hon. Gentleman. He mentioned that there have been eight reductions in the interest rate, which currently stands at 10.5 per cent. I dislike giving the hon. Gentleman bad news, but no Government have ever won a general election when the interest rate was above 10 per cent. I share the hopes of the right hon. Member for Devonport that we will see, in the interests of the economy and of the British people, a reduction in interest rates between now and the general election--although I understand that the odds are not that good. The hon. Member for Wycombe referred to financial rectitude. I always smile when I hear that phrase. I am reminded of one of Lord Denning's famous summings up, when he observed that the more that a defendant talked of his honesty, the more one was tempted to count the silver. When I heard the hon. Member for Wycombe, I thought that I had better start counting my silver. The hon. Gentleman referred also to a responsible fiscal stance. We will have some fun with that phrase as this debate continues over the next few days.
I was pleased to be in the Chamber for what might be the last speech by the hon. Member for Halesowen and Stourbridge, who made a telling point when he said that our economy was increasingly being linked to Germany's economic and financial policies and to those of the Bundesbank.
I also enjoyed the speech of the right hon. Member for Devonport, although he may not have understood the remarks of my right hon. Friend the Member for Islwyn (Mr. Kinnock), to which the hon. Member for Wycombe referred. My right hon. Friend did not have the benefit of knowing in advance the contents of the Budget and had to make decisions and judgments as to the content of his speech as he went along. Today, he was right to desist from criticising the Government's specific tax policies and to welcome the tax cuts that will benefit the car industry, among others.
Today was the first time that the Opposition have been able to see the Treasury's books. We will be able to present an alternative Budget next week that will inform the British public of our proposals for the British economy.
The Chancellor mentioned a move towards the narrow band in the exchange rate mechanism and linking sterling
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to a rate of 2.5 deutschmarks. The challenge awaiting the next Chancellor of the Exchequer is how to equate a fixed interest rate with rising unemployment throughout the Community. NoGovernment--whether it be that of Ireland, France or Italy--have come to terms with that difficulty. How can one reconcile the exchange rate with job creation and lower unemployment?
The Chancellor said that tax revenues depend on the level of activity, but he seems again to be going for a consumer boom rather than one based on investment and manufacturing. If we are tempted to follow the route of consumer boom, we will risk institutionalising the boom-bust philosophy with which we have lived for too long. The Chancellor spoke of a Budget for recovery, but it seems more like a Budget of discovery. He believes its almost exclusive emphasis on tax cuts will be sufficient to switch public opinion, and that will be seriously tested when the general election is called. The Budget's proposed 20 per cent. tax rate on the first £2,000 of income will be worth £2.65 to the average working man and woman. That is the equivalent of 30 pieces of silver in olden times. We will have to see whether the British people accept those 30 pieces of silver. I will share one secret with the Chancellor and the House. The low- paid generally vote Labour, and I do not believe that the Chancellor's endeavours to tempt Labour voters will be rewarded at the general election. Those who might stand to benefit from such a tax reduction and who might even come out of the tax band altogether will not so easily forget the last 13 years of Conservative government.
According to the Chancellor, that tax cut will cost £1.8 billion in the next financial year and £2.3 billion the following year. That is expenditure on tax cuts rather than on hospitals, schools, or--as my right hon. Friend the Member for Islwyn said--putting an extra bobby on the beat. When there is both an increase in the public sector borrowing requirement and tax reductions, we are right to claim that it is an attempt to bribe the British people.
Mr. Butterfill : Does the hon. Gentleman agree that the richer taxpayer will be penalised because the threshold at which higher rate tax becomes payable has not been increased by the rate of inflation? Perhaps that will come as some compensation to those who imagine that the Budget is aimed at the relatively wealthy.
Mr. Bell : I am grateful to the hon. Gentleman. Although we had no prior knowledge of the Budget's content, we anticipated some of its provisions. The 20 per cent. tax on the first £2,000 of income will affect the rest of the tax system. I take the hon. Gentleman's point that the Chancellor, by leaving the indexation of allowances at 4.5 per cent., has probably not done higher rate taxpayers a service. My right hon. Friend the Leader of the Opposition put the Budget into perspective when he referred to the £100 billion of North sea oil revenues that have been used over the years. The hon. Member for Wycombe mentioned that a Labour Government incurred a £40 billion deficit. Our policy, right or wrong, was to borrow against oil revenues, because we did not want a slump worse than that which was already occurring because of oil price rises in 1974. We opted for a policy of borrowing against future North sea oil revenues. As it turned out, that policy was not acceptable to the IMF, and the Labour Government of the
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day were forced to change course. That is the context of the deficit to which the hon. Member for Wycombe referred.It is right at a time of recession to try to stimulate the economy with fiscal measures. I recall James Callaghan saying in 1976--it was one of the first speeches that I had heard at a Labour party conference--that we could not spend our way out of recession. The days of deficit spending were over, he said.
Today we have the novel approach that we can borrow money to reduce taxation, and the claim is that somehow that will spark a consumer boom, which in turn will generate jobs and aid the economy. It is an interesting argument and, as the right hon. Member for Devonport said, it represents reducing taxation from the bottom upwards. We, too, described it as an interesting concept.
All that aside, we must consider the overall economic situation. It is clear that we have had five quarters of falling output--the longest period of falling output since the war. Although the fall has been less sharp than it was in 1980-81, the time of the first Tory recession, this is the longest recession since the 1930s. I do not want to bore the House with statistics. Output as a proportion of GDP fell by 5 per cent. in 1980-81, compared with a 3.5 per cent. fall for non-oil GDP. The statistics come from the Bank of England. If all roads lead to Rome, all the fingers of culpability point to Her Majesty's Government, who over the years have followed false gods and prophets. For example, the Conservatives have consistently followed the false god of high interest rates as the single club policy to reduce inflation. The right hon. Member for Devonport recalled the phrase used about a high interest rate--that if it is not hurting, it is not working.
As a result of those policies, unemployment has been rising and output falling. The output of the construction industry has fallen by more than 12 per cent. since the first quarter of 1990. Our car manufacturing industry was sustained only by exports. The Chancellor said that the motor industry switched production to exports, which rose by 20 per cent. in 1991. But, because it is a world recession, those exports have fallen. This is the only aspect of a so-called world recession that affects our economy.
That is why I--I am sure that the same applies to hon. Members on both sides of the House--support the reduction of the special tax on motor cars to 5 per cent. from midmight tonight. We, too, hope that manufacturers will pass that on fully to the consumer and that, as a result, car purchases will increase in the coming days.
We are likely to hear many metaphors used in this debate. The hon. Member for Wycombe referred to hands being on the tiller. I have spoken of the Tory false god philosophy of believing that manufacturing counts less than services, even though the service sector could not sustain itself in the face of last year's increase in VAT. The effect of that increase on that sector was underestimated, as was the effect of the Gulf war on tourism.
My hon. Friends and I noticed wryly the Chancellor's statement that he had no intention of raising VAT or extending its scope. We shall keep an eye on that promise in the future. As the Leader of the Opposition pointed out, a similar promise was made by the right hon. and learned Member for Surrey, East (Sir G. Howe) in 1982 when he was Chancellor.
We are reminded of Conservative central office myths. One of them was perpetuated this morning by the right
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hon. Member for Croydon, South (Sir W. Clark), who is not in his place and who will be leaving us at the election. I have often heard his insistence that we should not speak from copious notes but, like the right hon. Member for Devonport, should speak, if possible, without notes. I admit that the right hon. Member for Devonport did that ably this afternoon.The right hon. Member for Croydon, South tried to persuade us of the Conservative central office myth that in the last 13 years of Conservative rule taxation had been reduced, and the hon. Member for Wycombe developed that myth in his speech. In fact, from 1979 to date, taxation has increased across the board, from 34 to 37 per cent. Allowing for a possible adjustment downwards should the effect of today's Budget be felt in full, VAT has been increased during those years from 8 to 17.5 per cent. and national insurance contributions have gone up from 6.5 to 9 per cent.
Mr. Whitney : The hon. Gentleman misunderstood me. I said that it was a demonstrated fact that lower rates of income tax produced a higher tax take. I said nothing about indirect taxation.
Mr. Bell : I am grateful to the hon. Gentleman for that intervention and for reiterating his view that the Laffer curve is alive and well. Ronald Reagan was perhaps the first to suggest that, if one reduced the rate of tax, one somehow raised more money. In reality, that theory does not stand the test. It is not possible to reduce taxation and increase the take. That has never been true, and it never will be the case.
Our criticism of the Government is that in recent years they have not adopted a proper perspective towards manufacturing and service industries. They have not had an appropriate monetary policy, other than membership of the ERM, which is the new gold standard of the Conservative party. Apart from that, the Government's only other policy has involved high interest rates. They have had no plan for the long-term unemployed. I am glad to note that my hon. Friend the Member for Newport, East (Mr. Hughes) has fully recovered his health. As he pointed out, the Chancellor did not once mention training, yet there have been great cuts in training programmes for youngsters. The Government have no plan to stop the reduction in investment. Only an adequate policy on that front will increase output, yet the Chancellor said that it was not for the Government, but for the private sector, to lead the way and create a climate which will lead to more employment.
We see no plan to help those who have lost their jobs. My right hon. Friend the Leader of the Opposition referred to the 800,000 people who had lost jobs-- [Interruption.] Conservative Members will not put me off my stride by yawning or making sedentary comments. Indeed, their yawns probably reflect Conservative party thinking on the Budget.
There was no reference in the Chancellor's speech to the young people in society who are growing up amid increased crime, the figures for which were announced yesterday. There is increased irresponsibility in society, yet the Government are washing their hands of all such matters. Children are growing up without any prospect of getting jobs. Society should reflect a sense of shame at that
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state of affairs, and I regret that nothing has been said about that by Conservative Members. After all, we bear some responsibility for the situation, in Government and in the House generally. People are growing up without the future to which they are entitled, much of that being due to years of Conservative rule.The Chancellor said unequivocally that unemployment would continue to rise, and unfortunately we know that to be true. We were hoping for a Budget for investment rather than one that will assist consumerism and lead to another boom/bust situation. The Government are impoverished in their approach towards financial matters. They have allowed their single club policy of high interest rates to decimate the nation and our outlook on the world as a financial and exporting country.
Not long ago, a former Chancellor of the Exchequer, the right hon. Member for Blaby (Mr. Lawson), whose presence in the Chamber we shall miss after the election, said that the medium-term financial strategy had a monetary and fiscal component. He said that in place of a steadily declining gold standard we had a steadily declining path for monetary growth and in place of a balanced budget we had a similarly declining path for the public sector borrowing requirement until a balanced budget was once again secured.
Where is the judgment of the present Chancellor of the Exchequer, as expressed in today's Budget? Where is his prudence and discretion? The only good thing that can be said about the Chancellor is that at least he has not been put in charge of forecasting our weather and he has not told us that a hurricane is not coming when one may be approaching. In the past year, he has refused to accept that we are in a recession and he has spoken about the economy using a whole set of metaphors such as, "we have turned the corner", "there is light at the end of the tunnel" and "there are the green shoots of spring". He made all kinds of suggestions that the economy was turning around, but it was not.
Why do the Government think that they can so easily dupe the British people? As Winston Churchill once asked at another time and another place, what kind of people do they think we are? Do the Government think that they can give us two recessions--first, the deepest since the war and, secondly, the longest recession, sandwiched between an economic miracle that turned out to be an economic mirage and low inflation, hard fought for by the British people? That was followed by high inflation, which also cost the British people dear, and economic mistakes that the Chancellor has freely admitted. Indeed, many Secretaries of State were queueing up on Sunday to give their version of events in 1987. They say that there was an overreaction to the stock market crash and they are happy so long as the blame rests on the right hon. Member for Blaby, who must take responsibility for those terrible events.
Now, after all those freely acknowledged mistakes, the Conservative party wants to be given another term of office. Why should the British people support this bogus prospectus of a Budget? It has no means of becoming the law of the land prior to election day but is simply a promissory note from a Government whose half-fulfilled promises are strewn back over the years like bricks on a derelict building site. Why should the British people fall for the equivalent of a three-card trick? When the time comes, they will not.
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I shall come to my peroration in order to keep the Government Whip, the hon. Member for Staffordshire, South-East (Mr. Lightbown), happy. He is not as polite as usual in such debates. If this is a political Budget, so be it. Some hon. Members have called it prudent and popular. The hon. Member for Wycombe said that it was a prudent Budget. I call it perturbing and petrifying. It is the Budget on which the Prime Minister wishes to hold a general election. If it is the best promissory note, bill of goods or delivery note that he has to offer, then, to paraphrase Macbeth : "If the deed were to be done, 'tis best it were done quickly."A general election is welcome and a Labour Government will be a godsend.
6.54 pm
Sir Anthony Grant (Cambridgeshire, South-West) : I am always glad to follow the hon. Member for Middlesbrough (Mr. Bell) because he is one of the few Opposition Back Benchers who understand financial matters. However, he was below form today. Indeed, I formed the impression that he had prepared his speech before hearing the Budget. I suspect that it was a draft election address and, if so, I shall give him a little advice--it was too long.
The hon. Gentleman certainly knows more about finance than does the Leader of the Opposition. The task of responding to the Budget statement, no matter who has that task, is one of the most difficult roles in the House. Over the years, I have seen many hon. Members having to do it and I know that it is extraordinarily difficult. I like the Leader of the Opposition-- anyone who likes rugby cannot be all bad--but his performance today reminded me of Twickenham : England 24, Wales nil. He did not contribute much to the debate.
May I make a personal remark to you, Mr. Deputy Speaker, and, through you, to Mr. Speaker? This seems to be an evening of swan songs, although I hasten to assure you that it is not mine. This will be the last occasion on which I speak in the House under your Deputy Speakership and the Speakership of Mr. Speaker. The three of us entered the House at the same election and I shall miss both of you enormously because your contributions to parliamentary democracy over many years in this House have been remarkable. I hope that you will accept my remarks and convey them to Mr. Speaker.
I was interested in the speech--another swan song--of the right hon. Member for Plymouth, Devonport (Dr. Owen), whom I often follow in Budget debates and with whom I nearly always agree. I particularly liked his point about an overriding need for this to be a prudent Budget. I was anxious lest there should be any risk that the Budget damaged the pound and created a danger of interest rates being increased. The danger has not gone, however, because we live in a world where the German and other economies affect us. But I am extremely relieved, as was the right hon. Member for Devonport, that the Budget is sufficiently prudent to reassure the markets and avoid the dangers of increasing interest rates. One of the greatest curses from which we have suffered has been high interest rates. I have said time and again in interventions and speeches that, above all, we must get interest rates down and not let them increase further. Another danger is the prospect of a Labour Government because it is
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acknowledged that there would be an immediate increase in interest rates, which would be catastrophic to a country trying to get out of recession.I have always advocated strongly the need to resist protectionism, so I am glad that my right hon. Friend the Chancellor made that clear. If there were a wave of world protectionism, we would suffer as much as anyone. Some countries--perhaps the United States--could sustain it, but countries like Britain and other European countries could not do so. That is why we should ram home to our French partners the need for a sensible resolution to the talks on the general agreement on tariffs and trade.
I shall not go through the whole of the Budget but, ever since I have been in the House, I have been interested in two aspects of financial debates and Budgets. The first is small firms, which have always been near to my heart, and the second is the cause of wider share ownership. I used to think that I was the first Minister responsible for small firms until I discovered that my right hon. Friend the Member for Cirencester and Tewksbury (Mr. Ridley) held that post for a short period. Ever since I had those responsibilities, I have believed that small firms and their success are the essence of a free economy and that they are vital to the future of our nation.
My right hon. Friend the Chancellor was right to identify three ogres that terrify small firms : the uniform business rate ; the horrors of the VAT man and the VAT regime ; and the problems of credit control and the recovery of debts. He has dealt with all those problems. His proposals on UBR will be particularly well received by the small firms in my constituency. Likewise, easing the tyrannical and over-rigid VAT policy and his proposals for recovering debts will be welcomed. When I was Minister responsible for small firms, there were substantial complaints about debt recovery and the way in which large firms played the credit game. They played it with enormous skill-- [Interruption.] It would not be fair to name such a firm. GEC was oppressive on its small contractors and had an enormous team of people stringing out the payment of debts until the last possible moment, which was intolerable to small firms.
I welcome what the Chancellor has done about Government contracts, but it is not enough ; he may have to consider draconian legislative measures to ensure that the credit game is not played by larger firms on their smaller sub-contractors.
As for my second interest--wider share ownership--I was a founder member, together with the late Maurice Macmillan and my right hon. Friend the Member for Croydon, South (Sir W. Clark), of the Wider Share Ownership Council. For years we bumped along. Then we had the 1965 Budget, introduced by Lord Callaghan, which was catatrophic and highly damaging to the whole idea. It was not until recent years that wider share ownership became fashionable and popular. I therefore strongly supported the personal equity plan system introduced by this Government, and their other improvements, which I hope represent only the start of further developments which will encourage wider share ownership.
I particularly rejoice at one event under the regime of this Government. For the first time since the war, there are more individual shareholders than there are members of trade unions. That is healthy for a free society.
I was also pleased by the announcement that the autumn statement is to be abolished--or rather, that the
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