House of Commons Hansard Debates for 16 Mar 1993

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Worcestershire, South (Mr. Spicer), who is not in the House at the moment, attached too little importance to the effect of our entry into and membership of the ERM in breaking the traditional British habit of inflating our way out of difficulties, of preferring high levels of inflation to the tough decisions that are necesary to proper management of the economy. Given that there were high levels of inflation under the last Labour Government and that, by and large, high levels of inflation are associated in the long run with high unemployment, I am perplexed by the Opposition's attitude. The ERM did indeed reduce inflation expectations. At some point we shall have to look again at the whole question of managed exchange rates within the open capital market of the European Communities. However, that is not a matter for this speech, although it will undoubtedly come up at the Committee stage of the European Communities (Amendment) Bill. We should be cautious about the effect of our leaving the ERM on black Wednesday. That event provoked a fall in the value of sterling. The fall appeared to be very welcome in that it made our exports more competitive. However, we rely rather heavily on trade--particularly on imports, which make up one quarter of final demand. The potential danger is inflation of imports and, therefore, the return of inflationary pressures to the economy. That has yet to be seen, partly because United Kingdom manufacturers have not increased their prices. They realise that demand is still rather flat and, as overall inflation expectations are still low, wage settlements have been very modest. However, hon. Members should not believe that we have conquered the dragon of inflation. It is still there, writhing on the floor. A weak pound is not something that any Government want to see. Even if we are not in the ERM, economic policy must take into account the position of the pound vis-a-vis the currencies of our competitors.

Nevertheless, we have witnessed an ability to adjust, to weaken monetary policy. Interest rates have fallen and the fall in the value of sterling itself has weakened monetary policy further. I am very pleased that this has given us an opportunity to tackle the problems of asset deflation. It is an opportunity that we must grasp. But the way in which some of us regard the montary aggregates as already indicating the return of a good degree of buoyancy to the economy should not be underestimated. M0 is pushing at the upper end of its set range and there is quite a hidden impetus, which will be revealed in the months ahead. I know that M4 has been criticised as being rather flat on its back. I suspect that one of the Chancellor's reasons for giving slightly more buoyant figures for M4 is that he is adjusting the full funding rule by allowing the banks' and the building societies' purchases of gilts to be taken into account. If that is the case, we are witnessing an overall loosening of monetary policy. That will be welcome on one condition--that we tighten up on the fiscal side.

On the question of balance in the economy, there is no doubt that, as we have had significantly weakened monetary policy in recent months, we should pay attention to the fiscal side of the equation. The Chancellor has very graciously set forth a long-term strategy to that end. Too seldom do Chancellors set out their intentions with regard to taxation over a number of fiscal years. My right hon. Friend is to be commended on that score. My caveat is that the incidence of tax biting has been delayed to the beginning of 1994-95. In effect, there will be a generally

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neutral effect next year. I will not be critical of the Chancellor's endeavours because he has moved in the right direction, but I put down a marker : given that the medicine has been dangled before us, it would be better that we took it quickly. I make that point to my hon. Friend the Financial Secretary.

Mr. Wolfson : My hon. Friend has given a balanced view, but does not he agree that if action such as he suggests had been taken sooner rather than later, it could have had a dampening effect on recovery? That is the key.

Mr. Taylor : It is a complex argument. I do not wish to prolong my speech, but there are many factors which impinge upon confidence. If it were felt that the Government would have difficulty funding the deficit at any reasonable level of long-term interest rates and that the debt-to-GDP ratio would get out of hand, that would be damaging for confidence, in the widest sense of the word, and might snuff out a revival which, in other circumstances, monetary conditions might already have safeguarded.

The issue is complicated. My point is that the funding of the deficit and the belief that the Government have a credible long-term strategy, including an early move to increasing taxation, would have been on balance a better judgment. Far be it from me to know whether that is likely to be the case. Time will tell. The great point about making speeches in the House is that, although very few listen at the time, plenty of people are prepared in a year's time to check on what one said. So Hansard has my fate in its hands, so to speak. Even the excellent recent survey on inflation by the Bank of England--the report which the Chancellor instructed it to make- -indicated clearly that fiscal policy is important in influencing expectations of future monetary policy and for that reason may affect current long-term interest rates. We cannot disentangle the relationship between fiscal and monetary policy in those circumstances. Those who would like low interest rates at the short end and lower interest at the long end have to face up to the fact that they may achieve that only by a much more aggressive fiscal policy than Conservatives have been accustomed to.

Fiscal policy covers spending and tax raising. I would welcome cuts in spending plans, and I am delighted that the Chief Secretary is studying that closely. I am not sure where I stand on that in the Conservative party ; it is always confusing, but as someone who believes that there is a role for public exenditure in important parts of the economy, I must point out that 56 per cent. of all Government expenditure is represented by education, social service payments and health--areas in which it is difficult to make dramatic cuts in the short term.

With a public sector borrowing requirement of £50 billion, cuts would need to be dramatic. Therefore, I hesitate slightly on taking the view, "It will be all right on the night because we will cut public expenditure." I suspect that we will restrain public expenditure. One way in which we might force ourselves to do that is to take away the GDP deflator from the calculations on spending plans ; in other words, we should remove the concept of increasing public expenditure for the incidence of inflation. That would be a welcome change in the way in which the

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Government address the figures in the Red Book. I commend it to the Treasury team, but it will not save us from addressing the incidence of taxation at some point.

It is misguided of the Labour party to criticise the introduction of VAT on domestic fuels. That is a significant fund raiser. Zero rates have always been an anomaly and would be better tackled in other ways. The Chancellor rightly mentioned that the Secretary of State for Social Services will need to review these matters in subsequent statements because of the impact particularly on the lowest paid and those in receipt of social service benefits. About 24 per cent. of all our goods are zero-rated or are exempt ; that is an imbalanced VAT network. I have already said in the House that I favour the removal of zero rating, possibly with the introduction of a lower rate than the standard rate, which would be consistent with the rules of the European Community. I welcome the two-stage introduction of the standard rate on domestic fuels, with 8 per cent. to begin with, followed by 17.5 per cent.

If all zero-rated items were subject to a standard rate of VAT, the standard rate might be reduced. That might be a simpler way of dealing with the matter and it would yield £5 billion or £6 billion extra to the Exchequer in a full year. I do not want to go further into such matters. I am happy to put it on the record that if we need to raise taxation, I am uncomfortable with the zero rating of VAT. The Chancellor hinted at something that I should like to examine more carefully. He did not imply, because no Treasury Minister would do so, that there would be hypothecated taxes, but in his comments on road fund licences, fuel taxes and road pricing there was a hint of hypothecation. I welcome that because it would give greater accountability to the Treasury. Perhaps it would not give much flexibility, but the Treasury has always been known to be as flexible as it wants. From the point of view of the public, I am happy that we get a better understanding of why taxes are being raised. The Budget contained welcome measures. I should disclose, because it is in the Register of Members' Interests, that I advise Commercial Union and Barclays de Zoete Wedd Investment Management. Therefore, I take particular interest in some of the measures. Perhaps in a strange order, I welcome the measures in regard to Lloyd's names. I am not a name at Lloyd's, but I attempted to raise the subject in the debate on the Finance Act 1991. The Financial Secretary is to be commended for examining the whole system of the reserving of Lloyd's. That will be welcome to an important institution in the City, regardless of the comments of Opposition Members about individual names. As an institution, Lloyd's is important to the stability of the City and to invisible earnings at the time of a balance of payments deficit.

I also welcome the freezing in real terms of the increase in the uniform business rate. That will go down well with businesses in the south-east and elsewhere.

The Chancellor has been clever in making more use of the 20 per cent. band in taxation. I also welcome the fact that we appear to be moving towards using the 20 per cent. rate only as an allowance. That is sensible. It will give greater justification for that rate ultimately to become the standard rate. That does not necessarily mean that I think that taxation should be reduced ; I merely believe that it is

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a better balance of the tax structure. It will benefit the Treasury if allowances are set off at the 20 per cent. rate rather than 25 per cent. So people will benefit from the level of taxation and the Treasury will benefit from the fact that allowances are not as generous.

Many of the Budget's measures should be welcomed. Britain has a considerable problem. Our balance of trade deficit is worrying at this stage of the cycle, given our propensity to import. Our European export markets are going into or are already in recession, at a time when we are most likely to be selling to them. That has an adverse effect on us, because British manufacturers are more likely to believe that they can increase prices in the domestic market rather than in export markets. Again, we shall have to watch that from a domestic inflationary point of view.

Although we have relaxed full funding to a small extent, our PSBR will lead to high long-term interest rates and the Government will have to fund the deficit. That is why I am concerned about the revenue-raising side of the Budget. If the PSBR for a full year is £50 billion, with interest rates on gilts at 8 per cent., the Government will accumulate an additional £4 billion debt and debts are cumulative. The net effect, therefore, of postponing revenue raising for a year means that it starts at a higher level than otherwise would apply. We must keep a close check on that. I hope that the Budget restores confidence in the Government's long-term strategy. I hope that it encourages unemployed people to believe that we are endeavouring to help them, and a large portion of the Budget offers assistance to industry. [ Hon. Members-- : "Where?"] Opposition Members should not shout "Where?" when they know that Governments do not create jobs out of a hat. Governments create jobs by giving other people the opportunity to expand. Unless industry flourishes, there is no long- term hope for those who are unemployed. That is why one of the longest sections of the Budget speech targeted help on industry, which I welcome. I may have said that the Budget was wrong to be neutral, but it is neutral because tax raising is being retargeted on industry. I hope that industry realises that it has been highlighted for particular assistance this year and I hope that the CBI, the Association of British Chambers of Commerce and the Institute of Directors will pay tribute to the Chancellor for listening to some of their requests. It is up to British industry to create the job opportunities to which we aspire and, if my judgment of the effects of monetary policy is right, the economy will probably recover slightly faster than some of the pessimistic forecasts suggest.

I would not have raised our involvement with the European Community if it had not been mentioned by my hon. Friends the Members for Worcestershire, South and for Stafford (Mr. Cash). This is a very serious matter because all our efforts to get our economy going and to emphasise the competitive instincts of British industry and the British economy could be put out of joint if we do not make further progress on the Maastricht treaty. I have a copy of a letter dated 15 March from the Association of British Chambers of Commerce to the Prime Minister, which was released to the press. Its chairman states that it represents 240,000 businesses and that

"those who suggest that we have gone far enough with the Single European Act are making a mistake that British businesses cannot afford Any continuing uncertainty or delay as regards UK ratification can only undermine business

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confidence, which will in turn endanger economic recovery Against this background we urge you to press ahead with the ratification process which has our full support."

The association represents the 240,000 businesses that were targeted today in the Budget. Through their national chairman, they have addressed the problem that will arise if Britain appears to isolate itself within the European Community, appears to downgrade the importance of inward investment and appears to leave other people to determine the rules of the club to which we belong and of the single market, of which we are important members.

I appeal to Opposition Members to join the vast majority in the House, as was shown on Second Reading, who understand the importance of creating jobs and assisting British industry to damn well get on with ratifying the Maastricht treaty as soon as possible.

8.47 pm

Mr. John Gunnell (Morley and Leeds, South) : I understand the comments of the hon. Member for Esher (Mr. Taylor) about the need for a strategy, on which I shall comment myself, although I am not sure that I will agree with him on some aspects.

I agree with the hon. Gentleman about inward investment. I have visited Japan several times seeking inward investment on behalf of a number of companies in the Yorkshire and Humberside region, and I have never met a company that did not see us in the context of the European Community. Our active membership of the Community is undoubtedly important to them.

The working conditions of most Japanese companies are far better than those proposed in the social chapter. I find it hard to believe that companies that have been attracted to Yorkshire would have been put off by the social chapter. One of the unions that negotiated an agreement with Pioneer in Wakefield said that, if it could secure the same agreement for each of the companies with which it is involved, workers in almost every British firm would be a good deal better off. Conservative Members make many false points about the dangers of the social chapter to inward investment. I therefore agree with the hon. Member for Esher about the significance of our membership of the Community.

I found the strategy employed in the Budget, so far as we got a glimpse of it, very threatening. It threatens many low-paid workers. It will increase their taxes now, in April 1994 and in April 1995. I listened to the Chancellor for 112 minutes, waiting for ideas to deal with the scale of our unemployment and with the real fear about the future of our economy. Labour Members are not anxious to see a continual decline in the economy. We are anxious to see recovery and to ensure that measures are being taken to bring about recovery. I saw some ideas which will have some effect, but I did not see those ideas that I believe will get the economy moving forward. I do not see this, I am afraid, as a Budget for jobs, even though it was boosted as such in advance.

I was in some agreement with the hon. Member for Esher on the very curious way in which the Chancellor, in an oblique--sometimes, indeed, in a direct- -fashion, referred to black Wednesday. He did not label it with an adjective, but he was referring to that day. One had the impression that he was very much on the side of those who believed that it was golden Wednesday, because he gave all sorts of illustrations of its benefits to the Government and

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the Government's financial planning. He did not refer, as did the hon. Member for Esher, to the downside of that day.

I remember the way that we moved up to that Wednesday, the statements made in advance and the statements made immediately afterwards when the House met on 24 September, and I contrast them with the way in which the Chancellor today used those events as having enabled him to turn around aspects of the economy. I felt that we were talking about Government by accident, and that is a matter of considerable concern.

One aspect of the Budget is not an accident ; that is the way in which, in terms of its strategy and the need to raise money, the Budget is focused. I believe that it is focused on raising funds from ordinary families in this country, and that can be illustrated very easily.

There is in this Budget a tax reduction in terms of the 20 per cent. band that is in reality a tax increase. None of us would pretend that national insurance contributions are not a form of direct taxation. One of the points made by many hon. Members before the general election was that national insurance contributions were a form of taxation, and they wished then to treat them as such. We are right to treat them as such now.

What benefits do people get from the 20 per cent. band changes? They are described as 50p a week and, by April 1994, £1 a week. However, allowing for the fact that people might have expected allowances in line with inflation, I believe that they will be worth only 84p a week in April 1994 to the average family. The increase in national insurance contributions, on the other hand, will cost the average family £3 a week. That is a staggering difference between what is presented to us as a benefit and what is, in reality, a penalty. There is no doubt that the increase of 1 per cent. is in effect a 1 per cent. tax increase and will have the effect on the average family of an increase of £3 a week.

The hon. Member for Esher said that he was quite happy about the imposition of value added tax on domestic fuel. I think that it is an appalling decision. Interestingly, none of the letters that I received from constituents before the Budget referred to that, although they referred to many other aspects. For instance, there was much lobbying mail on the subject of VAT on newspapers and books, and I am very glad that there is not to be that tax on information. We also had a great deal of propaganda and pleas about VAT on public transport, and I am glad that that is not to be imposed ; it would clearly be nonsense.

Why did we not get a great deal of correspondence on the subject of VAT on domestic fuel and power? It was because people were not looking for it, and they were not looking for it because, as my right hon. and learned Friend the Leader of the Opposition made quite clear, it was a matter on which the Government had been absolutely specific prior to the general election. They said specifically that fuel would not be subject to VAT and that there would not be changes to VAT. That is why we were not lobbied on this issue. This shows that people placed completely unjustified trust in the Government. They believed what the Government said before the election about VAT on domestic fuel, but VAT has been applied ; and the cost to the average family, when the full 17.5 per cent. VAT is applied to domestic fuel, will be over £2 a week.

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Then we have to take into account the mortgage changes. The Chancellor made it clear that we are talking about £10 a month, or £120 a year, which is another £2.31 a week for the average family. We also have to take into account the freezing of the married couple's allowance and the fact that it is not to go up with inflation as has been traditional for much of the past. That amounts to another about £1.80 per family per week.

If we add all these figures together, we find that the average family in this country will be £8, or a bit more, worse off as a result of this Budget.

So who will be paying for the fact that the Chancellor is rightly concerned about the £50 billion of debt? It seems to me that it will be principally ordinary families in this country. Therefore we should be very concerned about these taxes.

I will put a question to the hon. Member for Loughborough (Mr. Dorrell), since he is here, about VAT on fuel. There has been a lot of controversy about standing charges and whether they benefit or disadvantage pensioners. I have sent pensioners in my constituency the erudite letters which the Library has on this, stating that it can be argued that standing charges are no handicap to the worse off, but help them. But people still feel that they should not be paying standing charges. I should like to know whether VAT will have to be paid not only on the cost of the fuel that is used but also on the standing charges. We are entitled to an answer to that question. I have been, and am, involved a lot in Yorkshire Enterprise, which is a regional venture capital company. We work with financial institutions which operate the loan guarantee scheme. I have said in the past that I would like to see changes to that scheme. Some of the changes that are made are to be welcomed, but the job has not been completed ; it has been half done. It is right to extend the small firms loan guarantee scheme over a larger range and to make it possible for the borrowings to be higher than £100,000, and I am glad to see that limit extended to £250,000. I am glad to see the changes with regard to interest rates, making it possible for a smaller margin to exist between the base rate and the rate at which these loans are made.

I am glad that there has been an increase in the guarantee, because we found that institutions do not want to operate the scheme, as their position is so uncertain at the moment. They do not want to take the 30 per cent. risk, so I am glad that it has been reduced to 15 per cent. and that 85 per cent. of the amount is to be underwritten. Will there be takers as a result of the changes? Will a small firms loan guarantee scheme have a better effect?

To carry out investment appraisal properly--whether we are talking about lending a company £100,000 or far more--one must employ the same due diligence to ensure that the management of the company involved are capable of managing the company successfully, that the business plan is sound and that there is a market for its goods and services. In other words, one must ensure that the company is viable and that it is safe to lend it the money. The amount of work involved is not directly proportional to the size of the loan. An enormous amount of due diligence is involved even when dealing with small loans of £100, 000.

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One of the proposals by David McMeekin of the Midland bank, who has taken some responsibility for the Midland enterprise fund which operates in Yorkshire and Humberside, is that, if we want investment appraisal, which enables the small firms loan guarantee scheme to work, to take place, the companies carrying out the investigations should get tax relief on the costs of those investigations. The costs are usually extremely high in relation to the amount of the loan. That change has not been made. One can give a partial welcome to some of these loan guarantee scheme changes in the Budget, but I wish that the job had been done more thoroughly.

It is unusual for the Chancellor's speech to be the occasion for a major announcement on the channel tunnel. Many of us have followed the progress of the tunnel for many years, and have been concerned to ensure that its benefits are national and not confined to London and the south-east. Those of us who have been concerned about northern links to the tunnel expected any announcements about the tunnel to be made in a national context. It should be made clear that any decisions about routeing, stations and termini in London are enormously important for links to the north.

We wish to ensure that there are through passenger and freight trains on the west coast main line and the east coast main line direct to the channel tunnel. The decision announced today clearly means that there has been a change of plan. We are forced to ask what will happen to the King's Cross Railways (No. 2) Bill. We have been promised links to the north. I have received promises from successive Secretaries of State for Transport and from successive Ministers for Public Transport, including the right hon. Member for Enfield, Southgate (Mr. Portillo), who is now the Chief Secretary to the Treasury. The right hon. Gentleman and I appeared on so many platforms together talking about the channel tunnel that he called us part of a travelling circus. In answer to our questions, he always said that there would be links to the north. It is the Government's responsibility to ensure that there are. It is very disturbing to hear about changes to the King's Cross scheme, for which we have planned for a long time, being announced in anything other than the full context.

Investment matters to the north for the regeneration of industry. All the Japanese companies interested in investing in Yorkshire ask questions about our links with the channel tunnel. They may prefer to use the Humber ports, but they still ask about the tunnel. We need to be assured that, in any transport changes announced, curiously, in the Budget, the interests of the north are taken care of. It is important that the announcement is clarified.

We must recognise that the Budget means choosing where the money is coming from because of this country's enormous debt. In my view, the costs have been imposed to an inordinate extent on ordinary families, in the same callous way that the 13er cent. increase in prescription charges was announced last night. There have been mistakes in the Budget, which will cost families in my constituency dear, and which will, in the end, cost the Government dear.

9.4 pm

Mr. Mark Wolfson (Sevenoaks) : I am happy to follow the hon. Member for Morley and Leeds, South (Mr. Gunnel), and I should like to focus on two points on which

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I directly agree with him. The first is his earlier reference to the experience he had had in Japan of finding all those companies and other organisations that were interested in development in Britain, linking us with their expectation of our being full members of the European Community. That was a practical example, for the benefit of the House, of the importance of getting on with Maastricht and continuing to play a full role in Europe.

The second point is on the hon. Gentleman's final remarks about the channel tunnel. I have an interest in the tunnel from the point of view of the south-east, but I have argued from the beginning that it was of key importance that the tunnel and the rail link should bring benefits, not just to London and the south-east but also to the north of England. I agree with the argument advanced by the hon. Member for Morley and Leeds, South that planning on the tunnel, which has been seriously delayed, should continue to take account of the importance of the north of England and the links to the north right through Europe via the tunnel.

The hon. Member referred to the iniquities of the increased charges for national insurance, but if one accepts that national insurance is a fund and that it is currently in deficit it seems to me not to be wrong for the Chancellor to take steps to try to correct that. The Budget speech was long, detailed and highly technical. I pay tribute to the consultation which the Chancellor and his team of Ministers has carried out with hon. Members of his party. That was well done. One of the reasons that the Budget has been well received by our party is that prior consultation. That has not always happened. It is happening more effectively now, and that is beneficial.

The Chancellor had a difficult task, both in personal terms and in dealing with the economic problems of the country in this Budget. The Budget is being well received because it addresses the two key issues of the economy : first, the essential need for growth now ; and, secondly, in the medium term, the need to minimise the Budget deficit. It was those two factors which the Chancellor had to try to keep in balance, and he has done that effectively.

I welcome the focus on industry, just as I welcome the Prime Minister's recent emphasis on the importance of manufacturing. That is not before time. I welcome the measures to help business because there is a positive story to tell on the record of British business which has not always been getting the headlines that it should. I welcome the measures that have been taken on employment, and I say yet again that the level of unemployment is unacceptable to me as it is to many other hon. Members on these Benches. We in no way play down the human and family cost, and the cost to the country, of unemployment, but, as other speakers have said, the argument is about how, in the longer term, one can overcome that problem.

I welcome the measures on infrastructure projects and joint ventures. I will say something later about that and about my views on the imposition of VAT on road fuel duty and on fuel and power. I want to say something more about the background of this Budget and the help it gives to business. The Budget assists recovery by not increasing taxes overall on business in 1993 -94. It makes recovery sustainable by laying out a strategy to reduce Government borrowing over the next three years. It increases revenue without raising income tax

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rates. To have done otherwise would have dampened incentive, and I am relieved that such dampening has not occurred.

The Budget raises revenue and, by increasing taxes on fuel and power, takes the Government two-thirds of the way forward on Britain's Rio commitments on the environment. That is essential because sooner or later we would have had to move on that front. We have been unreasonably criticised for not giving enough priority to environmental issues. If Labour Members claim that we have been wrong to take those measures, what steps would they have taken, bearing in mind their support for the Rio agreement?

The Chancellor has been right to address the problem of excessive borrowing because we could not in the long term allow large borrowings to continue without action being taken. Being something of a Keynesian, I have always accepted that during a recession it is permissible to allow the PSBR to rise. It is, in any event, inevitable because much of the deficit goes to support the unemployed and those in greatest difficulty as a result of the recession. In trying to take a balanced approach, the Chancellor has given advance warning of the revenue increases that are to be made. It is important to keep the money markets satisfied that the Government have a medium and longer-term strategy to bring fiscal rectitude back into the Budget. We have seen the benefits of doing that, and I do not want them to be lost. Equally, in contrast to my hon. Friend the Member for Esher (Mr. Taylor), I believe that it would have been wrong to move on personal income tax at this stage in the recovery. The industrial picture is good. Retail price inflation has been below the EC average since August 1991, putting us in a better competitive position. Interest rates are the lowest in the EC and the lowest in Britain for 15 years. Productivity growth at the end of last year was the fastest for five years. The transformation of industrial relations is history, but it has made a significant difference to what British industrial managers can now achieve. They can concentrate on design and marketing without always having to look over their shoulders, fearing the need to put out a bush fire, as it were, in their factories.

We would like to see more being done in the Budget about employment, but we cannot spend our way into full employment by way of Government expenditure. We must set the framework for business to create new jobs. With the continuing trend of increased technology in large industry, increased employment will come from smaller businesses, not just service businesses but smaller companies springing up to meet the demands of a buoyant economy. The new community action programme is welcome, as is the business start-up scheme and the pilot schemes to encourage employers to engage the long-term unemployed.

This Budget provides a clear strategy. After black Wednesday, and for the weeks until the autumn statement, the Government were continually under fire for having no replacement for their strategy of membership of the ERM. I was not one of those who foresaw the damage that membership of the ERM could do when our economy was unable effectively to compete with the high interest rates of Germany, but I am now wise after the event. I do not believe that we should return to that arrangement in the foreseeable future as it would be highly dangerous.

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British business has felt the benefit of the freedom in which we have been able to operate since we left the ERM. The turning point for me was the focus in the autumn statement on growth rather than on merely keeping down inflation.

I was exremely glad that the Chancellor made clear his priorities after the autumn statement. He is now following through the autumn statement with further measures focusing strongly on help to business, particularly small business. He has also demonstrated that he has a policy to ensure that Government borrowing will not spin out of control. I hope that we shall have lower interest rates as soon as possible, but I understand the difficulties and the necessity of balancing various Government measures on taxation and budget deficit while still paying some attention to the standing of the pound. We should not lightly throw away the benefits that followed the freeing of the restraints of the ERM which had become extremely damaging. My final point concerns the infrastructure projects, in particular the channel tunnel high-speed rail link. I take some satisfaction from the fact that I have argued from the beginning, when very few hon. Members in my party argued that way, that it would be necessary for Government money to be invested in the high-speed rail link. The Chancellor told us that today for the first time. He did not give us details of the route. The fact that the route would be announced shortly was no news for those of us who have been involved in channel tunnel discussions for the past four or five years and who have gone through hell in our constituencies because of that worrying problem. The news today was the Government's clear commitment to put up some of the money in a joint venture. That is right, and I welcome it. 9.17 pm

Mr. Peter L. Pike (Burnley) : I shall make my speech in the first day's debate on the Budget in a slightly different order from the one I had originally intended because I want to question the Minister on one or two issues on which I did not fully understand the Government's position.

I do not necessarily agree that mortgage tax relief needs to be abolished, but I accept that it needs to be addressed and considered. I hope that the Minister can assure us that today's announcement of its reduction to 20 per cent. is not the first step to phasing it out completely.

The Government must be prepared to consider in a positive way whether the present tax relief on mortgages is the best way to use the considerable amount of money involved. I am not arguing that the money should be used to help people who are renting property, but I am not certain that the way in which tax relief is given to people buying property is the most appropriate method as the people who are most in need do not necessarily get the tax relief. We all know that the present MIRAS system was an extension of the option mortgage scheme that was introduced by the 1964-70 Labour Government. I welcome the increase in charitable giving through the payroll system which should be encouraged. The Minister will be aware that there has been overwhelming pressure from both sides of the House in favour of changing the system of charging VAT on charities. Outside the House,

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there is widespread concern over the way that certain moneys are drawn off charities through the VAT system. Among all the announcements that the Chancellor made about VAT, I did not hear anything to address that problem.

Another aspect is important to football supporters. I have a vested interest here as I support Burnley, and have done for many years, and am anxious to learn whether it has won tonight's game ; I should have been at Turf Moor watching the team play. Under a concession, money from the football pools went to the Football Trust to allow ground improvements to be made to meet the Taylor report recommendations on safety. Many clubs that want to make those improvements--Burnley is one of them--are dependent on getting sufficient grant to enable them to do so. We want to know whether those arrangements will be extended so that the Football Trust can receive that money for a further period.

The Budget speech lasted for an hour and 50 minutes. The Chancellor called it neutral, but in my view it was a long-drawn-out tinkering Budget that will achieve little or nothing. With, on the Government's figures, 3 million unemployed, and probably in reality 4 million, it is a scandal for the Government to introduce a neutral Budget. Many people will feel that the Government have failed them. With 14 years in office, the Government have had time to lay the foundations for industrial and economic recovery. I am glad that, at least, it was not called a Budget for jobs. We have had several of those over the past 14 years, but unemployment has remained unacceptably high. In many other Budget debates, I have spoken about the north-south divide, which is a major problem. Tonight, the Government are narrowing that divide, but are narrowing it in the wrong direction. Rather than improving the situation in the north, they are making the situation in the south worse and increasing unemployment there. I visited Aldershot a couple of weeks ago and went around the town centre. I was amazed to see the number of shops that have closed as a result of the recession. A new town centre has been developed, with a new precinct and a second phase in the Wellington centre. Not a single unit has been let ; all are boarded up. Next to it, there is a new shopping arcade, which has been built for a fair while, with only two units let. People do not realise that because the shop fronts have been painted and it looks as though there is a florist, a hairdressers and other shops. Tory economic policy is failing, and that is a sad reflection of it.

It took the Chancellor an hour and 37 minutes to get around to announcing any measures to tackle unemployment. He spoke of 100,000 jobs. He said that he wanted to get 10,000 people into businesses and job-start schemes at a time when we have the highest-ever rate of bankruptcies and people going out of business. We all support the objective, but it only scratches the surface of that major problem. He wants 60,000 to go into the community action programme with a scheme of payment of benefit plus £10 a week. My hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) highlighted the problem for such people, who will have to pay for fares and meals out. Who will be attracted by benefit plus £10 to go into community action? What nonsense that is.

The voluntary sector is being asked to launch the scheme, yet in the deprived areas--the 57 urban programme authorities--urban programme money has been axed and the voluntary sector has been squeezed.

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Difficulties are increasing. In my constituency, not only have we lost £2 million in urban programme money, but we bid for one urban partnership scheme--that is the new scheme for which the Government are asking councils to bid--the Government turned it down, although it would have created 500 jobs. Four of our seven schemes were successful, but one that would have created 500 jobs was turned down, not because it was a bad scheme but because there was a ceiling of £20 million for all the authorities in the country.

The Chancellor highlighted at the outset the type of speech that he intended to make when he said that the Government would never sign the social chapter. The Government's failure to accept the social chapter shows that they believe that we are a second-class nation. They are not prepared to have wage councils or a national minimum wage, and they say that the other 11 countries can have the social chapter but it will never apply to this country. That is an absolute disgrace.

In so many places in this country manufacturing industry is hanging on by its fingertips. There was nothing in the Budget to encourage sufficient investment in training. What a waste of assets, when so many people are not contributing to the economy because they are unemployed. There were no tax incentives for industry to invest more in new equipment and machinery, or in research and development on a bigger scale. Research and development is going away from this country. It is no good simply having Japanese and other investment in this country--although we all welcome it. We want research and development to be carried out in this country, because we want to be at the sharp end, at the forefront of high technology and new industries.

Several tax increases were announced in the Budget. There was a tax on domestic heating and other energy--first 8 per cent. and then 17.5 per cent. I have constituents who cannot afford to run their heating or to put the gas fire on at weekends, because they do not have enough money. The Government fail to recognise how many people suffer from real poverty in Britain after 14 years of Tory rule. It is a sad reflection. Let them go round London--and all our other cities--now and see the people begging on the streets. That is the scandal and disgrace of Britain after 14 years of Tory rule.

The personal tax allowance is being frozen. That is another tax increase. National insurance contributions are to rise by 1 per cent. from April 1994. That is yet another tax increase--and it comes from a Government who were pledged not to increase taxes.

Towards the end of his speech the Chancellor referred to the fast rail link to Heathrow as if it were something new. But it is a regurgitated scheme. Yes, we need it badly--we should have had it years ago. Anyone who travels to Heathrow realises that the Piccadilly line is totally insufficient to cope with the number of people who use the airport. The crossrail link, too, has been regurgitated after 14 years. We are not against it ; it is much needed--but it is long overdue.

As the hon. Member for Sevenoaks (Mr. Wolfson) said, at last the Government have realised that they must invest in the channel tunnel rail link to St. Pancras, and that it cannot be built by the private sector alone. But on the other side of the channel, in Calais, the rail link is nearly open and the new motorways are there. After 14 years of Tory rule we are still not ready for the channel tunnel.

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The Tory Government have created a trade deficit of £17.5 billion this year. The public sector borrowing requirement is £35 billion this year and will be £50 billion next year. As the hon. Member for Esher (Mr. Taylor) said, the Government intend to review spending. We know what spending reviews and "better targeting" mean. They always mean cuts--and it is always the deprived and poorer sections of the community who suffer from the cuts.

We want the Government to say that councils can use their capital receipts in a sensible and phased manner to build council houses. That would get the economy moving in the right direction. It would get construction workers back to work ; people would be making windows, doors and other such things ; people moving house would buy curtains and carpets. That would start things moving in the right direction. The Government's dogma will not allow them to recognise the way in which they could tackle the housing problem and the economy at the same time.

Today's Budget was the last Budget to be presented separate from the announcement of the Government's expenditure plans. The two will be combined later this year. Time after time, the Government have revealed in their expenditure plans the sums from the sale of assets that they will use to supplement their spending. What will the Government do when there are no more assets to sell?

We know that the Government propose to bring forward the sale of the final part of British Telecom and to sell it this year. The Government can also sell sections of National Power and PowerGen. In theory, they can sell Nuclear Electric. However, once those assets have gone, the Government will be in a cleft stick. They will either have to savage their expenditure or raise taxes. The only other route is to get the economy moving in the right direction and so achieve growth. After 14 years of Tory government, I do not believe that we will ever see that.

9.30 pm

Mr. Alan Duncan (Rutland and Melton) : At such a crucial stage in our economic fortunes, the most important judgment that my right hon. Friend the Chancellor and his team had to make in drawing up today's announcement was to assess the macro-economic context in which today's Budget has been set. At the end of several years of recession, my right hon. Friend the Chancellor had to ask himself whether it was right to stimulate demand further or whether, in anticipation of a recovery that may already be under way, it was more prudent to claw back some of the borrowing that he had already undertaken. To appreciate the importance of that judgment, we must appreciate the historic structural problems that have beset the United Kingdom economy since the war. Since 1946, we seem to have failed to escape from the stop-go cycle of economic activity. Whenever it has moved from stop to go, all our economic activity contained a bias towards housing and property rather than towards long-term investment in industry. We have lacked long-term finance in industry and those structural problems have for ever drawn us downwards.

I hope that the House will allow me to flash back in history and refer to the late 1980s. As a new, green and perhaps naive young Member of Parliament, I am still able to admit that the Government are capable of making an occasional mistake. In the time available to me, I want to analyse that mistake.

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At a crucial stage in the economy's cycle, we needed to raise interest rates. However, because that crucial decision was about to be made in the aftermath of the 1987 stock market crash, we did not take the necessary steps to raise interest rates then for fear of the slump that some predicted might follow. Indeed, that coincided with a complete surreptitious change of policy which many people did not realise was taking place : we shadowed the deutschmark and forsook monetary indicators as our guide and discipline in favour of an exchange rate regime.

When it dawned on her that it was happening, the then Prime Minister, now Baroness Thatcher, wanted to increase interest rates. However, she did not do that because the political circumstances then raging in the House made it almost impossible for her to work with her then Chancellor and take the necessary steps.

We are now paying the price for Baroness Thatcher's failure to take that decision. What followed was an enormous expansion of credit. For the benefit of some our critics on the Opposition Benches, I should add that that was not caused by the decision to lower the rate of personal income tax. It occurred because monetary discipline was allowed to slip. The banks wantonly allowed people to borrow something like four times their incomes. People mortgaged up. Businesses borrowed. We built a mountain of debt which individuals and companies alike are still paying off now. We were also consumed by an infectious mood which suggested that the boom would go on for ever and perhaps even that the business cycle had once and for all been abolished. But, of course, it did not.

Something else happened, too. We joined the exchange rate mechnism of the European monetary system in October 1990. In my view, the rate at which we joined did not particularly matter. A one-off adjustment could have amended that. Indeed, I am not pathologically opposed to the exchange rate mechanism so long as it remains an adjustable system. We faced the unfortunate coincidence that Germany was reunited. Instead of showing the fiscal discipline which had dominated European economies in the decades before, Germany dramatically increased its borrowing as a result of that unification and had to adopt a high interest regime within its domestic economic management.

When we later wanted our rate of interest to fall, our links within the exchange rate mechanism kept it high. Something else happened too. We converted an adjustable exchange rate mechanism into a fixed parity system. We believed that if we were courageous we could vest in the pound sterling the qualities, discipline and strength of the deutschmark. But it was ill- judged to believe that we had the economic muscle to sustain such a fixed parity against the deutschmark. Therefore, I fear, we created our fault lines in the exchange rate mechanism and treated it in a way which invariably led to its collapse.

Some claim that the exchange rate mechanism brought down inflation. In many ways it did, but I contend that any regime of ultra high interest rates would have brought down inflation and that the exchange rate mechanism also contained some dramatic qualities which were to the detriment of our economc management and exacerbated our economic ills at the time. The ERM is not an independent discipline, as people hoped that it would be. It repoliticised, and we made it do so even more, every

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movement in the exchange rate and put the focus of attention on the Chancellor of the Exchequer. An independent discipline would have removed such attention if it had been working properly.

Our short experience of the fixed parity system, with the divergent economies which were evident at the time, showed how domestic economic management can become a perverted exercise in regional policy. It showed how economic and political control is sacrificed when there is a single currency. As you may have rumbled by now, Mr. Deputy Speaker, I am against a single currency. Indeed, I believe that the imposition, although not necessarily the evolution, of a single currency is the ultimate socialist measure.

So where are we now? I share the view of my hon. Friend the Member for Esher (Mr. Taylor), who has left the Chamber for a moment, that we are emerging from the recession at long last. Indeed, in the same way as we thought that the boom would last for ever, we are perhaps too prone to the feeling that the recession might last for ever, too.

The challenge which my right hon. Friend the Chancellor addressed in today's Budget is not to repeat yesterday's errors. Instead he has taken a long-term view, as I would have wished him to do. If the cycle has not been abolished, as indeed it has not, the recovery will come inevitably, but it is as well to nurture it in the best interests of everyone in Britain.

I judge the PSBR to be dangerously high. The risks that we face in keeping it that high over several years are that we shall go straight back to the cycle of stop and go and go and stop. What we do not want is the creation of artificial demand, leading to an artificial recovery. If we were tempted to adopt such a course, we would merely suck in imports, creating illusory jobs that would soon disappear. We would return to the stop-go cycle : whenever we stopped again, the recession would become even worse and we would build an even larger deficit on our balance of trade.

The overriding guidance offered by today's Budget is that fiscal rectitude is of the utmost importance. If we borrowed excessively over a number of years, we would succeed only in increasing the interest rate ; that, I think, would be the most disastrous possible event in regard to recovery. If we are to create long-term jobs rather than jobs built on yet another burden of Government debt, we must take long-term advantage of low inflation nurtured by the present Government and of the competitive exchange rate that now allows us to export. As well as reducing the public sector borrowing requirement, we must reduce expectations. Promises of excessive growth will not be met ; they will simply provide an artificial path leading to the return of economic collapse.

At dawn today, I was in favour of reducing the PSBR--immediately, even, and by billions of pounds. My right hon. Friend the Chancellor, however, has before him many facts and figures that I do not possess. I note that my right hon. Friend has decided to allow the PSBR to remain more or less neutral this year. He has the figures and I accept what he has done. He also announced that, in 1994-95, the PSBR will be reduced by £6.5 billion and that it will be reduced by a further £10.5 billion in 1995 -96. We should bear it in mind that, by then, the Treasury will be enjoying improved revenues from the tax take. Furthermore, my right hon. Friend has committed himself to putting the PSBR back into balance in the medium

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term. I believe that we should applaud that schedule for restoring fiscal rectitude : my right hon. Friend has made the responsible decision that we need.

I am delighted that my right hon. Friend has clarified the workings of petroleum revenue tax. Contrary to the opinion of many Opposition Members, the money that we have gained from the remarkable enterprise displayed by those who found oil in the North sea has not been squandered. If Opposition Members wish to say that spending on schools, hospitals and the needy is squandering our oil revenues, let them say it as loudly as they wish ; the fact is, however, that the use of those revenues, and the stewardship of the economy, has been thoroughly responsible. The regime announced by my right hon. Friend the Chancellor will ensure that further investment takes place in the North sea and that we continue to experience flows of oil-- and, indeed, tax--to the benefit of the Exchequer.

I am pleased that my right hon. Friend has improved the conditions relating to export credit guarantees, which he improved once before in the autumn statement. I am also pleased that he has tightened the little loopholes in the business expansion scheme, which enabled it to be used to provide loans ; that is long overdue.

The hon. Member for Burnley (Mr. Pike) criticised my right hon. Friend for doing nothing about research and development. The reforms announced by my right hon. Friend in relation to advance corporation tax, however, are crucial to ensuring that large companies choose the United Kingdom for their headquarters and opt to carry out research and development here. The hon. Gentleman cannot claim that my right hon. Friend has done nothing for research and development. I am pleased that my right hon. Friend the Chancellor has said that companies should no longer purchase other companies in order to cash in on their recorded capital loss. That announcement marks the long-overdue closure of a loophole. For those business men at present eligible to pay VAT, my right hon. Friend has raised the threshold to £37,600, which will be of particular advantage to small businesses up and down the land. It will remove the necessity for such businesses to have to fill in a quarterly VAT form.

One Opposition Member has today criticised my right hon. Friend the Chancellor for alleviating some of the capital gains tax provisions for those who want to sell a company. What could be more beneficial to the economy now than for someone who has been successful in one enterprise to be able to dispose of that on a fair basis of his taxable obligations, start again in another company and make a success out of that? How on earth can anyone see fit to denigrate that sensible measure?

I was also particularly pleased that my right hon. Friend the Chancellor announced that those who conduct a business in the purchase and sale of bloodstock may now register for VAT. It is a tribute to the energy of many hon. Members, notably my hon. Friends the Members for Cambridgeshire, South -East (Mr. Paice) and for Bury St. Edmunds (Mr. Spring), and to my right hon. Friend the Paymaster General, that such a sensible agreement has now been reached to alter the tax regime for that industry, which would otherwise be facing blight.

I am sure that everyone in the House would also want to pay tribute to the late Judith Chaplin, who quietly but diligently worked behind the scenes with great energy to ensure that the issue was properly understood in the

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