House of Commons Hansard Debates for 17 Mar 1993

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I have absolute confidence in the Chancellor of the Exchequer. [ Hon. Members :-- "Why?"] I will tell Opposition Members why. Yesterday's Budget was the 15th that I have listened to on these Benches. The Budget which I cheered most loudly was the one delivered in 1981 by Lord Howe.

Mr. Peter Mandelson (Hartlepool) : It did not get the hon. Gentleman a job though, did it?

Mr. Brown : No, it did not get me a job, but it won the 1983 general election. It sowed the seeds for winning the 1987 general election. The hon. Member for Hartlepool (Mr. Mandelson) seems more interested in jobs here. I am interested in jobs out there in the constituencies. I am more interested in jobs in Brigg and Cleethorpes than the hon. Gentleman is interested in jobs.

The Budget in 1981 sowed the seeds for our election victory in 1983. It sowed the seeds for the whole recovery of the 1980s. I cheered that Budget to the echo. It was received with total consternation by Opposition Members, and not a little consternation by Conservative Members. Yesterday, my cheers for the Budget were second only to my cheers for the Budget in 1981.

This is only the second time that I have sought to catch the eye of the Chair in a Budget debate. The last time was in 1981. What moved me to speak in that debate was what moved me to speak in the debate today. The devastating state of the economy in the late 1970s led the then Chancellor of the Exchequer to take some brave and bold decisions in 1981. He had to balance the need to restructure the British economy and take it out of recession with the need to deal with the burgeoning PSBR which had defeated Labour Governments throughout the 1970s.

Similarly, yesterday, the Chancellor, faced with the world recession and its consequences for Britain as we come out of that recession into recovery, had to deal with the problems that recessions create for the PSBR. I endorse the comments of my right hon. Friend the Member for Westmorland and Lonsdale (Mr. Jopling). The hon. Member for Hartlepool might be interested to know that the present Chancellor of the Exchequer is the first since I have been a member of the Parliament who has been kind enough to seek my views on what should be in the Budget. So I am making slow progress. My right hon. Friend asked me at lunch earlier this year at No. 11 Downing Street what I thought should be in the Budget. My hon. Friend the Member for Richmond, Yorks (Mr. Hague) was present, and will testify to this. The only thing that I asked my right hon. Friend to do was to tax, tax hard, tax heavily and tax as soon as possible. That is not something that I like saying, but it has to be done, for the reasons that my right hon. Friend the Member for Westmorland and Lonsdale gave.

My only slight criticism of yesterday's Budget was that the medicine which was poured out should have been swallowed by the country today rather than next year or the year after. However, I fully appreciate that the Chancellor of the Exchequer has to make a judgment and balance the need to ensure that the fragile recovery is not jeopardised with the need to make sure that we deal with the PSBR.

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For precisely the reasons that my right hon. Friend the Member for Westmorland and Lonsdale said were in the Red Book, if one looked closely, and in the Budget package which we received from the Vote Office, there will be consequences if we delay dealing with the PSBR now in respect of the additional moneys which my right hon. Friend the Chief Secretary will have to find to service that PSBR. It is essential to deal with it.

My right hon. Friend the Chief Secretary was involved in the public expenditure round last autumn. Many hon. Members on both sides of the House cheered that public expenditure statement to the echo. I was more hesitant with my cheers then, since I felt that the public expenditure settlement was reasonably generous. I knew that there would be consequences, and we heard them in the Budget yesterday. I give my right hon. Friends the Chief Secretary and the Chancellor of the Exchequer every encouragement to take whatever difficult decisions have to be taken, even if they impact on the various spending hobby horses which every hon. Member in the House has. I have my own. I fully acknowledge that I may have to make sacrifices. One thing is clear. I support the Government's economic policies, Mr. Deputy Speaker, because if you come to Brigg and Cleethorpes, you will see the recovery taking place. Even Opposition Members and the hon. Member for Hartlepool might make a journey to my constituency. They will see for themselves that today unemployment in my constituency is below the national average, whereas it touched just over 20 per cent. in the 1980s, due to the decline in the steel and fishing industries. It is an industrial constituency and unemployment is now below the level at the 1987 general election.

Mr. Mandelson : If, as the hon. Gentleman said, recovery has come to his constituency, can he answer two questions? First, why has unemployment risen by 2,000 in his constituency during the past two years? Secondly, if recovery has occurred, would he tell us the secret of his constituency's success, so that we can share it?

Mr. Brown : Yes, I would be happy to do so. First, I suggest that the hon. Gentleman goes to the Library and looks at the figures for my constituency before he quotes statistics. Two years ago, in January 1991, unemployment was 3,932, and in January 1993 it was 5, 267. I do not know whether, if one subtracts one from the other, the answer is 2,000.

Mr. Mandelson : Will the hon. Gentleman give way?

Mr. Brown : No. I now understand why the Labour party has such difficulty with figures. They cannot even get them right when they make cheap political jibes about other people's constituencies. If the hon. Member for Hartlepool cannot be bothered to go and look for himself, I can tell him that there were massive redundancies in the steel industry in the early 1980s. Thanks to the Conservative Government's infrastructure policies, my constituency was made a development area, whereas previously it was an assisted area. In the early 1980s, thanks to my noble Friend Lord Joseph, we secured two enterprise zones for my constituency. If the hon. Member for Hartlepool took a

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journey along the River Humber today, he would first see SCM Chemicals, a Hanson Trust company, which employs about 700 people. If he had accompanied me to my constituency last Friday, he would have had the opportunity to go to Hydro Fertilisers, which is a large chemical factory-- [Laughter.] It is no laughing matter. That large company is based in my constituency and employs about 1,000 people. Last Friday, I attended the opening of its new nitric acid plant, which involved a £5 million investment.

If the hon. Member for Hartlepool had accompanied me to my constituency two weeks ago, he would have been able to enjoy a visit by the President of the Board of Trade, who performed the topping-out ceremony at the-- [Laughter.] The hon. Member for Hartlepool seems to think that this is a laughing matter.

Mr. Mandelson : It is hilarious.

Mr. Brown : He says that it is hilarious. My right hon. Friend the President of the Board of Trade performed the topping-out ceremony at Kimberly-Clark's Kleenex factory, which will create 700 jobs at the end of the year and 2,700 jobs by the end of next year.

Mr. Portillo : I wonder whether my hon. Friend listened to the Opposition going on earlier about unemployment and manufacturing industry, and whether he can account for the fact that, when he mentioned jobs, manufacturing industry and companies by their names, Opposition Members were convulsed with hilarity.

Mr. Mandelson : It's the way he tells 'em.

Mr. Brown : I cannot account for the reaction of Opposition Members when confronted with the reality of the recovery. I cannot understand Opposition Members' hilarity when I mentioned the employment and expansion policies of companies along the Humber estuary, but I shall ensure that my constituents are made aware of their attitude to serious evidence.

We shall leave the Kimberly-Clark factory, where the President of the Board of Trade performed the topping-out ceremony, and move on to Associated British Ports, which runs a large dock in my constituency--the port of Immingham--where jobs are increasing monthly. Then, we arrive at the power stations. The construction industry has been busy, and fabrication yards in south Humberside full, as National Power and PowerGen's power stations near completion. The shadow Secretary of State for the Environment, along with other Opposition Members, made much of dealing with the Rio summit and of how the Labour party would implement its provisions. He attacked the Government for applying value added tax to energy bills. The two power stations in my constituency will be able to generate electricity while emitting no sulphur dioxide and virtually no carbon dioxide. My constituency is at the forefront of ensuring that we produce energy in a way that does not result in carbon dioxide emissions.

I have no difficulty in accepting the provisions in the Budget. They will make an important contribution to the recovery and, more importantly, to dealing with the public sector borrowing requirement.

If Opposition Members would like to visit my constituency, I should be only too happy to escort them and to show them the industrial development there. The infrastructure laid does in the 1980s, as a result of

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Government investment in roads and the motorway system around south Humberside, is one of the major reasons why we have been able to attract inward investment from abroad. Brigg and Cleethorpes has one of the highest levels of inward investment as a result of policies pursued by the Government and those adopted in the 1980s. Today we are benefiting from the industrial policies of the Government in the early 1980s.

Mr. George Howarth (Knowsley, North) : Will the hon. Gentleman give way?

Mr. Brown : No. I have already given way once, and I know--

Mr. Howarth : On a point of order, Mr. Deputy Speaker. The hon. Member for Brigg and Cleethorpes (Mr. Brown) mentioned Associated British Ports. Would it be appropriate for him to declare his interest, as I understand that he is registered as its parliamentary adviser?

Mr. Deputy Speaker (Mr. Geoffrey Lofthouse) : The hon. Member for Knowsley, North (Mr. Howarth) is fully aware of the procedures on declaring an interest in the House, and I have no doubt that the hon. Member for Brigg and Cleethorpes (Mr. Brown) is also aware of them.

Mr. Brown : Yes, Mr. Deputy Speaker, I am proud and happy to declare that I am the parliamentary adviser to ABP, which is one of the largest companies in my constituency and which runs the successful docks at Immingham. I am certainly not ashamed to do so, and I am sorry that I did not declare that I have the great privilege to be its adviser, as ABP employs many of my constituents in Immingham and I wish the company well. I hope that it will go from strength to strength, make more and more profits and generate more and more investment in the Immingham docks, so that yet more people will be employed there. I have no hesitation in saying with pride that I wish that company well.

There are many industrial manufacturing companies in my constituency. Thanks to the successful application of Government policies in the 1980s, there is solid recovery in the British economy. I invite any hon. Member to come to my constituency. I shall be happy to take the hon. Member for Knowsley, North (Mr. Howarth) around Immingham docks. He might then learn why we have made a success of the east coast ports and why the west coast ports, including Liverpool, failed so dismally in the 1980s.

I fully endorse the Budget, and I wish my right hon. Friends the Chancellor and the Chief Secretary well in their endeavours. I hope that they both continue in their duties at the Treasury for a very long time to come.

5.49 pm

Mr. Clive Soley (Hammersmith) : The hon. Member for Brigg and Cleethorpes (Mr. Brown) went to the lunch at No. 11 and called on the Chancellor to tax and tax again. The question that the Opposition want him to answer is why he did not say the same to his constituents at the general election. That was the big lie told by the Conservative party. This Budget, perhaps more than any other, will go down in history as the one that revealed that that party won the election on a lie that was bound to be found out, because it knew that the promises it gave during that campaign were untrue.

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Mr. Michael Brown : My constituents know what I stand for because I have always been described by my political opponents as the arch Thatcherite of south Humberside. Since 1979 I have always made it clear to my constituents that should there be any suggestion of the Government being faced with a deficit in public finances, I would call for taxation to be increased.

Mr. Soley : That is not the answer to my question. The hon. Gentleman went along to lunch with the Chancellor and asked him to tax and tax again, so why did he not say that at the general election? The hon. Gentleman must have known then, in common with all his hon. Friends, that the country was in dire economic straits. We all knew that the public sector borrowing requirement would go up, almost regardless of what the Government did. If the hon. Gentleman is saying that he did not know that, he must be economically blind, because it was known by every economic commentator.

I accept that the Conservative party won the propaganda war of the election, but anyone who knew anything about the true state of the British economy knew that its promises were untrue. The hon. Member for Brigg and Cleethorpes may talk about the employment opportunities in his constituency, but we remember the Tory poster during the 1979 election campaign, when the hon. Gentleman entered the House, that sported the slogan "Labour isn't working". The level of unemployment under the Conservative Government, however, has been consistently higher than it ever was under the previous Labour Government. It is worth noting that the last time that inflation was as low as it is now was under a Labour Government, when the rate of growth was 2.2 per cent. and unemployment stood at a third of a million. That achievement is a measure of the Government's failure.

The failure of the 1981 Budget, which compounded previous failures, was that it destroyed the industrial base of Britain. In the early 1980s we lost close on one third of our manufacturing capacity. The policies of Lady Thatcher may have been wrong, they may have failed and done enormous damage, but at least they were espoused openly and honestly. At the previous general election the Conservative party acted dishonestly and it knew it. When Lady Thatcher destroyed the manufacturing base of British industry it was inevitable that Britain would have a weak economy. One cannot have a nation state with a weak industrial base and a strong financial structure. Britain dominated the world for so long because of our strong industrial base. Likewise, Germany and Japan have done well in the current financial world because of the strength of their industrial base. If that is taken away, one's financial strength is also lost. That is why the pound was devalued--any country would devalue in such circumstances. Throughout the 1980s, the Government chipped away at our industrial base in such a way as to leave us terribly exposed. My hon. Friend the Member for Dunfermline, East (Mr. Brown) won an earlier exchange about Europe with his interpretation of the statistics. The findings behind another statistic, which was issued by the European Community about three weeks ago, should be made crystal clear to everyone. It reveals that, for the first time, the standard of living in Britain is below the average for EC countries. Anyone above the age of 40 will remember that this country was always in the top four in terms of EC

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standards of living. Now we are below the average ; we are one of the poorer nations. The Government, however, try to get away with the lie that, somehow, our situation is comparable with that in other European countries because they, too, are faced with high unemployment or investment problems.

The truth of the matter is that so much damage was done during the 1980s that the Government are now trying to put together the pieces. That is the only thing that one can say in their favour. The right hon. Member for Westmorland and Lonsdale (Mr. Jopling) was right to say that things will get worse. The PSBR will continue to grow until the Government announce the true public expenditure cuts that they need to make, and which the hon. Member for Bridlington (Mr. Townend) would love them to make, to unemployment benefits. The only way in which that can be done, however, is by reducing unemployment, unless one is set on putting the unemployed on the breadline. The Opposition have always argued that one way to get the PSBR under control is not to have a high level of unemployment.

Recently, at Prime Minister's Question Time, the right hon. Gentleman reversed the policy of Lady Thatcher and told me that he sought to achieve full employment. I followed that reply with a written question and, in answer, the right hon. Gentleman defined full employment as high employment with a low level of inflation. To achieve that, however, one's aim must be full employment, but the Government do not accept that. As long as they accept a high level of unemployment, they will, by definition, accept a high level of public expenditure. That will cause them problems because they will either have to make cuts in other expenditure or conceal the dole queues in other ways.

The issue of housing finance has troubled me for a number of years. The Government have addressed it, to a limited extent, in the Budget with their changes to the mortgage income tax relief. For many years I have argued that housing finance has not only aggravated our housing problems, but caused major problems for the British economy. Our housing crisis need not have arisen. The cuts that the Conservative party made to the provision of council housing were supposed to be designed to allow other houses to be made available for the private rented sector. That did not happen. The private sector represented 14 per cent. of the rented market when the Conservative party inherited it from the Labour Government, but it has now fallen to 7 per cent. The private rented sector is collapsing even though the Government have claimed that they want to enhance it. It is collapsing, and will continue to do so, because of mortgage income tax relief, which has always been a subsidy designed to make buying and selling houses attractive and renting housing, either as a landlord or a tenant, unattractive.

The collapse of the private rented sector has had important consequences and, to be fair, the Government now seem to recognise that, because the Chancellor is now phasing out mortgage income tax relief. That was the clear message from his decision, last year, to get rid of it for top rate taxpayers, as it was from the Government's refusal to upgrade that relief from £30,000 and their decision, yesterday, to reduce it from 25 per cent. to 20 per cent. It is clear that they are phasing out mortgage income tax relief. That is the right thing to do, but I wish that the Government would admit it. The President of the Board of

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Trade admitted it when he was on the Back Benches and said some six years ago--I have a copy of his speech somewhere- -that that relief should be abolished except for first-time buyers. He also said that, in any event, it should be abolished after the first 10 years. I happen to know that a number of people on the Government Front Bench share that view.

When the late Lord Ridley was Secretary of State for the Environment I said that it would be possible to revive the rented sector if all the parties agreed to phase out mortgage income tax relief. At that stage, however, the Government did not want to bite on the bullet, mainly because Lady Thatcher supported the subsidy. It is a common mistake to believe that Lady Thatcher was against subsidies ; she was a strong supporter of them for private sector education, private health or house purchase. She would not allow it to be cut. If the late Lord Ridley had had his way, he would also have phased it out. We should have had all-party agreement to phase it out. But the big mistake that the Government are now making is to phase it out without putting anything in its place, which is equally stupid. A subsidy is necessary to help people to buy houses. The reason why the earlier rescue package failed disasterously was that the Government refused to change the subsidy system. Just over a year ago--I think that it was 18 December 1991--the Government said, in response to fears that they had about the coming general election, that they would introduce a mortgage rescue scheme to rescue 50,000 families. I checked relatively recently and found that the number of families who have been rescued under that scheme is about 140, compared with the 50,000 promised. The reason for the failure is that the Government did not place money in the system to protect people with genuine difficulties over paying their mortgage.

Mortgage income tax relief is a problem and I would support the Government in saying that it should go--the Government should say that it needs to go urgently. Mortgage income tax relief has added about two percentage points to the inflation rate. Every time the Chancellor or a Government Member appears on television to talk about the inflation rate they use the phrase, "excluding mortgage income tax relief or house prices". What they mean and what Lord Lawson said some time ago is that mortgage income tax relief adds about two percentage points to the inflation rate.

The increase in the inflation rate is serious enough in a time of housing boom, but it becomes more serious when added to the other factors of housing finance. Those factors include the equity release that came in the artificial boom years of the mid-1980s, which were thought to be the Thatcher miracle years. At that time about £20 billion a year was released from housing equity as people borrowed money on the value of their houses. However, that process fuelled the import problem as they spent that money on imported goods as we had destroyed our manufacturing base. In doing so, we fuelled the boom. Lord Lawson's big mistake in his Budget was to believe that that boom was based on the real wealth of Britain, rather than artificially engendered manufacturing wealth.

Much of that equity relief came from homes that had been bought under the right-to-buy policy. It is not well known, but the total amount brought into the Exchequer under that policy was £25 billion--equivalent to all the other privatisations put together. If even a significant part

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of that had been channelled into housing investment, this country would have had not only better housing stock, but a more effective construction industry which was not on the rocks as it is today. Such investment would have produced the other manufacturing advantages that flow from house repairs, maintenance and new-build. It would have helped the furniture and window industries and all those sectors that constitute a large part of Britain's manufacturing base, which is linked to the construction industry and is so important to the underlying base of the economy.

In other countries where there is a healthy rented sector people do not save by buying houses and waiting for house prices to rise so that they get rich. That has not happened here in the past few years, but has normally happened in Britain. In those other countries people save money in banks and investment societies that invest in industry. People in this country have historically relied on house price inflation to make them wealthy. People in our income group--I am referring to those who rely solely on a Member of Parliament's salary, which may not apply to many Conservative Members--rely on getting rich and securing an investment for the future by buying a house that will increase in value over the years. That does not constitute investment in industry or manufacturing--it is the sort of investment that can be released and developed in other ways.

Mortgage income tax relief is also important in relation to the mobility of labour. One problem of the mobility of labour in Britain is the lack of an effective rented sector. Mortgage income tax relief restricts the rented sector so that it is not easy for people to move around. A Welsh miner in the Welsh valleys who loses his job because the Government close a mine can sell his two-bedroomed house for about £10,000, move down the road about 100 miles to Reading--not a big move--where there is some available work and buy a similar house for £100,000. The Government will not achieve mobility of labour in this country until they do something about housing finance. I regret that the Labour party did not make as much of the housing issue as we should have done in the period leading up to the general election. If we had concentrated on the subject of housing finance we could have won the arguments, not merely on housing, but on finance and the British economy. At that time, I had developed policies designed to reform housing finance and create a level playing field for the rented sector and the ownership sector. Banks and building societies were queuing up to talk to me about how to do that. I believed that a key issue was the need for a housing investment bank. Initially, I suggested that the Government should set up a housing investment bank into which money released from capital receipts could be invested. The sum involved would then have been about £6 billion or £7 billion, which would have provided a good package on which local authorities could draw over a period. It would also have attracted private sector money to create expansion in the rented sector.

Initially, I thought that the Government would have to set up that bank, but one major building society and two or three banks came to me and said, "Don't bother--we'll do it for you." They said that if the capital receipts were invested in the bank and they were given a guarantee on the risk factor of about 1 per cent., they would also invest in it. The construction industry was also interested in investing money in the bank as it could see the advantages

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to be gained for itself. It would have been a long-term investment bank that would have attracted funds from people wanting ot make a long-term investment as they do with pension funds.

There was a possibility of constructing the sort of bank that exists in other countries in Europe, some states of the United States and elsewhere. It would have attracted extra private money to invest in housing. Such investment would be good, not only for the housing stock, but for the construction industry. Such a bank provided an opportunity that we have lost. The Labour party should have made a strong case for it. If the Government want to steal a march on us, they should say to the building societies and banks that, although the Labour party did not give them the chance to take advantage of such a policy, they could do so under the Conservatives. At least that would take some of the homeless kids off the streets--a phenomenon that we have not seen in this country since the 1914 period--and would take families out of bed-and-breakfast accommodation.

Such a policy would also allow the Government to do something that they want to do : move towards market rents. There have been arguments about market rents, against which I have no argument as long as they are affordable. It is their affordability that matters. Market rents are made affordable by having a level playing field for owner occupation and the rented sector within the housing finance structure. If that does not exist, it inevitably follows from the economics of the policy that the market rents will be unaffordable. That is precisely what is happening. That is why housing associations are experiencing so much difficulty and the private sector will not invest.

Before the election I said what we should have done. I now repeat that and say that, in the Budget, the Government should have given private landlords tax breaks. They should have done so only on the basis of an exchange for registration so that landlords would have to be registered in order to receive that subsidy. The registration would ensure that they delivered a proper standard of housing and did not harass tenants or provide bad service. The private rented sector has always produced the worst abuses in the rented sector generally. I was quite happy to say to landlords wishing to enter the system that, in exchange for the subsidy, they should give guarantees about management standards. In that way, we could revive the private rented sector, which would benefit the economy as a whole.

Mr. William Ross : Many of us who are listening with great interest to what the hon. Gentleman is saying know that one of the great costs involved in building a house is the price of the land on which the house stands. How would the Labour party and the hon. Gentleman have dealt with that issue in terms of planning law?

Mr. Soley : I could refer the hon. Gentleman to a document that I produced on that subject--I also spoke on planning matters--and while the land issue is important, it is not as crucial as it is made out to be. Even so, I accept that we need a social use class order for planning, which would help matters considerably.

A much wider argument involves the role of local government. We needed to allow local government to

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designate areas for social housing. I will not go far down that road, although it is not a million miles from the Budget in that if, for example, we had had a Greater London authority and said that we wanted a certain amount of docklands land used for affordable housing, for rent or for sale, we would not have the housing problem that now exists in London. The same could have applied in other areas. That is the way to use the planning system to deal with planning provision generally.

There are many areas in which the Government could have intervened by way of the Budget to reform the housing finance system in a way that would not only help people get homes, but would help the British economy out of its structural problems.

Apart from Belgium, we are the only country with anything resembling mortgage income tax relief. It is a straight subsidy of about £5 billion which does not go to those who most need it. It does not save people from being repossessed, and when they are repossessed they go into bed-and-breakfast accommodation and everybody paying the council tax contributes to that accommodation for them. It is a ludicrous system, which is why about a year and a half ago I put to the Government a mortgage rescue scheme directed at preventing people from going into bed-and- breakfast accommodation by keeping them in their own homes.

I could speak at length on that subject. I leave it by reminding the House that throughout the 1980s the Conservatives produced a disaster in housing policy to the extent that, for the first time in 70 years, we have homeless teenage British children begging on British streets. That has come about in part, though not wholly, through a failure to address the housing finance system. The present system in Britain not only distorts housing but distorts the economy, and unless we address it more effectively we shall continue to fail in housing policy and in dealing with some of our wider economic problems.

6.11 pm

Mr. John Townend (Bridlington) : Before dealing with the Budget, I must challenge some of the remarks of the hon. Member for Hammersmith (Mr. Soley) about the myth that is being fostered that the economic policies of Lady Thatcher were a disaster in the 1980s. For the first two Parliaments of her rule, we had the most successful economic policy Britain had witnessed this century.

As the Chief Secretary said, we saw the creation of 3 million jobs and an explosion of enterprise and initiative. We reformed the industrial climate- -the trade unions--we reformed the tax system, and we created an enterprise society, all based on two pillars of economic policy--fiscal rectitude, moving progressively to a balanced budget, and bringing inflation down by controlling the money supply with a floating exchange rate.

The tears started to fall when we abandoned those two policies. We started giving in to the demands of people who wanted us to spend more on this and that, and the budget deficit began to rise. Lord Lawson abandoned his monetary policy--he caught the European bug ; he tried to shadow the deutschmark and began dropping, when he should have been increasing, interest rates--and the economy overheated. That was the cause of our problems today, so I am delighted that the Government have now accepted that they should go back to the earlier principles. We have left

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the ERM and have a floating exchange rate, we are controlling inflation by our monetary policy and, hopefully, this year's Budget is the beginning of the control and reduction of the budget deficit. I strongly support the broad thrust of the Budget. I was looking for three things from it. First, I wanted a Budget for recovery ; secondly, I wanted a Budget that sent a message to the markets that the British Government really were serious about dealing with the problem of the deficit ; and, thirdly, I wanted a Budget that would be welcome on these Benches and would form the basis for a fifth election victory. The Chancellor has succeeded on all three counts. We wanted a broadly neutral Budget with no massive tax increases in 1993-94, which could have snuffed out the fragile recovery which is taking place. We have a package of help for industry, small business and the long-term unemployed. I have been interested in small business throughout my political career. Indeed, I started out as a small business man, so I am particularly pleased with the measures to help small businesses.

The reduction in the cost of the loan guarantee scheme will be helpful. At a time of recession, the speeding up of the repayment of VAT on bad debts is long overdue, and I am delighted with the reform of the VAT penalty regime. It was unacceptable previously that relatively small errors--even clerical errors--that could be made by any small business man should result in heavy penalties.

Certainly my hon. Friends will be delighted that there is to be no real increase in business rates this year. There will be 10,000 more places on the business start-up scheme, which is good news because, as we appreciate, jobs in the future will come from small businesses. The new manufacturing factories will create wealth, but with their robots and automation they will not create many jobs.

Further moves towards deregulation are wanted by virtually everybody. Help for industry, particularly exporting industries, is vital and it is good to see export credit cover increased and the cost decreased. The racing industry was liable to be driven to Ireland, but it, too, has been helped. We have also dealt with the problem of surplus advance corporation tax.

I am pleased that the Government have appreciated the problems of the City of London. I have been worried about the City. We felt that, with the single market, we might not do as well as Germany in machine tools and other manufactured products. But in banking, insurance and financial services, such as dealing in stocks and so on, we thought that we would sweep Europe. Unfortunately, we have suffered some disappointments in that respect.

The management of our banks has not been as good as it might have been, to say the least. Their capital has been undermined with large bad debt write- offs. The insurance industry has been badly hit. In Lloyd's there has been incompetence and, in some cases, dishonesty, and now we have the problem of TAURUS. The City is struggling. I am pleased--I say this unashamedly, being a member of Lloyd's--that the Chancellor has grasped the nettle and is helping insurance, Lloyd's and the industry as a whole to have a level playing field, with a tax allowance for reserves to deal with future claims. That will be helpful to the City. It is vital that the insurance industry survives and prospers.

All those many changes, which improve the lot of business, show that we have a listening Government. The Budget contains many measures, some of which may not seem important individually, but put together they represent a significant and helpful package.

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Even so, I have some reservations, the first being in respect of excise duty. My family has been in the wine and spirits trade for generations. I am delighted that my business is in the north of England, although I am not affected personally. We are faced with the single market. The degree of increased imports by private people, duty- free, of beers, wines and spirits is extremely worrying. I was delighted that the Chancellor decided not to increase the duty on Scotch whisky. He is aware of the problem. The brewers estimate that 10 per cent. of packaged beer consumed here is coming in duty-free. Wines and spirits are also pouring in. The Treasury estimates that it will lose £250 million in duty this year. That means a loss of business to the British industry of getting on for £1 billion. We are exporting jobs in retailing, wholesaling, brewing and packaging. It is estimated that one in six off- licences will close, with the loss of thousands of jobs.

The Chancellor said in his Budget speech :

"But there is a natural concern as well about the impact of an increase in cross-border shopping, and the effect that it might have on British businesses, particularly in the south-east. In considering what changes to make to excise duties, I have had to balance that against the need to raise revenue. I have therefore decided to raise the duties on most alcoholic drinks by only 5 per cent."--[ Official Report, 16 March 1993 ; Vol. 221, c. 176.]

I have to say that that is double the rate of inflation. It is a higher level than usual. Experience in other countries--especially in the United States of America, where different states have different regimes for sales and excise taxes--has shown that, provided that differences in retail prices do not amount to much more than 5 per cent., there is no serious damage. However, once the difference increases to higher levels, damage is done.

The duty on a bottle of wine in France is 3p. We have now put up our duty to £1, so hon. Members can appreciate the enormous difference. Far from increasing the gap, surely my right hon. Friend the Chancellor should have kept the duties the same for at least this year, and then progressively brought them closer to the French and Belgian levels. As the spokesman for the Brewers Society said today, there will be a growing black market in beer and wine, imported and sold to the trade. It is a charter for the wide boys.

Mr. Martyn Jones (Clwyd, South-West : As someone employed in the brewing industry for 19 years, I have to agree with the hon. Gentleman. Does he agree with me that the Chancellor has given himself a tremendous problem over the next couple of years, as he will have to equalise the duty in the United Kingdom with that of our EC partners? He has increased the duty, and he will have to bring it down from about 40p on the pint equivalent to 4p on the pint equivalent.

Mr. Townend : My understanding is that there will be complete harmonisation. As I have said, the increase will distort the market and export jobs. I do not advocate that we reduce our duties to 3p for wine and 4p for beer, as that would result in the Exchequer losing virtually all the revenue. However, if the duty was brought down to 50p on a bottle of wine, although the difference would still be significant, the incentive would be much less.

I want now to move on from this Budget to the second Budget in November, and to the November 1994 Budget. My right hon. Friend the Chancellor has spelt out large and specific tax increases. He has made it clear to the

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market that the Government have returned to a policy of fiscal rectitude, and that they are serious about dealing with the deficit. I strongly welcome and support that move. I do not like increases in taxation, and, let us be frank, the increase in the burden of taxation is substantial--£6.5 billion in 1994-95 and £10 .5 billion in 1995-96.

There was a worrying omission from the Budget statement. There was no mention of a contribution to cutting the deficit through a reduction in public spending. I was hoping and expecting my right hon. Friend to say that the Government and the public sector would be sharing the burden with the long-suffering taxpayer. I was hoping that he would match the reductions, and that in the autumn he would cut the control total for 1994- 95 by £6.5 billion and that for 1995-96 by £10.5 billion, to reduce the Budget deficit still further.

I agree with my right hon. Friend the Member for Westmorland and Lonsdale (Mr. Jopling) that the problem of the budget deficit is very serious and will last a long time, dragging down the economy. If we are to solve the problem, it must be attacked from two sides. We must accept rather high increases in taxation, but also reductions in public expenditure. As can be seen from page 73 of the Red Book, the settlement for the coming year is very generous. We will have a fiscal stimulus in 1993-94. If we take out interest charges and cyclical social security--so we are not taking in the costs of recession--the control total will rise by no less than 5.58 per cent., with underlying inflation standing at about 3 per cent.

We must remember that one of the most significant elements of public expenditure is the cost of wages and staff, which is limited to 1.5 per cent. Therefore, in volume terms it means that expenditure is rising by about 4.5 to 5 per cent. Spending has increased at a frightening speed, and that is a significant cause of our budget deficit. It is not right to blame it all on the recession. Page 74 of the Red Book shows that Government general expenditure as a proportion of gross domestic product rose from 42 per cent. in 1991-92 to 45.5 per cent. this year. Even with the tax increases, it will decline by only 1.5 per cent. in the next two years. As the figure for 1988-89 was only 39.25 per cent., it is obvious that the increase is significant. It is vital that the Government give a commitment to bringing down spending as a proportion of GDP, and back to less than 40 per cent.

Overall, taxation at the next general election should be no higher than it was at the last election. There is a real political imperative, which is why the Government must turn their attention to public expenditure. There are two reasons why we won the last election. The first is that the public decided that my right hon. Friend the Prime Minister would be a better Prime Minister than the former Leader of the Opposition, the right hon. Member for Islwyn (Mr. Kinnock). Secondly--above any other consideration-- the public thought that, if they voted Labour, they would be voting for a party of high taxation.

Although I support the increases in taxation to get the deficit down, as soon as the recovery is under way, we must cut spending and reduce taxes. I suggest that the Government look at what happened in America with President Bush, and at what happened in Australia last

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week with Mr. Hewson. I do not think that we will be returned at the next election if we go into it with significantly higher taxes. We are on the right track. I am sorry that my right hon. Friend the Chief Secretary is not here because there is no doubt that he carries a heavy load. We have dealt with one leg--taxation. The future of the Government and of the Conservative party depends on whether my right hon. Friend can get the support of his Cabinet colleagues to deal with the other leg--public expenditure. I look forward to the first Budget in November that deals with both taxation and spending. I hope that by then my right hon. Friend will have been successful, and that there will be at least £5 billion to £10 billion off the control target.

A great deal of money is being wasted in many areas. I intend to table some parliamentary questions about that. I do not think that anyone appreciates the increase in the costs of financing care in the community for people who are mentally ill. A case was brought to my attention this week of a rather difficult patient who has been decanted from a large hospital into care in the community. The revenue cost for that one person is £100,000 a year. It is being paid by direct grant from the Welsh Office. I have figures that show that previously the cost for a patient in a large hospital was £20,000 to £22,000 a year, but when they go into care in the community it is well over £30,000.

It is the same with law and order, where the costs are very high. The county council in my area was very upset because a youngster was sent to a special detention centre at a cost of £2,000 a week, or £100,000 a year. That cost is unacceptable, and there are many areas that we need to study.

One of my hobby horses is the question whether, in our current state and with a large budget deficit and a large balance of payments deficit, we can really afford to be spending £2.25 billion a year on overseas aid. I am not opposed in principle to overseas aid, but when we have to borrow from the foreigner to give it away and then repay the foreigner with interest, surely that is not good business. Therefore, I am happy that the Government have two pillars of monetary control to help bring the budget deficit under control. I have great faith in my right hon. Friend. I support fully the broad strategy of the Budget and hope that, when I speak in the next Budget debate in November or December, I shall be able to congratulate my right hon. Friend on dealing with the other leg of the problem.

6.30 pm

Mrs. Jane Kennedy (Liverpool, Broadgreen) : I wish to direct my first comments to the short passage in the Chancellor's speech that has direct implications for hundreds of my constituents and those of my hon. Friends representing seats in Liverpool, Glasgow, Cardiff and London where employment in the pools industry is likely to be affected by the introduction of a national lottery. Hon. Members who shared with me the distinction of serving on the Standing Committee that examined the National Lottery Bill will be relieved to hear that I propose not to refer even once to a level playing field. Taxation of the lottery is of great interest to many people. Charities and voluntary organisations and sports and arts organisations had hoped to see no taxation at all, which would have increased the anticipated benefit from the lottery. Football pools companies involved in the sale

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of soft gambling products, who will see some erosion of their market share, hoped for a reduction in the pools betting duty. Neither has materialised in the Budget.

The Chancellor's proposal to start taxing the lottery in the first year at 12 per cent. will disappoint many, including Conservative Members who had hoped that it would escape taxation. The consequences of that level of taxation for the good causes will be a reduction in the expected benefits.

In a press release yesterday, Customs and Excise predicted a turnover of about £1.5 billion in the first year. We must treat all such predictions with caution, but that is revealing. It would leave an approximate pay-out to each of the five good causes of about £78 million per year. On that prediction, for every £1 spent on the lottery 12p will go to the Chancellor, compared with 5p to charities. I hope that the Advertising Standards Authority will monitor closely the marketing hype that will surround the launch of the lottery. A lottery whose tax take is more than twice the amount going to charity can hardly be described as a lottery for good causes. European lotteries are taxed at levels of up to 30 per cent. I wonder how long it will be before the Chancellor or his successor finds lottery proceeds too tempting to resist.

Football clubs will also be disappointed that the Chancellor missed the opportunity to extend the 2.5 per cent. concession on pools betting levy, which ends in two years' time and which allows pools revenue to be ring- fenced for the Football Trust and the Foundation for Sport and the Arts. Much work has been done through the Football Trust to help clubs meet the requirements of the Taylor report, making stadiums safe and more attractive for supporters. There is still a long way to go and I hope that there will be an amendment to recognise the continuing role of the Football Trust.

The 12 per cent. duty to be levied on the lottery will allow up to 50 per cent. of turnover to be paid back in prizes. Without the further reduction in pools betting duty, the pools will be limited to their current 25 per cent. prize level. That differential between the lottery and the pools will make the pools a relatively less attractive proposition. The smaller companies such as Zetters and Vernons will be particularly disadvantaged. Vernons' employees on Merseyside will continue their campaign to see fair competition established.

Fairness would be good for the lottery as well as the pools. A healthy pools industry would help stimulate interest in soft gambling which would in turn promote sales of the lottery. The collapse of the pools would not only lead to further unemployment in my constituency but would damage the lottery. The lottery promoters would be forced continually to modify their gains to maintain public interest. The Parliamentary Under-Secretary of State for National Heritage, the hon. Member for Salisbury (Mr. Key), would find it increasingly difficult to stick with his "very British lottery", a concept which has won widespread support. Pools workers would also benefit from a more secure future. One of my biggest fears--further unemployment in my constituency--would be removed if the Chancellor would consider that point further.

Past economic performance on Merseyside has been among the worst in Britain. The sustained decline in employment in Liverpool, especially in port-related industries, in transport and in manufacturing, has frequently been much faster than the national average. I

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