House of Commons Hansard Debates for 17 Mar 1993

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During the 1980s, consumption increased by an average of 2.5 per cent. per year, whereas gross domestic product increased by an average of 1.6 per cent per year. Since 1979, consumer expenditure rose by 37.2 per cent. and GDP by only 22.3 per cent. That catastrophic gap was bridged by increasing debt as the Government virtually incited the nation to live on tick. Consumer credit has more than doubled. At current prices, consumer credit was £512 per adult in 1979 and £1,147 per adult in 1992--and that excludes the impact of negative equity affecting some 1.5 million households. Whereas, in 1981, for every £100 of disposable income household debt was £57, by 1990 that had doubled to £114.

The so-called Thatcher miracle has bequeathed a debt mountain that is crippling the prospects of long-term sustainable recovery, and the Chancellor has not even begun to address that. British consumption as a proportion of GDP is already the highest in the industrialised world, and is completely unsustainable. That has to be turned round as a matter of extreme urgency, but the Budget does not begin to deal with the task. Even the Government's preoccupation--some would say obsession--with low inflation is unsustainable. Some time next year, given Britain's ravenous appetite for imports, rising import prices will inevitably push inflation above 4 per cent., and it will remain there.

In those circumstances, what can the Government do? Either they slaughter their sacred cow of low inflation by abandoning it, or they go back to spending squeezes and slow growth--no U-turn, no policy reversal, just contra-flow Conservatism again. Indeed, from the Government's view the prospects are even more catastrophic than that. The huge budget deficit will soar to £50 billion and will stay at that level, as the Red Book figures show. The Chancellor is tackling it by slashing public services and public investment and by tax rises. That is not only hitting the poorest the hardest and damaging the quality of life for us all ; it is self- defeating, because it undermines the real economy that cries out for investment. The problem is also that, under the Conservatives, Britain has become allergic to Government intervention and investment, which it so desperately needs. We must overturn the suffocating conventional wisdom of Thatcherite and non-Thatcherite economics, otherwise the Budget will be another instance of where the operation was pronounced a success, but the patient died--another stage in a process of Britain's historic economic decline.

We need massive public investment and a radical programme on institutional reform. First, a £20 billion programme of public expenditure-driven investment in infrastructure, training and skills is essential. That should be financed partly by increasing borrowing and partly by mobilising wasted or idle resources, such as the £8 billion in housing capital receipts and the £27 billion cost of maintaining more than 3 million people on the dole. Japan showed the way with that sort of package only last year. The £43 billion Japanese recovery package in August 1992 was designed to boost output by 2.5 per cent., concentrating upon public investment and leveraging the banking system. We can do that kind of thing as well. Beyond the immediate programme, the City needs complete restructuring. The Chancellor has merely fiddled at the fringes of the problem. Britain's financial institutions have to be forced off their chronic addiction to

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short-termism. We must make a break from casino capitalism, where the City conducts its affairs without any regard for the national interest.

We should begin by establishing new public banks with the specific remit of mobilising private debt : a housing and construction bank, a national investment bank and a small business bank. Their capital base would be funded by the Government and, equally important, by the financial institutions. Pension funds and insurance companies own some two thirds of the shares in British industry. They could be required, if necesssary by legislation in the absence of voluntary co-operation, to buy multi-billion pound bonds for the new banks. The housing and construction bank would pioneer cheap mortgages to those on low incomes. The national investment bank would not simply provide cheap, long-term loans ; it would also take equity stakes and force the commercial banks to do the same, so altering the whole relationship between loan finance and industry. This needs restructuring along the lines to be found in Germany and Japan, for example, where banks become positive actors in the industrial economy, not simply pursuing short-term returns.

The small business bank would provide cheap long-term loans. The Government could subsidise bank loans to small businesses and give tax breaks to individuals who provided equity finance, or they could provide a tax incentive to banks to take an equity stake in client companies, as happens abroad, especially in Germany.

Radical tax reforms are also needed to go further in phasing out tax relief on mortgages, which will cost £4.3 billion this year, and on personal pensions, which will cost a further £1.6 billion. That money should be used to sponsor and redirect resources into investment and production.

Credit controls of the kind widely adopted in more successful competitor countries are also essential. We need reserve asset ratios to curb liquidity leakages which merely increase indebtedness and consumption. To manage our exchange rate, we also need curbs on speculation. Some 95 per cent. of foreign currency transactions are not in support of international trade but simply speculative gambles which enrich the speculators.

In short, our overriding aim must be to promote industrial growth through Government intervention and expansionary macro-economic policies which are nowhere to be seen in the Budget and which the Government are incapable of and unwilling to produce. We have to break with a tradition of failure--of under-producing corporate Britain, over-indebted household Britain, parasitic financial Britain and collapsing public Britain.

8.52 pm

Mr. Richard Spring (Bury St. Edmunds) : Yesterday was a happy day in my constituency because I have the great honour to represent the town of Newmarket, the historic racing capital of the world. The Chancellor's announcement will give hope to thousands employed in the horse racing industry and will help secure the future of the reputation of that industry as the finest bloodstock industry in the world.

Therefore, I thank my right hon. Friend the Chancellor, and most particularly my right hon. Friend the Paymaster

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General, who spent many days working out a successful scheme. Yesterday was a memorable day for British racing. I hope that the Chancellor's announcement will spur on the revival of a great and long-standing British industry.

Someone recently told me that being in favour of small business was like being in favour of motherhood and apple pie. If so, I plead guilty, and I am glad to welcome the Chancellor as well to motherhood and apple pie.

Parts of the press have described the Budget as a Budget for jobs. The 1980s saw a flowering of entrepreneurial activities that resulted in growth, in rising living standards and in repayment of national debt. It is significant that, in the period 1987-89, when unemployment fell so rapidly, fully 70 per cent. of net job creation was accounted for by firms with fewer than 100 employees. Similarly, firms with fewer than 20 employees accounted for half the new jobs. Therefore, I am grateful to my right hon. Friend the Chancellor for the range of measures which will be welcome to the small business community. Those measures will help enormously small business men at a difficult time.

All countries have suffered recession. In Britain, company liquidations rose two and a half times in the period 1988-92. The number of smaller companies registering for VAT fell last year, for the first time since 1979. What clearly emerges from that is the need to revive the enterprise culture and to underline the importance of small business in the whole process of job creation.

In East Anglia in the 1980s, the number of businesses registered for VAT rose by the second largest percentage in Britain. It is estimated that, in my constituency, up to 85 per cent. of the work force are employed in small businesses. In villages in rural west Suffolk, there are dozens of small manufacturing businesses employing perhaps only half a dozen people each.

It is not only the recession that has so severely damaged small businesses ; the growth in bureaucracy and the cost of compliance, as well as the difficulties of obtaining finance and acceptable terms for that finance, have also played a part. My right hon. Friend sought to address that in part yesterday. The lack of viable long-term finance has been hugely difficult for small business. Many hon. Members have alluded to that. All of us have had to deal with distressed constituents who have suffered the consequences. The banks are under severe pressure. It is instructive that the big four clearing banks have recently increased their provision for losses and bad debts to a monumental £5.8 billion, as my hon. Friend the Member for Milton Keynes, South-West (Mr. Legg) pointed out. That is an increase of £0.5 billion from last year. I welcome a specific fund launched by one of the big four clearing banks in my constituency this week to help small businesses. However, we are talking about a major, continuing structural difficulty which may bedevil small businesses in future.

In boom times, the friendly bank manager is awash with cash and generosity. In recession, the unfriendly bank manager is seeking to restore his employer's battered margins precisely when the business man needs him most. Do I exaggerate? I think not. At the heart of the matter is the worldwide recession, yet it is clear from bankers themselves that, following their recent traumatic experiences, they are reluctant to lend to small businesses without the restructuring of lending practices as such.

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No one is more ill-disposed to involving the state in lending money or making business decisions than I am. The results in our own country and of our own history manifestly have proved that to be disastrous. Nevertheless, the business community--the lifeblood of our economy--has been beset by a roller coaster ride of interest rates, which has been deeply damaging over the past 20 years. I therefore greatly welcome the prospect of limited fixed interest rates announced yesterday.

The loan guarantee scheme introduced in 1981 has undoubtedly been helpful. To its credit, 30,000 guarantees have been issued for loans of nearly £1 billion--a gap for companies lacking a history or track record has been closed by the scheme. Its extension is good news. The reduction in premiums is also welcome. The increase in the size of eligible and the higher proportion guaranteed will be most helpful. However, given the banks' attitudes in the present climate, will that be enough--or should we look to a different structure to help finance our small business community? After the war, under the Marshall plan, the KfW was born in Germany. It is now self-financing, and that is critical. Essentially, the KfW's role is to pass on to small German companies the low interest rates at which it can it borrow in international markets. It is not the German Government who lend the money but the guarantor and owner of the majority stake. By its construction, the KfW does not even appear in the German budget or impose on the public sector borrowing requirement. Does that impinge on free market principles? Yes, possibly it does--but given Britain's unique reliance on the lending institutions and the unsatisfactory experience of them, that alternative is one that we should explore.

The KfW operates in a way similar to the World bank. It has established a good credit rating over the years, and thereby attracts loan capital. It is a wholesale operation that affords smaller companies the opportunity to borrow on terms similar to larger companies. Any comparable institution here should not be based on access to loans but on the terms.

Interest rates are no more than 1 per cent. above long-term rates and loans are for up to 10 years. The emphasis is on the long term. Although commercial banks make the actual loans, the KfW is not in competition with them because it does the refinancing.

The Small Business Bureau has made that a central pillar of its thinking, and that has to be the logic of yesterday's announcements by my right hon. Friend the Chancellor. I urge him to consider such an arrangement in the months to come. The German experience is regarded as excellent--and such a scheme need not be part of the PSBR.

As we on this side of the House know so well, this country's ability to survive and prosper is dependent on the goods and services that we produce and sell. My right hon. Friend the Chancellor was right to emphasise growth over the next 12 months, to effect speedier economic recovery. However, I appeal to my right hon. Friend, as a number of my hon. Friends have done this afternoon, if growth is faster than expected, to attempt to reduce the £50 billion deficit projected for the next financial year. Fiscal restraint will inevitably afford opportunities for further monetary relaxation. I wholeheartedly support the review by my right hon. Friend the Chief Secretary to

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examine critically every aspect of Government expenditure. Control of state spending is not only an economic but a moral issue. Recovery, particularly for smaller businesses, will be spurred on by the relaxation in the full funding rule, which will help the liquidity of banks and their ability to finance smaller business needs. The last three years have been extremely difficult. We can now see light at the end of the tunnel when our competitors can see only darkness. As we continue to recover and apply fiscal rectitude, we can put in place the regeneration of the British economy. The foundations are now in place. I greatly welcome yesterday's Budget. 9.3 pm

Mr. George Howarth (Knowsley, North) : Before making my substantial points about the Budget's economic consequences, I will mention one or two positive aspects. The first concerns the loan guarantee scheme, and I declare an interest as an unpaid director of Pendleton's Ice Cream in my constituency, which is in the process of trying to put together a package to create jobs in the ice cream industry. It is probably too late for that company to take advantage of the enhanced loan guarantee scheme possibilities that the Budget creates, but as someone who has just gone through the process of trying to fund a business, I acknowledge that improvements to the scheme are to be welcomed. In that instance, it is not the case of an individual but of a group of workers who intend to own 51 per cent. of the company's equity. Nevertheless, the financing opportunities for small businesses are welcome.

Secondly, I echo a point that was made by my hon. Friend the Member for Hammersmith (Mr. Soley). Ironically, this concerns the withering of mortgage interest tax relief. Let us recognise that that is what the Government are embarked on. One of the ironies here is that, during the last general election campaign, I was castigated by my Conservative opponent for having at one time had the temerity to advocate such a thing. Indeed, my opponent circulated to all owner-occupiers in the constituency a leaflet saying that if this dreadful socialist man were re-elected, mortgage interest tax relief would be whipped away. How strange that the Government of whom he wanted to be a supporter here should be doing that very job without my help. In any case, this is a move in the right direction. The final positive point to which I wish to refer is the way in which the export credits guarantee scheme is being extended. In this regard, I shall say only that I am sure I was not alone, over the past few years, in making approaches to the Department of Trade and Industry on behalf of firms. This has been a major problem for exporting companies-- particularly those in the machine tool industry, but undoubtedly for others as well. Unfortunately the move is a bit late. For instance, I know of a £5 million order that failed to go ahead in my constituency because of the lack of export credit guarantees. None the less, this long-overdue reform is welcome. I wish to refer now to the problems that the Government have not resolved. The key question, which Ministers and many other hon. Members have acknowledged, is this : how are we to achieve growth in the economy, and, with growth, how are we to resolve the

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problems of unemployment? Time does not permit me to go into all the consequences of unemployment for individuals, but I have to point out that my constituency is probably one of the economic black spots of Europe. I do not say so with any pride ; this is a simple fact of life with which we have had to deal over the past 15 years or so. Unemployment has enormous economic and public finance consequences. For example, benefits alone cost £30 billion a year, and lost output and lost income amount to £60 billion a year. Unemployment cannot be lightly brushed aside in economic terms--to say nothing of its effect in human terms. What sort of growth is needed to stop the growth of, and then reverse, unemployment? I listened with close attention to much of the debate yesterday. The hon. Member for Worcestershire, South (Mr. Spicer) spent some time discussing this matter. His estimate, with which I more or less agree, is that it is necessary to have growth rates above 2 per cent. before one starts to eat into the problems of unemployment. Yet the Chancellor admitted yesterday that the Government expect a rate of only 1.25 per cent. this year, rising to 1.75 per cent. next year. Thus, we shall not begin to reverse the tide of unemployment that is sweeping the country. If we are to start to take the long-term unemployed off the register, we must have growth rates of about 2.5 per cent.

As I expect even Ministers would concede, there are several constraints. The most pressing of these is the horrendous balance of payments situation. If the Government achieve the wrong sort of growth--if, as was intended up until yesterday's Budget, growth is led entirely by the consumption of private individuals--the balance of payments problem will simply be exacerbated, as happened in 1987, 1988 and 1989, and the deficit will again spiral to £20 billion or thereabouts.

That is not the most appropriate means of achieving growth in the economy. It strikes me that there is only one sensible way out of our problems-- public borrowing and public spending. I do not want to specify a target figure over and above the £50 billion, but it seems to me that, in so far as that amount will produce a growth rate of only between 1.25 per cent. and 1.75 per cent. and will therefore fail to eat into the unemployment problem, we need to think in terms of a higher rate of public sector borrowing. The PSBR must be pitched at a level that will lead to a growth rate of 2.5 per cent. The ultimate failure of the Budget is the fact that it will not achieve that, and thus will not begin to solve the problems of unemployment. The Government will say that recent history shows that such solutions are no longer possible. The Labour Government of 1964- 70 have been much denigrated--certainly by Conservative Members--but that Government achieved a consistent growth rate averaging 2.8 per cent. throughout their period of office. It is no accident that, during much of that period, virtually full employment was achieved. That strikes me as a sensible target. The only way to achieve it is to devise capital expenditure programmes that do not necessarily have large revenue implications--and, my goodness, any of us could find dozens of such projects in our constituencies. Creating demand in the private

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sector is surely the most sensible way to create growth : it would minimise problems relating to the balance of payments.

The Budget contains some useful innovations, but its ultimate failure lies in the fact that it will not begin to solve the problems of unemployment. Any measure that does not solve those problems must, in the end, be deemed a failure.

9.11 pm

Mr. Michael Ancram (Devizes) : I am grateful for the chance to speak, if only to congratulate my right hon. Friend the Chancellor on what I consider to be a courageous Budget. I use the word "courageous" advisedly : I think that my right hon. Friend had to make an immensely difficult decision. He had to decide between financing an enormous deficit and preventing the undermining of the recovery that has begun. I do not envy his position, and I respect the decision that he made. Until yesterday, I believed that financing the deficit was a priority ; following my right hon. Friend's Budget speech, however, I accept that--having had to balance those two factors--he concluded that it was essential to give the recovered economy a chance to flourish, at least for a year.

For that reason, I am amazed by the reaction of Opposition Members. All that they have done is call for more and more expenditure ; with one honourable exception, none of them has suggested how that expenditure should be paid for. The honourable exception is the hon. Member for Neath (Mr. Hain) : his recipe was not one to which my hon. Friends or I would subscribe, but at least he tried.

Do Opposition Members live in a fantasy world? I think that it was Lord Healey who once said, "If you find an elephant on your doorstep, it is worth recognising the fact." I should have thought that a £50 billion deficit was a very large elephant, however it was measured ; but the Opposition seem to think that such a deficit can be ignored, and that we can proceed as though it did not exist--that it is possible to continue to get something for nothing. The truth is that, in this world, we never get something for nothing, and that is certainly not possible in terms of my right hon. Friend's Budget. Over the next few months, my hon. Friend must seriously consider the question of the deficit. I agree with what many other Conservative Members have said today : my right hon. Friend the Member for Westmorland and Lonsdale (Mr. Jopling), for instance, made an important point about the cumulative effect of the deficit over the years, and the need to start financing it as soon as possible. I join my hon. Friends in hoping that a large part of that financing can be achieved through substantial public expenditure cuts. I believe that the programme must be advanced as soon as possible, and I hope that Ministers will be courageous. There is enormous scope : examination of the universality of benefits, for example, could produce dividends, and I consider that it would be difficult for any hon. Member on either side of the House to argue against such action in the long run.

It is interesting to hear the Opposition call the Clinton experiment in America far-sighted and courageous, but, when we are doing essentially the same thing on this side of the Atlantic, they say that it is dishonourable.

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I believe that the imposition of VAT on energy and domestic fuel is necessary, but do the figures for the take from the charge allow for the fact that we expect energy consumption to decrease as a result of the charge? The answer should be an important part of the presentation of the Chancellor's strategy.

I have been surprised that, yesterday and today, we have heard nothing about what the Chancellor did not do. In the lead-up to the Budget I received countless letters saying that we must not levy VAT on newspapers, books, adult education, children's clothes or food. My right hon. Friend yesterday announced that he would not be levying VAT on those items and that he had listened to the representations. I should have thought that at least those who had been speculating or making accusations in the past few months would recognise that my right hon. Friend had taken proper account of their representations. The Budget has been greatly welcomed in my constituency, especially for its proposals for small businesses of which there are many in my constituency. They welcome the freezing of the effect of the business rate and the changes in the loan guarantee scheme of which they will take great advantage in the coming months.

I join my hon. Friend the Member for Bury St. Edmunds (Mr. Spring) in welcoming, on behalf of my constituents, the announcement about VAT on bloodstock. I was interested to hear the leader of the Liberal party on radio yesterday suggesting scathingly that the Budget was good for racehorses but bad for everything else. I can tell him that many people in my constituency and in neighbouring constituencies such as Newbury rely on the bloodstock industry and racing for a living and will not take kindly to his scathing remarks.

Mr. Beith : I hope that the hon. Gentleman realises that not only have we called for the type of changes that the Chancellor announced but my hon. Friend the Member for Roxburgh and Berwickshire (Mr. Kirkwood) called for them some months ago.

Mr. Ancram : I heard the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) calling for them in the Chamber just after the vacancy in Newbury became known. I was surprised because I have lived in his constituency and I know that the racing industry does not play a very large part in it.

There are, of course, worries in my constituency about elements of the Budget and I hope that the Chancellor will take account of them. There is a feeling that some measures could discriminate against rural areas. I am referring especially to the increases in petrol prices. I know that it is very difficult to talk to petrol producers about pricing differentials for remote, rural areas. There is a difference between buying petrol at a motorway filling station as opposed to anywhere else. I hope that my right hon. Friend will join me in approaching petroleum companies to see whether the discriminatory effect on rural areas of increases in petrol prices can be mitigated.

As for VAT on domestic fuel and power, we must take account of the fact that in rural areas there is much less ability to choose the power source for heating one's home. Perhaps we could find a way of dealing with that anomaly.

Having listened to all the arguments, I believe that the key to the Budget did not appear in the Budget : it is to be found in the word "confidence". Whether or not my right hon. Friend's strategy succeeds depends on restoring

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confidence in the economy. I view the recession as being like a circle, with many people facing each other's backs and all waiting for the person in front to start moving before they move. I believe that we are beginning to see the first signs of movement within that circle. If my right hon. Friend's strategy is to succeed, we must inspire in people the confidence to go out and invest, and to feel safe to spend their money again. Only when that begins to happen shall we see the circle beginning to move, and the growth that my right hon. Friend wants beginning to occur.

That, above all, is why I found the speech of the hon. Member for Dunfermline, East (Mr. Brown) so intensely depressing. Again, all we heard from him was a litany of despair, and of talking down this country, its economy and its workers. It almost seems to me now as if the hon. Gentleman and his colleagues do not want the recovery to occur. They are going out and telling people, "Don't spend, don't buy, don't invest,"--because they know that if people start spending, buying and investing, the recovery will come, and their chances of ever being elected as the Government of this country will be gone. I support my right hon. Friend the Chancellor of the Exchequer, I congratulate him on his courage, and I shall certainly support the Budget in the Lobbies.

9.20 pm

Mr. Peter Mandelson (Hartlepool) : The aftermath of the Budget is inevitably dominated by its immediate effect on taxes, excise duties and national insurance. I do not want to dwell on those, except to say that, despite the efforts of the Tory good news machine, which is clearly not what it used to be, the public's verdict on the Budget was best expressed by the Sun today. I am not known for my devotion to that newspaper, but it is becoming increasingly shrewd and perceptive, for on its front page it summed up the Budget with the headline, "Nightmare on Norm Street". That clearly shows that the Sun increasingly intends to make an honest paper of itself at last. It is clear from the public response, and from today's newspaper coverage of the Budget, that the price that the Chancellor has paid on behalf of his party and the Government is that the Tories are now indelibly stained as the party of devaluation, high taxes and broken promises. That has tremendous political significance. As we know--the Opposition have a special reason for knowing it, to our cost--the Tories have had a remarkable run of good luck on the subject of taxation. That subject dominated the 1987 election and the end of the 1992 election campaign--without justice, but I am afraid that the Tories managed to do us a fair amount of damage. As a consequence of the Budget, the Tory tax spell is now lifted, not only for now but for ever. I suspect that Conservative Members realise that, even if they dare not acknowledge it in public.

I shall put the short term on one side and concentrate, if I have time, on one or two comments on the fundamental question about the Budget--whether it makes Britain's economy stronger or weaker in the long term. First, the Budget should have squared up to the scale of unemployment, which is sapping the economy's strength. Clearly it did not do that, with the pathetically inadequate direct measures that the Chancellor proposed to combat unemployment. If he had been less concerned and preoccupied with the threat to his own job, he might have devoted more energy to creating jobs for others. Lamentably, he did not do that.

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Instead, the Red Book reveals not hope but despair about unemployment. It makes an average forecast that 200,000 more jobs will disappear this year--and that is coupled with what, although it is gloomy enough, I fear is an understatement :

"it will be some time before it"--

that is, unemployment--

"starts to fall again."

None the less, the measures described offer opportunities for only one third of the people who have been made unemployed since the Tory election victory last year. That is only a pin prick in the Government's own total of 3 million. I do not say that the schemes are wrong in principle and I do not think that the measures proposed should be damned by anyone because of their association with the Prime Minister's utterances on workfare. However, I believe that they are woefully insufficient. Leaving so many people out of contact with work for so long means that there is a risk of never being able to recruit many of them back to productive work. That is the long-term danger to our economy.

Unemployment is not just a social evil. On this scale and with so little possibility of an early reduction under present policies, it is an economic calamity. When people are laid off, their skills are unused and dissipated, and productive capacity is scattered and lost for ever. The unemployed lose and the country loses. The Budget has simply failed to square up to that reality and to offer a way out. My next point concerns industry and British manufacturing capacity in the long term. Although the Government now mouth words about the importance of manufacturing, there are no signs that the attitudes of the Thatcher years are being reversed. There was no trace of that in the Chancellor's speech or in the Red Book. Why is this point so important? If anyone has any doubt about the importance of the manufacturing sector, they need only to have read The Sunday Times this week which contained revelations about the Government's secret report on the state of British manufacturing.

There is a unique feature in this recession. Unlike the recession of the early 1980s, this recession is cutting into the productive capacity not only of old industries, but of modern, hi-tech, precision-goods engineering industries--the manufacturing of the future. Crucially, along with that loss of capacity comes the loss of skills and the loss of a presence in vital areas of engineering, in micro-technology and in other sophisticated, new markets of services and of manufacturing. That is the biggest dagger in our economic heart in the long term. We shall never be able to conjure back the industrial capacity lost in the past, yet we now face the destruction of modern, productive capacity which is desperately needed if our economy is to succeed in future.

The threat to our future is confirmed in a highly pessimistic forecast of growth and trading performance in the Red Book. That forecast is all the more remarkable because on page 37 the Government claim that there is an "underlying improvement in competitiveness" in many sections of the economy and of manufacturing industry. The Red Book says that our competitiveness has improved--that improvement is, no doubt, from a very low base and is insufficient in comparison with the improvement of

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our rivals--but that economic growth will be slight. Our competitiveness, despite the claims for it, is not, in the Government's view, leading to economic growth.

The damning explanation is that, despite improved competitiveness, industrial capacity has shrunk so much that we simply do not have the size, the diversity and the versatility of tradeable manufacturing activity to take advantage of the opportunities available to us. That is the crushing indictment of the Tory record which is exposed in the secret report published in The Sunday Times. The report candidly admits :

"the flaws in British industry will take decades to remove." The Budget fails to address that point and it fails to present any measures to deal with it.

Uniting the point about work and unemployment and the point about industry and manufacturing is the absolute necessity of investing in and developing human potential, and thereby genuinely transforming the competitiveness and size of Britain's trading sector in goods and services. We need a fresh ambition and purpose to achieve that. I have a suggestion that the Government may like to consider. We need to introduce a new target to spur Government and to galvanise the nation, and to turn this decade into a genuine investment decade. The new target for the real economy should be investment, defined as an annual proportion of gross domestic product and including investment in people as well as investment in technology and the infrastructure. It would be a target that the private sector and the public sector would work in partnership to achieve and, if private investment fell back, it would be right for the public sector to fill the gap. I hope that the Government will consider putting in place that target and indicator for the real economy, alongside the nominal and monetary targets that they follow at the moment.

Until we put investment and the development of our people, as our essential economic resource, at the centre of economic policy, I fear that we shall continue on a path of long-term economic decline--a path which is all the more tragic because it is so clearly avoidable. 9.29 pm

Mr. Alistair Darling (Edinburgh, Central) : People need a sense of where the country and its economy are going. After yesterday's Budget statement and today's debate--or, at least, Conservative Members' contributions to it--they have no such sense. People need to have confidence in the Chancellor ; they have none. They need to believe that the Prime Minister, who has drifted from one problem to the next, has some clear vision of where he wants to go. Today, they are no wiser than they were last week.

Neither the Chancellor nor the Prime Minister has managed to salvage his position. They are linked together in devaluation and tax increases. We are told that the Budget is modelled, at least to some extent, on President Clinton's approach. The difference is that President Clinton inherited the economic problems in America whereas, in this country, the Prime Minister and the Chancellor created the problems that they are now trying to tackle.

The Chancellor has drained every last drop of his credibility. This is the same Chancellor who said :

"we will not have to increase taxes. I cannot see any circumstances in which that will be necessary."

This is the same Chancellor who told us that he saw green shoots, among other things, when we now know that, at

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the time when he said it, there was every sign that the economy was continuing in recession. We know that the Conservatives won the last election on a fraudulent prospectus. We are talking either about gross incompetence--they did not see what was happening to the economy--or about a calculated deception of the people of this country.

It is not as though this is a Budget for investment in the future. The tax increases that the Chancellor announced yesterday were to pay for mistakes made by the Government over the past 14 years. It was an interesting Budget, because, for the first time, the Chancellor has attempted to tie his successor--whoever that may be--for the next three or four years. The hon. Member for Gloucester (Mr. French) made an interesting point--I say that not just because he is my pair--when he asked whether the commitments and tax increases promised by the Chancellor yesterday ran with the Government or with the Chancellor. We shall have to see. The Government have no vision ; for them, "long term" means some time next week.

Credibility is important not just for the markets but to show that the Government have a strategy for recovery in the long term. Credibility is also important if politics is not to be further debased in the eyes of men and women in Britain. It is important that, when politicians make promises, they should be prepared to keep them. It will be emphasised again and again over the next few years that the Government said that they would introduce no new taxes. We watched their lips. It was interesting to see the Chief Secretary squirming this afternoon when he protested and spluttered, "We have no plans--honestly. That's the plain truth." When people resort to that form of words, it is quite obvious that what they are saying is not the case.

Just before the election last year, the Prime Minister said : "we have no plans to increase VAT there will be no VAT increase."

For the Chief Secretary to characterise a tax increase as a green tax is absolute nonsense. Taxes do not become green simply by the addition of the word "green" above the proposals in the Budget paper. The Chief Secretary also said that the Prime Minister put his signature to the treaty at Rio and that the VAT increases were part of that process. The Prime Minister also put his signature to the manifesto, so that does not prove very much. The Prime Minister said :

"we have no plans and no need to extend the scope of VAT." The Prime Minister flies by the seat of his pants.

The chairman of the Conservative party--perhaps the next Chancellor, from what we are told--said that increased national insurance contributions were a "stealth" tax. If he says that they are a tax on income, surely they are a tax on income.

The Chief Secretary told us this afternoon that he was not in favour of direct taxation. Surely an increase in national insurance is an increase in direct taxation. It is one which will hit low-paid people particularly hard because of the ceiling on national insurance contributions.

People know that Tory Governments mean more tax for most people. Let us examine the Tory record since 1979. Most people are paying a bigger tax bill. Indeed, the poorest 10 per cent. of people pay the most tax. The richest

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10 per cent. pay the least. We knew that the trickle-down theory of tax would never work. That has now been demonstrated beyond a shadow of doubt.

When we examine what the Government propose this year, we find the same pattern yet again. The top 10 per cent. of earners will lose about 1.5 per cent. of their income. The bottom 10 per cent. will lose 3 per cent. of their income as a result of the Government's proposals. So, again, those on low incomes are paying and those on high incomes, who are better placed to shoulder the burdens, are let off lightly.

As for the effect that the VAT extension will have on people on low incomes and those in receipt of income support, it was instructive to watch how the Chief Secretary found himself impaled on a hook that came from behind him, rather than from the Opposition. The hon. Member for Dover (Mr. Shaw) said that he was confident from what the Chancellor had said that income support would be fully indexed to ensure that the increase in VAT would be met. The Chancellor said : "Social security benefits will, of course, rise automatically to reflect the price effect of this change My right hon. Friend the Secretary of State for Social Security will take this into account when the income-related benefits are uprated next year."--[ Official Report, 16 March 1993 ; Vol. 221, c. 183.]

There is no guarantee whatever that income support will be increased by 3 per cent. above inflation to take account of the effect of the Chancellor's announcement yesterday. He made no commitment whatever.

It was nonsense for the hon. Member for Dover to say that if the Chancellor had not meant that there would be a full increase in income support, he would have said that the increase would be only half as much or a quarter as much. Time and again, social security increases do not take account of the increased burdens that people have to meet. The Government know it and the country knows it. It is no use the Chancellor or the Chief Secretary protesting that those who will have to meet the full cost of VAT on domestic fuel will have the burden eased by increased income support. That is not the case. There is not a shred of evidence to suggest that it is the case. Indeed, if it were the case, the Government would have said so in clear and unambiguous terms.

Gas and electricity bills account for about an eighth of the expenditure of people on low incomes. The increase will hit people on low incomes and those who have no income at all especially hard, and the Government know it. As my hon. Friend the Member for Falkirk, West (Mr. Canavan) said, pensioners may be forced to make a choice between heating and eating.

As my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) observed, under the Conservative Government VAT is becoming progressively regressive. The Government have described their proposals as a wedge of revenue. We are entitled to ask whether it is the thin end of the wedge. VAT has now been imposed on domestic fuel. How much longer will it be before other previously zero-rated items are brought into the scope of VAT? Perhaps the Financial Secretary will tell us when he replies.

We were told that the Budget would be a Budget for jobs. It was certainly a Budget to save the Chancellor's job. We were told that it was a Budget for investment. Look at what has happened. The House will recall that in his autumn statement the Chancellor heralded the go-ahead for the Jubilee line, now stalled. We are now told that the

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crossrail scheme has been put off until some time in the future. The central Scotland link is at least two or three years away . The Chancellor promised that the Heathrow Express would definitely go ahead, yet in its press notice the Department of Transport said that agreement had been reached in principle. The Heathrow Express link--the sole firm commitment in the Budget--is just six miles of railway line. That is the only commitment that the Chancellor made yesterday. The only reason why it has been held up is a dispute between accountants and the impending threat of privatisation, which is effectively blocking many schemes for rail development. The Chancellor has promised the channel tunnel link again, 10 years late. Trains will travel between Paris and the channel tunnel next year at a speed of 180 mph. They will have to slow down slightly to go through the tunnel and then they will travel through Kent at 47.5 mph. That is an indictment of the Government's stewardship of the transport infrastructure. What about links to the north? The Chancellor had nothing to say about that.

What is the Government's strategy for the economy? We left the last century as the workshop of the world, but we are about to leave this century in the second division. We seem to have lost our ability to invest in and manufacture goods of high added value. In the 1980s, our share of world high-tech exports fell from 11.2 to 9.2 per cent. We also lost our market share of medium and low-tech exports, and not just to European or US competitions.

All the time, on the other side of the world on the Pacific rim, economies have been growing at between 6 and 9 per cent., despite the recession in the United States, to which they were supposedly linked. Those economies have mastered basic manufacturing and the ability to exploit our innovations and are now increasing research and development, to move into high added value products. The evidence is to be seen from what is happening with British Aerospace. We invented and developed the 146 aircraft, but Taiwan wants to take it over and develop it.

The Pacific rim countries are looking to low-cost countries such as Indonesia and India to assemble the goods that they have invented. The Government seem determined that we should compete with countries that assemble goods rather than with those that invent them. The Department of Trade and Industry report seems to have fallen victim to what I would call the "Spycatcher" syndrome. Hon. Members will remember that the Government spent millions of pounds of tax payers' money trying to stop the publication of that book around the world. This is the Government who impounded copies of Pravda at Heathrow airport, so that we could not read what Russians could read if they had cared to buy a copy. Exactly the same is happening with the DTI report. Our competitors know the problems of British industry, but the Government do not want the people of this country to know--so much for the Prime Minister's commitment to open government and the citizens charter.

We have heard nothing about research and development. The temporary period granted for capital allowances in the autumn statement has not been extended. I happily welcome what the Government have done for small businesses, except that the measures only

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ameliorate the problems that they face. For example, the relationship between banks and small businesses has not been examined. The inquiry commissioned by the Chamber has not resolved the problems that many small businesses have with their banks. I agree with the hon. Member for Bury St. Edmunds (Mr. Spring)--in times of plenty banks are happy to lend money, but at present their conduct towards many small businesses leaves much to be desired.

While I am broadly sympathetic to the problems faced by our insurance companies in competition with European insurance companies, we shall consider carefully the proposals for Lloyd's. Lloyd's is not a corporation but a collection of individuals and I do not understand why individuals should be given tax breaks and concessions unless it can be proved beyond doubt that they have alienated the money in question and are not simply receiving advantages that other taxpayers would not enjoy. I look forward to the day when Conservative Members with vested interests, as members of Lloyd's, declare their interest, not only in their speeches but by declining to go into the Lobby with the Government when we discuss that matter.

We must consider the relationship between the Government, the economy and the financing of businesses. We must also consider the availability of finance, following deregulation of the market. I do not believe that we shall ever return to a regulated market and the controls that were a feature of economies, but is is important that the Government recognise that more and more people will use financial services to provide for their short and long-term needs. That means that it is important for the Government to put in place an efficient regulatory system, which will promote confidence if we are to encourage people to make provision for themselves or simply to put their savings to good use. They must be confident that this country's financial services are in sound shape and are properly regulated. We wait with interest to see what the Government will produce next year.

The Chief Secretary to the Treasury only hinted at his plans for public spending, but he hinted that there will be hard cuts to come. The House should realise that public spending is not some sort of luxury, but in many cases means spending on essential infrastructure, on education and training, and on providing for health which is a social and economic need. Public spending means providing police, about which the Government say plenty but often do completely the opposite. Public spending cannot be cut with abandon without any consequence to the economy. I hope that, in the next few days, hon. Members will remind the Government time and again that cutting public spending is a false economy.

We must tackle the structural problems in our population. Those problems, together with immense demographic changes, should condition our economic thinking, but we have heard nothing from the Government about that. Although I welcome new technology as something to be embraced, it will mean that the number of job opportunities will decrease in the immediate future. Unemployment is a drag in economic terms as well as a catastrophe in social terms. We have heard nothing from the Government about what they propose to do as a result of those structural problems.

Tomorrow, we shall consider jobs and training. There is no point in converting employment training and youth training into short-term schemes. Many schemes already

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endeavour to give young people the proper training and skills. To convert such schemes into six-month courses may get more people off the unemployment register and more people through those schemes, but those courses will not give those people the highly skilled, highly motivated life style that is essential for the development of our economy.

It seems that the Government's only strategy appears to be to get people off the unemployment register in order to make it more politically acceptable. What we need is a highly skilled, highly motivated work force. As my hon. Friends have said, nothing that the Chancellor said yesterday gives us any cause to believe that the Government recognise that problem. To say that we shall have competition between TECs for innovative projects debases the problem that we face. It is no wonder that training providers and trainees are becoming increasingly cynical about the Government's proposals. The Government have been in power for 14 years. They were elected on a fraudulent and false prospectus, and they know it. People know that the Conservative party is the party of devaluation, high taxation and economic failure and that it is the architect of profound social unease. The Budget will haunt the Government for years to come.

9.46 pm

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