House of Commons Hansard Debates for 22 Mar 1993

Mr. John Smith (Monklands, East) : Bird watcher.

Mr. Cook : I am grateful to my right hon. and learned Friend--bird watching is not one of my sports. I understand that powerful binoculars are standard equipment in that sport. I warn the President that he should put aside those binoculars when he scans the economic indicators for signs of recovery that are not visible to the naked eye.

If the President wants to talk about recovery, I shall tell him what the Opposition understand by the word

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"recovery" and what they accept as its definition. Recovery will be achieved when unemployment falls to the 1.1 million figure that the Government inherited from us in 1979. When they obtain that figure, they can start to talk about improving the economy.

There is something much worse than talking Britain down--cheating. That is the next feature by which this Budget will be remembered--as an admission that the Government failed, and as an admission that they cheated.

The right hon. Member of Shropshire, North (Mr. Biffen) was the first Conservative to speak after the Budget speech. I have a great deal of regard for him ; in the past, he and I have occasionally found ourselves on the same side of an argument. But on this occasion I was stunned to hear him say :

"I am happy to stand here, shamelessly, as a taxing Tory."--[ Official Report, Tuesday 16 March 1993 ; Vol. 221, c. 202.] "Shameless" is probably the correct word in that sentence, because I have looked at the right hon. Gentleman's election address for Shropshire, North. He did not stand there then as a shamelessly taxing Tory--quite the reverse. What he told the good people of Shropshire, North was :

"There is a strong need to be modest about election promises. They all have to be paid for with your money. As ever, I shall bear that strongly in mind."

What the right hon. Gentleman said in his constituency was the very opposite of coming here as a taxing Tory. I travelled up and down the country throughout the last general election, and I did not find a single taxing Tory anywhere in Britain at the time. The Tories fought the last election on the single proposition that they would cut taxes and Labour would put up taxes.

No one expressed this election strategy more succinctly than the President. In Corby on 21 March 1992, he said :

"This election in the first week is about tax. In the second week it is about tax. And in the third week it is about tax. And if Labour were to win this election the next five years would be nothing but tax."

This from a man who sits in a Cabinet that has presented us with the biggest tax increase of any Budget in history. The party that promised year -on-year tax cuts has become a Government delivering year-on-year tax rises.

Mr. John Townend : I note the hon. Gentleman's opposition to tax increases. He will know that I am not in favour of high taxes, but does he accept that we have a major problem with the Budget deficit? It can be dealt with, but spending will have to be cut, or taxes will have to go up-- or a combination of these. What spending reductions does the hon. Gentleman want in place of the Government's tax increases?

Mr. Cook : What the Chancellor said at the general election was that he could foresee no circumstances in which he would have to extend VAT--but the hon. Gentleman may be ahead of the Chancellor. He may have been smarter and more far-seeing than the Chancellor. He may even have been more honest with his electors, so I invite him to point out to us the passage in his election address that mentioned that there was a severe problem with the public sector deficit and that it would be necessary to increase taxes when the Tories returned to office after the election. If he can do that, we will treat his intervention seriously--

Mr. Townend rose --

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Mr. Cook : I look forward to hearing the passage in question.

Mr. Townend : I did make it quite clear in my election address that I believed in sound Government finance. [Laughter.]

Mr. Cook : I am sure that the good people of the hon. Gentleman's constituency read that on the assumption that they did not need to expect a swingeing tax increase from him--not even those numbered among the increase of 83 per cent. in unemployment in his constituency since the Prime Minister took office.

I seem to remember a poster from the election depicting a bombshell with, slapped on the side, the figure £35 billion. That was what the Government said Labour would put up taxes by. It was always a lie. The tax increases proposed by Labour at the last election added up to one tenth of that sum--but the posters were distributed around the constituencies.

If they went back to their committee rooms, perhaps Tory Members could find these posters lying around under chairs in back rooms. They might consider putting them up all around their constituencies again. All they need now slapped on the side of the bomb is the figure £28 billion, because that is the amount that the Government will take in extra tax if this Parliament runs another four years, even if the Chancellor never comes back and raises another penny in tax or extends the scope of VAT again or increases national insurance contibutions. That is the cost of Conservatism --£28 billion, or, as the Government prefer to express it, £1,000 for every household in the country.

This is such a blatant deceit that even The Sun is embarrassed. No one was more diligent about repeating the Tories' tax propaganda at the election ; no one was more naive about swallowing their threats of what Labour would do than was the editor of The Sun. And, bless his trusting heart, Kelvin MacKenzie feels cheated now. Last week he offered his honest, forthright advice to the Treasury : go away and

"lie down in a darkened room."

This was a Budget of failure and a Budget of cheats, but there is a third and final dimension that needs to be filled in if it is to be seen in the round. It is a budget of unjust men--unjust because they made the mistakes and they now expect everyone else to pay for them, not themselves. None of them will pay : everyone else will. They are unjust, too, because the tax increases that they have chosen will hit the poor hardest--such as the 500,000 people now being asked to pay more in national insurance even though they are too poor to be liable for income tax. These are the people who never saw any of the tax cuts of 1988. What right do the Government have to ask them to pay more when they all pay less in tax as a result of Budgets that they drafted?

If the Government had more courage, they would ask those with more income to make an extra sacrifice, but no such sacrifice is asked of them in the Budget. However, an extra sacrifice demanded of pensioners paying their fuel bills. They are the ones being asked to make the real sacrifices to put the nation's finances to rights. The President has a special responsibility in this matter ; he is the Secretary of State for energy. I read in The Observer that he was furious at the attempt to put VAT on fuel, and I thought that entirely plausible, as he has a very large house to heat.

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We learned today, however, that the right hon. Gentleman was not furious. In fact, he is furious at the suggestion that he was furious. So he agreed to it. The Government's energy spokesman agreed to slap 15 per cent. on energy bills. I hope that we have heard for the last time ever the right hon. Gentleman say that he cannot save the coal pits because that might put up electricity prices. British Coal has been bringing down the price of coal while the Government have been putting up the price of electricity.

There was plenty of time for this consultation. We know this because of the Chancellor's indiscretion on the "Jimmy Young Show". He explained to Jimmy Young that the origins of the new tax go back to last summer, to the Rio convention on global warming : "The moment the convention was signed I was sitting at home thinking, What are we going to have to do?' "

[Laughter.] I am not kidding. Of course, it was a bogus claim. VAT is not being applied to fuel because the Chancellor has gone green. It is being applied because the Government's books have gone into the red.

How can we believe that the Government are serious about curbing greenhouse gases after the vindictive way in which they have run down public transport, and made savage cuts in the home insulation programme? How can we believe that the Chancellor is serious about energy conservation, given the housekeeping bills from his Department in the last financial year, during which the Treasury's bill rose by 14 per cent.? Not much energy conservation there. The fuel bill at the Inland Revenue rose by 21 per cent., and at the Customs and Excise--the department that will apply the VAT to pensioners' bills--last year's fuel bill rose by 68 per cent. And these are the people who are going to ask pensioners to turn down their heating. I do not know whether the President was furious, but I can tell him that the nation is furious, because this measure will hit the poor hardest. Every study has shown that those at the bottom of the income ladder spend four times as much on fuel as a proportion of their income as do those at the top. For those at the bottom, their fuel bill is the biggest that they will get, and the Chancellor has just increased it by one sixth.

The President was gracious enough to remind the House that I was once a health spokesman. It is a marked feature of the British mortality statistics that they are the highest in Europe in winter. Our figures are worse than those of Sweden, Norway or Switzerland, but not because we have colder winters--indeed, their winters are colder than ours. We lose more old people in winter than any other country in Europe, because we pay the worst state pensions anywhere in Europe. We leave more pensioners asking themselves whether to pay for their eating or their heating.

We ask again the question that the Chancellor must answer before we vote at 10 o'clock : will pensioners and people on low incomes be fully compensated for the increases in their bills--not have them taken into account, but fully compensated?

The right hon. Gentleman will not get away with saying that the increases will be reflected in the payments to those on income support and means- tested benefits. There are 1.3 million pensioners living on incomes just as low as income support, but not getting a penny of it. Some of them, perhaps because of a mistaken sense of pride, will not ask for a means test. There are another 1 million

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pensioners living within 10 per cent. of the level of income support who will never qualify for a penny of it. Will they be compensated? We ask that because that is what they ask us. At the weekend, I received a letter from a constituent on invalidity benefit, who therefore does not qualify for income support. He said :

"I am aghast and worried over the new proposed VAT on domestic fuels. At the moment I only put on my immersion heater for one and a half hours in the morning to heat the water and I have the gas heating on for an hour and a half in the morning and the same at lunchtime and in the evening. If I am too cold, I just make a hot water bottle and retire to bed since I must work within the limits of what I can afford to pay for my fuel bills."

Do Ministers have any idea what it is like for those who have to work within the limits of what they can afford to pay for fuel? Do they have any idea of the hardship that those people will now face, with the choice of going to bed even earlier or doing without another necessity?

Tonight, the House will have the opportunity to express its verdict on that proposal. We will vote against resolution No. 21 in order to record our contempt for a Budget of failures, of cheats and of injustices. We will do it to express our derision for the Treasury Bench of limpets clinging on to office after they have broken every promise that got them on to it. We will do it most of all to stop them making the poorest in society pay for their mistakes and their broken promises. It should not be the poor who pay : they should pay, and we will make it our job to ensure that they do.

5.52 pm

Sir Edward Heath (Old Bexley and Sidcup) : A large part of the debate on the Budget has been concerned with undertakings which have not been fulfilled. Election addresses have been cited. Indeed, I read in one newspaper that Labour party headquarters is busy the whole day going through every election address by a Conservative candidate to find suitable quotations. I therefore want to get that matter out of the way immediately. I said in my election address : "I opposed the Community Charge from the beginning because I believed it to be unfair, ill-planned, costly to administer and above all philosophically wrong and politically damaging. I was proved right. John Major, when he became Prime Minister, pledged himself to abolish it and has done so."

I then went on to deal with the fast rail link. I did not look to the future of taxes, in whatever form. That exempts me from an embarrassing position.

I believe that it is wrong for parties at a general election to give undertakings about taxation--either its rate or its nature. When I fought elections in the 1950s and the 1960s, that was not done. No Government or Chancellor's record justifies their being able to say with conviction that they can foresee the economic future for the following five years. It has never been proved that they can do so. All that declarations about rates of taxation can do is to mislead the electorate and lead to further embarrassments for Government, which then weakens our economic position internationally. I want a return to olden times. In fact, the practice was first broken in the 1959 election by Hugh Gaitskell, who promised to reduce taxes by 6d,

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which so shocked the electorate that he lost the election. I hope that we now have a period during which we do not give such undertakings.

When changes to indirect taxation are made by a Chancellor--changes which my right hon. Friend has justified--we know that that is bound to affect many people on social security benefits and those just above the limit for those benefits. The right thing for a Government to do is, at the same time as the charges are introduced, to say that they recognise the problem and that those people will be fully compensated for those increases. That is what Rab Butler did in the 1952 Budget, and it is what happened with Iain Macleod in 1970 and with Tony Barber in 1971. It shows that we understand the position of the millions of people who are affected by such changes. It gives them confidence that the Government of the day understand them and their problems, and it gives society as a whole confidence that we care about these matters and that we will take action to deal with them.

My third point relates to my party in particular because of the targets that it has set for direct taxation. They are not achievable targets. I hope that my right hon. Friend the Chancellor will not say that, at some future time, we will reach the target of 20 per cent. and that the 40 per cent. rate will be reduced. There is no economic or moral justification for saying it. Although high taxes reduce efficiency and destroy a great deal of enterprise, we reach a point in the level of taxation where that is no longer the case. That is evident from the level of taxes paid by other countries with very successful economies, such as Germany and Japan, whose tax levels are higher than ours and higher than our targets.

When told bluntly what is required from them, the British people will respond. It is not necessary to try to smooth the path. I accept that the path in front of us is very difficult, and I have every sympathy with my right hon. Friend the Chancellor and the Government in the problems that they face. The economic position, with high unemployment and the destruction of so much of our industrial base, means that it will take many years to deal with the problems. There can be no easy, quick solution. If that is brought home to the British people, they will support the necessary steps--one of which is that the wealthier people should be prepared to pay a higher rate of tax. I believe that they would respond to a demand that they do so. One thing that we desperately need in this country is a better superstructure. It is right to say that we have been spending more on that, but it does not meet the demands that our superstructure now makes.

Sir Peter Hordern (Horsham) : I think that my right hon. Friend means infrastructure.

Sir Edward Heath : Yes, I mean infrastructure. So many countries in Europe, North America and the far east have infrastructures infinitely superior to Britain's.

We have only to look at London and the development needed there. There is no effective overall body to deal with that. Ours is the only major capital city in the world which does not have one. The former central body, the Greater London council, was abolished out of spite because of a handful of miserable Labour councils. Now we do not have that authority. To cite one specific example, when one drives out of London on the M4, as I frequently do, one must use a double-lane highway. In

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recent years, high buildings have been erected right alongside that road, so that if ever we have a Government who recognise that the M4, which was built 40 years ago, is totally inadequate for modern requirements, various new buildings will have to be pulled down to enable the construction of a new highway. That shows no sense of responsibility towards the demands of a very modern society. That is another case which desires urgent action. After all, improving the infrastructure provides jobs for many people.

As to the contraction of our industrial base over the past 12 years, we lost part of it at the beginning of the 1980s because we were so determined to push up the rate of sterling. Firms in my own constituency which has been established for 100 or 150 years went out of business. They never came back and they never will. That is happening in the present situation, with a further loss of our industrial base. My right hon. Friend the President of the Board of Trade rightly said that we must encourage industry, and he is doing so. Many of the measures in the Budget are extremely useful and make a great deal of sense. I am glad that they are being adopted by my right hon. Friends the Chancellor and the President of the Board of Trade.

In the mid-1980s, small firms went into business with a rush, and we know from the figures that they are in immense difficulty now. The kind of people who start small firms now have learnt the lesson of the 1980s and will not take the same risks. They will not allow themselves to get into that position. They also see how this country's banks behave when small firms get into difficulty. There is no relationship between the banks and industry in this country as there is in Germany and France, and that is what is lacking. That apart, the major banks have enormous problems as a consequence of unwise investments, debts, loans and property purchases over the past decade. One must keep one's tongue in one's cheek when talking about London being the greatest financial centre in Europe or in the world ; people outside know what is happening and can see the problems which have arisen in our banking system in the last 10 years.

My right hon. Friend the President of the Board of Trade mentioned Rolls- Royce. I will add to his remarks, especially as I know the attitude of so many of my hon. Friends on the Benches behind me. We took over Rolls-Royce in 1970 because it was bankrupt and its directors were trading against company law. We took over the company to save it from being prosecuted for tens of millions or hundreds of millions of pounds, but we were careful to do so in terms of a private company so that it could be privatised. That was exactly our plan.

That was not done without an attempt to persuade the private sector to look after Rolls-Royce. When a leading accountant reported to me that the company was not only heavily in debt but under contract to the Americans to produce an engine, would not make the delivery date, and would therefore be liable to a penalty of £400 million--a large amount of money in those days--I invited the chairmen of the four banks concerned to meet me in the Cabinet room. I explained the situation and said, "I hope that you feel that you can support industry in this country." All four flatly refused to help in any way at all. One chairman whose bank had offered a loan of £25 million, of which only £21 million had been taken up, promptly dashed back to his office and cancelled the

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remaining £4 million.

If we had not taken the action we did, all the military planes with Rolls- Royce engines would have been unable to obtain spares and would have gone out of action. The same would have been true of all civil aircraft with Rolls-Royce engines. It would have been grossly irresponsible for any British Government to fail to stand That company could have been privatised much earlier, but the management badly miscalculated what would happen to the dollar in the early 1980s, so privatisation had to be postponed. The company was subsequently privatised, and it is now successful, but it would not have remained in existence if the Government had failed to take action. There are instances when a Government is justified in taking action ; I hope that my right hon. Friend the President of the Board of Trade will always bear that in mind.

My right hon. Friend also mentioned delegations to various countries in support of British industry. I would take it a stage further. British Industry requires much more support from the Foreign and Commonwealth Office and from our embassies and consulates abroad. I do not in any way blame the Foreign Office--the three years that I spent there as Lord Privy Seal were among the happiest of my life. For a decade, the Foreign Office has been maligned and accused of every possible crime--of always selling out to the foreigner--and its staff has been drastically reduced. It needs its confidence restored and to be provided with an adequate level of staff. That means money from the Treasury. It is not good enough for the Treasury to say, "Where shall we slash? We'll make it the Foreign Office." The Japanese, for example, have a full consulate in every major city in the People's Republic of China. Britain has only one--in Shanghai--in addition to our embassy in Peking. The British consulate in Shanghai has a staff of seven--the consul-general, deputy, and press officer, and four assistants. Two of the four assistants are the wives of other consulate members. The Japanese have 410 in Shanghai. I am not urging that level, but we must face the challenge from other countries looking after their industries.

Foreign policy should be directed at British interests, industry and finance. We are losing masses of trade in the middle east. That is true also of Iran, because of our relationships over that wretched book. If one writes a book and it offends, one can be protected in one's own country. I thought that the author in question was wealthy enough to protect himself, but we provide public protection--very well, but I see no reason why we should ruin our relationship with Iran, which can be a very profitable market.

We are responsible for the United Nations resolution on trade with Iraq. Unfortunately, it affects companies which traded before Saddam Hussein invaded Kuwait and war broke out. Those companies cannot obtain payment for trade before the war. That cannot be justified. Other countries have already made arrangements with Iraq for the time when sanctions are removed. They will get all the business, because of our foreign policy. The same applies to Libya, where there is massive trade to be done. We are not touching it, because we are standing by the Americans.

All that may sound like heresy to some people, but we must look after our interests through our foreign policy. If I am mistaken in any of my remarks, I am perfectly ready to stand corrected, but the fact remains that foreign policy

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must take into account our trading and industrial interests. Much as one welcomes a delegation led by a Minister, it honestly does not have a big effect.

The problem goes much deeper than anything that I have mentioned or that I have heard mentioned. I refer to the nature of our society in this country. That has been a problem for many years. Industry is still not recognised as a prime factor in our society. Do all the best and brightest in our universities say, "I must get into industry"? No ; they want to get into the City, if they can--into some bank, preferably a private bank--or into public relations. The last thing they want is to work in industry. Nor am I certain that industry would welcome them ; I am afraid that it does not always do so. Why is that? It is because comparatively few are

management-trained at the top. Few have been to a top business school.

I recall only too well my visit to INSEAD at Versailles to present prizes. I asked the British contingent which firms they were going back to ; only one person was returning to this country, and he was with one of the oil companies. He said, "The company paid for me to come here, and I feel that I am under an obligation to go back. I do not mind, because the company told me that if I was successful I would receive an increase in pay." When I asked the others where they were going, they replied, "There is no point in going back : they do not want us, and they are not prepared to pay us." They said that they would go and work for American, French or German firms. That is the nature of our society. Despite all the changes of recent years- -so many that we cannot even keep up to date with them--we have no satisfactory education system ; we have not the major educational, scientific and technical system that the Germans have had since the last quarter of the last century. Moreover, we are not trying to secure such a system ; we are not concentrating on that at all. Management feel that it would be rather a bore to employ people who have experienced a form of education that those currently at the top have never had, because there is just a chance that such people will know more than they do.

I emphasise that all the measures in the Budget are desirable, apart from one about which I am not quite sure--the measure relating to self- assessment for tax purposes. A number of my constituents come to me and say, "Look at what the Inland Revenue has said about our accountants' report--can you arrange for some action to be taken?" Heaven knows how many cases there will be in the event of self-assessment, but I will let that pass. I am concerned with the nature of our society ; that is what we must aim to change if we are to make up the loss of our industrial base and secure a top management who can return us to a reasonable position in the world economy.

6.12 pm

Mr. Robert Sheldon (Ashton-under-Lyne) : In his powerful speech, the right hon. Member for Old Bexley and Sidcup (Sir E. Heath) made a plea for manufacturing industry, with which I shall deal at some length. He made another important point, however : he said that there were greater priorities than a 20 per cent. tax rate, and asked for

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a larger contribution from those who pay the highest rate. A sad aspect of the debate is that we are unlikely to hear many echoes of that request ; that is a great shame.

In the past two years, the Thatcherite adventure has ended. Those 11 long years of folly started with the belief that the philosopher's stone of monetarism had been discovered, and reached the high point of hallucination --the hallucination that we were in the midst of an economic miracle. In fact, as we know, we were living on fool's gold. That is why we squandered £120 billion of North sea oil money, and £40 billion or more of privatisation receipts. Instead of using those enormous and wholly exceptional moneys to recreate our industry and restructure our essential services, we spent them on importing foreign luxuries, thereby ruining our own manufacturers.

Personally, I can never forgive the Government for reducing the number of firms in my constituency by 30 per cent.--manufacturing firms, in the main ; firms that provided the goods and services that we see in every country. The closing of some of those firms lowered what had been higher-than- average levels of employment and pay in the constituency.

That period has now come to an end--notably in the Budget--with a suddenness that surprised only those who believed the Thatcherite nonsense that they so readily proclaimed. It was never a free lunch, and now the bill must be paid. The measure of that bill--in just this one year--is a £17.5 billion balance of payments deficit, and a £50 billion public sector borrowing requirement.

How then do the Government intend to restore our finances, both internal and external? That is the critical question. There are no further increases in North sea oil to provide the necessary income ; what the North sea is producing we are already spending. There will be few further receipts from privatisation : the barrel has been fairly well scraped. Indeed, whereas in the past the Government could rely on £5 billion a year--and spent it- -they will suffer a fall in privatisation receipts from now on.

The position is worsening all the time, which is one reason why the Government are so adamant in opposing the social chapter. They depend on a Britain with cheap labour and weak trade unions, attracting investment on the basis that it is a part of the European Community with certain unique advantages which they wish to advertise. The existence of cheap and docile labour is the Government's solution to the economic problems that they have inflicted on us. The social chapter runs directly counter to that vision ; they will therefore fight fiercely to prevent its enactment. That is their solution to the Thatcher years.

The Chancellor has repeatedly said how much assistance he is giving manufacturing industry, and the President of the Board of Trade said today that the Budget was one more step in the strategy for industry. I wish that I had observed any such steps. Undoubtedly, the right hon. Gentleman has been a great disappointment. There were those who strongly disagreed with much of his politics, but, when he said that he would intervene in industry at various times of the day, we thought that he would at least make some sort of effort : we expected something from a person of such energy and drive.

The Budget has given some assistance here and there, but it provides little for manufacturing industry. The £900 million for advance corporation tax relief, the £400 million

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for petroleum revenue tax abolition and a few other concessions may help some firms, but they do not matter much to the one industry that really counts in the long term--manufacturing industry.

Let me say in passing that I welcome the easing of certain VAT penalties. The Inland Revenue operates on the basis of an understanding of the real world, whereas VAT is the direct descendant of excise duties that resulted from the fact that, over the centuries, the establishment of a harsh regime was the only way in which to protect revenue. The system of VAT collection did not allow sufficiently for an understanding approach to genuine error. I often feel that the greatest help that Government can give small businesses is to avoid adding to their burdens. Many small businesses would forgo any Government assistance if they could only be left alone. I know that, in this hard world, that cannot happen ; but any help given by Government must be set alongside such a natural aspiration. Governments always require certain information to ensure that financial assistance is properly accountable ; I understand that.

In a small firm, however, frequently only one person can provide such information--the person who is engaged in running the business, and who is diverted from the essential operation of the company. That person is even more diverted when there are substantial penalties for not carrying out the tasks required by Government. I therefore welcome the easing of the VAT penalties.

Let me turn to the next Budget that this Chancellor will present. The Chancellor has told the country that he does not wish to harm recovery by introducing large tax increases now ; in the main, such increases will come later. Last week's Budget, however, is the first shoe to drop ; while waiting for the second, people will be reluctant to spend. They know that the second shoe will soon follow, and their expectations will take account of that. The Government have shown us an unusual vista--the prospect not of jam tomorrow, but of vinegar for some years to come. This was a Government, however, who believed at one time in "rational expectations". Nigel Lawson believed that, by controlling the money supply, employers and trade unions would see that sterling M3 was coming down and would reduce pay claims on the basis of such "rational expectations".

Of course, employers and trade unions did no such thing. It is amusing-- though sad--to recount the folly of those times. Rational expectations, however, can work only if people actually believe that things are going to happen. If they truly believe that taxation will affect them in the way that the Government have stated, spending will be curtailed, not just next year and the year after but this year as well. The only way that that will not happen is if people do not believe the Government. There may be something in that view. The Government have already back-tracked on compensation for VAT on fuel for certain groups of people. Who knows what further U-turns might lie ahead? This is, after all, a very weak Government. Many policy changes are possible.

There is a further factor that may change the income/expenditure picture to be painted by the Chancellor of the Exchequer in the autumn : that, while expenditure has to be fixed two or three years ahead, because of the planning required, revenue can be determined within a few weeks of the announcement. One does not have to make revenue plans anything like as far

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ahead as one has to make expenditure plans. We can be pretty sure how much the Government expect to spend in 1994 and 1995, but how much they will raise in revenue is still an open question. The Chancellor of the Exchequer's statement, although said to be definite, is still only an opening shot.

I particularly regretted, as did my hon. Friend the Member for Livingston (Mr. Cook) in his outstanding speech, the increase in VAT on fuel and power. In 1976, when we held the presidency of the Community, I negotiated the maintenance of our zero rating. That was always under attack by our Community partners, It was defensible, on the basis that it was the most important way of limiting the regressiveness of the tax. Without zero rating, VAT becomes a tax on the least well-off in our society. That remains true today. Those above income support levels, particularly the elderly, already find their gas and electricity bills a special burden. They spent most of their time indoors and have special needs for cooking and heating. They will be very unfairly hit by this tax.

For those who believe in a progressive system of taxation, the excessive reduction in the high rates of tax, the emasculation of capital transfer tax and now the abolition of VAT zero rating on fuel means, in effect, a transfer from a progressive system of taxation to a regressive system. Whatever other policy decisions my hon. Friends will decide upon, the return to more progressive systems of taxation must be an essential part of them.

What I found most depressing in the speech of the Chancellor of the Exchequer was the absence of any real help, which I believe that the right hon. Member for Old Bexley and Sidcup (Sir E. Heath) wishes to see, for manufacturing industry. The many limited measures set out to assist here were not satisfying. They seemed to be designed to placate the sufferers rather than to provide real solutions to real problems. The real problems are investment in our manufacturing industry and the restoration of the broader base, which has been allowed to shrink.

Manufacturing industry alone can provide the goods and the exports that produce the wealth which enable more people to be employed in the service industries. I accept that we cannot assume that there will be a large increase in the number of jobs in manufacturing industry. As manufacturing becomes more efficient and finds more methods of automation--an idea that was prevalent 20 years ago--it is bound to shrink in size. However, manufacturing industry will produce more, and the selling of those goods will provide the wealth to enable us to have the service industries, the infrastructure developments and the various requirements that we expect of our social services.

In the midst of all these problems, we have heard that low inflation and low direct taxation are the priorities, but if we are to have a priority among priorities, it must be our manufacturing industry. That is the fount of our prosperity. If we achieve success there, the balance of payments will improve and more money will be available for infrastructure development and the public services that I mentioned.

Prosperity cannot come from trying to spend our way out of recession. That will lead to yet more imports. The weekly assessment of any rise in retail expenditure is looked upon as a sign that recovery is coming. Those with longer memories of our recent economic experience will

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remember that such expenditure does not solve our problems. It is not consumption that will lead us out of recession. There was a case, of some sort, for that argument when we produced most of the goods that found their way into our shops. Today, so many of the goods we made we now import. Therefore, a rise in consumption is more likely to lead to greater imports and to a worsening of our trade deficit. The only long-term way out of recession is by investment, particularly in the production process, and by a level of the pound that stimulates exports and weakens our partiality to import. I still believe that there is room for the pound to go down, if we are serious about acting upon imports and encouraging exports. We need to limit the tendency to import, and that means a competitive pound. The voices of the City and the Bank of England, which would dearly like to emulate the power and independence of the Bundesbank, must be resisted. The lack of political influence of our manufacturing industry has always been one of the serious weaknesses of our economy. In any conflict between the needs of industry and the voice of the City, there is only one winner. As Winston Churchill said :

"Finance should be less proud and industry more content." It is an unequal contest. It arises from our centre of finance being a mile or so down the road and the centre of gravity of our industry being a hundred or more miles up the M1, the M6 and the M4. Industry and the country require a competitive pound. If that means allowing the pound to decline still further, that will need to be accepted. We should not be in a hurry to return to the exchange rate mechanism, although I should prefer not only a competitive but a stable pound. There are great inefficiencies in foreign trade when the price of the goods purchased and sold cannot be precisely known. It is not sufficient that the forward foreign exchange currency market provides ample opportunities for hedging. The fact is that international trade is conducted on a basis more akin to the home market, with orders being delayed, deferred and cancelled with frequency.

Few overseas orders nowadays are on a letter of credit basis, where the date of delivery is tightly specified. In those conditions, such forward currency precautions used to be a controlled way of limiting currency risks. In the present currency see-saw, the foreign exchange losses can be greater than the profit on a transaction. Therefore, it is far better to have a stable exchange rate that can be adjusted from time to time. In the past few weeks, we have seen variations of up to 5 per cent. in the pound's value against major currencies. Adjustments made as required need not be more, would happen infrequently and would result in the fine pricing of contracts, with advantage to international trade.

What I had hoped to see was a Budget for industry. In 1991, we had a Budget that was supposed to be good for business. In 1992, we had a Budget that was supposed to be good for recovery. This year, we had a Budget for sustained recovery. What we needed was a Budget for industry. We did not get one. Therefore, the basic problems that face our country are no nearer solution.

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6.28 pm

Sir Terence Higgins (Worthing) : I suppose that this is positively my last appearance in a spring Budget debate. One of the pleasures over the years in these debates has been to follow the right hon. Member for Ashton- under-Lyne (Mr. Sheldon).

I intend to say a few words about the Government's proposals to change the time of the debate from the spring to the late autumn. It raises a number of difficult questions. The Government have published a White Paper on the issue. It referred to a number of Treasury Select Committee reports that were prepared under my chairmanship but, strangely, not a report, also under my chairmanship, that was prepared by the Select Committee on Procedure (Finance).

Trying to deal with public expenditure and taxation provisions at the same time will place a heavy burden on Treasury Ministers. Therefore, I commend to the Chancellor and his Treasury colleagues the Select Committee's suggestion that there is a strong case in future for dividing measures on taxation into three parts. The first would be a Bill dealing essentially with economic management and, therefore, primarily with changes in tax rates. The second would be a taxes management Bill which could be introduced at any time during the year. The third, if a new tax were introduced, would be the procedure that we adopted when we introduced value added tax--a Green Paper, draft clauses and so on. Unless such changes are made, the burden on the Treasury and on the House of dealing simultaneously with public expenditure and taxation will be a real problem.

Following on from that, there is a danger that the House's opportunities to debate such matters will be significantly diminished. Until recently, we held debates on the autumn statement, on the public expenditure White Paper and on the Budget. If we debate the Budget only in the autumn, the opportunities for serious debate in the House, related to a specific proposal announced by the Treasury, will be reduced to one. We should not contemplate that, because it is important that the House should have the opportunity to debate these vital matters during the year.

I deal now with what has become the political, if not the economic, centre of my right hon. Friend the Chancellor's proposals--the proposals to levy VAT on domestic fuel and power at a rate of 8 per cent. from next April and of 17.5 per cent. from the following April. It is rather curious that, although the date of the Budget is to change from spring to late autumn, the proposals for changing the rate of VAT will still come into effect in April. It is rather like the smile on the Cheshire cat's face remaining after the Cheshire cat has disappeared.

When Iain Macleod and I, together with Professor Wheatcroft and Arthur Cockfield, devised the VAT system that we now have, we spent a great deal of time examining the experience of the countries of the Common Market, as it then was. We came to two clear conclusions. The first was that there should be only a single rate of positive VAT. The second was that there should be relief by way of zero rating for those at the bottom of the income scale. In that sense, the tax that we devised was superior to others in the Common Market.

At the same time, of course, we abolished the selective employment tax and the multi-rate purchase tax. The

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change from the SET and a purchase tax to VAT was not regressive because of zero rating. We got rid of a system of variable rates, or multi-rates, which had meant that the pattern of consumer expenditure was being distorted. Those two essential Conservative principles were important changes and meant that we introduced a better tax than those that we found in the European Community.

Having said that, I clearly view with considerable misgivings my right hon. Friend's proposal for imposing a positive rate of VAT on fuel and power consumed domestically. I believe strongly that it is a mistake to change the structure of taxation for short-term or tactical revenue-raising reasons, which is what we are in danger of doing now, or, to put it more accurately, next year.

The change is not likely to be reversible. The right hon. Member for Ashton -under-Lyne intervened on my right hon. Friend the Chief Secretary on the second day of our Budget debate. The Chief Secretary replied :

"The proper argument against Community intervention in our zero rates is the right of the House to determine our taxation rates. It is the right of my right hon. Friend the Chancellor to decide what they should be."--[ Official Report, 17 March 1993 ; Vol. 221, c. 302.]

However, we know what enormous pressure there has been on this country to harmonise our system of taxation and bring it in line with that elsewhere in the Community. If we abandon zero rates on fuel and power, it will not be possible to reinstate them at a later date. Another worrying aspect is that the more one erodes the scope of zero rating, the greater the pressure from the European Community will become to remove it altogether, not only from fuel and power and newspapers but from food and other essential items. I am reminded of a remark made by my permanent secretary when we introduced VAT. The question of harmonisation arose, and he said, "If the Italians collect it, we'll harmonise it." There was something in that. We are increasingly under pressure to harmonise our VAT rate with a European form of that tax, which is less satisfactory than that which we originally devised. Therefore, the current proposal is an unfortunate development.

I am rather worried about the proposal to increase VAT on fuel and power to 17.5 per cent. in stages and the imposition of an 8 per cent. tax next year. That raises the issue of multiple rates which I have always believed that we, as Conservatives, did not favour. Once people have paid their direct tax, we should not use the tax system to distort the pattern of consumer expenditure.

I now come to the difficult question--

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