House of Commons Hansard Debates for 26 Apr 1993

Mrs. Roche : I have followed the hon. Lady's argument with great interest. The Institute for Fiscal Studies estimates that the poorest 10 per cent. spend 13.25 per cent. of their budget on fuel, compared with the richest decile, who spend only 3.46 per cent. of their budget on fuel. Does that not lead her to believe that this provision in the Finance Bill is completely wrong and will have a tremendously damaging impact upon those groups about whom she spoke so eloquently?

Mrs. Browning : I am grateful to the hon. Lady. She endorses my plea that due account should be taken of the fact that there are certain groups in society who necessarily have to use a lot of fuel because of their state of health or mobility.

I want also to draw my right hon. Friend's attention to those people who do not claim benefit. Reference has already been made to them. Some of them are on low wages. A high proportion of my Tiverton constituents earn less than the national average wage. Reference has also been made to pensioners who have only a little money in savings. Many of those people exercised thrift during their working lives in order to provide for a small private pension, or they have some savings. When the state

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retirement pension is uplifted in line with the retail prices index, there should be recognition of the true effect of VAT on fuel prices.

May I also ask my right hon. Friend to discuss with the Secretary of State for Social Security some of the non-means-tested allowances, for that will almost certainly bring into this category people who face high fuel costs? I refer, for example, to those in receipt of invalidity care allowance and disability living allowance. One ought to investigate how those people will be affected by this proposal. It is important also to put on record my views on petroleum revenue tax. I fully understand why my right hon. Friend the Prime Minister committed this country at the Rio conference to reducing CO emissions between now and the year 2005.

However, in my constituency--650 square miles of rural Devon--ownership of a car is vital. That is reflected in the latest census figures, which show that 81 per cent. of my constituents are car owners. In rural Devon, we do not use a car only for driving around to look at the beautiful scenery. It is essential that people have a car to get to work and for access to employment and training. It is also important for people who have to take children to school, to go shopping or to gain access to primary care facilities. They are all essential uses.

I can also think of many examples of elderly people who live independently in a rural community, and who find that their legs can no longer carry them to the village shop or the local doctor but are quite capable of driving a car. In those cases, the ownership or use of a car gives them continued independence and helps them to live in their own home for longer. The impact of such a tax on people in rural areas must be appreciated, especially as we are now implementing care in the community. If one considers the census figures, one sees immediately the difference between car ownership in rural constituencies and constituencies that are primarily urban. I know that there is a strong argument for the tax in terms of the environmental impact of CO emissions, but I draw to the House's attention information given to me by the Library. It shows that emissions in this country between 1990 and 2005 are forecast to rise by 19 per cent. That is the lowest forecast in the European Community, and compares with the forecast for Portugal of a rise of 63 per cent. and the average EC figure of 31 per cent.

I hope that such a pattern of taxation on environmental grounds will not continue in Budget after Budget, because it has a different effect on people in rural and urban areas. I suggest that we consider instead tax incentives involving cleaning up fuel and the motor car.

I realised that the Budget was not going to be a giveaway Budget. It would have been condemned as irresponsible and profligate by the Opposition, who criticise it now, had my right hon. Friend the Chancellor made it a giveaway Budget. The small business sector has welcomed the Budget, and I wish to draw attention to two aspects that are important to business and especially to manufacturing. The first is capital taxation. The Chancellor has allowed those with more than a 5 per cent. interest in unquoted companies to roll over the gain if they purchase and move more than 5 per cent. into another company. I hope that that is the first of many measures to allow the transfer of interests between companies.

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At the moment, there is no movement of capital, especially in the corporate sector affecting the smaller unlisted company. As the recession lifts, it is important that expanding companies can attract new investment, and I hope that the measure will be built on, as it is greatly needed in the small business sector.

Many hon. Members have mentioned the importance of manufacturing. In the autumn statement last year, the Chancellor allowed, for one year, 40 per cent. first-year capital allowances on an unrestricted sum. That year will be up by the time of the Budget in November, so, before my right hon. Friend makes a further announcement next autumn, I urge him not only to abolish the one-year break, which has been extremely helpful in lifting the economy and in bringing about the movement that we now see in business and manufacturing, but to take account of the fact that very small businesses find it extremely difficult to carry forward profit and capital to allow for periodic capital expenditures such as the purchase of a new vehicle, which they may make regularly every two or three years.

I do not ask my right hon. Friend to consider making it an unlimited tax benefit, but to consider putting a ceiling on it. Ideally, I should like a ceiling of £100,000 in any tax year, but I suppose that I could settle for £50,000 if he would consider that. In any event, it should be a 100 per cent. allowance, because the continuation of that allowance will be instrumental in helping small companies which now have increased orders on their books and which are looking forward to further growth.

7.54 pm

Mr. Robert Sheldon (Ashton-under-Lyne) : I apologise for not being here for much of the debate, Madam Deputy Speaker, but there was a meeting of the Public Accounts Committee which was considering the expenses of the Gulf war. However, I heard the Chief Secretary's opening remarks. I should have been especially interested to hear what he was going to devise as an economic reassessment following black Wednesday.

You may remember, Madam Deputy Speaker, that we were promised a reassessment sery late stage, we might have heard something from the Chief Secretary about it today, but we did not.

That day in September was very important. It was the day that Thatcherism came to an end ; it was the day that the Government had to face the reality that an economic policy which had lasted for 11 or 12 years had finally run into the sand. It was when the Government realised that something had gone wrong, and their hopes, dreams and expectations that they had fundamentally changed this country's economic position were seen as the nonsense that they always were. We all know that Governments make mistakes, but the striking feature of the 1980s was the combination of the scale of the mistake and the long period for which it persisted. The Government were incapable of learning from their errors. Part of the reason for the errors were the wonderful days of North sea oil, which replaced imported fuel. However, the revenue was dissipated in the consumer-led boom which eventually led to the problems and troubles of last year.

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The folly was compounded by the belief that the myth of prosperity was the result of clever Conservative economics. That has all been washed away, along with the money that could have been used in the seven fat years to prepare for the seven years of famine, which have some way to run. Unfortunately, the Government believed that the windfall was proof of an economic miracle, but now we have to live with the reality for which we were unprepared. How are we responding?

I regret to say that the Government's economic policy does not make sense. The Government now regard success as getting people into shops to spend money, most of which will go on imported products. Our balance of payments deficit is bad enough, but such a move will increase it. The Red Book shows a 1.25 per cent. increase in gross domestic product for this year, together with the same increase in consumer expenditure. At the same time, the Government are levying value added tax on fuel.

I have a personal interest in VAT on fuel because, while I was Financial Secretary to the Treasury, we held the presidency and it was my lot to negotiate the sixth VAT directive. I argued that VAT was a progressive--or reasonably progressive--tax, but that it would be a regressive tax without zero rating. At a stroke, the removal of zero rating makes it a regressive tax. It is a tax on the poorest people, and the argument that we have been able to use in the Councils of Europe will not be available to us any more because we have conceded the principle that there is a need to retain it as a non-regressive tax. The Government are giving an open door to shoppers to spend their money before the tax comes into effect. That is not a sensible way to proceed.

The Government must produce a policy for the whole decade. There are long- term dangers because we have frittered away the benefits of previous years and must now be called to account. The £50 billion budget deficit and the £17.5 billion balance of payments deficit will take all those years to recover.

There are two ways in which the Government can proceed with an economic policy that makes some sort of sense. First, they can reduce the value of the pound and go for exports and the growth that comes from them, while increasing investment incentives. My proposals for the latter would be somewhat different from those of the hon. Member for Tiverton (Mrs. Browning). I do not think that they would apply to motor cars and I do not agree with the limit that the hon. Lady suggests. Nevertheless, the idea of substantial investment initiatives is a correct one.

We must give manufacturing industry something : we must reverse what happened to it throughout the 1980s. Even 100 per cent. allowances would not be as disastrous as our doing nothing. The 40 per cent. figure will have to be renegotiated this autumn and I expect that to continue, but the figure should really increase to 60, 70 or 80 per cent.--even 100 per cent. would not be impossible, as I said. That would rapidly have an effect. Education and training will take some time to get right ; that will need to be done on a rather longer-term basis, but we must begin the long haul to economic viability. The need for that must be impressed upon the Government. I have outlined the sensible approach first. The other approach --the approach that I fear will be adopted by the Government--might accept a stronger pound. We have seen the pound rising in the past few weeks. That will please the Bank of England, which loves a dear pound, and will reduce the living standards of our people. That is

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fundamentally the Conservatives approach ; there is no question about that. The Conservatives accept implicitly that the living standards of the British people throughout the 1980s were built on sand. The Government feel that they must reduce them to make sense of their economic policy. Whatever happens, the Government will reduce living standards. They hope that, as a result, imports will fall relative to exports.

That will still leave the problem of the budget deficit, and that is where the Chief Secretary and his Thatcherite partner, the Secretary of State for Social Security, will start their emasculation of the welfare state--and "emasculation" is the word. I am thinking not just of the common retirement age of 65 for men and women ; with a Conservative Government in power, I regard that as inevitable. I am sure that that is what they will do--at the very least. The amount of the retirement pension and the qualifications for it will fall under the axe. Disability payments and a whole range of state benefits are all now under threat, and in addition to those cuts will be the cuts in the national health service.

The history of the welfare state under this Government and under all Conservative Governments has followed a depressing pattern. General nods in the direction of the post-war consensus which began under the first post- war Conservative Government gave way later to cuts disguised as changes, then to cuts accepted as necessary, now to the real 1990s version of the Geddes axe. The public expenditure cuts of the 1930s created a bitterness whose effects we can still feel, 60 years later. They led to a torrent of dissent that changed the political landscape of our country. The great pity is that that approach is not merely divisive ; it is cruel and unnecessary. The only claim that the Government can make is that they have kept inflation under control. That claim is not true, but they make it anyway. The price of that claim has been an overvalued exchange rate. The reason why inflation has not been as high as it would otherwise have been has been the very high--the absurdly high, the ruinously high--level of the pound, and the levels of interest rates that have accompanied it. It is the greatest condemnation of our economic inadequacy that the Government entered the ERM at a disastrous level. The Government watched our balance of payments react calamitously and used billions of pounds worth of taxpayers' money in a fruitless attempt to defend the rate. It was the greatest economic incompetence of our age to throw away those valuable moneys on a worthless venture. Never had we seen our resources used so profligately. Finally, when the money--our money--ran out, the rate was allowed to fall and business sighed with relief. It should have happened long before, yet the Government claimed credit for it--for the fact that now we have a realistic exchange rate. Now that all that money has been squandered, the exchange rate is realistic and the Government appear to be proud of the part they played in the process. Complaints about a cheap pound come from down the road in the City. The City has advocated a dear pound and high interest rates, both of which affect our vital companies in Manchester, Birmingham, Glasgow and our industrial centres on which we depend. If we cannot have financial devolution, we should at least listen with greater

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care to what industry really needs, and we should meet those needs, one of which is large investment incentives for plant and machinery. Such incentives will not only help industry to modernise itself. The hon. Member for Macclesfield (Mr. Winterton) is absolutely right and I am sorry he is so readily brushed aside by those on the Treasury Bench.

The advantage of investment in new plant and machinery is that it modernises the workers as well as the plant itself. New equipment leads to new methods of manufacture and new forms of operations in which many can play their part.

Mrs. Browning : The right hon. Gentleman referred to my comment about capital allowances. I hope that he would agree that, in the case of large conglomerates, which have an open-ended opportunity to invest--they can invest and benefit from tax breaks on millions and millions of pounds-- there comes a point at which such a provision could be abused. That is why I propose a ceiling, rather than the open-ended offer that he appears to favour.

Mr. Sheldon : I would accept that if it applied to the present definitions that qualify for investment incentives. I am thinking purely of plant and machinery, and investment in plant and machinery leads to modern methods and practices and modernises workers as well as equipment.

Our industrial strength used to lie in the manufacturing skills of our people and in their inventiveness. Our manufacturing skills have been overtaken by those of scores of other countries in the developing as well as the developed world. Our inventiveness at least remains, and, although it is not enough to ensure the predominance of our manufacturing industry today, it is nevertheless a talent of great value. But it, too, is under threat because Germany, Japan and now France now produce more patents than we do. Our one residual advantage is now disappearing. What is more, those countries actually use their patents to produce articles.

Although the Government are beginning to talk as though manufacturing is important, precious little is emerging from their talk. The Prime Minister appears to have a new-found love of manufacturing industry. It is a great pity that he did not discover his affection for it years ago when there was more time to make use of it.

What the Government are doing for manufacturing industry is wholly inadequate. They need to reassess training and education and to run the economy in the interests of manufacturing industry, and therefore in the interests of prosperity and of our people. The tragedy is that the Government will be trying to retain a high pound when we have a real opportunity to obtain the benefits from a truly competitive pound. In my view, the pound should be considerably lower than it is at present. It is with great sadness that I view the attempts to jack it up.

Because of our high unemployment levels, we have an excellent opportunity to meet the inflationary pressures that arise from a low pound. That high unemployment will be the greatest assistance to us in producing expansion without inflation. There are not the constraints that we have had in the past and, although the deskilling of our people is serious, I believe that training can be expedited, as it was in the early days of the war when training centres played such an important part in producing for wartime conditions.

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People want to work. A lower pound can reduce imports and promote exports and that should receive the support of the country. It is a terrible indictment of the Thatcher and post-Thatcher years that such a policy is not proposed. I have always been impressed by the French experience of 1958 to which I keep returning. Under President de Gaulle, the French combined devaluation with deflation and that provided a limitation to import and an incentive to export. Deflation provided the room to achieve those obectives.

We have no need for further deflation in Britain today. We already have an excessive degree of inflation and such a high level of unemployment. The way is now clear to achieve what France achieved more than 30 years ago. Now that the myths of monetarism and the constrictions of the ERM have been banished, we might have expected a fresh analysis of our economic situation. Indeed, that is what we were promised following black Wednesday. What has happened? We are planning--at least for the time being--a life outside the exchange rate mechanism. In addition, the Government are certainly not going to give the Bank of England the independence that it dearly wants. The Government are right in that respect. The Bank of England is like the other nationalised industries. It wants to be privatised because a privatised monopoly is a comfortable institution in which to reside. The first thing that happens is that salaries are jacked up ; then share options are introduced ; and, finally, both are justified on the basis that the new monopoly profits are a sign of good management.

So, we have no ERM and no privatised Bank of England. There is a reduction in living standards and exhortation after exhortation to export. That is the revised agenda of the 1990s. The great strength of our democracy has been that Governments have eventually learnt from their mistakes. The learning process certainly needs to begin soon.

8.11 pm

Mr. Barry Legg (Milton Keynes, South-West) : In some ways, we have had a curious debate so far. We started with some shadow boxing from the Opposition Front Bench. We then heard a few ideas and some glimmerings of a strategy from the Opposition Back Benches. The right hon. Member for Llanelli (Mr. Davies) put forward some kind of strategy and we have just heard a strategy from the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). However, there was a dearth of strategy from the Opposition Front Bench.

In debate after debate, no matter how carefully we listen to hon. Members such as the hon. Member for Peckham (Ms Harman), we come away with no idea of what those on the Opposition Front Bench would like to see in respect of the total level of public spending, the total level of taxation, the borrowing requirement, the level of interest rates or the level of the currency.

Mr. Quentin Davies : They do not know themselves.

Mr. Legg : As my hon. Friend makes clear in that valuable intervention, they do not seem to know. So long as those on the Opposition Front Bench lack a strategy, they will continue to be a most ineffective Opposition. The

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British people will regard them as an ineffective Opposition who are incapable of being an alternative Government.

My right hon. Friend the Chief Secretary to the Treasury identified some very encouraging indicators in respect of the British economy that have appeared in the past few weeks. Those encouraging signs include the reduction in unit wage costs of 2 per cent., the latest increase in manufacturing output per head of 7.8 per cent., the improvement in the non- EEC trade balance and the 2.5 per cent. rise in manufacturing output in January and February. There are many other examples which show that recovery is finally getting under way. I hope that the Government will continue to watch our economic indicators carefully, because I do not believe that it will be plain sailing from now on. Many hon. Members have identified problems in the economy. I urge my right hon. and hon. Friends on the Government Front Bench to watch the indicators and to take the appropriate action to ensure that we get the sustained and lasting recovery which is so much needed in this country.

As my right hon. Friend the Chief Secretary rightly said, we are leading Europe out of recession. Although the projections of our growth for this year are meagre, they are much better than those of our European partners. In its most recent projection in respect of Germany, the Deutsche Bank projects a 2 per cent. decline in gross domestic product. Britain is leading Europe out of recession and it is good that the Government have taken advantage of the freedom and flexibility that the markets provided last September.

The Government have taken advantage of that freedom and flexibility to let the pound float and to reduce interest rates. The British economy is now moving back to a better balance. Many hon. Members wanted to know what the Government are doing for industry. By leaving the exchange rate mechanism and reducing interest rates by 4 per cent., the Government have reduced the interest charges of British industry by £4 billion. That is more than has been contributed by the Budget and more than any of the suggestions, however vague, from Opposition Members.

It also behoves British politicians to encourage British industry and commerce to look widely for markets and to raise their eyes across the world. The economic pattern across the world is changing. Unfortunately, Europe is currently stagnating. I fear any moves to create a fortress Europe in respect of trading arrangments. I am sure that my colleagues on the Government Front Bench will be ever vigilant in that respect.

At the present time, the developing economies in the Far East are doing better ; they are growing and becoming stronger. The Asian Development bank has projected growth in GDP in the developing economies of the Far East for the coming year of 7 per cent. at a time when growth in Europe is flat. Several of the economies in the Far East are growing at higher rates than that. In addition, the Chinese economy is growing at a rate of 10 per cent. per annum according to the Asian Development bank.

Business men in this country must see that as an opportunity. The growth in the Chinese economy means that the Chinese are exporting more and also importing much more. It is projected that imports into China in the next 12 months will increase by 20 per cent. or 25 per cent. There are certainly markets out there which British

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industry should take advantage of and there are opportunities which can help Britain to have a prosperous and successful future. Several hon. Members have referred to the Treasury and Civil Service Select Committee report on the economy. We produced a report on the Budget statement, and last week we produced a report on monetary union. Quite a lot of work went into the former report and it was unfortunate that some of its impact was diverted by one or two Labour members of the Committee who sought to take cheap political advantage of it. However, overall a lot of worthy evidence was taken and sound conclusions were drawn.

One of the more important questions about which many hon. Members are interested is when Britain is likely to return to the ERM. I must admit that I am not altogether encouraged by the evidence that we received from my right hon. Friend the Chancellor of the Exchequer when he appeared before the Select Committee.

My right hon. Friend saw the criteria for our returning to the ERM as follows : first, that we are clearly out of recession in the United Kingdom --that moment is rapidly approaching--and, secondly, that the economies of Germany and the United Kingdom are more closely synchronised. I am not quite sure what he meant by that, but if he means interest rates coming closer together, that is also happening. However, I do not believe that that should be a reason for returning to the ERM.

Mr. Iain Duncan-Smith (Chingford) : What about the fault lines?

Mr. Legg : I was coming to the fault lines.

The Chancellor of the Exchequer and my right hon. Friend the Prime Minister rightly identified fault lines when we left the ERM in September. Since then, we have had a report from the governors of the European central bank which says that they cannot find the fault lines. It is not surprising that governors of the central bank cannot find the fault lines in the European exchange rate mechanism system. If they admitted that there were fault lines, they would have to throw even more money at defending the artificial exchange rates that they have set across Europe.

The real fault line in the exchange rate mechanism is that the former anchor currency and anchor economy in Germany are no longer financially stable. Fixed exchange rates can run successfully for various periods. For example, under the Bretton Woods system, we ran a successful fixed exchange rate system across the western world for a number of years. One of the reasons that we were able to maintain the system was that the United States was the major economy in the western economies. It is worth remembering that the United States economy is five times larger than the Germany economy.

The fixed exchange rate system ran successfully because currencies were linked to the major economy and the major economy had sound and stable financial policies. The major economy did not run big budget deficits and it did not have high inflation. When it started to run big budget deficits with the coming of the Vietnam war in the 1960s, that destroyed the Bretton Woods system of fixed exchange rates. We have seen the same thing happening in Europe in the past few years. Germany has ceased to be an effective

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anchor because it no longer possesses the financial stability that it had in the 1960s and 1970s. Germany faces a prolonged period of large budget deficits and reconstruction with the unification that is taking place there, so it no longer possesses the stability that it had previously.

Germany has massive problems on the competitiveness front. It is no longer the competitive country that it was in the 1960s and 1970s. German wage costs per hour are substantially greater than in the United Kingdom. To imagine that Germany will once again become the anchor and that Britain should, in the near future or the medium term, fix sterling against the deutschmark will simply lead to a repeat of the problems that the United Kingdom has faced over the past five years with inappropriately valued exchange rates and interest rates being set at the wrong level for domestic conditions. If that happens, we shall not see success in our affairs. There is a great danger economically for the United Kingdom in returning to the exchange rate mechanism.

Hon. Members would do well to draw on recent experience and say that, broadly speaking, floating exchange rates provide the best means of establishing the level at which currencies should operate. If central bankers and politicians think that they know better than markets and that they can overrule markets and set exchange rates, that is a grave mistake and the people and taxpayers in many countries suffer as a result. There should be no return to the exchange rate mechanism in the lifetime of this Parliament. We have heard comments from several hon. Members, including my hon. Friends the Members for Bournemouth, West (Mr. Butterfill) and for Bridlington (Mr. Townend), about the high level of public spending and the high level of the public sector borrowing requirement in the United Kingdom. Certainly, for a Conservative Government to be running a deficit of some £50 billion, which equates to some 8 per cent. of gross domestic product, requires vigorous action in the coming months and years to achieve a proper financial balance and bring our public finances into better order.

My hon. Friend the Member for Bridlington highlighted the level of public expenditure of some £23.3 billion in the past month. He rightly said that that was some 30 per cent. greater than in the same month the previous year. Certainly, Treasury Ministers have a great deal to do in maintaining firm control of public expenditure and substantially reducing the deficit.

Several hon. Members have noted that the Finance (No. 2) Bill is a substantial document. It has more than 200 clauses and 19 schedules. It may be in danger of running against that well-known cannon of taxation--that taxation should endeavour to be as simple as possible. Conservative Members have often advocated that taxation should be simplified.

The Bill is weighty. It contains measures which all of us support, such as the raising of the threshold for stamp duty. It also contains extensive measures which will puzzle hon. Members, such as those relating to the taxation of vans. There is a schedule of some 10 pages concerning the tax on vans used by directors and other persons. The Inland Revenue goes into tremendous detail about these vans--the requirements and the definition of a van. In fact, the definition of "van" is any vehicle which conveys goods, provided that it is not a motor cycle as defined in the Road Traffic Act 1988 and it is less than 3,500 kg. If one is an

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employee or director who is in the habit of driving a three-tonne lorry, the schedule will bring the lorry within the taxation provisions as a benefit in kind.

I strongly support the Government's strategy for reducing regulation on business, but the Government, the Inland Revenue and Customs and Excise should be mindful that Bills and Acts of Parliament are also regulation. I wish the Committee well in its work on the Bill. I hope that it will be able to reduce some of the volume and help to achieve some simplification.

In conclusion, I hope that my right hon. Friends on the Front Bench give as much time, energy and ability as they can to tackling the main matters within the Government's control. They should get public expenditure under control so that overall tax levels can be reasonable. They should not spend too much time delving into economic forecasts, second-guessing the markets and working out the correct exchange rate between the deutschmark and sterling or other currencies but should address the fundamental matters which come within their responsibility or control. If the Government do that, we shall have a strategy which will be good for the country, the Government, and our party.

8.27 pm.

Mrs. Anne Campbell (Cambridge) : I do not think that there is an hon. Member on either side of the House who does not sincerely hope that we are seeing the end of the recession. It is the longest recession since the war. We have been told that manufacturing output has started to rise, that consumer confidence is rising and that the gross domestic product will grow by about 1.3 per cent. this year and 2.5 per cent. in 1994. That should make us all feel better. When the economy was falling like a stone, I remember an economist saying that even a stone bounces. Unfortunately, stones do not bounce far, but tend to settle down to the lowest level. For two consecutive months, we have seen slight falls in unemployment. Yesterday in The Observer, William Keegan described it as a "Group 4 recovery". He said :

"They seem to be losing the unemployed".

Even the tabloids do not seem to believe what is happening. Last week, the Evening Standard had the headline, "Shock fall in unemployment", as though that somehow was bad news. But so long as it is real, it is welcome.

I believe that employers over-reacted to the gloom and uncertainty in the autumn and are now beginning to recruit again. Instability is bad for industry because, when employers make people redundant, we lose vital skills which are not replaced. The skilled people we lose are often in their late 40s and 50s, and they find it extremely difficult to get work again when the economy begins to turn up. The problem is that, on the basis of the Government's previous record, it is difficult for people to have confidence in what the Conservative Government are doing. Last autumn, the Government seemed intent on doing their utmost to destroy British manufacturing industry. We had record interest rates and an unsustainable exchange rate. The housing market was described as flat, but, in reality, house prices were plummeting.

Despite their best efforts, the Government were ejected from the exchange rate mechanism and forced to devalue the pound. That led to an 18 per cent. devaluation and

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lower interest rates. That is what has led to recovery. It is not something which the Government intended to happen, although they now pretend that it is what they intended all along and that they are responsible for the welcome signs of upturn that we are now seeing. However, as many hon. Members, but especially Opposition Members, have said, there are dangers in the upturn. That is well illustrated by the circumstances that arose in the early 1980s. When we came out of recession then, the balance of trade was positive. It led to several years in which consumer demand exceeded the growth in exports before the trade deficit grew to unacceptable limits. However, that is not a luxury that we can allow ourselves on this occasion. It is not sustainable. The balance of trade is already in deficit to the tune of £12 billion, and is projected to grow to £18 billion as we come out of recession.

So we must either restrain consumer demand or encourage exports--preferably both--to bring the deficit back into balance. In the current circumstances, any Government would find it extremely difficult to do so. Manufacturing is only 21 per cent. of GDP. When we compare that with levels in our competitor countries--31 per cent. in Japan and 35 per cent. in Germany--we begin to realise what a weak state British manufacturing is in. Britain, where the industrial revolution began, is in the appalling position of deriving only a small proportion of its GDP from manufacturing industry.

More help is needed for manufacturing. Opposition Members have said that on numerous occasions. It has only recently been recognised as important by the Government. We need to provide more help in investment. I agree with the hon. Member for Tiverton (Mrs. Browning), who is no longer in her seat, that we must give more help to people who are prepared to invest in resources for research and development.

We certainly need more investment in our education and training. We should also seriously consider an attempt to cure the short-termism which cripples British industry. High-tech firms, which are the backbone of recovery in a modern technology-based industrial environment, also need their own special encouragement, but the Government are not interested in increasing skills or encouraging research and development ; nor do they seem particularly interested in raising levels of investment.

The Conservative philosophy is simplistic : keep down inflation and wages and in the free market everythingarch and development and that will help us to become an innovative and competitive country. Well, I am sorry to say that that has not happened in the past 14 years, and the electorate are beginning to realise that the Government are pulling a great con trick in pretending that they know how to manage the economy.

I have more than 1,000 high-tech firms in my constituency. I spoke to one of them this morning. It is a highly innovative firm employing a great many people with valuable skills. It is losing work as a result of declining defence contracts. It has skills which could well be used in civil engineering and consultancy work. It asked me for my help with a specific problem.

After an exchange of correspondence with Ministers I eventually directed the firm to the regional office of the Department of Trade and Industry for the help that it needed. It reported to me this morning that the DTI was

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not interested in addressing its problems seriously. It simply tried to push the DTI schemes at it. The schemes were not suitable, but the DTI showed a lack of regard for what the customer wanted. That is one of the basic problems that we have not addressed.

Mr. Robert Ainsworth (Coventry, North-East) : Does not the response that we get from the DTI show that there is a lack of strategy on how we should diversify out of the defence industry into other industries? The answer that we are always given in this place is that there is a straight choice. If we are not prepared to accept the forces of the market, we support the propping up of lame ducks. But we have always advocated the adoption of a strategy. If there is not a strategy, what on earth is the role of the Government? But Conservative Members never appear to agree with that.

Mrs. Campbell : I am grateful to my hon. Friend. He has reminded me that another difficulty of which the firm in my constituency complained was that there was a lack of strategy in the Ministry of Defence. There is no way in which a firm can know in advance whether its project or proposal will have a good chance of success. Encouraging noises from MOD officials are not usually sufficient. A company may put a great deal of work into a proposal and find that it is turned down at the end of the day. Small firms cannot afford that luxury. They need to be reasonably sure that, if they put a great deal of time, energy and effort into a project proposal, it will have a reasonable chance of being accepted.

The other major problem that growing firms in my constituency face is finance. Many small firms--I am talking about very small firms consisting of perhaps only half a dozen people--have great difficulty in expanding. Sometimes they obtain the initial finance successfully, but have tremendous difficulty in moving on to the next stage. I welcomed the increase in the percentage that the DTI guarantees under the small firms loan guarantee scheme. That could be useful in some circumstances. However, the problem with that scheme is that often the banks refuse to operate it or make it difficult for firms to get hold of the money. The British banking system does not understand high-tech firms. It has no basic understanding of scientific innovation and ideas. That is the problem.

I suggest that the Chancellor should make the scheme available through science parks. Science parks are usually run by people who understand small high-tech businesses and are prepared to come to grips with the scientific issues at stake. If the Chancellor took up that suggestion, I should like to put forward the St. John's Innovation Centre of Cambridge, which would be delighted to run a pilot project.

There are two ways in which the country can go. We can either strengthen the supply side, exploit British skills and expertise, invest in people and regain our competitiveness, or we can follow the route for which the Government seem to want us to opt. Under that option, we would lower wages, reduce skills and offer no help with investment and research and development. No attempt would be made to overcome short-termism. That second option will inevitably lead to third-world wages and skills. We would become the world's cheapest conveyor belt,

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making cheap goods at low prices, which would generate low consumer demand. We would have an even larger proportion of Europe's poor than we have now.

That is the future for Britain under the Conservatives, but there is an alternative. The people have the ability, the skills and the enthusiasm to make Britain great again. I hope that we can do that. Several hon. Members rose--

Mr. Deputy Speaker (Mr. Geoffrey Lofthouse) : Order. I understand that the winding-up speeches will commence at 9.20 pm. Four hon. Members, who have been in the Chamber for most of the day, are seeking to catch my eye, and with a bit of co-operation from everyone, I may be able to call them.

Mr. Maxton : On a point of order, Mr. Deputy Speaker. I thought I had clarified with you on an earlier point of order that there is no reason why any hon. Member should not speak, because the vote does not have to take place at 10 o'clock, but at any time thereafter.

Mr. Deputy Speaker : We shall have to wait to see what happens at 10 o'clock. At present four hon. Members wish to catch my eye. 8.41 pm

Sir Michael Grylls (Surrey, North-West) : The hon. Member for Cambridge (Mrs. Campbell) made some interesting and constructive points about some of the smaller high-tech firms in her constituency, with which I agree. It was good to hear what she had to say. The Finance Bill is good news for small and medium-sized firms, and I agree with the hon. Lady that the amended loan guarantee scheme will help those firms as they come out of recession and start to take advantage of the expanding economy.

I want to speak about an issue which has been before the House for a long time : unitary tax. Eight years ago, the House included a retaliatory clause in the then Finance Act to put pressure on the United States Government. I have been concerned about this issue for some time. I have an interest to declare. I feel passionately that we must resolve this issue before too long. On 18 February 1980, Peter Rees, now Lord Rees, said about the United Kingdom/United States double taxation treaty :

"To those concerned about the unitary question, I say that there is no disposition on the part of the Government to let the issue die the United States were left in no doubt by what I told them" Thirteen years later, we are still no further forward. The blame must be put, fairly and squarely, at the door of successive United States Administrations, who have not addressed the issue effectively. I shall not go into detail about what unitary tax is ; suffice it to say that it means taxing companies on a worldwide basis rather than on the basis of the state or the country in which they operate. It is used by some American states--in particular, California--and it has been internationally condemned by the United Nations, the OECD, the 12 members of the European Community, Japan, Switzerland, Finland, Australia, Canada and many other countries.

Today marks the deadline for the United States Administration to submit an amicus curiae brief in support of Barclays bank, which is leading the way in trying to get a judicial decision on this issue against the California Franchise Tax Board. According to the press

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--I believe this to be true--the United States Administration have now decided that they will not support Barclays bank in its litigation. I know that the House will be disappointed by that news, and I am aware of the feelings of the 213 hon. Members, many of whom are present now, who have signed early-day motion 1489. I believe that we are justified in being outraged at the American Administration's decision not to support Barclays' case.

It would appear that that American Administration have gone back on their promise to the House that they would use their best endeavours to resolve the issue. The chairman of the California Board of Equalisation has stated publicly that the decision not to file a brief is a

"clear signal to the Supreme Court that the Administration does not want the case heard."

My hon. Friend the Member for Faversham (Sir R. Moate) and the hon. Member for Newcastle upon Tyne, East (Mr. Brown) who is sitting on the Opposition Front Bench this evening, recently visited Washington as part of a delegation. They were informed by the acting Secretary for tax policy at the United States Treasury :

"Failure to file the brief"--

in support of Barclays--

"will be considered a decision not an oversight".

Although it is still feasible that the United States Supreme Court will take the case, the failure of the United States Government to support it significantly jeopardises the chances of a court hearing. By failing to support Barclays, the Administration have destroyed the foundation on which their international tax treaties are based. The House should note that, for the first time in their history, the American Administration are admitting that a tax system radically different from the international standard of arm's-length reporting has a place internationally.

There is a real danger that the use of worldwide unitary tax will break out, like measles, all over the United States. That could send a damaging signal to other countries, which might be encouraged to adopt that as a standard form of taxation because the American Administration no longer seem to regard the OECD model as the accepted standard.

Other American states are looking to adopt worldwide unitary tax, as demonstrated by the letter sent by the American Governors Association to President Clinton on 15 April stating that the worldwide unitary system offered advantages from which the federal system could benefit. In a far- sighted letter of 24 March to Treasury Secretary Bentsen, the president of the United Kingdom section of the American Chamber of Commerce stated :

"I regard this matter as potentially the most important to arise in transatlantic commercial relations in a very long time. This is an issue that should be allowed to exhaust the US legal process in the hope that it can avoid becoming a major political dispute." Today it has become such a dispute. It has been suggested that the Clinton Administration's reason for not backing Barclays is that they regard the issue as solved, since California enacted legislation giving companies the option of being taxed either on a worldwide basis or on what is known as the "water's edge". The companies are only given that so-called solution on payment of a fee--often a substantial one. It is worth reminding ourselves that neither our Government, the Unitary Tax Campaign nor the Confederation of British Industry supported that legislation.

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