House of Commons Hansard Debates for 26 Apr 1993

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It is morally outrageous that a company should be punished for the right to be taxed on an equitable basis. It is quite clear that that so-called solution is not a solution in practice. According to the California Franchise Tax Board, an estimated 2,500 foreign and domestic companies were eligible to elect for the water's edge option in 1990 and that just over half did so. Of that number, only 8 per cent. of British companies--68--elected to do so. That represents less than a quarter of British companies operating in California. The fee for the water's-edge election is not insubstantial, and California estimates that it will collect between $40 million and $60 million from that election fee. To charge a fee for the right to file under accepted international practice is surely akin to the highwayman's charge to his victims for the use of the road. The staff of the California Franchise Tax Board have consistently attempted to undercut the legislation.

The House must be under no illusion that while the 1986 legislation in California was a small step in the right direction, it does not provide a solution to this issue. Given the fee and the throw-back provisions that British companies must face, without a right of appeal, that legislation is morally indefensible.

I now look quickly to the future. The House passed retaliatory action in 1985, now in the form of section 812 of the Income and Corporation Tax Act 1988. The time has come--I believe that the Opposition agree--for decisive action against the United States to show that we are serious and that we are angry. We have waited too long for the Americans to solve the problem. The House took the words of the United States on trust and, frankly, the United States has let us down.

Our credibility in negotiations with the United States on all future economic issues will be undermined if we do not follow through and retaliate as we have always said we would. How wide or how narrow the retaliation is is a matter for debate. To deny payment to United States companies of British tax credits could give the Inland Revenue an extra £200 million. In view of the way in which the Americans have behaved, that is a very attractive proposal.

Many people say that the treaty may be torn up by the United States. The House should remember that the treaty is outdated. It benefits United States companies substantially. The United States would not abandon a treaty which benefits it, especially if retaliation was targeted finely against United States companies which have a presence only in a unitary state--California. The Clinton Administration have made a political decision to protect themselves domestically. The British Government must now protect their own national interest and our own British companies operating in America. The British Government should no longer tolerate the antics of California.

Although the opportunity for the successful conclusion of legislation has been in the Californian courts since 1984, the United States once again backs away from a meaningful solution. It is British companies and British businesses that are directly affected by the United States Administration's sudden decision to turn turtle. We cannot allow that to happen. The only thing that a United States President can do unilaterally is file an amicus brief, which he has apparently not done to date.

The United States system differs from the United Kingdom parliamentary form of government. The

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President cannot guarantee legislation or, as we know from bitter experience, even a treaty. There is no sign that the United States Administration would support any effort to limit the states. Any attempt to ignore the litigation in favour of some new solution would jettison Barclays and all the other companies which have borne and fought the tax.

There is no doubt that the Government must now retaliate. Our Government must show the Clinton Administration that we will not tolerate their showing disregard for their international obligations and for their promises to the House. I hope that my hon. Friend the Financial Secretary will take this message back to the Treasury and that, as soon as possible, the Government will commence implementation of the retaliatory clause.

8.52 pm

Mr. Gordon Prentice (Pendle) : I shall be brief, because I am conscious that many hon. Members wish to take part in the debate. This week marks a milestone because it was this week a year ago that the Prime Minister's predecessor said that there was no such thing as Majorism. She also threw in for good measure the fact that the Prime Minister was not his own man. At the time, I thought that those were curious statements, but in the year that has passed, I have realised that Majorism has been given a definition.

To many of my constituents, Majorism means soaring unemployment. Unemployment in Pendle has risen by 80 per cent. since November 1990. To many of my constituents, Majorism means slump, broken election pledges and the collapse in manufacturing. We know that Majorism means massive borrowing of £50 billion, way above anything ever mentioned by the Conservatives at the time of the general election. It means an enormous trade deficit in manufacturing, running this year at £13 billion. Under a Conservative Government, this country in 1983, for the first time since the industrial revolution, had a deficit in manufacturing.

The Budget is not only the Chancellor's Budget, but the Prime Minister's Budget. It will be remembered not only as the last Budget before the Government introduce the unified Budget in November, but as the Budget that comprehensively and cynically ditched a raft of election pledges which were made solemnly to the British people on 9 April. It will be remembered--a point picked up by the hon. Member for Tiverton (Mrs. Browning)--as a Budget with a delayed-action fuse. It is a ticking time bomb. The hon. Member for Tiverton said that it was an innovative Budget because it proposed tax increases in later years. Those words will come back to haunt the Government in later years because the tax increases are built into the Budget. Conservatives will never be able to say again with a straight face that they are the party of low taxes and that Labour always wants to put taxes up.

It is one of the great ironies that the Government seem to have built up a reputation for economic competence. The hon. Member for Milton Keynes, South-West (Mr. Legg) referred to that belief when he tried to mock the Labour party for lacking a strategy. The Government's whole strategy was turned on its head on 16 September 1992 when we pulled out of the exchange rate mechanism and lost £5 billion in the process.

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There was also some reference to the British national interest. Again, it strikes me as strange that Conservatives are constantly seen as the party that defends the British national interest, whereas the Labour party is seen as incapable of doing so. That attitude was taken furthest by the right hon. Member for Henley (Mr. Heseltine), the President of the Board of Trade. He told The Guardian on 27 November 1991 :

"Some of us would rather see the Budget handed over to the Common Market than to the Labour party."

Yet the Conservatives wasted £14 billion on the poll tax fiasco and hiked up VAT by 2.5 per cent. to pay for that.

The Budget runs counter to a series of specific pledges. We may be tired of hearing about them in the House, but they bear repetition so that people outside can hear them. There was a specific pledge on national insurance contributions, and that was broken. The Prime Minister said during the election campaign :

"I have no plans to raise the top rate of tax or the level of national insurance contributions."

There was a specific pledge not to increase taxes and that was broken.

During the election campaign, the Chancellor of the Exchequer said on 31 March 1992 :

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

The pledge on VAT was broken and that is perhaps the most cynical action of the lot. It is mean, and it will have an adverse impact on the poorest in our community. We still do not have an assurance from Ministers that the poorest members of our community will be adequately compensated.

I am not talking only about pensioners and those on income support. I am talking about the many millions of poor families whose incomes take them just above the income support level. Some Conservative Members posed questions about that, and I hope that the Financial Secretary will tell the House what special provision will be made to ensure that those just above income support level will not be affected adversely by the hike in VAT.

We know why VAT on fuel was increased. My regional daily, the Lancashire Evening Telegraph, told its readers a few days after the Budget on 18 March that VAT on fuel was

"a desperate pledge-ditching step to service the huge deficit that the Government has run up, many would say by its own economic incompetence it would only need the dissent of just 11 Tory MPs for the measure to be undermined. Such action in our opinion would have the force of probity behind it, in contrast to the attempt by the Government to portray this new VAT imposition as a green anti-global warming tax, fulfilling Britain's international environmental obligations."

The Chief Secretary tried to sell this line again today. We were told that the Government were committed to the development agenda at the Rio earth summit, which was why it was right for Britain to try to curb pollution by the year 2000. That was the justification offered for hiking up fuel taxes.

Why then was it not equally right for Britain to join France in moves to agreeing a timetable to reach the United Nations target of 0.7 per cent. of GDP to be spent on overseas aid by the year 2000? France has committed herself to that target. The Lancashire Evening Telegraph was spot on when it said that VAT on fuel was forced on the Government by an exploding deficit which had to be paid for. The Chief Secretary displayed tremendous optimism about the state of the British economy, but his optimism

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is not shared by many people in this country. I was amused to hear the hon. Member for Fulham (Mr. Carrington), whose constituency I know well, detecting signs of recovery from the increased house prices in Fulham. I am not worried about house prices in Fulham ; I am worried about what is happening to the real economy--and that means manufacturing and those who work in it making things.

The Chief Secretary said that the Labour party would have us believe that manufacturing is dead. It is not dead : it is on a life support system. There have been huge losses of manufacturing jobs this year in my constituency. Rolls-Royce has shed 5,000 jobs nationwide and 175 in Pendle. Smith and Nephew has laid off 574 people this year. Wadkins of Colne is closing. Progress Engineering is closing and the latest victim, only a couple of weeks ago, was Baxter Healthcare, which makes medical products, such as intravenous drips. It is closing its plant in my constituency and transferring production to Malta. The NHS trust in my constituency spent £128,000 on Baxter products last year. Ludicrously, highly skilled jobs are being exported to Malta and the Burnley health care trust is expected to import those products in future, now that 200 skilled and loyal workers are to be laid off by this American multinational. Beyond the boundaries of my constituency, things are terribly bleak. The last colliery in Lancashire, Parkside, is closing down. Leyland DAF is fighting for its existence, while the Government stand idly by, expecting Lancashire county council to do what is necessary to save it.

The Governor of the Bank of England has told people what they already know. Speaking to the Treasury and Civil Service Select Committee last month, he said that Britain faced a fundamental weakness, in the form of its large trade deficit, which will take many years to correct. The fact is that we are rapidly losing our manufacturing base. We are importing more and more of the goods that we used to make here. The Governor confessed himself a little worried by the Treasury prediction that our trade deficit would reach £13 billion this year, but went on to say that the trade gap reflected a lack of competitiveness and that there were problems with productivity, training, education and innovation.

The weakness in our manufacturing is a systemic weakness in the British economy that has not been properly dealt with for the past 14 years. Manufacturing is in decline and the evidence of that decline is plain in the constituencies of hon. Members who represent industrial areas. I can only urge Conservative Members to open their eyes and see the extent of the chaos and the devastation that Government policies have wrought in this country. This Budget does nothing to deal with the real problems facing the nation ; tragically, it is not a Budget for jobs.

9.4 pm

Mr. Quentin Davies (Stamford and Spalding) : I shall begin by declaring my interests. I am an adviser to NatWest Securities, which is the investment banking arm of the NatWest group, a director of Dewe Rogerson Consultants, and parliamentary consultant to the Institute of Taxation.

The hon. Member for Peckham (Ms Harman), the Opposition Front-Bench spokesman, made an appalling speech. She called for reductions in taxation or the abolition of some taxes and then complained about the

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size of the PSBR. She completely failed to recognise the obvious contradictions between those two, which is an insult not just to the intelligence of the House but to the intelligence of those outside. Such speeches do not deserve to be taken seriously, nor will they be.

I should like to pay a sincere tribute to the Chancellor. Few politicians in my time in the House, perhaps none, have been subjected to such a sustained and often malicious campaign of abuse. The Chancellor took up office in difficult circumstances two and a half years ago and set himself two tasks--to reduce inflation and to restore growth in the economy. He has been triumphant in the first--there is general recognition of that--and it is becoming increasingly clear that he is succeeding in the second.

It would be futile to expect Opposition Members to pay tribute to a Conservative Chancellor. They will go on mindlessly calling for his resignation whatever happens to the economy. I am not so naive as to suppose that the animal will change its spots, but I hope that fair-minded and perhaps better informed people in the country who had lost patience during the recession and criticised the Chancellor, will be magnanimous enough to recognise their errors.

The Chancellor's Budget is courageous. He decided that it was necessary to increase taxes, and I am sure that he is right. He was also right to avoid raising direct taxes such as income tax and capital gains and corporation tax, which are the most economically damaging taxes of all. Having decided to focus on indirect taxes, he was also right to widen the tax base rather than to increase the rates. I hope that he will be emboldened to go further and spread the VAT net even wider in the next Budget. Perhaps he might like to start by extending it to books, magazines and newspapers.

Many hon. Members have rightly recognised that the economy is now reviving, and have asked whether the new growth will be sustainable. It is essential not to return to the cycle of inflation followed by retrenchment and recession, which is often exacerbated by counter-productive if well- intentioned attempts by Governments to fine-tune the economy. Such attempts have characterised much of our history since the second world war.

The Chancellor is concerned about the danger of inflation--he said so recently to the Select Committee on the Treasury and Civil Service--and about the need to address it and see it off. Fortunately, there is a weapon to hand which is very appropriate in present circumstances. Interest rates on the continent are falling, but we must resist the always present temptation further to reduce our interest rates, and instead allow sterling to appreciate. I hope that the Government will take the opportunities that are presented in the next few months to do this.

One cannot have it both ways about devaluation. If it is conceived as an attempt to gain a permanent competitive advantage, it must be accompanied by measures that will retrench demand and release resources for export. That is the only way to ensure that the increase in import prices is not accommodated by demand, which must lead to a general increase in prices. That has not been the position over the past six months, because devaluation has been accompanied by a reduction in interest rates and a relaxation of fiscal policy until this Budget.

Devaluation has thus been conceived not as an attempt to gain a competitive advantage in export markets, or in domestic markets in internationally traded goods and

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services, but rather as a necessary concomitant of the reductions in interest rates over the past few months-- the price we have had to pay for those reductions. That being so, it is right that, when the international situation permits it, we should allow that devaluation to be reduced, and thereby minimise or lessen the potential impact on price inflation of the rise in import prices. I hope that that will be done.

There are many good things in the Budget and I approve of the content of the Bill, but I fear that I cannot say the same thing about its drafting. It is almost an object lesson in how a Bill should not be drafted. It is far too long. I know that there is a great tradition in Finance Bills of low standards of bureaucratic obfuscation and prolixity, but the position is getting a great deal worse. My hon. Friend the Member for Milton Keynes, South-West (Mr. Legg)--I endorse his excellent remarks on the subject--drew attention to the absurdity of the passage about vans. I notice that the sensible and welcome changes in the rules for roll-over relief for business assets are spun out into 26 pages, with a text longer than that in which the original relief was cast some years ago. Parts of the Bill are simply incomprehensible. Let me give the House one small nugget. Clause 138(1) says :

"An amount is available for relief under section 136 above for an accounting period if amount A is exceeded by amount B or (if amount C is lower than amount B) amount A is exceeded by amount C ; and the amount available for relief for the period is the amount of the difference between amount A and amount B or (as the case may be) between amount A and amount C."

That is disgraceful. Violence is done to justice because, if a citizen cannot understand the law--the central assumption of the law is that the citizen understands and knows it--then the citizen will be disadvantaged. In this case, people will not be able to claim the reliefs to which theyliance with such nonsense will increase. There will no doubt be an enormous improvement in the revenues of tax accountants and lawyers, but the burden will be borne by businesses and individuals.

I hope that the Chancellor will enjoy a well-deserved and general congratulation on having stuck to his policies, which are now coming right, through thick and thin. However, I hope that he instructs the Inland Revenue to hire a new parliamentary draftsman.

9.13 pm

Ms Tessa Jowell (Dulwich) : The concern of the House about the effect of the imposition of VAT on domestic and charities' fuel and power has rightly focused on the plight of elderly and poor people who live at home and who will now face increased bills. However, I should also like to draw attention to the problem that the measure will cause to charities, and particularly those serving the needs of the many people who can no longer live on their own but require the care of a residential nursing home or hospice.

The recession has had a serious impact on the ability of charities to respond to real needs through reductions in donations--a 67 per cent. fall according to a survey by the Charities Aid Foundation--and a significant increase in the demand for help from charities. The increase in the level of irrecoverable VAT that is paid by charities makes

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their vital job even harder. The Government have argued that charities should bear VAT on fuel and power for their non- business use, along with the rest of society. They also contribute to global warming, and therefore should be encouraged to save energy. Such an argument reflects a blatant lack of understanding of the reality of such care provision. It is an inescapable medical fact that elderly, ill and disabled people need higher temperatures if they are to be cared for properly. Indeed, one of the ways in which cancer manifests itself is through the need for extra warmth, even in the height of summer. Thus, because of the direct needs of people in their care, the charities that provide the care are high energy users. They have a duty of care to their residents. We cannot, as a simple economic choice, ask them to reduce their energy consumption. Of course, residential care providers are not the only charities that will suffer under the Government's measures--grant-making charities will also be affected. They too have had a significant increase in demand on their resources during the recession. Ill, elderly and disabled people on low incomes increasingly turn to charities for help. Their numbers are growing, and no doubt will grow even further with rising fuel prices. The Cancer Relief Macmillan Fund disbursed more than £3 million in patient grants in 1992, of which about £850,000--by far the largest category--was for grants for fuel.

It is also important not to ignore the effect of the measures on other charities that provide vital services. Equally hard hit will be organisations such as the Imperial Cancer Research Fund, which will lose £170,000 a year ; Barnado's, which estimates a loss of £122,000 a year ; and the Royal National Lifeboat Institution, which will lose about £80,000 a year.

The overall figure for the 300 members of the Charity Tax Reform Group is estimated to be about £27 million. Do not the Government realise that charities will have to spend vast amounts of money on VAT on fuel, instead of spending it on their primary purpose of provision of services? It is also fair to say that those who volunteer their help to charities do so to support those services ; they do not stand on windy street corners rattling their collection boxes to raise money for VAT.

The problem should not be viewed in isolation from the wider context of the tax burden of charities. Whereas local authorities and commercial organisations can recover VAT, the services provided by charities are either exempt from or outside the scope of VAT. Charities are in a uniquely disadvantaged position, which will be made worse by the Government's proposal to levy VAT on fuel and power.

The Government's policy--which they claim encourages charitable giving-- rather than offering what they call indiscriminate tax relief from the VAT that charities pay, is just a feeble attempt to face reality. While the measures on gift aid and payroll giving are welcome, what is really needed is a solution to the problem of irrecoverable VAT, which currently amounts to about £300 million a year.

The obvious solution would be the introduction of a VAT rebate scheme, under which charities could recover an agreed percentage of the presently irrecoverable VAT. That system already exists in Canada, where it works well. The Government have produced excuses for rejecting that proposal, which is popular with charities, including the excuse that it would be unacceptable to the European

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Community. When the Minister replies, perhaps he will confirm that that is the advice that the Government have received, which is in direct contradiction to the independent advice given to the Charity Tax Reform Group.

The Budget undermines the position of charities and their long-standing traditional reliefs. We cannot afford to lose the invaluable contributions they make to the well-being of those who are most disadvantaged in society, and to the community life of our nation. We want the Government to listen, to withdraw their proposal to charge VAT on fuel to charities, to undertake a long-term review of charity taxation, and to give renewed consideration to the introduction of a VAT rebate scheme for charities--which must no longer be penalised by the tax system. They deserve even this Government's help.

9.19 pm

Mr. Nicholas Brown (Newcastle upon Tyne, East) : They key issues that the Chancellor had to address in this year's Budget were problems caused by previous policy errors--negative economic growth, lack of performance in the British economy, and a substantial public sector borrowing requirement.

The Chancellor's policy for growth--showing him to be the Keynesian child of the 1960s that we all know him to be--is to cross his fingers and hope that devaluation and a high Budget deficit will provide sufficient stimulus for recovery. Since neither were his pre-election policies, there are those who allege that the Chancellor has stumbled into his present policy by accident. I do not take that cynical view. I can see a future for the Chancellor on his eventual

retirement--lecturing at the London School of Economics and writing Tribune group pamphlets on demand management.

I am pleased that the Chancellor is now back on the radio, replacing the Home Secretary as the Government's principal spokesman on economic affairs. The Home Secretary was probably warned off by a passage in the Budget speech in which the Chancellor made special mention, in a sinister way, of his regret at sticking four and a half pence on a packet of five of the small cigars that the Home Secretary smokes.

Although the Chancellor's policy for economic growth cannot truly be called Conservative in the sense that the previous Prime Minister would have understood it, the right hon. Gentleman's policy for deficit reduction can truly be called Norman, in the sense that his 11th century namesakes would have understood it. The Chancellor is raising money by taking it from the poor. Of all the revenue-raising options open to him, he chose the most regressive.

This would not be an economic debate without Conservative Members seeing signs of economic recovery. In fact, The Economist provided some of the latest evidence of that. I noticed the Chief Secretary leaning on it a little. A recent article in The Economist reported that manufacturing output in February increased 2.5 per cent. on a year ago ; business men are more optimistic about sales than at any time since 1989 ; new car sales were up 13 per cent. in the year to March ; domestic air travel also increased 5.5 per cent. in the year to March--and even The Economist did not attribute that to rail strikes.

One must, however, be cautious about forecasting economic recovery on the basis of evidence provided by

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The Economist. Business men may be more optimistic about sales than at any time since 1989, but in 1989 similar wild optimism was followed by the economy shrinking 1.5 per cent. in the following 12 months. The Chief Secretary spoke about new car sales, but failed to make the point that, as the economy dipped into recession, those sales fell 45 per cent. before registering the more modest 13 per cent. increase that he did tell us about.

More significantly, today's GDP figures offer harder evidence of the recession coming to an end. I am surprised that the Chief Secretary did not make more use of them. Instead, breaking the habit of a lifetime, he even quoted with approval a survey by the AEEU. In common with my hon. Friend the Member for Cambridge (Mrs. Campbell) and all my right hon. and hon. Friends, I hope that recovery is under way. The real issue is that 10 successive quarters of a shrinking economy have left a devastating and enduring legacy. It is no use Conservative Members talking about manufacturing output resuming growth when they are unwilling to acknowledge the 8 per cent. fall in output before growth resumed.

The recession has had a deep and lasting effect on the British economy. Any recovery will be from a lower base. Something like 3 per cent. of GDP has been permanently lost--a point well made by my hon. Friend the Member for Durham, North (Mr. Radice). Of course recessionary forces are at work in the international economy, but there are peculiarly British dimensions to our own

recession--exacerbated by Government economic policy. The recession started earlier and has lasted longer, ran deeper and caused more lasting damage than recessions elsewhere in Europe or in the United States.

Between 1989 and 1994, according to the OECD forecast, growth in the G7 economies will average 9 per cent. The figure for the British economy over the same period is 1 per cent. That is an indication of the peculiarly British dimension to the problem. Even the Government admit to having presided over five years of stagnation in the British economy--although, in fairness, they tend not to express it in quite that way.

If the Government's growth forecasts are to be believed--like their pledge to stay in the exchange rate mechanism, and their promises to preserve the value of the currency, not to put up taxes and not to increase the rate or broaden the base of VAT--output in the British economy will not return to the level that it reached in the second quarter of 1990 until some time in 1995. Surprisingly enough, the Government's forecasts were much more optimistic before the general election, when a much stronger recovery was foretold. Before the election, the Chancellor told the House and the British electorate that output would grow by 2 per cent. in 1992-93, by 3 per cent. in 1993-94 and by 3 per cent. in 1994-95, and that there would be stronger growth than the Government now anticipate in the following years. That promise has turned out to be as well founded as all the others.

I know that, in politics, it is normal to look for points on which our opponents may not have been totally honest with the electorate, but--when we examine the Government's pre-election statements on economic policy--it is difficult to find a single significant issue about which they have told the truth. This lack of candour is designed to conceal the devastating effects of the last five years of economic stagnation. The delay in economic recovery has meant that capital has been strapped, and growth has been

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constrained by capacity at much lower levels without hitting the constraints of inflation or the balance of payments.

Before the general election, the Government were telling the British people that, in 1996-97, the economy would be 16 per cent. larger than in 1992. This year, that forecast has been revised downwards to 10 per cent. That revision downwards suggests that the Government concede that they were over -optimistic before the general election ; no doubt, they hope that no one will attribute unworthy motives to them. They claim that an economic recovery is under way, and they reduce their growth forecast rather than increasing it. The truth is that, on the Government's own figures, by the end of this Parliament--should it run its course--output will be some 6 per cent. lower, and the country will be some £40 billion poorer--that is, £700 per year for every man, woman and child.

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

Mr. Brown : I cheerfully give way to the hon. Gentleman.

Mr. Butterfill : Can the hon. Gentleman name another OECD country whose forecasting has been any more accurate? Does he think that Chancellor Kohl in Germany was any more accurate--particularly when he told the German people that unification would not cost them any more?

Mr. Brown : This is not an error of forecasting, but something a little more substantial. It is not a forecast which worries me so much-- although, of course, it is possible in every speech to make fun of forecasts. I am worried about the outcome. Why are the other G7 countries able to do so much better in regard to growth rates up to 1994 than we are? Why is their figure 9 per cent., while ours is 1 per cent.? That is not a forecast ; it is now almost a foreseeable outcome. The problem has a peculiarly British dimension. I do not think that the hon. Gentleman addressed it in his speech, but I shall be happy to give way to him again, although it is almost madness to do so.

Mr. Butterfill : The hon. Gentleman is traditionally over-generous. Perhaps he should look at the possible outturn for the other G7 countries in the next couple of years. I suspect that they are on a delayed path towards what has happened here.

Mr. Brown : I prefer to take a reasonable look at the cycle, rather than picking and choosing as the hon. Gentleman clearly does. I look forward to debating these matters with him in Committee : I can see that he is fighting hard to get on to the Committee, but he will be aware that, since the general election, the ratio between Government and Opposition is slightly smaller. As the hon. Gentleman has not always been a reliable vote for the Government in the past, I think that some pretty firm pledges will have to be given to those who organise these matters in the Conservative party before we can enjoy exchanges such as this late into the night and, indeed, into the early morning.

The Government's fibs about growth are as nothing compared with what they said about tax, in particular what they said about value added tax. I should like, however, to deal with two other matters.

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The hon. Member for Surrey, North-West (Sir M. Grylls) mentioned unitary tax. There have been press reports today of the American Administration's decision. Although there is no difference in principle on this issue between the Opposition and the Government, we take it very seriously indeed and will seek to explore the Government's position in Committee. Amendments will probably be tabled to the clauses dealing with advance corporation tax. They will be designed to probe the Government's commitment to the retaliatory clauses.

Mr. Hugh Bayley (York) : I know that my hon. Friend is aware that the ACT proposals will have a bad effect on charities which enjoy income from investment in equities, but is he aware that the Joseph Rowntree charitable trust, based in my constituency, found that, if those provisions had applied last year, its income would have been cut by £110,000? Many of the projects which it co-funds with the Government would have gone by default. If the Government tax charities in that way, they will lose money for public welfare schemes. Will my hon. Friend give an undertaking that he and other Labour Members will press this point in Committee?

Mr. Brown : I can most certainly give my hon. Friend the assurance that he seeks. It would be peculiar to structure the changes that the Government intend to make in such a way as specifically to disadvantage charitable institutions. We intend to explore that issue in detail in Committee. My hon. Friend was right to raise it. A number of hon. Members, most notably my hon. Friend the Member for Aberdeen, North (Mr. Hughes), referred to the petroleum revenue tax provisions. Again, we shall explore those provisions in detail in Committee. It will set the tone for those debates if I say now that we oppose the Chancellor's proposals for two reasons. First, we do not believe it right to rely solely on corporation tax as the mechanism for raising taxation from the North sea. If profits have fallen since 1986, that does not necessarily mean that they will not rise again. Relying on corporation tax may mean that the Exchequer is deprived of future revenue. Secondly, we should not like provisions to be enacted which could lead to a drop in North sea exploration, particularly when one appreciates that the North sea is in competition with other parts of the world for the interest of oil companies.

I turn now to a matter that every hon. Member, without exception, has mentioned either directly or indirectly--clause 42. If clause 42 were a poster, it would be used by Benetton to advertise its products. Clause 42 is a betrayal of a specific commitment, given by the Government before the election, so it may help Conservative Members, particularly those who have expressed reservations about it, to explore how it came about by following the progress of pledges given by those on the Treasury Bench in the run-up to and after the general election.

As early as 17 October 1991, the Financial Secretary's predecessor, Francis Maude, said in response to my hon. Friend the Member for Derby, South (Mrs. Beckett) :

"I will give the hon. Lady a straight answer."

That set the tone for what came afterwards. He continued : "In the middle and late 1980s, we managed at the same time to increase spending to run a substantial budget surplus and to reduce tax, and we shall be able to do so again."--[ Official Report, 17 October 1991 ; Vol. 196, c. 426.]

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One out of three is not bad, but I am not sure that increased spending was the one out of the three that the hon. Gentleman would have chosen.

History continues. On 13 February 1992, John Maples, another member of the Treasury team who failed to get re-elected at the general election, told the House :

"We have no problem in this regard ; we do not need to raise taxes"--

apparently, hon. Members then shouted, "You have," and he continued :

"We have set out our tax and spending plans for the next three years."

That was in February 1992, so it should have taken us through 1993, 1994 and 1995. He said that the Government did not need to raise taxes, but that turned out not to be true.

During the same extravagant Treasury Question Time Mr. Maples said :

"My right hon. Friend the Prime Minister has made it clear that we have no intention of raising the rate of VAT either before or after the election."

That did not turn out to be true either. He later said : "My right hon. Friend has made it perfectly clear we have no intention of increasing VAT. We have made our plans on spending and tax perfectly clear. We do not need to raise VAT".--[ Official Report, 13 February 1993 ; Vol. 203, c. 1106- 08.]

He said it often enough but, as we know, it was not true. The present Secretary of State for Employment was also at it. On 12 March, she said :

"I am happy to repeat the categoric pledges given by my right hon. Friends the Prime Minister and the Chancellor"

rope them all in--

"that there will be no increase in the standard rate of VAT either before or after the election. We have no need and have no plans to extend the standard rate or to put up other taxes."--[ Official Report, 12 March 1992 ; Vol. 205, c. 961.]

The latter part of that statement did not turn out to be true either, did it?

On 11 June 1992, after the general election, the present Paymaster General told the House :

"We have no plans and no need to raise or extend VAT, as my right hon. Friends have said on numerous occasions."--[ Official Report, 11 June 1992 ; Vol. 209, c. 440.]

On 10 December 1992, the Paymaster General was again asked whether the Government intended to increase or extend the standard rate of VAT or to increase other taxes. Referring to the general election, he told the House :

"Those categorical pledges stand as they did at that time."--[ Official Report, 10 December 1992 ; Vol. 215, c. 986.]

By 4 February 1993, however, the Government were getting coy. At Question Time, the Paymaster General tried to finesse a question by pretending that he thought that we were asking about the previous rather than the next Budget. In response to a question on 4 March 1993--let us remember that the Budget was on 16 March--the Economic Secretary to the Treasury said that he could give the assurance "that all these matters are carefully taken into account in assessing the Budget strategy."--[ Official Report, 4 March 1993 ; Vol. 220, c. 446.]

The Government resiled pretty late from a range of promises. Lest anyone think that the Liberals have anything to be proud of, during the long exchanges about the rate and breadth of VAT, the Liberal spokesman asked about VAT, racehorses and the bloodstock industry, so he may be happy with the outcome and regard it as helpful in that

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