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narrow respect. In the more significant matter of VAT on fuel, charities and domestic consumers, however, they have rather missed the boat.

My hon. Friends the Members for Dulwich (Ms Jowell) and for Coventry, South -East (Mr. Cunningham) said that extending the VAT base was a highly regressive measure. If all zero-rated categories were included, it would raise about £10.7 billion for the Exchequer, but the poorest 10 per cent. of households would be £7 a week worse off. The richest 10 per cent. would be £11 a week worse off but, as proportions of household incomes, those figures represent 7 per cent. and 2 per cent. respectively.

Clause 42 is structured in such a way that it would be possible for it to be followed--next year, for example--by further extensions of the VAT base. Sewerage and newspapers, for example, might appeal to the Chancellor. When considering such matters, it is important that the House should realise that increases in the VAT rate and the shift from direct to indirect taxation have already had a regressive effect. The poorest 10 per cent. of households are 4.4 per cent. worse off than they would be if VAT were at its 1979 level--that is the case now, without taking these changes into account--while the richest 10 per cent. of households are just 2.9 per cent. worse off as a result of increased VAT.

It is true that the recession has taken its toll on the public as well as the private purse. On the question whether the tax increases will solve the problem, my hon. Friend the Member for Pendle (Mr. Prentice) rightly pointed out some flaws in the Conservative party's case. Public borrowing last year was more than £8 billion higher than the Chancellor expected at the time of the last Budget, and even turned out £1.5 billion higher than announced in this Budget in figures released just one month later.

Given the short-term problem of lack of demand in the economy, I can see why the Chancellor delayed some of his increases in taxation. But even when the sizeable increases announced in the Budget for future years have fully come into effect in 1995-96, they will reduce public borrowing by only one fifth. Even with five years of growth and three years of above-trend growth, on the Government's forecast public borrowing will still be 3.75 per cent. of GDP by 1997-98. Public sector debt will have increased from £150 billion to nearly £400 billion and will continue to increase. I think that we can therefore probably expect further regressive tax increases, perhaps even later this year.

In an excellent speech, my right hon. Friend the Member for Ashton-under- Lyne (Mr. Sheldon) said that we needed a policy for the long term-- something more than is implied in an answer that the Chancellor gave my hon. Friend the Member for Wrexham (Dr. Marek) on 28 November 1991 :

"He asked how we are going to pay for the borrowing. We shall pay for the borrowing by borrowing--that is the normal way in which one pays for it."-- [ Official Report, 28 November 1991 ; Vol. 199, c. 1062.]

Clearly, the former Prime Minister was no longer in office, as she would not have let the right hon. Gentleman get away with that. Every Opposition Member who has spoken has referred to the Conservative party's election pledges--that there would be no tax increases, no national insurance increases, no cuts in mortgage tax relief, no increase in value added tax, no broadening of the value added tax

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base, no devaluation ; that there would be continued membership of the ERM ; that the recession would come to an end a year ago--and to the phoney pre-election growth forecasts.

At the election, the Conservative party lied about our tax policies ; now the electorate can see the extent to which it lied about its own tax policies. When the Conservatives said, "Labour will cost you an extra £20 a week," they did not go on to say, "whereas the Conservative party will only cost you £8.50." The Bill is constructed on dishonesty, and I urge the House to reject it.

9.43 pm

The Financial Secretary to the Treasury (Mr. Stephen Dorrell) : There is a relatively narrow strip of common land in the Budget and I want to begin on it following the speech made earlier by my hon. Friend the Member for Surrey, North-West (Sir M. Grylls) on the subject of unitary tax. My hon. Friend has played a distinguished part in leading the expression of the long-standing concern that exists on both sides of the House about that subject. I take this opportunity to state clearly that the Government continue to share my hon. Friend's view that the unitary tax concept legislated for in California is not one that we can recognise within a recognisable system of double taxation treaties.

The House should be in no doubt about the basis of the case that Barclays is bringing within the American courts. It is arguing, with our support, that any state tax system in the United States that collects an arbitrary share of the worldwide profits of a company is contrary to the existing double taxation treaty between Britain and the United States. We had understood that that view was shared by the American Federal Government. It appears that that is not the case, and the Government must therefore now review their position. I do not believe that a double taxation treaty can continue to exist indefinitely between two Governments who believe that it means different things. My right hon. Friend the Chancellor will be seeking clarification of the American Government's views when he is in Washington later this week.

On another matter on which there is a widely held view, let me comment on the opinion expressed by my hon. Friend the Member for Bristol, North-West (Mr. Stern) and several other of my hon. Friends who drew attention to the length of this year's Bill. My hon. Friends will be aware that the ambition of short, brief and clear legislation has been shared by Governments of all political complexions dating back to Oliver Cromwell, a distinguished predecessor of my right hon. Friend the Prime Minister as the Member for Huntingdon.

Oliver Cromwell once expressed an ambition to reduce the laws of England to the size of a pocket book. He did not make much progress in that direction and I suppose that we are some way behind. However, I give my hon. Friend the Member for Bristol, North-West the assurance that he sought : we shall resist, where humanly possible, the temptation to add further to the length of what we recognise is already a long Bill.

I want now to consider petroleum revenue tax, an issue in respect of which there is rather less agreement between the two sides of the House. We shall, of course, return to that subject in detail in Committee. However, it is essential

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to restate the elements behind the Government's proposed changes. Those elements have now gained a significant level of support in all parts of the oil industry.

Our approach is to cut by one third the marginal rate of petroleum revenue tax on existing fields, because we recognise that that will encourage development and therefore bring forward jobs in the development sector on existing and proven reserves and also because we recognise that the lower rate of PRT on existing fields will prolong the life of those fields.

It can therefore be said to be a measure designed to ensure that we recover the maximum economic reserves out of the North sea. We are also proposing to abolish PRT on future fields. As we are abolishing the tax on future fields, we are also abolishing tax allowances on future fields. The House should pause for a moment and recognise that it is rather strange to argue that we should keep a tax in place in order to operate a system of allowances. That is exactly the kind of system that we have now in many respects, and it has two characteristics which should not command support in the House. The system has led me into the rather remarkable position--I suspect almost uniquely among tax Ministers--of being responsible foical new field, the system has led to a subsidy from the taxpayer for oil production running at a rate of about £1.60 a barrel.

There is widespread recognition within the industry that that system cannot endure. Of course, the Government recognise that we must avoid unnecessary dislocation, and we shall seek to do that. However, the Government believe that it is equally obvious that the existing system cannot endure and must be changed.

Mr. Salmond : The Financial Secretary is quite wrong : the proposal in the Budget is losing support all the time, as is clear from the oil industry press. However, will he answer the question about consultation? Was there consultation with the Department of Trade and Industry and the Scottish Office before the proposal was announced in the Budget? Is it a piece of collective irresponsibility, or is the Treasury alone responsible for this shambles?

Mr. Dorrell : I certainly will not refer to the discussions that go on within Government. However, I will comment on the proposition that there should be consultation with the industry. It seems to be a rather odd proposition that, before a Government consider raising tax, they must engage in consultations to give notice of their intentions so that the industry can bring forward its activity to take advantage of the tax system that we are seeking to remove.

Mr. Robert Hughes : Will the Minister give way?

Mr. Dorrell : No, I want to move on to another issue that was raised by several hon. Members--the Government's proposals on VAT. The Opposition's reaction to the VAT proposals has been interesting. In the months or six weeks since the Budget, they have launched a number of arguments against the proposals. They have been extremely fleet of foot moving from one argument to another as they discover that the arguments that they first mounted do not work.

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The Opposition began by claiming that the distributional effect of the Budget was unfair. That argument was shot down by the Institute of Fiscal Studies, which made it clear that the Budget raised roughly the same share of income across the income scale. Therefore, they cannot use that argument.

Labour Members then said that the Government would not make good the effect of the VAT changes on the poorest sections of the community. That was a clear scare, which was shot down by the words of my right hon. Friend the Chancellor in the Budget, when he made clear our commitment to provide extra help for those on means-tested benefits. The next argument was--

Mr. Nicholas Brown : Can the Minister tell the House whether the Government will compensate in full those people on state benefits for the cost?

Mr. Dorrell : Since Budget day, we have said clearly that we shall take account of the VAT changes in the benefit upratings which will be announced next autumn.

Labour Members then argued that the Government were not interested in fuel prices. Understandably, they moved off that quickly when they were reminded that, in the past 10 years, electricity prices have fallen by 8.5 per cent. and gas prices by 15 per cent., both of them in real terms. That is in sharp contrast to the 30 per cent. increase in real terms in electricity prices which was introduced by the Labour Government between 1974 and 1979- -the period when the Leader of the Opposition was an Energy Minister. Labour Members had to move off that argument quickly as well.

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

Mr. Dorrell : No.

Today, Labour Members argued that, because the VAT changes are revenue raising, they cannot also be motivated by the environmental considerations. That is a completely absurd argument. It calls to mind the words of former President Johnson when he was describing someone who he alleged could not do two things at once. He said that that politician was so dumb that he could not walk and chew gum at the same time. That may be true of some Labour Members : it is not true of Conservative Members. The VAT changes are part of a revenue-raising plan. We are not raising £3 billion by accident. The changes are part of our commitment to deliver the Rio objective, which is strongly endorsed, at least in theory, by the Labour party.

Mr. Brown : I am pleased that the Financial Secretary can make a speech and give way at the same time. I ask him again to give the House an assurance that people on state benefits will be compensated in full for the cost of the Chancellor's VAT exactions.

Mr. Dorrell : I have already responded to that point. My right hon. Friend's Budget addressed the need to do two things. He clearly said that he needed, first, to sustain the recovery that was under way and, secondly, to take action to reduce the Budget deficit. The signs of recovery are clear. Even the hon. Member for Peckham (Ms Harman) brought herself to say through clenched teeth that every sign of recovery is welcomed. She carried conviction. The words passed her lips, but she moved on to the next business as quickly as she reasonably could.

Last week was a black week for the Labour party, because we announced that industrial production is

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growing here when it is falling elsewhere in Europe. We announced that retail sales are up by 3 per cent., car registrations are up by 12 per cent. and house sales are up by 15 per cent. on the same period last year. When surveys are taken of business opinion, they do not share the views of Labour Members. As though to underline the gloom of the Labour Front Bench, on Thursday we announced a drop in the level of unemployment for the second consecutive month. Clearly, it is too soon to say that it is the beginning of a trend. However, we know that it is not, in the words of the Opposition employment spokesman, a freak or a fiddle.

Mr. Brown : Every Opposition Member hopes that the recession is coming to an end. Will the Financial Secretary explain why the Chancellor found it necessary to revise his growth forecasts down and not up?

Mr. Dorrell : We shall be able to consider such issues in the Committee.

Against that background, my right hon. Friend concluded that it would be wrong to impose a tax increase this year. I welcome the endorsement of my hon. Friends the Members for Bridlington (Mr. Townend), for Slough (Mr. Watts), for Bournemouth, West (Mr. Butterfill) and for Milton Keynes, South -West (Mr. Legg) of that strategy. However, my hon. Friends rightly made their endorsement subject to two conditions, both of which the Government accept. The first condition is that, while there will be no tax increase this year, there must be action to bring down the deficit in the medium term. That is why the Bill provides for what my right hon. Friend the Chancellor described as a tax wedge to address the budget deficit.

Mr. Jeff Rooker (Birmingham, Perry Barr) : Will the Minister give way?

Mr. Dorrell : No. I am dealing with some remarks made by my hon. Friends.

The second condition that my hon. Friends made clear was that action must not be confined to the revenue side of the balance. They said that public expenditure restraint was essential. The Government agree with that and wholeheartedly endorse it. The Government share with my hon. Friends a commitment to control inflation. We shall not inflate our way out of debt. They also share with my hon. Friends a commitment to control the burden of taxation. We shall not tax our way out of debt.

Given those two commitments, the iron laws of arithmetic determine that we shall have to deliver--and deliver we shall--our commitment to restrain public expenditure within what can be afforded in the medium term. All that is in sharp contrast to the Labour party. Like my hon. Friend the Member for Milton Keynes, South-West, I came to the debate keen to know what was the economic policy of the Labour party. On monetary policy, is the Labour party in favour of going back into the ERM or not, and under what terms? Is it still in favour of economic and monetary union? Does it believe that monetary policy is too tight or too loose? Its monetary policy used to be to fix interest rates at 2 per cent. below the level fixed by the Government. What is its monetary policy now?

Not only on monetary policy are the questions unanswered. What is the Labour party's fiscal policy? Is the level of borrowing too high or too low? [Interruption.]

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The shadow Chief Secretary, the hon. Member for Peckham (Ms Harman) says that it is too high. That is an interesting proposition. How will she deliver her commitment to reduce the spending plans of the Labour party to bring the Budget deficit down? How will she do that against the background of the commitment given by the hon. Member for Dunfermline, East (Mr. Brown) on "The World this Weekend" in January, when he said :

"I'm not talking about raising income tax or national insurance or VAT".

He seems to have cast a large share of the burden for dealing with the deficit on the shadow Chief Secretary.

Either way, it is bad news for the hon. Member for Peckham. She cuts a rather sorry figure. There she sits--the political heir to Joel Barnett. Her job is to say no. Her job is to address the language of priorities and choices. Yet she prefers to live in a soft-focus world where to want is to have, where there are no choices, no difficult decisions, no priorities and no disappointments.

I remember well the days when the hon. Member for Peckham was a health spokesman. She would speculate about Labour's plans for spending on the NHS. Those speculations were expensive enough. Now she speculates not only about health but about education, training, employment measures and overseas aid. All that is against the background of the commitment made by the shadow Chancellor that there would be neither tax increases nor borrowing increases. The House and the country want to know who speaks with authority on behalf of the Labour party.

Labour's economic policy is like a much-loved ancient monument. It is a familiar part of the landscape. It undergoes the occasional face-lift, but its essential elements are passed lovingly from generation to generation. Like all such creations, it was never designed. Its distinctive shape, its higgledy-piggledy charm, are testament to the creative genius of the composite resolution. But the essential elements of the confection are clear. It was designed for a bygone era. The planners insist that successive generations maintain a range of adornments, the purpose of which is lost in the mists of time. Its maintenance would cost very large sums of public money. It has no relevance to today's economic needs. It is in sharp contrast to the Bill, which addresses today's needs and which I commend to the House.

9.59 pm

Mr. Jeff Rooker (Birmingham, Perry Barr) rose--

Madam Speaker : Is this a point of order?

Mr. Rooker : It is not a point of order, Madam Speaker. I stood up to be called.

The Financial Secretary did not have an opportunity to give way to me, and I should like to spend a couple of minutes to make the point that I would have made had he done so. [Interruption.] If Conservative Members do not realise by now that the Second Reading of the Finance Bill is not subject to the 10 o'clock rule, they have now found that out. Incidentally, the Financial Secretary is no Robert Sheldon either.

I should like to take up what the Minister said about no tax increases this year. I was late arriving at the House today, because I took a few hours off to visit one of the shire counties in middle England. The local people, on the

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margin of the low-paid, asked me why I had not operated my tax law and why they will pay more taxes. I said that I would take the first opportunity to correct the record.

The Chancellor of the Exchequer is deliberately increasing taxes for 500 people in every constituency--that is the effect on the low-paid of freezing the tax allowances. It is no good the Financial Secretary saying that the Government are not raising taxes. How can it be justified for 500 of the lowest-paid people in every constituency, who would not normally pay tax, to be called upon to pay tax in order to pay for the tax reliefs to business? How can that not be called an increase in taxation? It is dishonest of the Government to claim that there has not been a tax increase when 300, 000 people will pay tax in this tax year. They are some of the lowest-paid people, and the Government should be damn well ashamed of themselves.

The Government have said that the recovery is here, and they have quoted a catalogue of good news. How can we justify, therefore, the lowest-paid people being expected to face an increase in their tax burden from zero to 20p in the pound? That imposition is in addition to the added burden of VAT on domestic fuel.

We will debate this issue at some length in Committee. That is all that I wanted to put to the Financial Secretary. How can he justify the immorality of taxing 500 of the lowest-paid people in every constituency when the good times are now here?

Question put, That the Bill be now read a Second time : The House divided : Ayes 310, Noes 266.

Division No. 249] [10.3 pm

AYES

Ainsworth, Peter (East Surrey)

Aitken, Jonathan

Alexander, Richard

Alison, Rt Hon Michael (Selby)

Allason, Rupert (Torbay)

Amess, David

Ancram, Michael

Arbuthnot, James

Arnold, Jacques (Gravesham)

Arnold, Sir Thomas (Hazel Grv)

Ashby, David

Aspinwall, Jack

Atkinson, David (Bour'mouth E)

Atkinson, Peter (Hexham)

Baker, Rt Hon K. (Mole Valley)

Baker, Nicholas (Dorset North)

Baldry, Tony

Banks, Matthew (Southport)

Banks, Robert (Harrogate)

Bates, Michael

Batiste, Spencer

Bellingham, Henry

Bendall, Vivian

Beresford, Sir Paul

Biffen, Rt Hon John

Blackburn, Dr John G.

Bonsor, Sir Nicholas

Booth, Hartley

Boswell, Tim

Bottomley, Peter (Eltham)

Bottomley, Rt Hon Virginia

Boyson, Rt Hon Sir Rhodes

Brandreth, Gyles

Brazier, Julian

Brooke, Rt Hon Peter

Brown, M. (Brigg & Cl'thorpes)

Browning, Mrs. Angela

Bruce, Ian (S Dorset)

Budgen, Nicholas

Burns, Simon

Burt, Alistair

Butler, Peter

Butterfill, John

Carlisle, John (Luton North)

Carlisle, Kenneth (Lincoln)

Carrington, Matthew

Carttiss, Michael

Cash, William

Channon, Rt Hon Paul

Chapman, Sydney

Churchill, Mr

Clappison, James

Clark, Dr Michael (Rochford)

Clarke, Rt Hon Kenneth (Ruclif)

Clifton-Brown, Geoffrey

Coe, Sebastian

Colvin, Michael

Congdon, David

Conway, Derek

Coombs, Anthony (Wyre For'st)

Coombs, Simon (Swindon)

Cope, Rt Hon Sir John

Cormack, Patrick

Couchman, James

Cran, James

Currie, Mrs Edwina (S D'by'ire)

Curry, David (Skipton & Ripon)

Davies, Quentin (Stamford)

Davis, David (Boothferry)

Day, Stephen

Deva, Nirj Joseph

Devlin, Tim

Dickens, Geoffrey

Dorrell, Stephen

Douglas-Hamilton, Lord James

Dover, Den

Duncan, Alan

Duncan-Smith, Iain

Dunn, Bob

Durant, Sir Anthony

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