House of Commons Hansard Debates for 10 May 1993

Mr. Milligan : I would be flattered if the Prime Minister listened to my views, especially as I was not a Member of Parliament at that time. My right hon. Friend the Chief

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Secretary gave the answer to the hon. Gentleman's question. At that stage, there were no plans to extend the scope of VAT. But Governments have to react to events. The recession was far longer than we expected. We made additional pledges at Rio, which the Opposition strongly supported. But they do not expect us ever to have to pay the bill for the pledges that were made.

So we have a completely dishonest Labour Front-Bench team, who give the impression that there is some easy way out of the problem, and that taxation does not have to be increased. The Opposition have never answered questions about what they would do in government or whether they would repeal the measure.

Mr. Barron : Does the hon. Gentleman think it right that, in the past five years, the top 5 per cent. of British income tax payers have received cash discounts from the Government running into billions of pounds, yet we ask people, many on low income or benefit, to pay VAT on standing charges and domestic fuel?

Mr. Milligan : I am glad that the hon. Gentleman has raised that point. I rang the Institute for Fiscal Studies this morning--I think that the hon. Gentleman will agree that it is an independent body--and asked for its estimate of the overall effect on income distribution of the set of measures that were announced in the Budget. It said that, provided that means-tested benefits were increased in the way that my right hon. Friend the Chief Secretary has made it clear they will be, the effect was "broadly proportional". It is not a regressive set of measures.

Mr. Barron rose --

Mr. Milligan : I am answering the hon. Gentleman's question. If one takes it in isolation, the imposition of VAT on fuel is regressive, but one must look at the balance of measures that were announced.

When we have a PSBR worth £1,000 for every man, woman and child, everyone in the country has to make a contribution to putting it right. My hon. Friend the Member for Corby (Mr. Powell) said that it was unfair that the charge would fall on people with modest incomes. I agree with him, but the problem is that most people in Britain are on modest incomes. If we are to balance the books, everyone has to make a contribution. It is important that those measures are seen to be fair, and are fairly distributed. The balance of measures announced in the Budget is fair.

The Liberal Democrats have a different approach from the Labour party. They accept that there should be taxation on energy. They support a carbon tax, but they have an original approach. They would compensate everyone for the extra taxation. That would do nothing about the PSBR and nothing to discourage excessive energy use. That is the second purpose of the measure. It is intended to reduce carbon dioxide emissions.

The economic knowledge of the hon. Member for Peckham appeared to be rather limited. She appeared to have even less scientific knowledge when she suggested that the measure was intended to deal with the hole in the ozone layer. It has nothing to do with the hole in the ozone layer. It is to reduce global warming. At Rio, we gave a promise to reduce carbon output by the equivalent of 10 million tonnes to deal with global warming.

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The Opposition and the Liberal party are enthusiastic about environmental measures, but as soon as it comes to paying the bill for them, they say that no bills should be imposed and no one should have to pay extra. We need to reduce excessive energy consumption. The House of Commons, in which the right hon. Member for Berwick-upon-Tweed (Mr. Beith) has some role, might set a lead by reducing its excessive central heating. If we are to reduce excessive fuel consumption, we must take action.

It is significant that the hon. Member for Peckham, who was wearing a fetching green outfit, paid little attention to the green aspects of the measure. I wish to quote what Friends of the Earth, which is widely accepted as an independent environmental group, has had to say about the measures which my right hon. Friend the Chancellor introduced. It issued a press release entitled "Budget Briefing Why Friends of the Earth welcomes the Chancellor's energy price hikes." It says :

"Friends of the Earth therefore welcomes the Chancellor's commitment to increasing domestic fuel and power prices over the next two years through the gradual imposition of VAT."

So this is a difficult and unpopular measure, but I believe that it is a correct one.

I welcome the newly elected hon. Member for Newbury (Mr. Rendel) to the House. I know that he had a good education at a good Oxford college, but he seems to have gone politically astray since then. I hope that he enjoys his brief stay in the House. But those who win by-elections should remember that those who win general elections are those who have the honesty to tell the truth to the electorate, to do what is right and not to seek short-term popularity. For that reason I shall support the Government tonight.

Mr. Robert Ainsworth : Despite the comments of the hon. Member for Eastleigh (Mr. Milligan), one thing has become clear over time. It was even acknowledged by the Chief Secretary in his speech today. This is not a green measure and it was never intended as such. It is a revenue-raising measure. Another thing which is clear and which the Government have tried to disguise is that, of all the promises that were broken in what was probably the most dishonest election campaign in recent times, the broken promise on VAT on fuel was the most appalling breach of faith.

On 27 March, 13 days before the election, the Prime Minister gave an unequivocal promise to the nation that he had no intention or need to raise the level or scope of VAT. In his Budget Speech, the Chancellor gave the same commitment. Remember, we are not talking about a small measure. This is not an additional small sum added on the side to balance the books. It is the Government's biggest single revenue-raising proposal this year. It represents the biggest detraction from every commitment that the Conservatives gave before the last election. About £2.3 billion will be raised by the extension of VAT to domestic fuel. It is a scandal.

The need to extend VAT to domestic fuel did not creep up on the Government. After all, the Conservatives have been in charge of the nation's monetary policy for nearly 14 years. Before the general election, they announced what they alleged were the Labour party's proposals and told the people what their tax proposals were. They deliberately lied and deceived people about that.

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Mr. Dicks : Without wishing to defend the amendment, I remind the hon. Gentleman that the Government had to change course because of changed circumstances. The leader of the Labour party, when asked recently why he was opposed to tax increases and was in favour of tax reductions, replied that circumstances had changed in the last year. If it is good enough for that right hon. and learned Gentleman to change his mind because of changed circumstances, why is not it good enough for the Government?

Mr. Ainsworth : I do not believe that circumstances have changed to such a degree that the introduction of VAT on domestic fuel is warranted. In any event, if circumstances have changed, the Government have been responsible for those changes. They decided to push the pound into the ERM and they then spectacularly withdrew it in September.

As the Conservatives had complete control of the economy in the last year, they should have known--I believe that they did know--about the impending imposition of VAT on domestic fuel. As I say, they deliberately lied about it and pushed it to the other side of the election campaign. The result is that, in the most cynical way, they are retreating from the clear commitments that they gave before the election.

Not only is the VAT imposition massive, but, as hon. Members have pointed out, it will be permanent. The Chief Secretary said that perhaps we would learn by experience. That cannot happen with the VAT proposal. Under EC regulations, once we have given up the right to zero-rate fuel, it will be given up for ever. Once approved, that will be the end of it, which is why I welcome the commitment of some Conservative Members to vote against the VAT proposal.

It has been suggested that the VAT imposition is not regressive. In fact, it is among the most regressive of taxes being introduced this year. Figures show that the poorest decile of the population spend 13 per cent. of their income on fuel. The imposition of VAT will result in an extra 3 per cent. of their disposable income being removed from them. That will come on top of the problems they face as a result of our present appallingly regressive tax system.

In the 14 years during which the Conservatives have been in office, the tax burden on the poor has increased from 40 per cent. to--including the measures in this Finance Bill--50 per cent. In other words, the poorest people in Britain will be paying 50 per cent. of their income in taxes in one form or another.

Government policy to move the tax burden from direct to indirect taxation is designed to hide the sort of sins that they are committing in the Finance Bill. Who on earth would accept an income tax regime that meant the poorest paying more than the richest? Such a policy would be clearly unfair and unacceptable. Yet the present basket of taxation proposed by the Government will mean the poor paying massively more than the rich. The top decile in the nation pay a third of their income in tax while the poorest pay half. That represents an appalling state of affairs.

6.15 pm

Mr. Winnick : My hon. Friend will agree that it is not surprising that many members of the public are beginning to compare the imposition of VAT on domestic fuel with the poll tax. In this case, the poorest will be hit the hardest, as happened with the poll tax. No wonder the public are

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linking the two in their minds. I hope that the Tory party will deeply regret, in electoral terms, what they are doing in punishing those who are in the greatest need of help.

Mr. Ainsworth : My hon. Friend makes a valid point, although the analogy is even closer. The Chief Secretary said, in justifying the change, that people would be able to cope with the increases because of changes in the rebate system with the introduction of the council tax regime. Under the poll tax regime, the lowest earners had to pay at least 20 per cent. A great deal of fighting took place before the Government finally accepted that 100 per cent. allowances were necessary under the council tax system. The Chief Secretary is discounting that in the imposition of VAT on domestic fuel. I was astonished to hear the right hon. Gentleman say, in attempting to justify the introduction of VAT on domestic fuel and the offsetting arrangements, "The measures that we have taken are so numerous and large that I do not think that hon. Members appreciate everything that we have done for these people." I assure him that among "these people" he claims to be helping, the pensioners and those living on income support will not appreciate his efforts. I do not know what sort of world the right hon. Gentleman is living in. It is not the same world as that inhabited by my constituents. In endeavouring to secure better offset arrangements from the Government, some Conservative Members have asked for the social security system to be carefully examined. I remind them that the review of Departments, including the DSS, announced by the Treasury some months ago, was not designed to extend aid to cover the imposition of VAT on domestic fuel. That review is designed to save millions of pounds to help close the massive gap in our public finances. Anybody who believes that the Conservatives are sincere in wishing to offset the effects of the new charge through the social security system are deluding themselves.

The hon. Member for Corby (Mr. Powell) talked about the anger that the people who had voted for him felt about the imposition of VAT and how he could not possibly support it as a result. My constituents do not feel similar anger because, unlike that hon. Member's constituents, few of them voted for the Government. My constituents knew, when the election result came in, the sort of thing that would happen. They were not stupid about it and therefore they are not angry because they knew jolly well what was going to happen. Their anger is directed at the people who were stupid enough to vote the Conservative party into power for a fourth term. The anger will be felt by the people who feel betrayed, by the people who were conned, by the people who believed what they were told by the Tory party before the election. The anger felt by the people who did not vote for the Conservatives is directed towards those who did.

Mr. Marlow : As a result of ERM membership and being in the ERM much longer than we should have been, which imposed economic policies on the United Kingdom that may or may not have been appropriate for the German Federal Republic, this country has found itself, having already had a recession, in a much worse recession, which has gone on much longer than it should have done

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and caused much more damage to many of our constituents' hopes and aspirations and also a great deal of damage to the Government's finances than it should have done. As supporters of the Government, we all understand the predicament in which they find themselves. When we came out of the ERM on white Wednesday, I understand that my right hon. Friend the Chancellor of the Exchequer was caught singing in the bath. Apparently, that is a drowning offence. If I can use another metaphor, when the scrum is being pushed backwards at ever- increasing speed, one does not sack the hooker but one looks to the leader of the pack to redouble his efforts. When we look at the measures before us today, and when we look at what happened to the Government in the local elections and at Newbury last week, we must be frank, direct and straightforward with the people. When we look at this particular matter, we have to be a little more honest than we have so far been.

I support VAT on domestic fuel and power, because, as my right hon. Friend the Chancellor put it to the House in his Budget speech on 16 March, it was done

"in order to meet the commitment that we entered into at Rio." That was a proper commitment to enter into and it is quite proper that we should seek to meet it. We need the right incentives to encourage people to consume less energy and conserve more energy. That is what VAT on domestic fuel and power will do, right and proper.

My right hon. Friend also said :

"Against this background, I have one further measure to propose that will not only encourage greater energy efficiency in every household but will also raise money for the Exchequer." We need to raise money for the Exchequer--I agree with that--and that is why my right hon. Friend the Chancellor wished to introduce VAT on fuel and power. That decision is green, it is good, it is correct, it is right, but, "It's not what you do, but how you do it". We must take two problems into account--

Mr. Beith : Yes, Lamont and Major. [ Laughter. ]

Mr. Marlow : In a very good speech, my right hon. Friend the Chief Secretary to the Treasury addressed those problems, but he did not go far enough. Some silly points have been made during the debate, including those made, if I may say so, by some of my hon. Friends who quoted from 1976. There will be people voting in the next general election who were not even conceived in 1976. Let us get on with today's agenda and not concentrate on some of the silly things that happened years ago.

Before the Opposition are too agreeable to my speech, Ike promises and break promises, and so on and so forth. All the time the Opposition say to Ministers, "Deny you are going to do that ; say you won't do that with VAT ; Say you won't do this or that." Every time the stock answer comes now, as it came 10, 20, 30 and 40 years ago, "We have no plans to do anything about it." That is what the Government said at the general election and at that time it was right, honest and correct to say that.

But circumstances have changed. If the Opposition, heaven forfend, become the Government of this country, circumstances will change when they are in power, and they will say, "We have no plans." That is the stock way of doing it, the proper way of doing it, it is the way that it will continue to be done in the future. Let us not deceive

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the people by saying that the Government were deceiving the electorate at the election, because they were not. What they said then was a perfectly proper thing to say. Let us have that on record and let us have it correct.

When my right hon. Friend the Chancellor announced the imposition of VAT on fuel, he said :

"Social security benefits, will, of course, rise but I recognise that this will cause particular problems for those on low incomes. My right hon. Friend the Secretary of State for Social Security will take this into account when the income-related benefits are uprated next year."-- [Official Report, 16 March 1993 ; Vol. 221, c. 183.] It is right that we should look after the poorer people. We should discourage people from using too much energy and encourage them to become energy-efficient. Such energy efficiency measures should also apply to those who are less well off, but we must take into account that they will be subject to an increased financial commitment. I understand that we will offer help to those on income support--in some cases, those who are the most unfortunate and, in others, those who have least helped themselves. We will look after them.

After the election, I made a short speech in which I expressed my concern for those pensioners with a little bit of savings, who are just above the income support level. Every time the Government introduce a new tax, which they must do and which I support, those on income support are looked after, but those who have looked after themselves are ignored. Time and time again, that group of people who have saved, strived, who fought in the war and who have done their best for the country, their families and themselves are ignored and put on one side. This VAT increase is one time too many. What Ministers have said so far about their plight has not met that problem.

Those pensioners are forgotten every time, but their time has now come. The Conservative Government must not cast them on one side. They must take into account the commitment of those people and what they have done for the country. We must support them. All right, the Government can raise the tax, but they must remember those who have marginal savings and marginal additional pensions, which place them just above the level eligible for income support. This time we must consider them when we introduce compensation later in the year. I agree that we should tax consumption and encourage people to be effective and efficient in their use of energy. We should encourage people to look after their houses so that they do not waste energy. It is a good thing to make everyone conscious of the fact that the Government are green and that we have green policies. But why are we imposing VAT on the standing charge? That charge, which covers the cost of getting gas or electricity to the ironmongery in the street, is for providing an essential service. It is not to do with use, but with providing a facility.

Just as we provide water without taxation, food without taxation and sewage disposal without taxation, we should not tax the standing charge,--although we will not raise as much money in taxation. I and many Conservative Members want the Government to look after the people who have saved and looked after themselves. We do not want the Government to ignore them. The Government should not tax the standing charge, as it is an essential service.

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6.30 pm

Mr. Alfred Morris (Manchester, Wythenshawe) : Vanquished Tory candidates in last Thursday's elections said :

"We've been crucified by our own Government".

The Prime Minister said last Friday--as we saw on our television screens-- that the electorate had given him a "bloody nose". But even some of his party's surviving representatives have continued to throw punches at him since then.

Speaking to the Sunday Times last Saturday, an Essex Tory councillor said :

"We went into the General Election telling people not to vote Labour because they would put up taxes, and what happens? The Government put up VAT. We need a leadership that does what it says it will do and we need it badly."

No close observer of last Thursday's shire elections and the Newbury by- election on the same day is in any doubt that the Government's decision to impose VAT on domestic fuel was a hugely important factor in the massive loss of Tory seats.

The morning after the party's humiliating rejection by the electorate, the Prime Minister said that the lessons of the disaster would be quickly learned. The truth of that will be tested at the conclusion of today's debate. If the Government persist in the clear breach of their undertaking at the general election, they will demonstrably not have learnt even the first lesson of the rout inflicted on them last Thursday.

The imposition of VAT on gas and electricity bills is bitterly resented by people who feel cheated by the blatant falsehood that they were told at the general election. Every household will have to pay more but, as all of us know, the elderly poor will be hit much harder than others. If they are not compensated in full--which the Government still refuse to concede--their plight will be of even greater concern to everyone who knows the facts about deprivation among the elderly poor in Britain today.

Only one quarter of pensioners pay income tax, but every pensioner pays VAT. That is why the poorest pensioners dread the extension of the tax to gas and electricity. Few people knew on Budget day that VAT on thier domestic fuel bills would apply, not only to the gas and electricity they use, but to the standing charges imposed on them by the privatised companies. The poorest pensioners pay more in standing charges than they do for the gas and electricity they use. For them now to have to pay a further 8 per cent., and then 17.5 per cent., in standing charges, is a scandal that I hope the Committee will refuse to sanction tonight.

The Government have attempted no justification of the imposition of VAT on standing charges. There is no way in which such a levy has any environmental justification. It is unrelated to actual consumption and is a gratuitous extra cost imposed on the consumer. The only way she or he can avoid VAT on standing charge is not to use gas or electricity at all, yet, in a recent parliamentary reply, the Paymaster General--who has now joined us--told me that, within two years, the Treasury expected to raise £100 million from pensioners in VAT on standing charges alone. That is surely intolerable from every viewpoint. Will the Chancellor at least accept today that VAT must not be levied on the standing charges to which pensioners are subjected?

The anxieties of pensioners about VAT on fuel bills are shared by severely disabled people, who have to spend

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more than most people on heating their homes. They need to do so for health reasons. We must strive to protect them, too, from the effects of the Government's broken promise. In their case, VAT on domestic fuel is a straight tax on disability. Not only disabled people themselves, but many doctors, have told me of the dangers their patients will face if they are forced to economise on heating. If the Chancellor is hellbent on persisting with his proposals, we should be told in the debate exactly how and to what extent the Government intend to compensate the elderly poor and severely disabled people for its effects. To leave them waiting and worrying until the autumn is widely condemned as studiedly cruel by their organisations. The Disability Alliance, which speaks for more than 200 organisations of and for disabled people, says :

"We fear that the imposition of VAT on fuel and Standing Charges will have a devastating effect on disabled people. If the proposal goes ahead, we urge you to press for an adequate period of consultation with organisations and groups representing low-income households to ensure that proper compensation is made."

Such consultation should have taken place before the Chancellor made his decision to extend VAT to fuel bills. He should also have discussed the issue in advance of any decision with the Charities Tax Reform Group. The cost to its member organisations if we fail to defeat the proposal will be £25 million a year, within two years, which will add significantly to the already large irrecoverable VAT burden borne by charities.

All that money was given by the public, not for the Billy Bunters of the Treasury, but to help children in need, cancer patients, ex-service men and women and their dependants, for whom the Royal British Legion works so hard, severely disabled people, the frail elderly and others. If the Government refuse to change their mind, it will mean that such groups and other needful people will soon lose another £25 million to the Chancellor, which will add anger to the anguish of those striving to help them at a time of Treasury-driven cuts in the provision of services by the public sector.

In a powerful letter in The Times today, Ian Bruce, the director general of the Royal National Institute for the Blind, and others said :

"The real and agonising choice for charities will be in deciding which projects they will be unable to fund, which improvements they will need to delay, which deserving cases they will be unable to help. Charities are constantly improving their fund-raising efforts but--as with the environment--resources are not infinite. We cannot believe that this is what the government intended when it decided to impose VAT on fuel and power."

The letter was also signed by senior representatives of the Imperial Cancer Research Fund, Mencap, the Wellcombe Trust, Help the Aged and the National Children's Home.

They will know, as many hon. Members on both sides of the House know, that the effect of the Government's proposal could be to drive some charities out of existence. The signatories of the letter to The Times will have been encouraged by the highly principled speech made earlier in the debate by the hon. Member for Corby (Mr. Powell). Let us hope that other Conservative Members will join him in assisting us to defeat this perverse proposal in the Division Lobby tonight.

Mr. Nicholls : I shall first deal with the issue raised by the right hon. Member for Manchester, Wythenshawe

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(Mr. Morris) and also alluded to, in a whisper, by my hon. Friend the Member for Northampton, North (Mr. Marlow)-- the accusation that the Government have broken their promise by introducing VAT now. I accept at once that that issue does not go to the heart of the argument, but it is worth stating.

The allegation that the Government have broken their promise because they must have had plans at the time of the general election is inconceivable. The idea that the Government could ensure that such plans were not leaked within a week of their conception is nonsense. It is perfectly obvious that, had any such plans been afoot, there is no way that they could have remained hidden from the light of day for an entire year. We can be absolutely certain that there were no such plans, because the Government have given their word and because of the sheer practicalities.

Interestingly, and perhaps even engagingly, there has been some banter across the Chamber about election addresses. We have been asked what was in our election addresses, and we have made some inquiries about matters which were not in past Labour election addresses, and not a great deal of light was shed.

In my own election address, and in every election speech I have made in the three elections in which I have stood for Parliament, I have always made the point that the overriding responsibility of any Conservative Government is to run a proper fiscal policy. That entails ensuring that, when the state taxes and spends money, the gap between what is raised and what is spent, which has to be financed by borrowing, does not become so great that it represents a burden that the country cannot afford.

In those halcyon days not so long ago, we achieved a positive budget, in which the books balanced, and what a wonderful thing that was. We have done it before, and there is no reason why we should not do it again, but we cannot say simply that we will never increase taxes, any more than we can say that the correct rate of tax, be it the higher rate or the basic rate, should be 35 per cent. or 40 per cent. or whatever.

We have a responsibility to the country and the people in it to make sure that the gap never becomes unbridgeable. In good times, that can be achieved with lower tax rates ; in bad times, we may have to increase tax rates, but the idea that we would serve the frail, the poor and the elderly by allowing the country's finances to get so far out of control that borrowing represented a burden that the country could not sustain is cruel and dangerous nonsense. The mere fact that, at the last election, we said that we had no plans to increase tax yet we have now had to do so, is not a broken promise. It was adhering to a promise that, whatever else happens, we have to ensure that the gap between what we spend and what we raise never becomes thoroughly unbridgeable.

My second point was raised by the right hon. Member for Berwick-upon-Tweed (Mr. Beith), who, in anticipation of my kind remarks about him, has now returned to the Chamber. He said in his usual beguiling way that the Government should look at what happened in Newbury last Thursday and announce a complete change. He floated the idea that a Treasury Minister could or should walk in here and say, "We have not had a great deal of time to think about it, but guess what? Just because a temporary Member has been elected for Newbury, we had better change the whole thing." The right hon. Gentleman

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put that in his usual beguiling way, but the trouble with the right hon. Gentleman, beguiling though he is, is that he always combines his suggestions with barefaced brazen cheek.

In any of their policy documents, manifestos or utterances, at any green Liberal conference where the brethren turn up drinking lentil soup and wearing kaftans and sandals--and the women are no better--at any of those conferences which the right hon. Gentleman has mounted over the years, the Liberals have been a thoroughly anti-energy party.

They have talked about tax increases on energy, yet when the Government, rightly or wrongly, decided, perhaps unwisely, to use one of those Liberal policies, the right hon. Gentleman and his colleagues have said that they did not really mean it--it was a consultation document, just a manifesto document or another little joke. The idea that the right hon. Gentleman's views are worthy of any credence strikes me as complete nonsense.

6.45 pm

In an ideal world, it would be nice to respond to the messages that the electorate are giving us so directly by rewriting a Budget speech at this stage of the Finance Bill. It is a lovely idea, but it is completely unrealistic.

It is also the answer to the point raised by my hon. Friend the Member for Corby (Mr. Powell), which was one of the better speeches I have heard recently in the House. However one might feel about the anlysis, it was a speech of great sincerity. My hon. Friend took the view that, because it was a mistake to raise revenue by imposing a tax on energy, the Government should announce tonight that they would do it in some other way.

The trouble is that one cannot simply unpick a Budget package. I always find it interesting that millions of lobby organisations write to Members of Parliament before a Budget asking us to promise that, if a particular measure is introduced, such as VAT on children's clothing or anything else, if all else fails, we will vote against it. It is very rare that one can do that with a Budget measure. A Budget is an overall setpiece : it stands or falls on whether it works as a package. The idea that Conservative Back Benchers, no matter how profoundly upset they are about the effect of the tax is having on a great many of their supporters, can tear it up and make progress in that way is not for a moment realistic.

Having said that, we need to face up to the effect which the measure has had on a great many of our supporters. I come from an area similar to that mentioned by my hon. Friend the Member for Northampton, North (Mr. Marlow), with a relatively large elderly population. Those people have served the country well and made a contribution in at least one world war, and sometimes two. For the most part they have worked hard all their working lives. When they look at what they have amassed through that working life, they see a store of riches which is just above the income support level. In bad years, they feel that the product of their hard work, thrift and patriotism is that they have managed to exclude themselves from any of the free handouts that their less worthy and less thrifty neighbours receive.

In the 20th century, one cannot run a social security policy for the deserving poor and the undeserving poor. We cannot carry out a thrift audit on people, and say that, because they have not performed very well over the past

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40 years, they had better starve. However, we have to address the effect on those who have been thrifty yet are just excluded from any help.

Those of us who are concerned about the effect of the measure on those people cannot pretend that we can unpick the Budget here and now, but we have to put down a marker and tell Ministers that the good intentions they have expressed in somewhat general terms to date about how they will help those people have to be built on. The message from the west country in local government elections is that people are concerned about three things : Maastricht, water charges and VAT on energy. They are pre-eminently concerned about the last for one important reason. Imagine what it must be like in the twilight of one's years seeing one's income being cut, looking at the resources that one has saved and having to consider that the money may run out before one's life does. That is why people have been writing to us and telephoning us in the terms they have, and that is why they have been staying home in droves during the elections. It was not meanness or their inability to say that Rio was a good idea and we should go along with it ; it had nothing to do with that. It involved a word that politicians sometimes overuse--terror. It was people's terror that their money might run out, and we have to address that.

My right hon. Friend the Chief Secretary appeared to take on board my point about protecting the neediest is not automatically the same as protecting those on income support. I have to tell him and my right hon. Friend the Paymaster General who is to reply to the debate that that is encouraging as a skeletal point, but it needs more flesh on its bones. We cannot simply say that those who are getting relief through the council tax have in a sense been compensated. That is not sufficient.

I accept that trying to identify the people who fall into the category that I described a few moments ago is no easy task, but I take a minimalist view of what a Back Bencher can do, and in the same way as I do not expect to be able to rewrite the Budget tonight, I do not expect to be able to provide the detail of the solution that my right hon. Friend will need. That is why he has such an impressive range of talent among his civil servants. Ultimately, once we have given them the political direction, it is up to them to come up with a formula that will deal with the problem.

There are ways in which this can be done. My hon. Friend the Member for Tiverton (Mrs. Browning) mentioned one approach--clawing back the money by way of income tax from the better-off pensioners. Incidentally, I am sorry that I was slightly acerbic to my hon. Friend the Member for Southend, East (Sir T. Taylor)--he seems to be receiving what I am saying now quite well--

Sir Teddy Taylor : Not at all.

Mr. Nicholls : I am pleased to have been able to bounce my hon. Friend around in the way he so richly deserves. He always manages to introduce a sour, partisan, partial European dimension to debates as important as this one. Be that as it may, if agreeing tonight to remove zero rating means that we cannot go back on that at some point in the future, I will be surprised--

Sir Teddy Taylor : Why?

Mr. Nicholls : Largely because my working rule is that it is always a good idea to consider the opposite of

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whatever my hon. Friend says--that way, one comes close to common sense. But if, by some strange exception to that rule, what my hon. Friend says has a grain of accuracy, then perhaps we need to examine what rate of VAT is applicable.

Perhaps we should not go for 8 per cent. next year and 17.5 per cent. thereafter. Perhaps, if all the indicators are right and we are coming out of recession more quickly than we may have thought, and people will go back to work and generate tax revenue instead of using it up, the gap that needs to be bridged will be able to be bridged with a lower rate of VAT. Perhaps nothing more than 8 per cent. is needed. Moreover, the energy producers will be trying to reduce their costs to ensure that the savings that people make do not deprive them of revenue. This constitutes another approach.

If I have correctly identified the segment of the population that needs help, I have done my duty by my constituents. It is now up to Treasury Ministers to work out where we go from here. One way or another, they must deal with that point.

Sir Teddy Taylor : No doubt my hon. Friend's constituents will have noticed the amendment that calls for implementation of only the first stage of the VAT increase, and will watch his comments with interest. As my hon. Friend has said that the poor will not pay anyway, and as he wants better- off pensioners not to pay, who does he think should pay--bearing in mind the fact that the Government have explained that they desperately need the money?

Mr. Nicholls : I apologise. I thought that I had made that clear. My point was that protecting the neediest by concentrating help exclusively on those with income support does not meet the problem. I said also that many who will feel this most grievously are those just above the income support line.

It should not be beyond the resources of Government to identify that segment of the population and then concentrate help on them, too. There will obviously be hard cases. Some people will say that they are part of the working population and that they have no more means than the pensioners next door. Any form of targeted relief is by its very nature a blunt instrument ; but those in the working population always have the possibility of work benefits and of a better job in the end--they have the possibility of hope. Many of the people to whom I have referred see no hope at all.

As a humble country lawyer--[ Hon. Members-- : "Come on."]--all right, as a country lawyer, I do not pretend to have the expertise possessed by my hon. Friend the Member for Southend, East who claims that all we have to do is vote for one of the amendments. We can then go away saying that we have sorted out the problem. It is impossible to rewrite Budgets like that, but it is possible to respond to the fears, miseries and distresses of constituents. The Government have already acknowledged that income support in itself is not a sufficient mechanism ; now they will have to do something about it.

Fortunately for the Government and for those, like me, who will support them in the Lobbies tonight, there is still time to get the mechanism right --but the work can start now.

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