House of Commons Hansard Debates for 13 Jul 1993

Mr. Peter Luff (Worcester) : I am grateful to you, Mr. Deputy Speaker, for allowing me to catch your eye despite my discourtesy in not being in the Chamber to hear at least two speeches. I was attending an extremely important event elsewhere. You will understand that when the chairman of one's regional television company is hosting an event on the Terrace, and when he is a constituent, a certain priority attaches to being there, especially as the occasion was to say goodbye to the political editor of Central Television, Jon Lander, who has served this House so well in so many ways through the years.

This is a historic occasion because it is the last Finance Bill that we shall discuss separately from the public expenditure statement. I for one look forward to the new unified structure for presenting the national accounts, which we shall receive in November or early December this year. I suspect that the Treasury team has had an especially difficult battle in Committee trying to remember what is going into the next Finance Bill and what is in the current Bill. The House owes the team a debt of gratitude for the skill with which it negotiated the Bill through its Committee stage.

I look forward to the fact that in the combined expenditure statement there will be a splitting of capital and current expenditure. It is a long overdue measure which will allow for much greater clarity in the presentation of our national accounts and will enable the House to take a more enlightened and informed view of the true state of the public sector borrowing requirement.

I welcome the fact that the House recognises that the public sector borrowing requirement is the fundamental issue confronting the Treasury team and the Government. Even the hon. Member for Peckham (Ms Harman) seems able to agree with that. Having heard her remarks earlier, however, I am still not sure what the Labour party believes to be the right level for the PSBR. I have heard what Treasury Ministers and others have said about the likely relative weight of the cyclical and structural elements of the PSBR, but I reg next financial year and about £10.5 billion in the year after. I cannot, however, unreservedly welcome the Bill. Sadly, certain things that I should have liked to see in it are not. Perhaps those omissions are, at least in part, a product

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of that first year fixation which seems to have mesmerised the Treasury down the years. I am afraid that, just as in business it is sometimes necessary to invest to generate revenues in later years, so it is necessary for the Treasury occasionally to take a view about what sums of money might sensibly be spent in year one to ensure that there are revenues to spend in years two, three and later. Before mentioning two or three of those matters, I must declare an interest. For several years I have had the privilege of advising first the General Council of British Shipping and now the Chamber of Shipping, and my work with the shipping industry has persuaded me of the imperative need to do something to help that industry. I am disappointed that nothing in the Bill helps the shipping industry. In Committee on the Floor of the House we had a useful and constructive debate on an amendment when in a series of speeches Conservative Members expressed the concern that the party feels about the future of the shipping industry. It was something of a disappointment to me that Ministers were not able to be more generous in their response to that debate, for the shipping industry would derive special benefit from a more informed and enlightened approach to the first year fixation to which I referred earlier.

I am in no sense questioning the Chair's selection of amendments, but I regret that new clause 19 was not selected for debate on Report, as that would have enabled us to debate another aspect of the investment needs of the shipping industry. I think that I speak for the shipping industry when I say that I am grateful for the intelligent, informed and constructive debate with Treasury Ministers and officials that has been possible in recent months. As a result, we are at least beginning to build some kind of general agreement about the costs likely to be incurred as a result of the measures that the industry seeks. That is at least a step forward. The House will be aware that two principal issues relating to investment in shipping would have been welcome in the Bill : 100 per cent. capital allowances for shipping, the subject of the amendment in Committee, and roll-over relief, the subject of new clause 19. Those measures alone will not produce the revival of the British shipping industry that all hon. Members want. Other measures relating to employment are necessary, but they are not matters for the Finance Bill.

I am grateful to my hon. Friend the Financial Secretary for his recent answer about relative corporate tax regimes as they relate to shipping industries in the European Community. That answer showed that, even on the Treasury figures, the relative advantage to the British shipping industry is much smaller than is sometimes claimed from the Dispatch Box. The answer did not deal fully with many of the important nuances that apply to shipping company taxation in other EC member states. The combination of those effects is to make the British taxation regime for the shipping industry the most unfavourable in the EC. I, for one, cannot accept that as a permanent state of affairs.

My hon. Friend the Minister for Transport in London recently stated from the Dispatch Box that he intended to seek to phase out other countries' state aid. His view is widely shared by Conservative Members. We do not want shipping, or any other industry, to be subsidised unreasonably, but when other countries provide advantages to their companies through the tax system, we should seek the same treatment for ours. My hon. Friend said that

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his policy was to seek to phase out those other state aids, so I am disappointed that the Government are not making much progress with the increases in aid being given by the German, French and Dutch Governments to their shipping industries. All those countries are doing more, and I am afraid that at present our Government seem reluctant to do anything.

We are in danger of throwing away an industry in which we enjoy real competitive advantages in the international economy. I understand that there is a problem with the way we do our public accounts. Who should pick up the bill ? The Department of Transport obviously would not be happy with an increase in its budget provision for that sector without receiving some additional total funding from the Treasury, although it is worth recalling that only 2 per cent. of Department of Transport expenditure goes on air and sea combined. The Ministry of Defence, which ought to have a vested interest in picking up the bill because of the enormous bonus that a strong British merchant fleet provides to the country's defence, is also reluctant. The Treasury, because of the first year problem that I mentioned, seems to be equally reluctant. If I were an entrepreneurial member of the Cabinet I would beseech the Treasury to be allowed to pick up the bill in year one, so long as I could have the profits in years two, three, four, five and six, because I would have a lot more money to spend if I took that approach.

I especially agree with the comments of my hon. Friend the Member for Stamford and Spalding (Mr. Davies) about residence and domiciliary rules. London remains the maritime centre of the world, and that is in large part due to the presence of foreign nationals engaged in shipping activities. It has been a long-running obsession of the Inland Revenue to try to tax those people on the same footing as British residents, which would kill the goose that lays the golden egg and drive those residents elsewhere, causing a great loss to the British economy. So I am glad that at least we seem to have resisted that temptation in the Bill.

Another industry that might have looked for slightly more sympathetic treatment in the Bill is the British beer industry. There must be concern about the effects of steadily higher rates of duty on beer, the effect that those rates have on depressing sales in the United Kingdom and especially the encouragement that that provides to personal and even illegal imports with the completion of the European single market. I hope that as Ministers approach the next Finance Bill they will look carefully at the price elasticity of those increases in duty and decide whether they generate additional or less revenue for the Exchequer, either through the port of Dover or in the loss of sales at the local pub.

The Government have recently taken a number of welcome steps to benefit the car industry, such as the abolition of the special car tax. One has only to look at the increase in car registrations that has occurred as a result. The Government have also benefited the scotch whisky industry. Speaking as someone who intends to holiday in Scotland this year, I am glad of the warm reception I shall get for that measure. The Government have even looked after the horse racing industry. All those measures are good and I hope that a similarly enlightened view will prevail in relation to brewing and shipping.

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It has been said that the Bill contains hard thinks, and it does--especially the matter of VAT on fuel and power. I cannot pretend that I welcome that tax, but I recognise it as essential and one that I will definitely support. It is important to remember that fuel prices have fallen in real terms since 1986. Electricity prices are broadly level, but they are going down this year. Gas prices have fallen by 20 per cent. because of the tough regulation that the Government introduced to accompany the privatisation of those industries. Despite the phased increase in VAT over the next few years, many people will be paying less in real terms for gas than they would have been before the imposition of VAT and before the privatisation of those industries. We must remember that that compares sharply with fuel bills under the previous Labour Government, when electricity prices rose by 30 per cent. in real terms. What was done then to help the poorest members of society?

I believe that the imposition of VAT is important to raise revenue. That is its clear objective. I also have no hesitation in supporting it on environmental grounds. At Question Time earlier, my right hon. Friend the Prime Minister explained the hypocrisy of the Opposition parties on that issue. We heard then of their policies. We heard what the Opposition said was necessary to protect the environment by reducing carbon dioxide emissions. I especially welcome the endorsement by Friends of the Earth of our attempts to increase measures taken to control carbon dioxide emissions.

It is right, though, to sound a small warning. I am sure that those on benefit will be fully compensated and I welcome that unreservedly. However, there is the question of those just above benefit levels, especially single elderly people. I hope that the next Finance Bill will not increase the burdens on those with modest incomes who are not eligible for benefit, especially those living on their own. A number of recent measures have had an adverse impact on that group and I hope that the burden will not increase in future Finance Bills.

The Bill has had a reassuring effect on foreign exchange markets, which has in turn affected interest rates. We should be careful before further reducing interest rates. I hear no great calls from companies in my constituency for a further reduction and we should recognise the implications that any reduction would have for those on fixed incomes.

I welcome the stability that the Finance Bill and the promise of future levels of revenue that the Government plans have brought to foreign exchange markets, and the beneficial effect that that has had on interest rates as a result.

The hon. Member for Peckham (Ms Harman) earlier accused the Government of not facing facts. I believe that the Bill shows that the Government are all too prepared to face the facts. I would remind her, were she still present, of the rise in manufacturing output. I would also remind her that in my region, the west midlands, manufacturing output and business optimism are running at the highest level for many years--according to one survey, the highest level since the survey began eight years ago.

The production of Land Rover Discovery vehicles is up by 44 per cent. and 300 more jobs are sought for the production line. Unemployment is down for the fourth month in a row, inflation is at a 29-year low, decades of decline in our share of world trade have been halted,

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exports are up by 6.5 per cent. in the first quarter of this year and manufacturing investment is up by 5.4 per cent. in the same period.

Those are the facts that the Opposition should be facing and I hope that they will have the courage and honesty to do so, though somehow I doubt it. It is no wonder that in reflecting on the economic strategy of the Labour party and what it might have introduced through the Finance Bill if--God forbid--it had been the party in power, Tribune said on 23 April :

"Dissatisfaction with Labour's hopelessly unconvincing economic policies is widespread within the Shadow Cabinet".

The success of this Finance Bill has been proved. There is growing recovery, a strengthening pound, falling unemployment and falling inflation. The broad strategy of the Bill is essential to our continued economic success. There are no sins of commission in the Bill. In a mildly critical passage, I have highlighted some sins of omission. I hope that the second 1993 Finance Bill will begin to address those sins of omission, but I have no hesitation in commending this Bill to the House.

9.9 pm

Mr. Jim Cunningham (Coventry, South-East) : The hon. Member for Worcester (Mr. Luff) referred to the improvement in the economy, and he referred specifically to the west midlands. I should remind him that there are still about 250,000 unemployed people in the west midlands. In my constituency, there are still redundancy announcements at companies such as GPT, which has announced 300 more redundancies over the past three or four weeks. The same thing is happening at Dunlop in Coventry. I should like to know where all the signs are that the economy in the west midlands is improving in the way in which the hon. Member for Worcester suggested.

There is no doubt that the Bill does not deal with the hidden time bomb of the balance of payments problem, to which many hon. Members referred. If we analyse the balance of payments, we may find that the industrial base of many of the wealth-creating

industries--manufacturing industries--has been eroded. That has an effect on the creation of wealth in the national economy. I was interested in the Prime Minister's statement yesterday in which he referred to the talks on the general agreement on tariffs and trade. The Government and their partners have not resolved the agricultural problems involved in GATT. Also within that statement--it is relevant to the Bill--the Prime Minister did not hold out any hope that there would be any major reduction of unemployment in the western economies. We must look at the Government's measures, particularly in the Bill, to tackle the balance of payments problem, unemployment and wealth creation.

Only a fortnight ago, together with a number of colleagues, I met the old- age pensioners' lobby. Some hon. Members have referred to the concerns of old-age pensioners and I do not want to dwell too much on that. When old- age pensioners apply for state benefits, their meagre savings are taken into account ; as a result, the pensioners do not accrue any interest on them, and that affects their planned budgets. As we know, most old-age pensioners have some form of planned budget to run their homes, so they will be hurt by the increases in VAT and the changes in their state benefits. There is a double whammy which should be minimised.

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Some Cabinet committees are looking at Government expenditure outside the Bill and as part of it. They are looking at cuts in the national health service and there has been talk about charges. About a fortnight ago, thousands of people outside the House expressed great concern about possible post office closures. Therefore, we are not just looking at the Bill in relation to the economy as we understand it. There are hidden factors at work within the economy that the Bill does not necessarily address. I hope that the House will give serious thought to those issues.

The Government have said that they have a medium-term economic strategy. They have not spelled out to the House what they mean by "medium-term". Do they mean 10 years down the road, three years or 12 months.

Over the past 14 years, we have had a succession of Budgets that it was claimed would put right all the economic ills of Britain. They have dismally failed to do that. It is no good going back 14 years and making comparisons with the last Labour Government. The economic policies that are practised by the Government are those of the ancient Britons rather than of the modern Britons.

The Chief Secretary's opening remarks certainly alluded to my hon. Friend the Member for Peckham (Ms Harman). I interpreted his remarks as a job description for the position not only of Chief Secretary but of shadow Chief Secretary. I could not help but think that that job description might have applied in an ideal world ; in other words, his words showed the wishes and visions of a Don Quixote rather than those of a strong Government determined to tackle Britain's economic problems and equally determined that sacrifices should be made on a fair basis. The Bill does not address those matters.

9.15 pm

Mr. Betts : The Budget is almost exclusively about the Government's obsession with curing the Budget deficit that they have created. The previous Chancellor of the Exchequer talked in his resignation statement about the absence of long-term policy thinking from the Government. He could also have said, had he been more objective, that the Government's economic policy had been based on a number of obsessions.

The Government's obsession in the early 1980s was with dealing with inflation, and that obsession caused the disastrous collapse of our manufacturing industry. The Government were then obsessed with financial deregulation, which created the credit boom and the debt overhang with which the Government must now cope. Their obsession with inflation at the end of the 1980s caused the longest recession in Britain since the war. Now the Government's obsession is with the public sector borrowing requirement.

The Chancellor's one policy statement since his appointment--if one can call it that--said, in effect, that if the recovery is stronger than the Government think, tax incomes will go up. There will then be less of a need for the Government to act by making public expenditure reductions and further tax increases. Unfortunately, the reverse is also true : if the recovery is slightly less strong, there will be a greater need for the Government to impose more tax increases and cut expenditure further. The worry

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is that the Government are obsessed totally with the PSBR. The recovery comes as an afterthought in that process.

The recovery and the appalling problems of unemployment should be the Government's prime objectives. I do not mean simply short-term unemployment, when people have been out of work for two or three weeks ; I mean cases such as the young man to whom I talked in Sheffield recently. He is aged 27 and has never had a job in his life. He has moved from one training scheme to another. He has had the misfortune to spend the whole of his working life--or, in his case, non-working life--under the Government and their policies. It is not true for the Government to say that the recovery is under way and that it is all right for them to deal with the PSBR by raising taxes or reducing expenditure. A recent survey of Sheffield industry was carried out by The Star and a local firm of accountants. The results showed that

"despite the recent spate of news concerning recovery, businesses believe the effects of the recession will be felt into 1994 and beyond and that the real recovery will be delayed until then." More than half--62 per cent.--of business respondents

"thought the recession would end in 1994 and beyond."

A similar figure--68 per cent.--thought that

"Government policy was not working for the benefit of UK businesses".

That is what businesses in Sheffield feel about the Government's claims about the recovery.

Despite the Chief Secretary's analysis of the PSBR, the problem is totally the Government's fault. Cyclical PSBR problems are the fault of the immediate recession, but the structural problems of the PSBR are the fault of the Government's long-term economic policy and the underlying weakness of the economy.

It worried me that the Chief Secretary did not answer my earlier question. The Government do not understand the difference between the cyclical and the structural problems of the PSBR or how to deal with them. If they get it wrong and attempt to tackle the structural problems at the wrong point in the economic cycle, they will squash any faint hope of recovery. That will cause damage for years to come. The Government have not faced up to that issue and are not prepared to answer questions about it. They have not seen the need for action, and their idea is that one can somehow mirror the national economic situation as an aggregate of household budgets.

The Chief Secretary talked about a bank account. That is a throwback to the neoclassical economics idea that macro-economics is merely micro-economics writ large. Let us learn some lessons from the past. Wynne Godley, one of the seven wise men appointed to help the Chancellor, said in a submission to the first round of the Chancellor's review that he believed that eventually the PSBR would "add enough to national output to generate enough tax revenue to cover not only the addition to public expenditure, but also the interest payments which have been generated by the additional public sector debt."

That answers the Chief Secretary's point about the problems of a cyclical recovery reducing the PSBR by the full amount.

I agree with my hon. Friends that the real problem for the Government is not the PSBR but the balance of

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payments crisis--a £12 billion debt at a time of economic depression. That boils down to a lack of economic and industrial capacity, caused by the Government's economic policies. The real problem for the Government is that there is a limit to the amount of recovery that can be generated without creating an even bigger balance of payments deficit. There is also a further restraint in the shape of how the cyclical element of the balance of payments can be dealt with during the recovery, and the Government have not come to grips with it. For an answer, they should go to the Bank for International Settlements, which recently said :

"Growth above the current rate will be required to reduce the budget deficit but could increase the current account deficit. On the other hand, growth compatible with a stable current account deficit might lead to an unsustainable rise in the public sector imbalance." The Government are not facing up to that dilemma. It is no use Conservative Members saying that fiscal restraint is not the answer--that the Government can deal with the problem by relaxing monetary policy. We have not heard what the Government's monetary policy is. Do they have one? It is all very well saying that we have left the exchange rate mechanism so there are now no international restrictions ; there is every evidence that the Government are merely shadowing the deutschmark at DM2.5. Is there an internal, domestic policy governing the money supply? It is certainly unclear how the Government see monetary and fiscal policy.

The Government have an obsession with the PSBR to the exclusion of all else. One objective does not make an economic policy. We know from the previous Chancellor that the Government have no long-term policies : in my submission, they have no short-term economic policies either. They have created an appalling economic mess. They should be condemned for that, and doubly condemned for the fact that they have no coherent economic strategy to get the country out of the mess that they have created.

9.22 pm

Mr. Hoon : The Bill is based on a lie told to the British people at the time of the general election--the lie that a Conservative Government had no need and no plans to raise taxation, and that people could vote Conservative in the expectation of tax cuts to come. That was the essence of the Conservative appeal to the electorate in the election campaign.

Within 12 months, the Government brought in the Bill, imposing a series of tax increases and changes on the British people--not only VAT increases and increases in national insurance contributions but alterations in allowances and reliefs against income tax for almost everyone, increasing taxes right across the range of measures that are available to any Government. When challenged repeatedly about that, the Chief Secretary defends each tax regime measure almost cheerfully. He cheerfully admitted this evening that this was a revenue-raising, tax-increasing Budget. He did that in Committee and he has done it again tonight. It is necessary, he says, to fund the £50 billion deficit at the heart of the Government's finances. What is curious about the right hon. Gentleman's approach to the deficit is the fact that he has consistently failed to deal with its causes. Where does the deficit come from? It is almost as if it arrived one day from another

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planet and was nothing to do with the Government, who have had, rather distastefully, to deal with it. Yet throughout the election campaign and parliamentary progress on the Bill Conservative Members have attacked the Labour party's spending plans even though a Conservative Government are forecasting a £50 billion deficit. They are therefore not in the strongest position from which to criticise. Apart from admitting to a newly discovered enthusiasm for raising taxes, the Government have provided us with little analysis of how they got into such a sorry state. Instead, they continue to try to face both ways, claiming to be the party of tax cuts just as they significantly increase the burden of taxation on the British people. In Committee, the Financial Secretary pointed to the limitation on reliefs to 20 per cent. as a sign of the Government's so-called commitment to reducing taxation. It is a remarkable exercise in double-speak for a tax-raising Government to try to claim credit for their so-called commitment to reducing taxes by increasing income tax for anyone with a mortgage, yet pretend that it was a sign of better things to come.

There is little doubt that the measures are designed to deceive and defraud the electorate--big tax increases now with a view to smaller tax reductions later. Some Conservative Members may ask what is wrong with that. The answer is clear : it is making the British economy and the British people subservient to the interests of the Conservative party in being re-elected. It makes them subservient to the interests of Ministers who want to keep their jobs, ahead of the real interests of the country.

Anyone who has any doubts about that argument should consider the history of the past two Budgets. The 1992 pre-election Budget was designed to win votes at a time when serious economic commentators were pointing to the dangers of the growing size of the public sector borrowing requirement. When asked about that during the general election, what did Ministers say? Minister after Minister stated that he saw no difficulty with the PSBR, that he had no need to raise taxes, that he had set the right targets for public expenditure. Twelve months later, those same Ministers are standing on their heads, their forecasts and promises empty of content and meaning. Are we really to believe that they were genuinely caught out by some apparently unforeseen growth in the PSBR? Those same Ministers, in the 1992 general election campaign, confidently forecast recovery for the British economy. They predicted that their assessment of the country's needs for borrowing and taxation could be contained within the guidelines set out in the 1992 Budget. They had access to all of the relevant Government figures when they said last year that their assessments in April 1992 were accurate. They were either incompetent or dishonest. Which is it? It is important that we and the British people know the answer.

I have little doubt that the Government plan to make most people's lives more miserable this year, next year, and perhaps even the year after. By 1996, the likely Tory target date for a general election, they can start easing back. They can look for tax cuts and handouts going into a general election campaign, paid for by the tax increases in this year's Finance Bill. That is their real policy. It is not so much an economic policy as a re-election policy. By then, as electricity and gas bills start to hit the doormats with their 17.5 per cent. Government surcharge, the British people will be looking for change. The Government will no

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doubt introduce proposals to reduce the level of income tax, not for the benefit of the British economy, but simply to boost their prospects of re-election.

The Government cannot expect that deception to work yet again. It is time for them to stop playing politics with the British economy and to face up to the fundamental problems that their policies have created.

9.27 pm

Mr. Mandelson : It is no secret that Opposition Members hate the Budget, which is being implemented by the Bill. We hate it for what it does not do about unemployment, which has dramatically increased in so many regions and is still chronic in regions such as mine. We hate it for the unfairness of its measures and the savage impact that it will have on so many of the needy and most vulnerable. We hate it for the distance that the Government have travelled from the glossy gift-wrapped prospectus that they presented to the electorate in the election campaign last year, notwithstanding the fact that Opposition Members will be the political beneficiaries of the betrayal of so many of the Tories' supporters last year.

We wanted to see in this Budget ideas to get the young people in our constituencies and communities back to work, to get the long-term unemployed back to work, or at least on proper quality training schemes where they can pick up skills in readiness for the recovery, whenever it occurs. In no sense have we seen a Budget for jobs. That is undoubtedly the greatest indictment of the Budget and the Bill, the effect of which will be felt by so many people in our constituencies.

The Bill is grossly unfair and unequal in its impact on different sections of the community. It is ironic, although perhaps not surprising, that those of us who served on the Committee considering the Finance Bill spent many hours sorting out problems and making things better--but, tragically, not for the people in real and desperate need. Throughout, the Government cared most about their friends--for example, the Lloyd's names, for whom they have created what will probably turn out to be a highly beneficial tax shelter. For large oil companies, there is massively reduced petroleum revenue duties. As speaker after speaker has reminded us, this measure will destroy jobs in exploration among the medium-sized and smaller oil companies as well as the onshore activity that is so important in my constituency and others in Scotland and in the north-east. The Committee even took time to create a tax break for wealthy foreigners so that they could buy homes here without running the risk that they might be caught for tax. Tory Members may say that that was worth only £10 million, but was that £10 million used for the poor, for the low-paid, for struggling businesses? No, it was for the friends of the Tory party. It was particularly symbolic for that. It was noteworthy, but probably prop the abuses that offer such opportunities to the already wealthy and well-off, and other friends of the Conservative party. The Government know how to look after their friends. They have not even bothered to chase up those missing millions--the £1.7 billion--in last year's uncollected taxes. That is twice the sum that went uncollected in the previous year and possibly, most

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significantly of all, twice the expected revenue from VAT on fuel that the Government are intending to claim next year.

In Committee, we should have spent our time implementing a straight quid pro quo, ensuring that there were measures in place to collect the uncollected taxes from the most wealthy and privileged, rather than extending VAT on fuel--a tax on warmth, light and heat. It is not surprising that that is seen as the most notorious, nefarious and objectionable feature of the Bill, which will haunt the Government from here to Christchurch and back via Newbury.

The contrast between what the Government promised that they would do for the low-paid, the typical taxpayer and the middle-income earner and those whom they are actually helping goes to the heart of what is so damnable and objectionable about the Bill. It has laid bare the whole cynical, fraudulent case that the Conservative party put to the voters at the election last year. The Tories said that it would be safe to reduce taxes and possible to lower borrowing and that it would not be necessary to increase costs or impose new charges. They said that economic growth would square the circle and deal with the details, yet the Budget and the Bill have put up taxes. The Bill has done nothing to get people back to work, enabling borrowing to be reduced ; instead, it has increased the cost of living, of mortgages and employment and provided not a single new policy or fresh initiative to create new jobs or to spur enterprise and growth.

Overwhelmingly, people recognise that the country is in a hole. Everyone knows it and the Chancellor has even said it. Hardly a soul does not realise that, in the long term, we cannot live with the public sector financial deficit we have now. People know that difficult decisions have to be taken ; they do not expect anything else. However, they do expect the Government to accept responsibility and to take action to get the economy moving. They expect the Government to respond vigorously and imaginatively to the crisis of unemployment. Above all, they expect the Government to be fair on the tax measures that they take. On all those counts, the Government have failed and the Finance Bill deserves to fail as well.

9.34 pm

Mr. Nicholas Brown : The Chief Secretary to the Treasury opened this debate by referring to the views of the Organisation for Economic Co- operation and Development. He treated us to a fairly partial run through the OECD's views of the British economy before describing himself as odious. In returning to those aspects of the OECD's review of the British economy which the Chief Secretary overlooked, I should like to draw the attention of the House to the OECD's review, which it instigated and reported on in its publication "Economic Outlook", in which it considered the health of the public sector in all OECD countries.

One would not have learnt this from the Chief Secretary's contribution to the debate, but the OECD found in its review that the United Kingdom compares very unfavourably with other OECD countries. Between 1989 and 1993, the United Kingdom's deficit widened by

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more than 9 per cent. of GDP, and that is more than that of any other G7 country. That point puts the Chief Secretary's remarks in context.

The unique depth and duration of the United Kingdom's recession are clearly partly responsible for that state of affairs, although I know that it is fashionable--and probably obligatory--for Conservative Members to blame the world recession for the shrinkage of the British economy.

The OECD estimates that 2.6 per cent. of GDP--about one third of the deficit--is a result of the recession. However, when the Chief Secretary was asked to quote even the broadest of estimates for those figures, he declined to do so. He could at least have quoted the OECD in that respect as he was keen enough to quote it on other matters. The OECD estimate would leave a PSBR of 5.7 per cent. of GDP which is structural. That means that the borrowing will remain even when the economy recovers. That structural deficit is a measure of the health of public sector finances, purged of the effects of short-term economic cycles. That is worse in the United Kingdom than in any other G7 country bar Italy. That is the problem which the Budget attempts to address.

Conservative Members always ask what Labour would do in such circumstances. I will answer that not by saying what Labour would do in the future, but by saying what Labour has done in the past. The problem has been made substantially worse by tax cuts of £6 billion given in 1988 and tax cuts of a further £2 billion to which we were treated in 1992 before the general election. Labour believed then, and we believe now, that those tax cuts were beyond what public finances could afford, and the blame for that lies with the Government and with no one else.

If people want to know what we said at the time, I can tell them that we voted against those measures. That is a matter of public record. A Labour Government would not have got us into the position into which the present Conservative Government have got us. As my hon. Friend the Member for Coventry, South-East (Mr. Cunningham) pointed out, before the last election the Government said that the economy would grow by 2 per cent. in 1992-93, by 3.25 per cent. this year, by 3.75 per cent. next year and by 3.5 per cent. in 1995-96. The Red Book this year showed that the economy was stagnant for 1992-93. It forecast growth of just 2 per cent. this year, 2.5 per cent. next year and 2.75 per cent. for each year after that. The Government boast of recovery and revise the forecasts down. The Government promised recovery and they now show that the economy did not grow for a year. The Government promised vigorous economic growth for the next five years, but they now say that the economy will be just 2 per cent. larger this year rather than the 5.25 per cent. promised last year. The Government have cut their forecast for the size of the economy in 1996-97 by 7 per cent., or some £55 billion. That £55 billion means that the economy will be poorer by the equivalent of £1,000 a year for every man, woman and child in the country. Those are not short-term forecasts subject to the inevitable uncertainties arising from the vagaries in economic cycles. Those changes reflect a fundamentally different view about the capacity of the United Kingdom economy to grow and to improve living standards and pay for public services.

Last year the Government's figures showed a public sector borrowing requirement of £32 billion for the current

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year ; the Red Book shows that the Government now expect to borrow £50 billion. Last year, the Government showed the deficit declining to £6 billion in 1996-97. The Government said that there would be no need to cut spending or raise taxes and that the public finances would return to balance as the economy followed the recovery that I have just outlined. It has already been revealed that the £6 billion was massaged downwards on the orders of the former Chancellor, but now we are told that the borrowing required will be £46 billion if the Government do not raise taxes.

My hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts) has pointed out that the Government painted a false picture last year. The Government said that the economy would recover ; it did not do so for another year. The Government said that recovery would be vigorous ; now they take a significantly gloomier view of growth prospects. The Government said that taxes would not need to be raised. Now, in line with the new realism about economic growth that the Chief Secretary treated us to earlier, he has said that taxes need to be increased.

As my hon. Friend the Member for Ashfield (Mr. Hoon) pointed out, the Conservatives were not content with lying about our tax policies before the general election ; they comprehensively lied about their own.

The Chief Secretary, in opening the debate, asserted that the Budget was broadly distributionally neutral, with the average proportion of income lost equal across income deciles at around 2.5 per cent. But 2.5 per cent. of income is of differing importance to the poorest and richest groups in society. Is it not disproportionate to ask the rich and poor alike for the same proportion of their income to reduce the deficit?

Contrasting the distributional effects of what happens when the Government need to raise tax rather than cut it, surely it is right to assert that they have increased national insurance contributions when they have cut income tax. Individuals start to pay national insurance contributions on earnings at least £1,000 lower than those on which income tax is paid. The Government have frozen income tax allowance, which raises money from people on the lowest incomes, when they have cut the higher rates of tax.

All in all, the richest 10 per cent. of the population are now £4, 500 a year better off after the tax and benefit changes since 1979, and the poorest 10 per cent. of our fellow citizens are actually £50 a year worse off.

None of this is popular, but it is typical of this Prime Minister's decision making that, when he was faced with an unpopular Chancellor and an unpopular Budget, he got rid of the Chancellor and kept the Budget.

My hon. Friend the Member for Coventry, North-East (Mr. Ainsworth) has pointed out that the Government have cynically dressed up the extension of VAT to domestic fuel as an environmental measure. The truth of the matter is that it is nothing more than a large tax rise. VAT on fuel is the most regressive extension of the VAT base. Before knock-on effects and compensation, it will raise 2 per cent. of net income from the poorest 10 per cent, and less than 0.5 per cent. from the richest 10 per cent. I ask even Conservative hon. Members, how can that be fair? At least some Conservative Members realised last night that it was not fair, and, very bravely, they voted with us in the Lobby to assert what one of them described as social justice. I noticed that his colleagues stared at him as if he had said something peculiarly offensive. Perhaps

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the Conservative party does regard social justice as something peculiarly offensive, but I bet that the electors of Christchurch do not.

Mr. Dorrell : They are not voting for the hon. Gentleman.

Mr. Brown : I am not standing in the election. I prefer the climate in Newcastle.

As domestic heat and light are necessities, fuel consumption will not be cut by much as a result of this tax rise. If anyone is still giving the argument about the environment any credence, he cannot plausibly argue that the tax increase will do much to reduce the emissions of CO in line with the United Nations climate for change convention. As my hon. Friend the Member for Darlington (Mr. Milburn) has pointed out, the changes hit the poorest the hardest. My hon. Friend the Member for Hartlepool (Mr. Mandelson) asked who gains and who loses in this year's Finance Bill. If the Government decided to have their legislation financially sponsored rather than the arrangements that pertain at present, this could be known as the British Petroleum Finance Bill. The petroleum industry would be happy to acknowledge sponsorship of this year's measures.

The heads of foreign states have also gained from the Bill. Those with an interest in foreign affairs will be pleased to learn that they remain relieved of any obligation to pay tax on their British income. The hereditary rulers of Brunei, Saudi Arabia, Dubai and Oman are now treated more favourably than our sovereign, but they gave large sums of money to the Conservative party and our sovereign did not-- [Interruption.] Is the Chief Secretary trying to assert that Her Gracious Majesty gave money to the Conservative party, because I cannot believe it? I must have misheard that sedentary intervention. The Bill makes a small concession to wealthy foreigners with tax-exempt status. If Asil Nadir were to return to this country, he would benefit from that little £10 million change to our tax regime. The British people, who have not contributed generously enough on a voluntary basis to Conservative party funds, are subject to a massive tax rise.

In a previous Third Reading speech on the Finance Bill I said that discussing the Finance Bill without the right hon. Member for Kingston upon Thames (Mr. Lamont) would be like discussing Hamlet without the ham. This will be the last Bill where we discuss the Budget with the right hon. Gentleman. Personally, I regret his passing. It is probably worth pointing out that that is the first nice thing that has been said about the right hon. Gentleman in the entire debate. What an astonishing legacy for a former Chancellor that not a single Conservative Member has said something nice about him.

Mr. Duncan : I did.

Mr. Brown : The hon. Gentleman protests his innocence, although I am not sure that it would be regarded as innocence by his colleagues in the Treasury. I hope that he will be rewarded with being forgiven with the passage of time.

It is sad that hon. Members who followed the Chancellor loyally through the Division Lobbies on the Budget could not find a decent word to say for him when discussing the legislation that he has brought to fruition.

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His epitaph is not a single kind word from Conservative Members, even from his loyal deputy, the Chief Secretary to the Treasury. The Bill includes value added tax on fuel ; ACT changes hitting charities and pension funds ; a 1 per cent. increase in employees' national insurance contributions ; the non-indexation of allowances ; restricting mortgage tax relief and married couples allowances to the new 20 per cent. band ; and significant new increases in excise duties, notably on petrol and cigarettes.

Tonight we are invited not just to acknowledge the extent of the Government's mismanagement of the economy but to pay for it. I suggest that my hon. Friends reject that invitation.

9.48 pm

Mr. Dorrell : First, I wish to respond to the comment of the hon. Member for Newcastle upon Tyne, East (Mr. Brown) about my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont). The most eloquent testimony of my hon. Friends' support for the Budget introduced by my right hon. Friend is for them to support the Third Reading tonight. I have not the slightest doubt that they will all take the opportunity to record their support for the Budget proposals tabled by my right hon. Friend on 16 March.

The Third Reading debate is the end of a long process in which the House and the Standing Committee considered the proposals tabled by my right hon. Friend on 16 March. My hon. Friend the Member for Slough (Mr. Watts) spoke about the petroleum revenue tax--one of the major tax proposals contained in the Budget. It has properly detained the Committee of the whole House and the Standing Committee as we have ensured that the issue is properly addressed. The concerns expressed within the oil industry and oil supply industries were also properly discussed.

It is true to say of my hon. Friend the Member for Slough and my right hon. Friend the Member for Woking (Sir C. Onslow), who has also taken a keen interest in the subject, that they accept, as do the vast majority of those actively involved in the oil industry, the objective of seeking to remove the distortions that the existing system of high rate and narrow base imposes on the oil industry through petroleum revenue tax. That objective is common ground. As the Bill has proceeded, we have had considerable discussions on the nature of the transition arrangements which secure the transition from where we are now to where we all want to be. In the course of the Bill's consideration, the Government have sought to respond to the concerns expressed about the transition arrangements, not least by my hon. Friend the Member for Slough. The time has come to record the fact that, as the House has decided matters and the Bill has proceeded, it has become clear that there is a difference of opinion about the desirability of any further action on transitional arrangements. The House has made a decision in favour of the transition arrangements contained in the Bill.

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