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executive aircraft because they are small enough to avoid it. I also noticed that the Conservative party is so out of touch with public opinion that Conservative Members cheered a Budget that increased taxes and cut public expenditure. For example, despite all the Chancellor's verbiage about who he would exempt, there is a new tax on car insurance and home insurance. It will be quite expensive because the premiums for both have soared following the boom in crime under this Government.

Those are more costs for ordinary and average families. They will have to pay more in income tax and the Government have paid no attention to the widespread cries that they should abandon their rise in VAT. There will be more taxes on income and a continuation of taxes on expenditure.

The Chancellor argues that he has met the problem of VAT by giving some compensation to pensioners, the disabled and others. At best, he has given them half the extra cost. He meets half of it, but the other half falls upon the poor. It is 50p followed by £1 the year after ; and we are aware of the cost of VAT. That is not adequate compensation because there will still be an extra cost falling on everyone as a result of VAT. The Government have totally left out of account the millions of families who are not on any benefit and who struggle every week to make ends meet. They will have to meet the full blast of the vast increases without any Government assistance. The Government should have thought about their election pledges and taken away the 8 per cent. value added tax in April and the 17.5 per cent. the year after. There is still an opportunity for Conservative Members to pay attention to opinion in their constituencies because we shall table amendments to the Finance Bill, and the vote on those will test whether they are prepared to stand by their election promises.

My stomach turned when I heard about public spending and, in particular, about the continued and vicious assault upon the welfare state. At a time of high unemployment, to cut the time for unemployment benefit from one year to six months is, to borrow a phrase from the Prime Minister, odious, odious in the extreme. As a result, fewer people will register for unemployment. We know that trick because it has been pulled often enough by the Government in the past. They will push more people into income support. One reality of modern Britain is that a person who moves from unemployment benefit to income support and whose partner is working for 16 hours a week at whatever salary or wage will lose income support and will have no state entitlement. Conservative Members make all sorts of pious statements about how they care for the poor and the unemployed. No Government who cared for the unemployed would do this to them. The Government put such people in difficulty, but they ignore the huge loopholes in our tax system and all the people who did so well during the Tory years. Then to turn, in their search to raise money, to people on invalidity benefit by imposing tighter medical requirements and by subjecting it to taxation is absolutely disgusting.

Mr. Michael Fabricant (Mid-Staffordshire) : Quite right. We will catch the fraudsters.


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Mr. Smith : Quite right, they say. That is the party which believes that when the Chancellor needs to raise money he should turn to the sick and the unemployed before he calls on anyone else. The Chancellor and the Conservative Government and their philosophy stand condemned by those two public expenditure measures.

But there are other matters. There is the sleight of hand in public expenditure. I have not had an opportunity to go into all the detail of the public expenditure programmes that have been produced, but, as a working rule, I suggest that those who study them should be very very careful about the figures because public expenditure is stated in cash terms, not in real terms.

The Government claim an extra £1.6 billion on health spending in 1994- 95. After adjustment for price increases, that drops to £263 million. The Department of Health admits that 1.5 per cent. extra is needed each year to keep pace. After this adjustment there is a shortfall of £175 million and capital spending will fall by £144 million in real terms. Therefore, let us be careful about the Government's boasts.

Let us also be aware of what has happened, and what the Chancellor told us has happened, to public expenditure. There will be a cut in the money available to the Housing Corporation. These were the parts of his speech through which the Chancellor hurried. I noticed that he had a tendency to increase his rate of delivery when he came [Interruption.] He increased his rate of delivery because of his embarrassment at what he was about to announce.

The Chancellor could have told us that he was cutting the Housing Corporation's budget by £300 million. Instead of cutting it, he should have released the accumulated capital receipts for local authorities in order to allow unemployed building workers to get to work and homes to be built for homeless people.

I suspect that there have been more cuts in training. Despite our recent experience with London Transport, £64 million is to be cut from its budget. It might have been more upright of the Chancellor to have given those figures in his speech rather than leaving them to be dug out. But we shall dig away and get all the truth about the Government's public expenditure programmes.

We heard and people must take account of what the Chancellor says that there will be cuts in public expenditure, not this year but next year and the next year and the next year. Everyone who works in the public sector, and those who depend for services upon public provision, will bear in mind that nothing else is coming their way but cut after cut after cut.The astonishing thing was that the Chancellor seemed quite proud of that.

What about the quality of life in Britain ? The Chancellor talked about a modern, civilised society. The quality of life in Britain is maintained by public expenditure on our social welfare system and our economic infrastructure and on proper welfare benefits, which the Chancellor has done so much to undermine in the Budget today. There will clearly be fierce debates about the Budget, and so there should be. I have already said that it will cost the average British family £8.50 per week in April. [Interruption.] That is no joking matter ; it is serious for those families. I hope that those watching this debate on television notice that the Conservative party thinks that it is a matter for humour when we talk about the cost to the typical family being £8.50. That cost will now be at least


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£9 per week and probably more, and probably another £5.40 a week the following April. We have not just had tax increases and public expenditure cuts today ; we have more tax increases and more public expenditure cuts to come.

There has been precious little in the Budget to revive British industry, to put us back on the path of sustained economic growth and to bring down unemployment. The Chancellor made little reference to that in his Budget. He had one basic objective and that was to reduce the deficit. But neither he nor his colleagues seem to understand that the deficit is the symptom, not the cause. The fundamental problems are the skills deficit, the investment deficit, the trade deficit and the jobs deficit. Raising taxes and cutting public expenditure, as the Chancellor has done, does nothing to tackle those. They will make some of them worse because they will threaten our economic recovery.

Above all, today we needed a Budget for jobs and for social justice. But, my goodness, we got neither of those. Instead, as I am afraid we have come to expect from the Conservative party, a party now well out of touch not only with the British people but with its own dwindling band of supporters, we had a Budget which was a blatant betrayal of election promises, a Budget which continues to pile taxes on the British people and to reduce the services available to them. I pick just one example. When we complain about national insurance going up, the Government say, "Ah, but national insurance is not like income tax ; it is there to pay for a contributory benefit." Well, here we have national insurance going up by 1 per cent. and the major contributory benefit, unemployment, going down. That is no better nor worse than a fraud on the British people. The Government ignore mass unemployment and economic weakness, the legacy of their period in office. This is not the Budget that Britain needs.

5.6 pm

Sir David Knox (Staffordshire, Moorlands) : I congratulate my right hon. and learned Friend the Chancellor of the Exchequer on his first Budget speech. It was a well delivered speech. I was somewhat alarmed beforehand that, as this is a unified Budget, it might be a long speech, but it was commendably brief. My right hon. and learned Friend presented to us this afternoon an ingenious package, and he deserves the thanks of the House and country for the measures that he has introduced.

I welcome the fact that we now have a unified Budget. It was long overdue. It was always absurd to introduce public expenditure proposals in November and the tax-raising proposals later. I see that my right hon. and learned Friend wishes to leave the Chamber and I know that he has a meeting to go to, so I shall be pleased for him to do so.

I was saying that I welcome the unified Budget, bringing together as it does the public expenditure proposals and tax changes at one and the same time. It always seemed to me a strange way to go about things to have them brought in at different times, as has happened in the past.

The Leader of the Opposition made a commendably brief speech this afternoon. I can only imagine that its brevity was due to the fact that there was very little for him to go on about. He managed to work up a lot of synthetic indignation, but, fortunately, it was very concentrated.


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I welcome the social security proposals in my right hon. and learned Friend's Budget. Obviously, we shall receive fuller details of those tomorrow when my right hon. Friend the Secretary of State for Social Security makes his statement, and when he has done so will be the right time to examine the proposals in greater detail. I was pleased to hear my right hon. and learned Friend yet again give the firm commitment that the Conservative party has always given about the state retirement pension being fundamental to the protection of old people in Britain. It did not need repeating, but in recent months there have been rumours that the Government might attack the state retirement pension, so it was right that my right hon. and learned Friend should confirm the Government's intentions in that respect.

I was also pleased, as were most people, to hear about the introduction of the new child care allowance. We look forward to receiving full details, but I am sure that it will be welcomed by a large number of ladies throughout the country.

I was glad to hear the measures that my right hon. and learned Friend proposed to help those who will be affected by VAT on fuel. He fulfilled the pledge given by my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) earlier in the year to look after especially vulnerable people and went much further because he extended it to cover all state retirement pensioners and others in receipt of benefit.

I have always been in favour of the introduction of VAT on domestic fuel for environmental and economic reasons. It was especially ingenious of my right hon. Friend the Member for Kingston upon Thames to introduce that phased measure as a clear indication that the large public sector borrowing requirement would not continue indefinitely and at the same time ensuring that the PSBR would not be immediately reduced, which might have cut off the recovery that had only just started. The Government have fulfilled their promise to help those least well off, which I welcome.

Mr. Dafydd Wigley (Caernarfon) : Does the hon. Gentleman accept that the increase for a single, disabled person by 1995 will be £1 per week, and as many disabled persons have fuel bills of £12 to 15 per week, with 17 5 per cent. VAT on top, £1 a week will not go half way to bridging the gap ?

Sir David Knox : I shall not become involved in detailed discussions with the hon. Gentleman about such matters having just heard of them ; I prefer to examine them in greater detail. My right hon. and learned Friend said that vulnerable people would be covered, and I have no reason not to accept his word.

I am pleased that the Government have grasped the nettle on the issue of the equalisation of the pension age in a sensible and phased manner that will not come into force until 2010 and gives ladies plenty of time to become accustomed to the change.

I welcome the measures that my right hon. and learned Friend announced to help small firms. The VAT ceiling has risen considerably and, if I am correct, his measures will remove 75,000 small firms from paying VAT. When I first arrived in my constituency 23 and a half years ago, employment was predominantly in textiles, mining and agriculture. There has been a substantial reduction in the number of jobs about 10,000 in those industries, but


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they have been replaced by a mushrooming of small firms. They need even more encouragement. Despite the loss of 10,000 jobs over 23 years, my constituency has the 15th lowest level of unemployment in a constituency in the UK, according to figures produced by the House of Commons Library. That shows the importance of small firms and their ability to provide employment opportunities.

I am pleased that there has been no general extension of VAT because, over past weeks, hon. Members have been inundated with correspondence from people who were concerned about the introduction of VAT on newspapers, periodicals, books, bus fares and food. It is a great rey about the increase in petrol tax as I represent a large, rural constituency and the increase will cost some of my constituents more, although as country dwellers I think that we were expecting it.

A Budget should be about strengthening the economy and today's Budget was aimed at that. One of the most alarming features of the British economy over the past 23 years and the main reason for its weakness has been the performance of the manufacturing sector. In the 20 years from 1952 to 1972, manufacturing output rose by 88 per cent. ; it rose by only 8 per cent. in the period from 1972 to 1992. Thus, while the average annual increase in manufacturing output between 1952 and 1972 was almost 4.5 per cent., between 1972 and 1992 the increase was less than half a per cent. a year.

International comparisons are not available for the whole of the earlier period, but in the 1960s, although the performance of British manufacturing industry left something to be desired, it compared reasonably favourably with the countries in the European Community. However, since 1972, it has compared unfavourably with those countries. While the average increase in manufacturing output in the UK has been less than half a per cent. during that period, it was 6 per cent. in Ireland, 4 per cent. in Portugal, 2 per cent. in Italy and 1.7 per cent. in Germany. That is not a satisfactory record for the UK and must be improved if the British economy is to achieve steady and secure growth and lower unemployment and enable us to pay our way in the world.

My right hon. and learned Friend has introduced a number of useful measures to help manufacturing industry, but most of them will have a marginal effect. If it is to prosper, manufacturing industry needs lower interest rates that fluctuate less, stable exchange rates, greater incentives for capital investment and the creation of a more favourable environment.

Far too many of my right hon. and learned Friend's predecessors as Chancellors of the Exchequer have given the impression that interest rates are the only means of controlling the economy, which has had unfortunate consequences. High interest rates impinge especially severely on manufacturing and place a heavy burden on those who borrow money to invest in new plant and machinery, but reward those who put their money in banks, building societies and other similar forms of savings. That is hardly the way to encourage increased investment and greater efficiency in the manufacturing sector.


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Consequently, I welcome the falls in interest rates that have taken place over the past three years, including the cut in the past week, and I hope that there will be more of the same to come. In future, I hope that my right hon. and learned Friend will depend less on interest rates as a tool of economic management and will use the other weapons at his disposal. Lower and more stable interest rates would provide a solid foundation on which manufacturing industry could expand and prosper.

Stable exchange rates will also help the manufacturing sector. It is no coincidence that manufacturing output rose by so much more in the 20 years up to 1972, when we had reasonably stable exchange rates under the Bretton Woods agreement, than in the years since 1972, when we mainly had floating exchange rates. Floating exchange rates can cause trouble in the manufacturing sector because sudden, adverse movements can undermine years of hard work in building up confidence among customers.

To strengthen manufacturing, more generous capital allowances should be introduced on a permanent basis. The temporary changes that have been in force in the past year have been helpful at least they should have been maintained. However, if we are serious about investment, as we must be, we should revert to the arrangements of the years up to the middle 1980s, when capital allowances were more generous. In addition, we need to create a better climate for manufacturing industry, but that goes far beyond the subject of the Budget and the management of the economy a line that I do not wish to pursue tonight.

Let me emphasise again the importance of the manufacturing sector. It is the basis of our national wealth. It accounts for 60 per cent. of our exports : its export potential is very much greater than that of the service sector. It must therefore be the most important means of dealing with the deficit that causes me most concern the deficit on the balance of payments. This cannot be allowed to go on indefinitely, and a strong, competitive manufacturing sector is the surest way of eliminating it.

In my view, my right hon. and learned Friend will be judged as Chancellor of the Exchequer on the improvement in manufacturing industry during his tenure of office. As a fellow midlands Member, I know that this is a cause that is very near to his heart to which he will devote great efforts in the years ahead.

5.20 pm

Mr. A. J. Beith (Berwick-upon-Tweed) : The hon. Member for Staffordshire, Moorlands (Sir D. Knox) gave a more balanced view of the Chancellor's Budget than was evident from the Back-Bench cheering behind him. I never thought to hear so many Tory Back Benchers cheering so many tax rises so loudly ; but then I reflected that every year in the Budget debate those behind the Chancellor rise and wave their Order Papers with enthusiasm only to find that enthusiasm waning as each day goes by in the succeeding debate and as, each month, the implications are absorbed. This year will be no exception.

The Budget will do nothing to aid recovery. It will hold recovery back, through lack of investment and through the huge pile of new taxes and tax increases that it imposes. Ordinary people will be taxed to the hilt, with none of the investment in education or improvement in public services that might have provided some justification for fair and well chosen tax increases.


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The reduction in the public sector borrowing requirement that the Chancellor has forecast depends entirely on spending cuts to be achieved in future years. He has not yet managed to convince the Cabinet that actual spending cuts should be made ; he has merely told his right hon. Friends that the global figure will assume that they will be made in future years. As for sorting out public borrowing once and for all, that simply is not a realistic statement : the Chancellor has not sorted out the Cabinet yet, and experience suggests that he will have some difficulty doing so. This is a soft-shoe shuffle with the figures, which will convince no one that the PSBR is on a clear, substantial downward trend.

What about unemployment benefit ? The sickening message to those who lose their jobs in the future is that they will be denied six months of the unemployment benefit to which they believe that they have contributed, and the Government have told them time and again that they have contributed, under a contributory national insurance system. That contributory system has been blown apart by today's decision. Indeed, it is impossible to justify a 1p national insurance increase which every national insurance payer, every taxpayer, will have to pay in April when the contributory system is being destroyed. The Government say that they have to increase national insurance contributions to meet the demands on the fund, but what fund ? The Government have made off with it it is not there. Meanwhile, six months of unemployment benefit is being snatched from people who have worked and contributed on the assumption that they are entitled to it.

As for the taxes which now come on top of the previous Chancellor's Budget, this is "Son of Norman" with a vengeance. A whole new series has been added to the tax increases in the last Budget : the freezing of personal allowances, for instance, and the fixing of the married person's allowance at 15 per cent. That 15 per cent. is a new, mythical tax rate ; it does not exist, but it is assumed that that is the level at which someone is granted a particular credit. The theory behind the 20p restriction was that there was a 20p tax band, into which we are told that increasingly large proportions of our income will eventually go. However, there is no 15p tax band, so there is no particular logic in attaching allowances to it.

Mortgage interest relief is to be restricted to 15 per cent. How many times did I hear Conservative speeches and read Conservative election literature telling the public, "Don't trust the Liberal Democrats : they might affect your mortgage interest tax relief at some future date" ? The Government are cutting everyone's mortgage interest relief next April anyway, by restricting it to 20 per cent., and they intend to restrict it further, to 15 per cent., at a later date.

We proposed that the Government should make some use of the opportunity that had been provided and announce that they would remove mortgage interest tax relief from new mortgages at a date in the future thereby exercising a good influence on the housing market when it needs it. These measures will not do that. People who were assured that they were voting for a Government who believed in mortgage tax relief, and who would go on providing it, have been duped.

Logically, mortgage interest tax relief is difficult to defend. It transfers money from not terribly well-off taxpayers to large mortgages held by better-off taxpayers. The difficulty lies in how that system can be changed. The logical way, surely, is to try to drive the system out without


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causing hardship to those who made their mortgage commitments on the assumption that they would continue to receive tax relief. Those are the very people whom the Government are targeting : the people who bought their houses and made their mortgage decisions taking mortgage interest relief into account not those who have no reason to take it into account because they know in advance that it will not be available in the future.

The Government have raised taxes on petrol and diesel by approximately 13.5p per gallon more than twice the rate by which petrol prices would be raised by the European carbon tax as currently proposed. There will be no compensation, and none of the relief for rural areas for which my party has argued. How many Conservatives said in their election speeches, "Don't vote for the Liberal Democrats : they might put up the cost of your petrol" ? The Government are putting up petrol taxes by more than we ever dreamed of doing, and certainly by more than the European carbon tax would do. The Government really cannot accuse others of "bordering on hypocrisy" when they have increasingly implemented measures against which they have set their own face time and again.

There is also to be an airport tax, and a tax on insurance premiums. The Chancellor seems to have taken to heart the rather unkind description of him in Alan Clark's book as "that walking life insurance risk" as he has exempted life insurance premiums, but just about every other kind of insurance is to be the subject of a new tax.

There is no back door to the tax system that the last two Chancellors between them have not entered. Every possible back-door new tax, or way of freezing a tax allowance, has been found. They have found ways of making significant tax increases without achieving the purpose of increasing investment or increasing the overall fairness of the tax system.

Talking of fairness, let us consider what the Government are doing about VAT. They have been driven to work out a compensation package driven by the indignation of people throughout the country about what they will have to pay. The package, however, certainly would not have won the Conservatives the Christchurch and Newbury by-elections, which were won so handsomely by my hon. Friends the Members for Christchurch (Mrs. Maddock) and for Newbury (Mr. Rendel), and it would certainly not have appeased those who took part in the many pensioners' rallies and other events in which ordinary people have expressed their concern.

The compensation will be 50 per cent., not the 90 per cent. that the average family is expected to experience by way of extra bills in the first year. Of course, average families and families with incomes well below the average will not receive any compensation. The Government have got the message that they must help not just pensioners on income support, but those above the income support level, because they are the new poor. So many Government measures have helped to turn pensioners with small savings into a new kind of poor. I am glad that the Government have started to get that message ; but the people to whom I have referred will not be adequately compensated, and many more people will not be compensated at all. We have had two Chancellors who have not made the tax system fairer, but have simply sought to extend it. The motto seems to be, "If it moves, tax it". What a battery what an array of taxes we have seen.


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On the provisions involving small business, I want to make an offer to the Government ; I wish to be generous to them. In an interesting passage in his speech, the Chancellor said that businesses were troubled, as indeed they are sorely troubled by late payment of debt. Some of that late payment, incidentally, is made by Government Departments and other Government bodies. Much improvement could be achieved in that respect. The campaign waged by many small business organisations for statutory interest for late payment of debt has been recognised by the Government, who have issued a statement that Ministers will look at the matter again. I am very pleased to hear that, but looking at it is not enough. Let me make my offer : I have gained second place in the ballot for private Members' Bills, and if the Government will assure me within the next few days it must be done within that time because I shall have to announce the subject of my Bill that they will not oppose a Bill to enforce payment of debts, I shall be prepared to introduce such a Bill. The Government will then have no problem fitting it into their legislative programme and no difficulty with having to push other Bills out of the programme. Their consultations will be speeded up, and their minds will be concentrated wonderfully. Not many Opposition Members have ever made so generous an offer, and I can see the warmth with which it has already been received by the Economic Secretary. I hope that he will be able to intervene in my speech, or consult during the afternoon and report later in the debate perhaps tomorrow that the Government will accept that offer, which is quite genuine.

If the Government agree that they will not oppose a Bill to enforce statutory late payment of debt, I will introduce that Bill and it can have the time allocated to me under the private Member's Bill procedure. I will, of course, consult the Government on the detailed terms of the Bill.

The Economic Secretary to the Treasury (Mr. Anthony Nelson) rose

Mr. Beith : Say yes.

Mr. Nelson : I was always advised to beware of Liberals bearing gifts. Unfortunately, I am unable to accept the right hon. Gentleman's offer this afternoon.

It is right and proper that the Government should consult on the various options that are open, and there are a number of options open, as the press release following the speech of my right hon. and learned Friend the Chancellor of the Exchequer this afternoon made clear. It is far better that industry generally should be consulted rather than that we should hasten to private Members' legislation on the matter.

Mr. Beith : I am sorry that the Minister chose to intervene, because I think that he could have given the Government a little bit more of an opportunity. I hope that that is not the last word in the course of the next few days' debate. Clearly, that offer cannot remain open indefinitely. I am not prepared to introduce so valuable a Bill and simply see it blocked and defeated by the Government. That would be a waste of private Members' time, when there are many other issues contending for it.

I want to see such a Bill through. It would be very harsh on small businesses to have to wait another year for


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anything to happen, because small businesses are facing the difficulties now. I therefore urge the Minister to have expeditious consultations so that he or his colleagues can come back to me in the next two or three days to give a clear answer, bearing in mind that there will be time between the day when private Members' Bills have to be announced and the proceedings on the Bill for quite a lot of further consultations. I do not intend to press him further now, but I ask him to take it away and perhaps come back to me over the next few days.

I want to look briefly at some of the spending aspects of the Budget. I shall start with housing. There is nothing new in the way of housing investment. We could have used housing investment to tackle the housing crisis, the homelessness problem and get the building industry moving. The construction industry is showing none of the signs of recovery that are fleetingly apparent in some other parts of industry. It needs to be set to work and we need the homes. With its social housing problem, the Housing Corporation would have been an urgent priority for greater investment, not restricted investment.

Let me give another example of where the Government could have helped. It was announced this afternoon that the Ministry of Defence can sell housing stock to deal with its budget problems. In other words, it can use the receipts of asset sales sales of houses for new investment, or even current spending for all I know. Why cannot local authorities use exactly the same form of income capital receipts in the public sector to build more houses and renovate existing houses ? Surely the doctrinal admission today that it is all right for the Ministry of Defence must mean that it is all right for the Department of the Environment and local authorities. I suspect that it does not mean that, but we should be told why. Local authorities could be adding to essential social housing.

As to transport, there is still not enough new investment. We were pleased to hear the announcement about the west coast main line, but that is a private sector investment project. I welcome the bringing in of more private sector investment, and I hope that there will be a great deal more of it, but we need more public sector investment in London Underground. People have had to be led out of tunnels in the dark because the system cannot keep going, so old and decrepit is its cabling. We need significant new public investment in London Underground if that job is to be dealt with.

The same applies in other parts of the public transport system. I noticed the press release in which the Secretary of State for the Environment I do not know why it was him referred to the fact that there were transport projects among the creation of public assets amounting to many billions of pounds over the next three years. When I looked at it more carefully, I discovered that, sure enough, the Minister had counted the Jubilee line yet again. The Jubilee line has been counted in every one of the past three ministerial statements about public expenditure. Every time it comes up, we have the Jubilee line. We have only just got the announcement that we can go ahead, so sure enough it is counted all over again. It is amazing what one can do with figures, but what one cannot do with figures is regenerate a public transport system that is desperate for real, new investment. As for health, I do not believe that even the figures that we have address the colossal waste in the national health service which has arisen from the huge expansion of managers, management and administration in the health


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service. The Government knew from the start that they were devising a system riddled with contracts, purchasers, providers, buyers and a lot of people shuffling paper about. The whole NHS system depends on people shuffling paper about, so it employs people at the highest possible salaries to shuffle it about. There are huge increases in costs in the NHS. They have been generated not by new patient care, better equipment or new highly qualified staff carrying out medical procedures, but by more and more managers and administrators. Let us look briefly at education. Hidden away in the education proposals are provisions which raid the capital budgets of local authority schools to give money to opted-out schools. Not satisfied with the situation in which so many schools the vast majority have decided that they do not want to opt out, the Government intend to raid their budgets to give more capital to opted-out schools. That is a disgraceful piece of bribery at the expense of the people who refused the bribe, and it is outrageous at a time when education investment is so badly needed.

The Chancellor made a comment about student grants and asked why the bus drivers of today should pay through their taxes to finance the lawyers of tomorrow. I have another question for him about student grants. Why should not the lawyers of today be paying through their taxes for the sons and daughters of today's bus drivers to get into higher education ? That is the real question. Why should more and more people be disbarred from higher education through fear of high debts and the inadequacy of the grants system and the combined grant and loan system to provide a reasonable basis on which they can go through higher education ?

Another departmental area with which I shall deal is the Home Office. The great element in the Home Office budget is building more prisons, not preventing more crimes. The more prisons are built, and the more people are put into them, the more crime one assumes has been committed. We are supposed to be stopping crime in the first place so that people are not mugged or injured and do not have grievous bodily harm inflicted on them. Simply having more people in prison does not solve that problem. It shows that the Home Office has not got its priorities right. The building of prisons is very good for my constituency as it is the biggest expanding industry that we have had in my constituency in modern times, and it plays a role in the local economy, but it is not a good crime prevention policy : it is a way of dealing with the consequences of not having prevented crimes and not an objective of policy in itself.

Various measures in the Budget are welcome, or appear to be at first sight measures such as the enterprise investment scheme, if it works. Unfortunately, there is a trail littered with disappointment of schemes designed to encourage venture investment. I hope that the venture capital trust will not prove to be another of those. It is well worth the Government's effort to try to find new ways of matching available venture capital to businesses that could use it. Other welcome measures are the pensioners bond although we do not know enough about the terms to be sure and the limited child care provision. Many more working women could benefit from other forms of help with child care for example, tax relief. Many youngsters would benefit if they had access to nursery education. Those are useful measures and we shall consider them in more detail as the debate proceeds.


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We have not seen in the Budget a solution to the really big deficits that we face. The public sector deficit is certainly not sorted out once and for all. It will not be sorted out until we get more people back to work and recovery is at a level that ensures that many people are paying taxes instead of receiving benefits. That would require measures that the Budget does not contain.

We have an investment deficit. We are living on the capital that was invested and built up by previous generations, and are not renewing it. The record of decline in our public sector net worth is appalling. The Budget does not solve that problem.

We have a terrible trade deficit, and I was alarmed to hear the Chancellor set such store by the growth in consumer spending. We cannot get out of our economic difficulties in the long term by relying on growth in consumer spending, because it invariably results in a worse trade deficit for this country. Even in the depths of recession we had a bad trade deficit, and we are still not addressing that issue.

We also have a fairness deficit. It has been built up over the years of the Conservative Government, with the benefits to top rate taxpayers and the pressure on lower income people, much augmented by the Budget that we had earlier in the year, and not offset sufficiently by the measures in this Budget. It is a fairness deficit which leads people to believe that taxation must be bad and wrong in principle because they are not taxed fairly.

There are justifiable reasons for taxation : there are things that Governments have to do. But taxation has to be fair and people have to see that it is doing the job which justifies levying it in the first place. The Government have added hugely to the tax burden and vastly to the tax system without doing the things which justify taxation in the first place. That is a mark of the Budget's failure.

5.40 pm

Mr. Michael Spicer (Worcestershire, South) : The difficulty in following the right hon. Member for Berwick-upon-Tweed (Mr. Beith), or, indeed, any member of the Liberal party, is that one is faced with a lot of bits and pieces but no philosophy. So it is extremely difficult even to debate with the right hon. Gentleman. That contrasts sharply with the manner and content of my right hon. and learned Friend the Chancellor's Budget.

The objectives of the Budget were extremely well placed and well set out. They were to achieve sustained economic growth with low inflation and to do so by providing for a flourishing and growing private sector. One of the exciting things that he said was that the Government intended that public expenditure as a percentage of gross national product should be reduced over three years from the current level of 45 per cent. to 42.5 per cent.

Two particular points in my right hon. and learned Friend's speech are important in terms of the objectives that he stated. I agree with the right hon. Member for Berwick-upon-Tweed that economic growth must be central to achieving the Government's objectives. It lies at the very root of the ability to balance greater buoyancy in revenue with the focuses within expenditure which my right hon. and learned Friend identified. That must be particularly true of the objective of reducing ultimately to zero the public sector borrowing requirement and the present £50 billion deficit.


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The Budget must be measured and judged essentially by what it says about growth. Two particular points about growth have to be considered. The first is the extent to which focusing public expenditure and holding down direct tax rates is plausible and sustainable. Both as a matter of basic philosophy and as a matter of economic efficiency, low taxation is absolutely essential. I was excited to hear my right hon. and learned Friend the Chancellor say that the Budget involved a long-term tax-cutting agenda. That must be right. In terms of basic philosophy such an agenda means a large private sector, which is the best insurance that we are likely to devise against overwhelming state control and even dictatorship. However, low taxation and a thriving private sector involve something much more immediate than that. Low taxation has to be the best way that Governments can devise of maximising economic endeavour and bringing out the most in the human spirit.

Without a good net wage there will not be incentives to work. Without a good net rate of return there will not be investment. It is as simple as that. Every society that has tried something different has failed. I suppose that the most clear and wonderful example of the failure of an economy while it was heavily taxed and allowed people virtually no net wage was China during the cultural revolution. Anyone who has read Madam Chang's book "Wild Swans" will remember the graphic descriptions of the effect on the economy of wiping out net take-home wages. The policy was reversed in the agricultural sector and more recently in the industrial sector. The spirit of people was lifted by giving them incentives. Net take-home pay rose as a result of work and productivity. As a result, the Chinese economy is being transformed.

It is not simply that high taxes are detrimental to human endeavour. High taxes have their own cumulative effect and create distortions which subsequently have to be put right. In passing, I hope that the new tax on airlines will not result one day in the Government having to compensate local authority airports which are screaming because the traffic is decreasing. My point is that any form of taxation creates distortions.

The question whether we can sustain a policy of low taxation is critical in determining one's approach to the Budget. I hope that the programme of focusing state assistance on those who really need it is firmly established and maintained. There is one area in which we can do more. When I was Minister for Housing I increasingly felt that we were not supporting people who really needed support as against those who did not need it so badly.

In the case of state housing, despite a good move towards privatisation by involvement of housing associations and private capital, £4 billion to £5 billion still goes into bricks and mortar rather than into direct assistance for people who need it. There is still scope for a greater switch in that policy so that rents are raised to a private sector level. The whole housing sector should effectively be privatised. Those who cannot afford to pay the market rents should be supported directly by housing benefit to a greater extent than now. In my ideal world, that would certainly include not only people on current state benefits but those on low incomes. There should be a much smoother tapering of the tax curve in that respect.


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The second crucial determinant of the economic growth objectives that are central to the Budget and the question whether the Budget will succeed is the way in which the Government proceed with monetary policy. I was encouraged when I heard my right hon. and learned Friend say that monetary policy would be that which was appropriate to sustaining the objectives that he had set himself. That was a crucial statement. In recent memory it was not always the case that monetary policy was fixed by the need to sustaire important than monetary policy appropriate to the domestic needs of the economy. Therefore, in the late 1980s, when it was appropriate for our economy to introduce policies that brought down inflation, we had the reverse. The Germans had low interest rates and it was thought appropriate to shadow the deutschmark. Therefore, we had low interest rates when we should have raised interest rates to contain inflation. By the early 1990s the reverse was the case. When we should have had low interest rates, we maintained high interest rates.

In this context I was somewhat more concerned about one of the Chancellor's asides, when he said that the economic recovery occurred well before we left the exchange rate mechanism. That argument is put about by people who think that it is quite proper for us to re-enter the ERM, as is the argument that the downturn problems of the British economy occurred before we went into the ERM. The latter argument is easily dealt with because we were then shadowing the deutschmark. The problems that emerged in the second half of the 1980s were related not specifically to our entry to the ERM but to the general policy of putting exchange rate management above interest rate management. The Chancellor referred to the fact that things started to get better before we came out of the ERM. That is clearly the case because, at the beginning of 1992, we began to adopt interest rate and monetary policies belatedly, by about 18 months, in my view which started to bring down interest rates. That policy started to have its effect in the summer of 1992 before we came out of the ERM but it finally clashed and conflicted with the policy of being in the ERM. The whole thing blew up and the first reaction was to put up interest rates to 20 or 25 per cent. which was not sustainable for very long and then we came out of the ERM.

The recent pronouncement by the CBI that it would like to get back into the ERM worries me. Sometimes the Government look as if they wish to get back into the ERM as part of their policy of moving towards a single European currency, which is a permanent ERM. If it were thought that that might be the policy, it would call into question the statement that the Chancellor made today that our monetary policy would be fixed according and appropriate to the needs of our own economy. I take great comfort from his saying that monetary policy is to be appropriate to sustainable economic growth without inflation ; it all adds up to a single package together with cutting taxes and focusing expenditure on those who really need it and on the functions that should properly be performed by the state. Sustainable economic growth is central to that policy. If that is attainable, the Budget will be a magnificent Budget.


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It sets out its objectives of containing the Budget deficit, of controlling expenditure to what it should properly be and of progressively reducing taxation as a percentage of GDP.

With this caveat, if that is to be the policy and it is certainly the policy on which we went to the country I welcome the Budget. I hope that during the course of the debate the Government will remove, once and for all, any further conflict or doubt about the priorities of monetary policy.

5.53 pm

Mr. Jim Cunningham (Coventry, South-East) : The hon. Member for Worcestershire, South (Mr. Spicer) touched on the nub of the problem, that the Budget will be judged by whether it leads to major economic growth. I assume that the hon. Gentleman really meant that that in turn would help reduce unemployment, which is the basic problem. The premise is that a stringent monetary policy will eventually lead to economic growth, and that that will take care of our ills. The weakness of that argument is that the Chancellor said today that one of the big difficulties whatever the reasons is that European economies are currently not doing very well. Approximately 68 per cent. of our trade is with Europe ; the remainder is negotiated with the rest of the world. The reality is that we have to trade with Europe. If the European economic situation improves, ours will start to improve.

Unfortunately, that other 32 per cent. of trade centres around the nub of another problem, which is that the United States and its friends in the Pacific region are forming an economic unit. We must bear that in mind and ask the Chancellor and the Government what discussions they have had with the Americans, the Japanese and the Australians about developing markets in those areas. If we are not careful, the expansion that some hon. Members have been talking about could be threatened by the Pacific rim countries on the one hand and Europe on the other. We must be careful about what we say about our allies and partners in Europe and about our trading partners in the Pacific rim countries.

We should also look at who will bear the burden of the tax increases announced in the Budget. No one should shy away from the fact that they are tax increases, despite what the Government say. The people who will bear the burden are at the lower end of the earnings scale. No doubt Conservative Members will argue that they are trying to help pensioners with their problems with value added tax. That help will not be enough, however, and many pensioners will reduce the amount of heating that they use this winter in order to save on fuel bills.

One-parent families will also pay a heavy premium for the problems that the Government have created. There is nothing in the Budget to deal with the homeless.

Those who will be hardest hit account for 12 million people, and they have paid a terrible price for the policies of the Government over the past few years.

Conservative Members heard the Chancellor say that his long-term strategy was tax cuts. Some people would say that it is about time, because for the past 14 years the long-term strategy has been one of tax increases. What we have here is tax increases by stealth.


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There is nothing being done about the industrial base of the country. There were no measures or initiatives in the Budget to help companies carry out research and development.


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