House of Commons Hansard Debates for 30 Nov 1993

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do not know whether the hon. Gentleman saw a recent announcement in answer to a question that I tabled to the effect that in future householders will not have to make any contribution to the scheme. That is a genuine help for all pensioners and poorer families.

Mr. Ainsworth : Given the number of deaths in the winter from hypothermia, the scheme will need a tremendous expansion. Let us hope that that takes place

Mr. Heald : It is doubling.

Mr. Ainsworth : Talk of percentage figures in these terms will not be much help. Let us hope that people get the assistance they need. I come back to the £6 billion tax increases £7 billion when we discount the reductions offered to the business sector. On whom will the burden fall ? I have no doubt that the measures chosen will fall on the middle-earning and lower-earning people of this country, just as they have done time and again before under the Conservative Government. In the 1987 and 1988 Budgets, billions of pounds were dished out to top earners, £2 billion in a single Budget that of 1988. The balance of tax paid has shifted away from the better-off and towards those on average and below average earnings.

The Government try to tell us that they are a Government of low taxation, but between 1979 and 1991-92, the burden of taxation on an average family rose from 35.2 per cent. to 36.7 per cent. Meanwhile, the burden on the top tenth of the population decreased considerably, while for the bottom tenth it rose considerably. If we discount the Chancellor's sleights of hand in this Budget, we will find that it means yet another shift away from the top, down to the middle and bottom end of the scale.

I was told that last year's Budget was neutral, as it impinged across the social scale. I said that it was not ; I was assured repeatedly that it was. Now research has shown clearly that that Budget was not neutral at all. It imposed a 3 per cent. increase in taxes on bottom earners, a 1.5 per cent. increase on top earners, and a 2 per cent. increase on the average person. So the Government's claims were patently untrue. Those on lower and average earnings paid for those on higher earnings.

Mr. Alan Duncan (Rutland and Melton) : Will the hon. Gentleman acknowledge the contents of a leading article in The Sunday Times of 7 November, which clearly stated in great detail that the percentage of income tax revenue paid by top earners has risen in almost every year in the past 15 years, and that top income earners are paying a far larger proportion of income tax revenue than they did before rates were cut ?

Mr. Ainsworth : People can do wonderful things with statistics, if they choose their words carefully. I note that the hon. Gentleman talked about income tax, not tax. We are talking about a period when these top earners lined their pockets to such a tremendous extent that it is only to be expected that they paid a couple of pounds more in income tax.

But the burden of taxation has irrefutably moved down from top earners to the middle and bottom earners, if we take into account the whole basket of taxation. I can take the hon. Gentleman through the figures afterwards if he wants to challenge that. I am astonished that he should

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attempt to deny it. Surely he knows deep down that what I say is true indeed, his reaction to what I am saying seems to show that. The other problem is whether, in view of the fundamental economic problems that face our country, the Chancellor has done anything to put the economy right. Despite £110 billion of North sea oil revenues during the Government's period in office, in this last recession, 900,000 manufacturing jobs have been lost. The manufacturing sector now provides only one fifth of our income it was one third when the Government came to power. We have the lowest growth rate of GDP and output of any Organisation for Economic Co-operation and Development country apart from Canada.

This problem needs solving. The Government have implemented some of the measures asked for by the CBI and by business. There are some small forms of encouragement for business in the Budget, but the Government have refused to give the necessary capital allowances on first year investments asked for by the CBI and the Engineering Employers Federation. If there is to be proper investment in manufacturing industry, it is essential to provide such incentives, yet the Government have failed to do so.

There have been announcements of cuts in housing and in infrastructure investment. The west coast main line work has been announced. The hon. Member for Corby (Mr. Powell) said that Opposition Members always say, "If you want to go to Edinburgh, don't start from here." It is a good job that we do not travel to Edinburgh by the west coast main line, because we would never get there. I make a prediction : this is the last day of November 1993, and I have watched the Government announce infrastructure proposals again and again, but they actually take place after the 10th or 12th time they have been announced. There is thus half a chance, given the Government's record, of getting some investment for the line in about a decade.

What about the fast rail link ? The privatisation proposals will deprive the rail system of investment. The Government are effectively ensuring that no one else will invest until we have sorted out the mess. We are also cutting the roads programme. Our manufacturers have to exist on the edge of Europe, and they have to have access to its markets. To solve our economic problems, we must have a good infrastructure and transport links, but the Budget does little to bring those things about.

Cuts in housing will be inevitable. Every evening when we leave this place, people shout at us and try to sell us copies of The Big Issue . Housing is a big issue for those who are affected by the lack of it, but it is not one of the Government's political priorities, because they have effectively announced further housing cuts. That will ensure the continuation of homelessness, which, if anything, will be exacerbated.

There are 7,000 unemployed people in my constituency, and 20,000 people are out of work in Coventry. In the Foleshill ward in my constituency, unemployment is 37.7 per cent. Nothing in the Budget will significantly reduce that complete and absolute waste of human resources or cure the social problems that inevitably flow from it. That is a tragedy.

When we ignore the sleight of hand and look at the figures, we see that, over three years, the Chancellor will slide in a huge tax increase. Heas not detailed or sorted out those cuts.

The Budget will not tackle our problems. It builds on the sins of the spring Budget. The betrayal of election promises has been furthered by thisBudget, and the failure to settle our underlying economic needs is a betrayal of our national interests.

7.11 pm

Mr. Iain Duncan Smith (Chingford) : My right hon. and learned Friend the Chancellor performed not only the difficult task of delivering the Budget while surrounded by many people advising him on what or what not to say, but coped with the extra burden of the public expenditure round. I congratulate him on doing that with such style and elegance. It must have seemed a fearsome hill to climb but I understand the Government's desire to move the two areas together. I am slightly concerned that we may not have given ourselves enough time before setting the Budget to see some of the implications of our spending round. However, I am sure that our skilled Front-Bench Treasury team will have considered that.

The Budget must be examined in the context of consistent Conservative policy, the aims of which are security, self-reliance, enterprise, personal responsibility, securing sound public finances, low inflation and sustained economic growth. I was glad to hear the Chancellor stress again low inflation and sustained economic growth. Those themes were clear throughout his speech.

The Chancellor has inherited lower inflation, lower interest rates and falling unemployment, but he has also inherited a PSBR of £50 billion. He has had to perform a delicate balancing act because he must nurture economic growth, which is still delicate, while bearing down on the excessive PSBR. As Conservatives know, failure to control the PSBR will ultimately lead to higher taxation of the wealth-creating sector and, of course, that will lead to the problems that existed under the Labour Government in the 1970s.

The backdrop to all the arguments about taxation and expenditure is that the Chancellor has already been passed from the March Budget some £10.3 billion of tax increases, of which £6.7 billion are due to come into play in April. My right hon. and learned Friend deserves great credit for bearing that in mind throughout his speech. He knows that any great increase in taxation would damage the rather delicate economic growth.

The fact that the economy is becoming stronger has much to do with the fact that we have left the ERM. I do not wish to enter into discussion about whether growth occurred before or after we departed from the ERM, but my view is that growth was greatly assisted by departure. It will not surprise hon. Members to know that I am against exchange rate mechanisms. Events from the time of the gold standard through Bretton Woods into the ERM have demonstrated that such mechanisms end in tears. Government policy post our departure from the ERM has been carefully monitored and gauged, and the Government are to be congratulated on sticking to their original aim of retaining domestic monetary figures as the main focus. This morning's issue of The Financial Times said that we did not really need to worry too much about money in circulation because M0 was showing a growth of some 5.3 per cent. M0 is a bad gauge of money in circulation. A

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better one is M4, and we should be worried that M4 is still not at the level at which it should be at this stage in the cycle. It could be higher, and in that context it is worth bearing in mind the potential for further cuts in interest rates.

I unreservedly welcome the Chancellor's announcement of the reduction in the PSBR of £5.5 billion in 1994-95, rising to £7 billion in 1995 -96 and £10.5 billion in 1996-97. Those are significant reductions on which I congratulate my right hon. and learned Friend. I welcome the fact that income tax allowances are unchanged. Many people were worried about that. I understand the reason for imposing duty on air passengers, which will be £5 within the European Community and £10 for journeys to other areas. Most hon. Members will welcome that because it brings us into line with many other countries, as those who travel will know.

I am slightly concerned about the 3 per cent. levy on insurance premiums because it sends the wrong message to the insurance industry. We are trying to get that private sector industry more involved in providing schemes for people. Perhaps the Government will think further on that in the coming year.

I am also a little concerned about our approach to the married couple's allowance. I know that it is in line with previous changes to the tax policy, but in view of our concern about single parents we should remember that such an allowance could have been retained at a slightly higher level.

I welcome all the business aspects of the Budget. The change in the VAT threshold to £45,000 is an excellent move. I welcome the 1 per cent. reduction in national insurance for those earning under £200 a week and a commitment to extending the 20p band of income tax. I was pleased to see a reform of the requirement for the audit of small businesses. That will remove a great burden from many small businesses in my area which say that the requirement has been excessive. I unreservedly welcome the increased export credits. Those will be well received by some larger companies which rely greatly on exports.

The most important part of the Budget speech was the part that dealt with VAT on fuel. All hon. Members should welcome that announcement.

My right hon. and learned Friend has put together a generous package, more generous than I expected and probably more generous than many Opposition Members anticipated. It may seem like a small gesture but £2.5 billion over three years starting in 1994 before VAT comes in will mean a lot. Income-related benefits will be up by 3.9 per cent. in 1994 and will mean about £4.3 per week for a couple with two children on income support. I am surprised that I have not heard more of a welcome for that from the Opposition today.

Looking through the great tome of information that is available, I am interested to see the areas that my right hon. and learned Friend has covered for people not on income-related benefit. For example, a single pensioner not on income-related benefits in April 1994 will see his benefit increase from £56.10 to £57.60 £1.50 per week. In April 1995 that will rise by a further 50p a week and in April 1996 by 30p a week.

I was particularly interested to see that a pensioner couple, again not on income-related benefit, will see their

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benefits increased from £89.80 to £92.10. In April 1995 that will rise by 70p per week and in April 1996 by 45p per week.

Given the circumstances, that is generous, and my right hon. and learned Friend is to be applauded for that. I was somewhat concerned about where he would get the money for all that, but the fact that he has allowed himself to go beyond income support is a significant move.

I come now to the spending side of my right hon. and learned Friend's announcements. I am particularly interested to see that the original targets set for public spending are to be reduced. That will send just the right message to the financial markets that the Government are determined to reduce the PSBR and will do something about it.

The public at large are quite within their rights to ask why, when those running businesses have had to cut their staff and seek to save money in a number of areas, the public sector has continued throughout the recession to take on an ever-growing number of new employees.

I recently made some quick calculations to discover the difference in the number of public sector employees in 1979 compared with 1993. After removing all the companies that have been privatised and the agencies that have left the public sector, there was a significant increase in the public sector of more than 500,000 employees, and that at a time when the private sector has had to reduce its number of employees. Therefore, more needs to be done in this area. It is significant that market testing has been extended, but can it not be applied and extended even further ?

I note today that under the spending pledges there are real increases for the Department for Education, the Department of Health and the Home Office. But that should not stop them examining carefully again and again whether they need quite so many people to administer their funds. It is important for them to ensure that the public understand that they too will be examining their budgets in the way that any private company would.

I have one small concern with regard to the defence budget. We did not hear much about that today, but the defence budget has been significantly reduced, due largely to changing international circumstances, and it continues to be reduced. I am anxious that the Government should not treat the defence budget as a milch cow, just because it appears to be the easiest to reduce. We must take into account our international commitments and the way in which we structure our forces. Therefore, I urge my right hon. and hon. Friends to reassess carefully the pressure under which they put the defence budget and to ensure that the cuts do not affect our ability to carry out our duties.

I was interested to hear what the Opposition had to say on the tax changes in the Budget, particularly with regard to loopholes. My right hon. and learned Friend spoke about the need to continue to close loopholes and there is nothing new about that. Every responsible Government of any persuasion talks about closing loopholes. There is no such thing as a taxation system that is free from loopholes and there never will be because as soon as one set of loopholes is closed another is found. The biggest question is whether the cost of the exercise outweighs the saving.

The Opposition talk of taxing businesses by increasing corporation tax by some £20 billion. That is not a loophole ; it is an increased tax. They talk of a tax on foreign companies. That is not a loophole, but those companies will be driven out of the country by such a tax. Then they

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talk about a wonderful windfall tax on utilities, telling us that that was some sort of loophole, but forgetting that some £30 billion is being invested by the water companies to clean up the system. The Opposition intend to close that down as a loophole. What kind of a loophole is that ? That is not responsible opposition. That is essentially trying to find money that the Government have not touched, but there is none. Those are not loopholes.

Watching the hon. Member for Dunfermline, East (Mr. Brown) during the past few weeks I have been reminded of that wonderful character Zaphod Beeblebrox in "The Hitch Hiker's Guide to the Galaxy", the strange two- headed figure who wanders around carrying on a perpetual argument with himself, each head putting forward another angle of the argument. On BBC Radio 4 on 17 January, on borrowing, one of the heads of the hon. Member for Dunfermline, East said :

"I am not talking about increasing current borrowing." Meanwhile, when asked whether he would seek an increase in the PSBR, the hon. Gentleman's other head said :

"I would be prepared to contemplate that."

On 18 August, on spending, one head said :

"Mr. Major and Mr. Clarke are spending much of their energy saying that Labour has massive spending debts there are none."

However, the other head then said :

"The public sector must now become the engine of growth." Both heads say something different, facing different directions. One head was also busy talking about a pledge to full employment a wonderful open-ended commitment.

The two heads went on to argue with each other over taxation. One head said :

"If you cut taxation and I hope that we will be able to do so". But with his other head, when asked whether he believed in a 50 per cent. tax rate, the hon. Gentleman replied :

"if the Chancellor, to raise money to do things, raised the top level from 40 to 50 per cent. we would not oppose it."

It really is a case of both heads talking in different directions. This socialist Beeblebrox, at one and the same time, on the right and the left of the Labour party, seems to design his speeches to suit his audience.

The Government are now a natural partner for the reforming Government of the 1980s. The great reforms were then to the supply side, now we are looking carefully at the welfare state and a variety of other issues. It is not surprising that unemployment has started to turn down so early in the cycle. That has much to do with the reforms of the 1980s.

However, I was particularly pleased to see that the Government have turned their attention to reforming the concept of the welfare state, something which is long overdue. My right hon. and learned Friend, in line with other of my right hon. Friends, clearly recognises that failure to do that will hamper our desire to reduce the burden on the wealth-creating sector.

Now is the time to look at the Government's role and the division of the two areas on one side, raising revenue and expenditure and on the other, the delivery of service. It is time to transfer as many services as possible to the private sector which can provide many of them, such as insurance, far better.

I am glad that some of today's changes bear a great similarity to suggestions made recently by my right hon. Friend the Secretary of State for Social Security. Some of the announcements fall well within the areas about which he spoke two or three days ago. The social security budget has increased by some 75 per cent. in real terms since 1979

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and now accounts for one third of spending. When my right hon. and learned Friend talked about a real increase of 3 per cent., there were guffaws as some hon. Members said that it was something to do with unemployment. It has nothing to do with unemployment. That 3 per cent. takes into account unemployment and is a real year-on-year increase.

The new medical test to attack the abuse of benefit from 1995 should reduce some of the costs. I also note that many doctors have asked for such a measure because they feel under great stress, with their individual knowledge of the patient, having to decide whether or not somebody is eligible. That reform will save money and be well received by the medical profession.

The new job seeker's allowance, which will be integrated with and replace unemployment benefit and income support in 1996, is much in line with the single, means-tested proposal put forward by myself and others in August in a pamphlet, "Who Benefits ?". It would be much more simple to administer and a more simple system for those who need the money and need to understand how much money they would receive. I am glad to see that we have begun our journey along that road and welcome it unreservedly.

The change in statutory sick pay is helpful because it is high time that large employers took more of the burden. If they do, there is every chance that they will take a greater interest and concern in the health of their employees and their infrastructure and general employment conditions so as not to end up with long-term sickness among their employees. It is an excellent move to force the larger employers, especially, into that area.

The equalisation of the state pension age at 65 again a change that we proposed in August is welcome, but the Government should look again at increasing it, in due course, to 67 because the average age is rising.

I welcome the major structural changes that were announced in social security. They will open the door to much of the private sector. In providing services, we should certainly now encourage pension companies to be involved in the provision of pensions and I hope that my right hon. and learned Friend will consider it in the following year as an area that would help us to save money and increase the benefit to those who need to receive the money at that point.

I believe that my right hon. and learned Friend's speech was welcomed unreservedly on this side of the House. He has announced major changes in social security and taxation and his VAT package is generous, perhaps more than many would have expected, and he should be congratulated for finding room within the strictures of the PSBR. It is a good Budget, outlining a good spending programme and I look forward to the reduction in the PSBR and to Britain continuing with low inflation and growth over the next few years.

7.33 pm

Mr. Malcolm Chisolm (Edinburgh, Leith) : In some ways, it is difficult to speak some two hours after the Chancellor has sat down, but in others ways it is easy because both his diagnosis and prescription for the economy are utterly predictable and utterly wrong. In the diagnosis section at the beginning of his speech, the

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Chancellor could have mentioned at least five facts, if he had any degree of honesty or humility perhaps strange concepts in connection with a Conservative Chancellor.

First, he could have pointed out that we have recently come out of the worst recession of any major, industrial country in the past 25 years, according to the Organisation for Economic Co-operation and Development. Secondly, he could have said that, given that, it would have been utterly amazing if there had not been some slight improvement over the past few months. What has been surprising is that the recovery has been so slight, given the devaluation and consequent cuts in interest rates that the Government did everything they could to avoid.

As the Chancellor said, we have growth this year of 1.75 per cent. a level that Professor Wynne Godley called a growth recession. Thirdly, he should have pointed out our historically low levels of investment 14.4 per cent. of gross domestic product is 25 per cent. below the levels of our major European competitors and the lowest level of investment in Britain since the 1950s. Fourthly, the Chancellor should have pointed out that we also have historically low levels of public expenditure. Even in the depths of public expenditure cuts in the early 1980s, the Government pitched public expenditure at 47.5 per cent. of GDP. Now it is 45.5 per cent. of GDP. If we consider elements of that spending, we find far worse figures. Public capital spending is now only 1.5 per cent. of GDP, whereas it was 9 per cent. under the Labour Government. Even the percentage spent on the welfare state which the Tories keep telling us is too high is lower than in any other European country apart from Portugal.

The fifth and most crucial point that the Chancellor could have and should have cited in his opening statement is that the main reason for the PSBR problem is not the amount that we spend on the welfare state or public expenditure or capital expenditure, but because of the recession and because of the resulting unemployment that costs us so much money. That is the problem that he should have been addressing in his Budget, yet he failed.

We should have had a Budget for jobs and for investment. Perhaps the Chancellor was too carried away by his own rhetoric to give us such a Budget. His rhetoric boasted of the way in which unemployment is coming down in Britain, while it is rising everywhere else, so he says, and boasting of the jobs created in the 1980s. He should remember that since the beginning of the decade, we have lost more than 2 million jobs, while the claimant count in the same period has risen by 1.4 million. That shows that the claimant unemployment figures are not the best test of how our economy is doing for jobs. There are lots of hidden unemployed people who do not go straight on to the claimant count. While unemployment is improving marginally in terms of claimant figures, the reality on the ground is that people are not getting new jobs and today's Budget should have been targeted in that area. I would have liked the Chancellor to say that he and the Government had had a change of heart and that from now on they were to make the creation of jobs the first objective of economic policy. Of course, there is no hope of that from the Government. The section of the Chancellor's speech about jobs was almost unbelievable to Opposition Members. First, he mentioned a new job seeker's benefit as if that was

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somehow to do with creating jobs. We know that it is rather about cutting unemployment benefit. People have paid for that benefit through national insurance contributions and to receive it for six months instead of 12 means that some claimants will move on to claim income support and some, if they have a partner in work, on no matter how low a wage, will go from unemployed benefit to no income at all. That was his first job creation measure.

There was one announcement in the Budget that I thought was good news, although I want to make some detailed comments a child care allowance for families on family credit. That is a tribute to the strength of the campaigns that were waged over the summer. I wrote to the Prime Minister about that matter in June and received the most dismissive reply imaginable, saying that such an allowance was a crazy, unnecessary idea and in no way was to be implemented. I am pleased that there has been a change of heart.

However, there are certain problems with the allowance as announced. First, those who work fewer than 16 hours a week and therefore claim income support should also have child care support. Secondly, I feel that those whose income takes them just above family credit levels should receive some kind of child care support. Connected with all of that is the whole question of the supply of child care. Whatever help is given, if only private child care costing £70 a week is involved, it will still be too expensive for low-income parents to use. The Chancellor should have announced a national child care strategy to tackle the problem of supply as well as helping people with the cost. Opposition Members believe that that is crucial to the welfare of millions of women who want to work, and also to the good of the economy as a whole. Although I welcome that measure on child care, I think that it should be the beginning of something far more.

Child care does not, in itself, create jobs for people eligible for family credit, who may now be more willing to look for jobs because they are receiving help with child care. Its expansion must be accompanied by an economic policy that creates jobs which is precisely what we hoped for, but were not given, in today's Budget statement. Certain obvious steps could have been taken to create jobs.

First, a boost for house building would have been an obvious way of increasing jobs and meeting a clear need. Last week, in a Scottish survey, Shelter stated that 45,000 Scottish households had reported themselves homeless to their local authorities last year. That, of course, does not reveal the total extent of homelessness last year. There is a crying need for a house-building programme ; instead, the Budget statement announced a cut of £300 million for the English Housing Corporation. I have not yet seen the Scottish figures, and I do not know whether they are available, but I suspect that a similar cut is planned. The policy is going in exactly the wrong direction : we need to put money into house building, both to solve a social problem and to get the construction industry moving again, returning building workers to employment.

The Budget made some gestures to infrastructure, but they consisted of far too little, far too late. Infrastructure investment by the public sector is a very effective way of returning demand to the economy and returning people to work ; it is also a very effective way of improving the efficiency of the economy. The provisions in the Budget are derisory and inadequate.

Most fundamental of all is the need for help for manufacturing industry. One of the most significant

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omissions from the Chancellor's statement was his failure to refer to the balance of payments deficit, which now stands at a level which is unprecedented in the current stage of an economic cycle £17.5 billion. We need manufacturing for jobs ; we also need it to deal with that problem. If that problem is not dealt with, any growth that we achieve as a result of the Budget or, rather, not because of but in spite of the Budget will soon run into the constraints of the balance of payments deficit. Unfortunately, it seems that the Government will never address the problems of manufacturing investment. Simple measures involving capital allowances could be introduced, but I also believe that the Government should take a more direct role to get the sector moving.

Instead of using the opportunity presented by the Budget to create jobs, the Conservatives have used that opportunity to carry out an agenda that they want to carry out in any event, irrespective of the state of public finances. I refer to the particularly right-wing agenda that involves reducing public expenditure, attacking the welfare state and putting up taxes on low-income families. I have not had time to examine all the details of the public expenditure proposals, but I remember the Chancellor saying that the total would fall by £15 billion over the next three years, and that within the next four or five years it would fall from its present 45.5 per cent. proportion of gross domestic product which, as I have said, is historically low to 42.5 per cent. That is bad news for jobs, because public investment is necessary to create them ; it is bad news for the welfare state ; and it is bad news for our public services.

Let us consider certain specific groups. First, the Chancellor highlighted pensioners, who he said were given a good deal by the Budget. Let us remember what kind of increase is in store for them. Before the Budget, it was to be barely £1 a week for a single pensioner next year : that appalling amount was announced a few weeks ago. The reason was the official rate of inflation at the time which, of course, bore no relation to the actual cost of items that pensioners must pay for.

Today, we heard that those pensioners would receive a measure of compensation for the imposition of VAT on fuel not full compensation ; it is probably about half what they will have to pay. I have not had time to examine the details. We should have heard an announcement that no VAT would be imposed on fuel : instead, we were told of an inadequate compensation package. Beyond the pensioners' immediate problem lies the distant objective of pension equalisation at the age of 65. Although that does not concern today's pensioners, it will concern younger people. The Government missed the opportunity to equalise pension ages at 60, which should and could be the policy of any Government who believe that they can deliver economic growth. The present Government, of course, have no confidence in their ability to do that, which is why they must resort to public expenditure cuts and unfair tax increases.

The second group I want to mention are those currently receiving invalidity benefit. One of the most shameful aspects of the Budget is the fact that they are being targeted to pay for the mistakes and the economic incompetence of the present Government. We are told that thousands who should not receive invalidity benefit are receiving it. I can tell the House that constituents of mine have recently been taken off it. I am not a doctor, but I can see that those people are not well, and are not fit for work. The Budget

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proposal is a disgraceful attack on them. Once again, the Government seemed to think that the Government can get away with their actions, as long as they change the name of the benefit involved. They imagine that, if they call it "incapacity benefit", no one will notice. Opposition Members notice, however, and thousands of people in my constituency and throughout the country will notice as well.

The largest group, however, is composed of the millions of ordinary taxpayers who will suffer as a result of the Budget. The Government would like us to forget that many taxes amounting to £8.50 a week are already in the pipeline. In that sense, the Chancellor is indebted to his predecessor. Not satisfied with that, however, the present Chancellor has announced the freezing of tax allowances, and various other tax changes that will take the weekly tax increase for an ordinary family to beyond £10 a week after next April and that from a party that claims to be a party of low taxation, and boasted about it at the last general election. The British people will never trust the Tory party again on taxation, and today's Budget will remind them of that fundamental fact.

We should also remember all the other people who will suffer as a result of the imposition of VAT on fuel, apart from pensioners. Those people did not get much mention in the Chancellor's statement. Some slight help will be provided for those on income support, but it will be in no way adequate to deal with the costs that they will face. Let us remember the state of the houses in which some of the people who will have to pay VAT on fuel will have to live. I remember someone on low pay who came to my surgery recently. She said that, because of the dampness of her house, she had to spend £25 a week on heating. Yet we are told by the Government that she will have to pay more. Because she is on low pay, she will not get one penny to help her with her increased heating bills.

For a moment, I shall give some respite to the Conservative party, although, obviously, my main fire is directed at it. I shall refer to another party with which we must contend in Scotland the Scottish National party. I must point out this disgraceful leaflet that I was handed in Leith last Saturday. In opposing VAT on fuel, the nationalists contrasted Scotland's chill with southern comfort. It is a highly offensive leaflet, and it gives some idea of the nationalist poison of the SNP that we in Scotland have to put up with. The concern of the SNP for the poor and the low paid does not seem to extend beyond the Scottish border. It forgets the millin southern comfort.

In expressing our opposition to VAT on fuel, let us make it clear that the Opposition do not want VAT on fuel for anybody in the United Kingdom and that we still demand that it is scrapped. We shall continue to campaign for the scrapping of VAT on fuel in the expectation that we shall be successful.

If the worst comes to the worst and VAT is imposed next April, some Opposition Members will continue to campaign to ensure that the EC is challenged and that VAT is taken off fuel when a Labour Government return.

The main thrust of the Budget should have been to create jobs. If jobs are created, the problems of the deficit will go away. But I have to agree that, to create jobs in the short term, we must have public investment, and therefore

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public expenditure. As the Conservative party always wants to know how the Opposition will raise the money, I shall conclude by saying something about that.

I emphasise that the key to dealing with the budget deficit is to deal with the problem of unemployment. The taxation measures to which I shall refer are not the heart of our budget argument. Jobs will create more income tax and will mean less expenditure on unemployment benefit. That will solve the deficit problem, but in the short term we need expenditure on public investment.

I fully support, as would all Opposition Members, the proposals of my hon. Friend the Member for Dunfermline, East (Mr. Brown) on tax loopholes. I shall refer in particular to the way corporation tax is being evaded, because the previous Chancellor referred to the problem of corporation tax evasion the day before he got the sack. It is not just an idea from the Opposition. There is a problem of corporation tax evasion.

I suggest also that there is a problem with the level of corporation tax, because we are way below the EC average. If corporation tax were increased to 40 per cent., that would bring in £4.5 billion. That has to be combined with a generous system of capital allowances, which the Conservative party will not accept.At the moment, the system of corporation tax encourages high dividend payments and discourages investment. We could put up corporation tax if we had generous capital allowances. That would be in line with the policy of creating jobs through investment.

A second way in which money could be raised, and which would be infinitely preferable to the offensive attacks on the poor through VAT on fuel and invalidity benefit cuts, would be to raise the top rate of taxation. If the top rate for those earning more than £50,000 I shall put it no lower than that were increased to 60 per cent., that would bring in £4 billion a year, which is more than would be brought in from VAT on fuel.

Who with any conscience can possibly say that it is better to impose VAT on home heating than to impose a top-rate tax increase for those earning more than £50,000 ? There are not only arguments for that in terms of social justice. There are also strong economic arguments for that, because one of the problems that we have in this country is the extremes in income between poor and rich, which makes the balance of payments problem worse because rich people tend to buy more imported items. Secondly, it tends to make the boom-bust cycle far more extreme than in other countries. There are strong economic arguments as well as strong moral arguments for increasing the top rate of taxation.

I am not totally against VAT increases. The problem that the Government have is that they impose it on the wrong thing. I suggest that, before the next Budget, they look at other ways in which they can raise VAT. I suggest, for example, VAT on private school fees I suggest a rate of 30 per cent. I suggest a VAT rate of 30 per cent. on people who take out private health insurance. Why do we not have VAT on luxury items, which can be paid by people who can afford them ? Those thoughts are totally alien to the Government, who want to help people at that end of the income scale and penalise and punish those at the other end.

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There are two other ways in which money can be raised. First, I am told that a long-term objective for defence cuts was accepted by no fewer than 72 per cent. in a recent survey of top Scottish directors of industry. It was not mentioned much in the Budget today, but there is a wide spectrum of opinion across right and left which recognises that military expenditure must be cut.

That is an ongoing source of money that can be used to boost manufacturing investment in this country. The Labour party has policies for a defence diversification agency and cuts in military spending could finance the work of that agency in boosting investment and jobs, particularly in manufacturing, because the key thing about defence workers is that they are highly skilled and must be kept in manufacturing employment.

Even to reduce our level of defence expenditure to the French level would release £8 billion. I do not suggest that it is done in one go. If it was reduced to German levels it would release £13 billion. That is a matter that, in the remaining years of the decade, must be addressed and accepted, because it is a very large source of revenue for investment in our economy.

Finally, I shall mention borrowing. I believe that if the measures that I have suggested were introduced, we would not need to increase borrowing. However, if in the short term we had to increase borrowing for investment, that would not worry me, because we know that through public investment we can decrease borrowing in the long term. The problem with the Conservative party is that it has no strategy to deal with the underlying cause of the public sector borrowing problem, which is the low levels of investment and the high levels of unemployment. The Conservatives have no strategy for that. They are using the excuse of the deficit to whittle away at the welfare state and impose unfair taxes.

At the end of the Chancellor's speech, I noticed that Tory Members behind him were very impressed. That gave the game away. What we had from the Chancellor today was not a Budget for jobs, quite clearly. It was not a Budget for the poor, quite obviously, and we do not expect that from the Conservative party. What we had from the Chancellor today was a Budget for winning the next election. [Interruption.]

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