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not little promises ; they are promises that affect the lives of millions of people. The right hon. Gentleman should be ashamed of himself.Conservative Front Benchers are virtually incapable of keeping their promises, whether those promises relate to tax, spending, recovery or youth employment--or, indeed, to the supposed end of the recession the day after the general election. I believe that they are incapable of telling the difference between truth and
falsehood--incapable of telling the truth, or even recognising it ; incapable, perhaps, of distinguishing between right and wrong. How can the Front Bench explain this astonishing record of personal irresponsibility? Recently, the Prime Minister and the Home Secretary have spoken out on moral decline and personal responsibility. Like them, I would resist any tendency to place the blame for breaking promises and being unable to tell the truth elsewhere. As the Home Secretary said :
"We should have no truck with trendy theories that try to explain things away by saying someone else is to blame."
That is the view that the electorate will take.
Will the Government now blame the Church of England for the breaking of promises following what they said during the election? Was it the absence of a father figure during the war that prevented their promises from being kept, or is it the tragic loss of a mother figure as recently as 1990 that prevents them from telling the difference between right and wrong? Let us be absolutely clear : the Government are repeated offenders in the business of making and breaking promises. They went joyriding with the British economy, they crashed out of the exchange rate mechanism and they left a trail of destruction and chaos behind them.
The Chancellor began his term of office by admitting that the country was in a dreadful hole. His Budget, however, fails to understand that our problems relate not to too high a quality of services, but to insufficient growth during the period of Conservative government. It fails to recognise that the root of our problem is the smallness and the diminished capacity of our economy. It fails even to appreciate that the problems of trade deficits, unemployment and inflation will return again and again as long as the Government do not tackle these basic and fundamental issues. This Budget cannot even begin to recognise the importance of the Government's role in helping to secure the investment in people, industry and our social and economic fabric that we need if we are to have a high, sustainable rate of growth. As a result of this Budget, we are worse off today without the slightest prospect of being a great deal better off as a nation tomorrow. It is a Budget without a strategy for jobs, industry and long-term growth, because it cannot begin to address the foundations of the Government's failure. We wanted a Budget for employment, and the Government cut the employment budget. We wanted a Budget for industry, and the Government cut the industry budget. We wanted a Budget for investment, and the Government cut public investment in our economy. We wanted a Budget for fairness, and the Government ended up penalising 95 per cent. of the population.
This Budget does nothing for fairness, jobs, industry and investment in the way that the country needs. For that reason, it will not commend itself to the country.
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5.27 pmThe Chief Secretary to the Treasury (Mr. Michael Portillo) : Towards the end of his speech, the hon. Member for Dunfermline, East (Mr. Brown) threw down a challenge. He asked whether Conservative Members had political will power. He asked whether my right hon. Friend the Prime Minister had it ; whether my right hon. and learned Friend the Chancellor of the Exchequer had it ; whether I had it ; and whether our party had it. The answer to those questions is yes, yes, yes, yes and yes. Yesterday's Budget demonstrated the existence of that political will power.
Did the hon. Gentleman have the political courage, in a speech lasting half an hour, to mention even one of the Labour party's policies? It was a policy-free zone of a speech, in which the hon. Gentleman did not dare to offer a single thought about what his party would do. This is an unserious shadow Chancellor of the Exchequer, trying to address himself to serious problems that Conservative Members are considering seriously. The hon. Gentleman who sits practising his smile, because he has been told that that is what he ought to practise--is a man who does not allow a single serious thought to enter his mind, or a single serious comment to pass his lips.
While the hon. Gentleman sits there practising his smile, my hon. Friends have been asking him whether he believes that the deficit is too high. Does he believe that spending is too high? Does he believe that we should put up taxes? What is his party's monetary policy? How will he create all the jobs that he is always going on about? What is his answer to all those questions? When it is not evasion, his answer is to say that it is all being referred to the Commission on Social Justice. That commission is the greatest example of contracting out there has ever been, of which any Conservative council would be proud because all Labour party policy has been subsumed by the Commission on Social Justice.
The commission has now been in operation for a year and in the past few days it has produced its second report on the important subject of social security. What does the commission say after a year of deliberation? It says :
"Over the next 6 months we will publish a series of papers explaining some of the tough questions which we believe the country faces : setting out the advantages and disadvantages of different options."
My God. What courage the Labour party shows. What determination it is showing to address our problems. What extraordinary bravery is being shown by the hon. Member for Dunfermline, East and his party, and I shall tell the House why.
It is because the hon. Gentleman knows that his predecessor, the former shadow Chancellor, devised an economic policy and it was a disaster. It was the policy that cost the Labour party the general election. The hon. Member for Dunfermline, East now lives in cowering terror of developing a single strand of policy.
Mr. John Smith (Monklands, East) rose --
Mr. Portillo : I shall give way in a moment when I have given the hon. and learned Gentleman something to which he can reply. The hon. Member for Dunfermline, East has learnt the wrong lesson. The lesson is that if he devises policies that blow the election for his party, he will take over and become the leader of the Labour party.
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Mr. Smith : Will the right hon. Gentleman tell the House whether Conservative Members kept the promises that they made about taxes at the general election?
Mr. Portillo : We are keeping the most fundamental promise of all-- [Interruption.] That is to deliver sound public finances, on which the Labour party has not a clue, because--
Mr. Deputy Speaker : Order. I recently pointed out to the House that right hon. and hon. Members on both sides of the House will get a fair hearing. The Opposition spokesman got a reasonable hearing ; the Chief Secretary will get that same fair hearing.
Mr. Nigel Griffiths (Edinburgh, South) : Is the fundamental commitment to which the right hon. Gentleman refers not just a fundamental commitment of the Conservative party to lie its way into power and a fundamental commitment to cling to power at all possible cost?
Mr. Portillo : The hon. Gentleman clearly wants to get into the headlines by being thrown out of the House of Commons for using the word "lie". I shall treat his question with the contempt that that word deserves.
The Budget which my right hon. and learned Friend produced what was he rightly describes as a "no nonsense" Budget, because we face serious problems and the Conservative party put forward a serious solution. I am pleased that my right hon. and learned Friend has delivered a Budget which, after all, had to be tough. He was not able to deliver a lollipop Budget but had to present a lollipop-free zone at a time when we had to tighten the fiscal position. My right hon. and hon. Friends were strongly supportive of my right hon. and learned Friend the Chancellor because the Conservative party is serious about dealing with the problems of the deficit. That is the major contrast between the Conservative party and the Labour party which the electorate will not fail to see when we next face them. Of course, the problem that we face is a deficit of £50 billion. Mr. Ronnie Campbell (Blyth Valley) rose --
Mr. Portillo : I shall give way later. I want to make some progress. The House will be aware that we have a national debt of £200 billion. The public sector borrowing requirement of £50 billion is serious because it represents one quarter of the national debt. If my right hon. and learned Friend and his predecessor the right hon. Member for Kingston upon Thames (Mr. Lamont) had not taken steps to deal with that, obviously there would have been a danger of doubling the national debt over a short period.
Ms Harriet Harman (Peckham) : Why is the PSBR there ?
Mr. Portillo : I must tell the hon. Lady some of the areas in which the Government have spent money. In the three years up to 1992-93, the Government have increased spending on the health service by 5.5 per cent. in real terms every year. Over the past five years, they have increased spending on education by a quarter in real terms ; they have increased spending on national roads by 60 per cent. in real terms ; and they have trebled investment in British Rail in real terms.
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On each of those occasions, the Labour party said that we were underspending, that we should spend more, that the health service was underfunded, that we were not investing enough in roads or education and that we ought to invest more in British Rail. Now the Labour party asks why we have such a large PSBR. It says that the Government are to blame and that we should spend more money.The hon. Member for Peckham (Ms Harman) was at it again on "Newsnight" last night, advocating that the solution to our problems was to spend more money. It is some sort of rich joke that the Labour party appoints the hon. Member for Peckham as its shadow Chief Secretary. It is rather like--
Several hon. Members rose --
Mr. Deputy Speaker : Order. The Chief Secretary has made it clear that he will not give way and hon. Members should take note.
Mr. Portillo : The irony of putting the hon. Lady in charge as the shadow Chief Secretary is like appointing Joan Collins to buy costumes for an impoverished amateur dramatic club. Tackling the deficit is important for restoring confidence in the economy and ensures that the Government are able to provide the conditions for recovery.
Ms Hilary Armstrong (Durham, North-West) rose
Mr. Portillo : I shall give way to the hon. Lady in a moment. During the past year, when the Government have had to borrow £1 billion a week, we had stable short-term interest rates and, in the past week, we saw them fall. We have also seen long-term interest rates falling. The textbooks on economics say that a large PSBR puts upward pressure on interest rates. That has not materialised, because the Government have established medium-term economic policies for dealing with the deficit, on spending and taxation.
When my right hon. Friend the Member for Kingston upon Thames announced the extension of VAT to fuel and power, many Conservative Members were worried about the timing of that announcement and believed that the delay in its introduction would make lobbying against that proposition more intense. I say to my right hon. Friend and hon. Friends that it was extremely important when the recovery was still delicate and when many were rightly arguing that the economy was not in a state to bear higher rates of taxation, that the Government should give an assurance that over the medium term they would tackle the deficit. It was necessary to offer that reassurance. The funding crisis of 1993 is the funding crisis that did not occur because there was confidence in the Government's medium-term policies in the markets. It was the dog that did not bark.
Ms Armstrong : The Chief Secretary gave a list of spending increases as the reason for the deficit. Was he not aware of that at the last general election? Why did he and his Prime Minister promise that there was need neither to cut expenditure nor to raise any taxes?
Mr. Portillo : I am perfectly happy to answer that question. We thought that the recession was coming to an end in early 1992. But the question that cannot be answered
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by the Labour party is why, in any circumstances, it believes that we should spend more on all those things. Why does the Labour party always urge that we should spend more and that interest rates should be lower than whatever the Government set? Why did it promise high taxes at the last election but now it says that it has no plans for high taxes? Why does the Labour party refuse to answer a single question about its economic policy?Mr. Dennis Turner (Wolverhampton, South-East) : Will the Chief Secretary give way?
Mr. Portillo : I shall give way in a moment.
In devising their policy, the Government have faced along the way an escapist tendency. It comes in various forms, but the great mottoes of the escapist tendencies are, "Why do today what you can put off until tomorrow?" and "Even if it's broke, don't fix it." There are various types of escapist. There are those who say that there is no need for the Government to take action because the recovery will cure all. The recovery will not cure all. Even those elements of spending that are driven up by the cycle during the recession do not necessarily unwind themselves at the end of the recession when the recovery comes.
For example, if the Government build up a higher level of indebtedness, that indebtedness is not swept away by the very fact of recovery. Other escapists say that we should, indeed, take action, but that the time is not ripe. But then the people who say that the time is not ripe are the people who believe that there never is a ripe time for taking firm action.
Then there are those who say that we should take effective action, but that there are spending cuts that can be made and tax rises that can be imposed which carry no pain and no difficulty with them. I have to tell those people that they are wrong. It is not possible to address the problem without facing tough decisions. My right hon. and learned Friend the Chancellor has faced them. The Government are not a member of the escapist tendency. Despite my ethnic origins, I am not in favour of "man ana". I am in favour of taking action today--timely action to put right the deficit that the Government face.
Mr. Turner : Does the right hon. Gentleman accept that his credibility among the Opposition is mightily stretched in as much as he is here today telling us about tax increases when he has always argued for tax cuts? How does he square that with the public outside, who have read his speeches, not over many months but over many years?
Mr. Portillo : I am realistic enough to know that unless we control the deficit and make sure that the burden of debt does not rise and unless we control the amount of interest that we pay on our debt, it will not be possible for us to reduce taxes. I believe in reducing taxes. I believe in the policies of my right hon. and learned Friend the Chancellor of the Exchequer. I believe that they will lead us to lower taxes in due course.
What is stretched on the other side of the House is not my credibility ; it is comprehension. Yesterday, the Labour party was in deep disarray. The Leader of the Opposition was attacking us for our savage cuts. Yet I had the fortune to wander in late in the day to discover the hon. Member for Cardiff, West (Mr. Morgan) saying that there had been no reductions in public spending and that the whole thing
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had been done by smoke and mirrors and an adjustment to the reserve. I intervened in the hope position perfectly clear because I have to be fair to the hon. Member for Cardiff, West and say that he was not the only person in confusion. There has been some misunderstanding of the position with regard to the reserves. My hon. Friends will understand that we set reserves for the three years ahead. The reserves in the second and third years of the public spending period are sums of money that the Government fully intend to spend within their plans but that have not yet been allocated to any specific programme. As the third year becomes the second year of a new survey and the second year becomes the first, the portion of the reserves allocated for that year--a third of the total reserve--is drawn down and allocated to programmes.In this year's Budget and public spending round, we ensured that as the second year became the first year we did not allocate that reserve to programmes. We allocated it in such a way that we could reduce public spending. What we saw in operation was not smoke and mirrors or fiddles but the exercise of resolution by the Cabinet and the Government. It was the exercise of absolute discipline on public spending.
We have allocated as reserves for the next three years £3.5 billion in the first year, £7 billion in the second year and £10.5 billion in the third year. The previous plans included reserves of £4 billion, £7 billion and £10 billion. The House will recognise that the total for the three years is exactly the same. So the hon. Member for Cardiff, West was wrong. I am not surprised that members of the Labour party are not able to recognise discipline when they see it and are not able to recognise resolution and collective action by the Cabinet in making sure that the public spending is under control.
Mr. Ronnie Campbell : Will the right hon. Gentleman give way?
Mr. Portillo : Last year, when we reviewed our plans for 1994-95, we took £4.75 billion off the new control total--the plans for 1994-95. This year, in revisiting those plans, we took another £3.6 billion off the plans for what we were going to spend in 1994-95. The plans for the new control total over the next three years are reduced by a total of £8 billion. That means--I know that my hon. Friends will be pleased with this- -that we have the new control total so firmly under control that in the next three years its average rate of growth will be 0.25 per cent. in real terms each year. The House will recognise that that is a good distance below the maximum target that the Government set themselves of 1.5 per cent. growth in the new control total year by year.
Not only spending within the so-called new control total is under control and is being reduced ; a virtuous circle is being established because we are seeing that debt interest will be reduced by £1 billion a year from 1996-97.
Mr. Ronnie Campbell : Will the right hon. Gentleman give way?
Cyclical social security will also be lower as the recovery comes through. That means that, in the figure of total public spending--the grand total of public spending
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known as general government expenditure--we are seeing a reduction over the next three years of £15 billion of public spending. That is what has enabled us to reduce the proportion of our national income which is taken and spent by the Government from 45 per cent. to 42.5 per cent. over the period of the public expenditure survey. That is the way in which we shall meet the important promise that we gave in the Conservative manifesto that the Government would reduce over time the proportion of national income that was taken and spent by the Government. That is a fundamental Conservative pledge and one which my right hon. and learned Friend the Chancellor succeeded in delivering in his Budget yesterday.Mr. Peter Mandelson (Hartlepool) : Before the Chief Secretary embarks any further on his virtuous circle, does he recall the commitment which the former Chancellor made in the autumn statement last year to 78 public/private finance projects? How many of those are currently under construction?
Mr. Portillo : We have seen some good progress, but as my right hon. and learned Friend the Chancellor said, it has fallen short of what we hoped for. That is why my right hon. and learned Friend yesterday moved in with some radical new proposals to ensure that the private finance initiative delivered good results. We have seen bridges built, important projects in the national health service and an important contribution to the Jubilee line.
My right hon. and learned Friend put great impetus into his initiative yesterday by announcing, for example, that the west coast main line would be a subject of the private finance initiative. That statement is welcome to Conservative Member, even if the very mention of private finance is anathema to the hon. Member for Hartlepool (Mr. Mandelson).
Mr. Ronnie Campbell : Will the Chief Secretary give way?
Mr. Portillo : The hon. Gentleman has been very persistent so I give way to him.
Mr. Campbell : The Chief Secretary talks about the deficit. How was it created? If my memory is right, I remember the £100 billion from North sea oil which went down the drain. I remember the money from the nationalised industries. It was an enormous amount. We had billions from there. I remember the poll tax fiasco--nearly £4 billion. I remember Black Friday, where we lost £5 billion in one day. The Chief Secretary is the one who has caused the mess-up in the finances of the country, not us.
Mr. Portillo : The hon. Gentleman has inadvertently, I am sure, stumbled into quite a good point. During the 1980s, North sea oil revenue was contributing about 4 per cent. of gross domestic product in tax receipts to the Government. Today, it produces only half of 1 per cent. of GDP. That is an important difference. That is one of the reasons why my right hon. and learned Friend thought it appropriate yesterday to build new elements into the tax base--to broaden it--by introducing two new taxes : an insurance premium tax and an air passenger duty.
Mr. Gordon Brown : Will the Chief Secretary confirm that the typical family will have to pay almost £10 a week
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more in taxes from April? Will he now apologise for breaking the promises made by himself and the Conservative party over taxation at the election?Mr. Portillo : I do not know what a typical family would be described as, but I must say this to the hon. Gentleman, and then the contrast between our seriousness and his flippancy will be evident : it is not possible to cure a public sector deficit of £50 billion without some restriction on public spending and some increases in taxation.
It is banal of the hon. Gentleman to get up all the time and so glibly tell us that taxes have gone up. Of course they have gone up, because we are serious about putting right public finances. The hon. Gentleman is not serious about anything and the contrast shows. He is under-performing for somebody in his position.
Ms Harman : So is the right hon. Gentleman.
Mr. Portillo : The hon. Lady may say that, but she is held inside the shadow Cabinet by the safety net of political correctness ; otherwise, she would not be there at all. That is not my judgment about who is under- performing, but that of the Labour party.
Mr. Brown : If the Chief Secretary is performing well, will he now answer my question? Will the typical family pay £10 a week more in taxes next April, and will he apologise for breaking promises on taxation at the election?
Mr. Portillo : Different families pay different amounts, and I am not disguising the fact that people will pay more in taxes. Does that satisfy the hon. Gentleman? We are taking serious action to put right the problem. He continues to pretend that no serious action needs to be taken. His is a position of profound irresponsibility.
Mr. Clive Betts (Sheffield, Attercliffe) : The Chief Secretary has just said that everyone knows that it is not possible to deal with a £50 billion deficit without increasing taxes or cutting public expenditure. Why did he not say that at the time of the general election? In his previous answers, he said that he thought that the end of the recession would come earlier and that that would provide the revenues. In answer to my hon. Friend a few minutes ago, he said that only people of an escapist tendency believe that growth could cure the £50 billion deficit. Where is the consistency in that argument?
Mr. Portillo : I was talking about views taken at different times. At the beginning of 1992, it appeared not just to the Government but to all major commentators, and the Labour party, that the recession was about to end. In late 1993, it is not possible to take the view, with the deficit having risen to where it is, that recovery on its own will be sufficient to deal with the problem.
I should like to deal with the way that the Government will approach the cost of running the Government. At a time when people in the private sector have had to go through severe restraint, when they have seen their incomes under great pressure during the recession, it must make sense for the Government to ensure first that their running costs are firmly under control.
That is why there will be no increase in the cost of running the Government between this year and next year. I do not mean no increase in real terms ; I mean no increase
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in cash terms. We shall have to fund any pay increases that there are in the public sector from efficiency gains and savings that we make inside the public sector.That will be possible because we set demanding efficiency targets for the public sector and public bodies. We normally expect them to be achieving a 2 or 3 per cent. improvement in efficiency each year. Out of those improvements in efficiency must come any pay settlements that are made in the public sector.
As a result of that, over a period, we shall see a reduction in the proportion of public spending that the Government spend on running themselves from 8.2 per cent. down to 7.4 per cent. That is an important reduction in the amount that the Government are taking away from taxpayers to spend simply on running themselves.
Mr. William Cash (Stafford) : Is not one of the most important features of the Budget the emphasis on enterprise in small businesses, and is not that the means whereby we can regenerate the economy to pay for so much of the public expenditure that is required ? Is not another essential part of the budget the rejection of the Delors package and of the movement towards the policies advocated by the hon. Member for Dunfermline, East (Mr. Brown) and others--to increase public expenditure as a means of getting out of the problems that it merely precipitates ?
Mr. Portillo : My hon. Friend is right. All we have to do is look at what happened as we recovered during the 1980s. The engine of our recovery was the small business sector. It was able to expand in that way because of the flexibilities that existed, particularly within the British labour market. I believe that it will be the same during recovery this time around.
My right hon. and learned Friend has taken a series of important measures to help the small business sector. As a Government, collectively, we have taken a united stand against all those who would wish to impose on the British economy the rigidities and extra costs that would be the death of that effort to ensure that small businesses can again be the engine of our recovery, as they were during the 1980s.
Mrs. Angela Browning (Tiverton) : My right hon. Friend has received may challenges from the Opposition Benches tonight about election promises. Is he familiar with my election address in the 1992 election in which I stated categorically to my electorate that we would build on the 20 per cent. tax band, which is enormously important to low-paid workers in my constituency, and that we would maintain sound money ? It would be difficult for me to go back to my constituency and hold my head up under that promise if we were to implement some of the suggestions that have come from the Opposition Benches tonight.
Mr. Portillo : I have read my hon. Friend's election address less frequently than I would wish, but equally I have read "War and Peace" only once in my life, so she must not be offended. My hon. Friend is absolutely right. There will be further progress with the 20 per cent. tax band from April 1994.
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My right hon. and learned Friend has set out clearly what his monetary policy is. He has made it perfectly clear that he will not follow the policies advocated by the Opposition.Mr. Alistair Darling (Edinburgh, Central) : Will the Chief Secretary give way?
Mr. Portillo : No. I am going to finish.
For the Conservative party, sound public finances are the predominant economic policy that we must follow. It is the policy that takes precedence. I remind my right hon. and hon. Friends that, in 1981, in pursuit of sound public finances, we faced a Budget from Lord Howe that required us to take heavy tax increases. As a party we accepted that because, for us, sound public finances were the most important of all our economic objectives.
I share my right hon. and learned Friend's judgment that he made yesterday about the speed at which he reduces the PSBR. I congratulate him profoundly on being able to achieve the reduction that he seeks with so much emphasis on the control of public spending and with so little raising of taxes, particularly in the year ahead. The Conservative party believes in low taxation and keeping down the rates of taxation, because we believe that high rates of taxation have a profound effect on incentives. As rates of direct taxation are raised, they tend to drive out of the country those people who create wealth.
The search for extra revenue by raising the rates of direct tax usually proves elusive, because the people who create the wealth up sticks and go somewhere else to do their business and take their wealth creation with them. We are a country that is profoundly concerned about competitiveness. I echo what my hon. Friend the Member for Tiverton (Mrs. Browning) said a moment ago : we are profoundly concerned about competitiveness. The country attracts one third of all inward investment from outside the Europen Union, yet 45 per cent. of our national income is spent through the Government. In the United States, the figure is only 38 per cent., and in Japan only 32 per cent.
To be an internationally competitive nation, we must keep public spending as a ratio of national income down to an internationally competitive level so that we can enjoy internationally competitive rates of taxation. Thanks to the policies of my right hon. and learned Friend, we are enjoying internationally competitive rates of taxation for both personal and corporation tax, but we must still reduce the proportion of our national income that is spent by the Government.
My right hon. and learned Friend has pointed the way in which that will be achieved and charted the steady progress that we shall make in reducing the proportion of national income taken by the Government. Not least for that reason, I commend his Budget to the House with great enthusiasm.
6 pm
Mr. David Rendal (Newbury) : It is a great honour for one who has come to the House comparatively recently to be able to speak so early in the Budget debate. I imagine that a number of hon. Members who have been here longer than me will feel envious of my opportunity. I have some advice for them, which I have given to many other people : they should join the Liberal Democrats because that gives one a better chance.
We are in danger of going into great detail about the Budget when there are one or two critical points about it
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that should be brought to the attention of the House and public. As a result of a combination of the Budget in March and yesterday's Budget, next April we are due to have the largest tax hike in history. The Government cannot get away from that. Nobody expected it after their promises in the election and they should be deeply ashamed of it.The Government would no doubt like to believe that the taxes are mainly indirect, and there are indeed a number of indirect tax increases in line. They have always said that, as long as tax was taken indirectly, it would not matter and that the important thing was to reduce direct taxation.
I shall begin by reminding the House of some of the indirect taxes that will be put into effect. First, there is the obnoxious imposition of VAT on domestic fuel. We have all heard a great deal about that over the past year, and, sadly, it was clear from the Chancellor's statement yesterday that he failed to listen to the pleas of electors who told him what should have been
done--cancellation of that tax. The reaction of the electorate has been shown in Newbury, in the council elections, in Christchurch and in council by-elections ever since the imposition of the tax was first announced.
Mr. Jacques Arnold : Is it not true that at the last general election the Liberal Democrats fought a campaign based on an energy tax? Can the hon. Gentleman explain what that energy tax would have been?
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