House of Commons Hansard Debates for 7 Dec 1993

Mr. John Townend : If the hon. Gentleman's party would not increase taxes and would not cut spending, it would not reduce the deficit. What would it do when the markets decided that £50 billion a year was too much to absorb? It would have to put up interest rates, and if it did that, it would reduce economic activity.

Mr. Bruce : The hon. Gentleman's intervention is premature. I will deal with that matter during my speech.

The Chancellor specifically excused the tax increases in the Budget on the ground that lower interest rates increase consumer purchasing power. That may be true for some, although the tax changes will reduce that power. I suggest, however, that many will not spend the money released but will save it because they are so worried about negative equity. The right hon. and learned Gentleman did not address that problem.

The Government and their Back Benchers also always ignore the fact that a cut in interest rates leads to a substantial cut in income for many millions of people, especially retired people who rely on the yield from their savings to live. The Chancellor acknowledged that with the introduction of the pensioners bond, but we know that it is limited to a sum of £5,000 and we are not yet aware of the interest rate to be set. It represents a modest contribution towards cushioning those people from the effects of lower and potentially even lower interest rates. I agree with the hon. Member for Livingston (Mr. Cook) that the

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Chancellor has gambled on the fact that he will be able to lower interest rates further as a condition for enabling the Budget not to be so deflationary as to knock recovery on the head.

The Chancellor has not addressed the problem of investment or our trade deficit. With much of our industry working at capacity but without clear confidence, the economy is fragile and a time lag is operating against whatever consumer spending comes back into the economy to feed United Kingdom production. We know from the past that reduced capacity sucks in imports, which aggravates our trade deficit.

I believe that there is a strong case for cutting taxes in a recession and directing investment into infrastructure projects, which would directly stimulate the economy, lower unemployment, and consequent social security spending, and improve competitiveness rather than reduce our balance of trade. I am afraid that the hon. Member for Bridlington did not acknowledge the costs of unemployment and its contribution to the public deficit.

The trouble is that the Government have restricted their options. We are still paying for the cost of sorting out the poll tax and for Nigel Lawson's unjustified tax cuts. I would be interested to know how many hon. Members have met people who spontaneously tell them that the country is suffering as a direct result of Nigel Lawson. That is said to me every day, mostly by people who voted for the Government. They appreciate that those tax cuts were unjustified and that now we are all having to pay for them.

The Budget is designed to sort out the mess of the Government's own creation and it does nothing to meet the long-term needs of the British economy. I welcome the measures for small businesses, such as they are. I also hope that the Chancellor will address the problems caused by late payment. I am sorry that the Government have rejected out of hand the offer of my right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) to provide his slot for a private Member's Bill to introduce one to deal with that problem. Such a Bill must, ultimately, be introduced.

Given that retail sales are weak--in November they increased by 0.1 per cent.--once consumers confront the full impact of the tax increases, it is likely that current spending expectations will be halted or even reversed. To what extent has the Chancellor taken that into account?

The increase of 1 per cent. in national insurance contributions will take money from people at source as will the freezing of personal allowances and the reduction in mortgage relief. When people come to spend their money, however, the imposition of VAT on fuel will cut their spending power as will tax on petrol and insurance. All those measures are likely to dampen consumer activity and could lead to the recovery being snuffed out before it has got going. I want to set the record straight on the green taxes of the Liberal Democrats. We have advocated a shift from taxes on wealth creation to taxes on pollution. The essential importance of that shift is that the revenue from taxes on pollution would be simultaneously reinvested in tackling poverty, hardship and investing in anti-pollution and recycling technology. Any surplus would be given back in tax reductions. We have suggested that we could reduce the overall rate of VAT by 1 per cent.

Were a carbon tax to be introduced, it should coincide with compensation for rural areas. The revenue gained should also be spent on measures designed to tackle fuel poverty, promote fuel efficiency and on developments to

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reduce carbon dioxide ouputs. No such package has been offered by the Government. On the contrary, as a result of their VAT proposals, they have been forced to give back half of the yield to head off a political revolt. That money has been given back because of the political protest that followed the Budget in March. I suggest to the Chancellor that a penny on income tax would have been much more efficient in yield terms.

Where are the Government's green initiatives, which they have tried to use as a justification for the imposition of VAT on fuel? Is the betrayal of Warren Spring Laboratory a green initiative? Is going ahead with THORP a green initiative? Is failing to invest anything like enough in public transport a green initiative? The Government cannot try to justify simply creaming off taxes for revenue purposes without a cultural shift. They have not achieved that and what they have done is neither politically justified nor honest.

I represent a constituency in the north-east of Scotland and the extra tax on petrol represents an unavoidable cost for many people. Higher fuel bills will be avoidable only at the risk of ill health or hypothermia. If we were provided with assistance to increase fuel efficiency--I am not talking about the small details that the President of the Board of Trade has announced--and to improve public transport links at lower cost, the tax increases might be acceptable. Those increases are, however, already far greater than the total kage of environmental measures and, therefore, we will not support that extra tax burden.

Mrs. Ray Michie (Argyll and Bute) : Another part of Scotland that will suffer greatly is the highlands and islands, which is equivalent to the size of Belgium and is one of the most sparsely populated areas of Europe. The local people will now face huge increased costs as a result of the tax on petrol and the imposition of VAT. The Chancellor said that the take-off tax at airports would benefit the islands, but I believe that it will only benefit planes with fewer than 20 passengers. Out of 1 million passengers, only 20,000 will benefit.

Mr. Bruce : My hon. Friend has made a potent intervention on behalf of her community and others in the highlands and islands. What my hon. Friend has said is a reason not for not introducing certain measures, but for ensuring that proper account is taken of the needs of such communities. The Chancellor said that the airport tax would not cover inter-island services, but it will affect the much more vital link between the islands and the mainland. That tax will represent an extra cost for living on an island, which is expensive enough as it is. It demonstrates the Government's inability to adopt a balanced approach and to show some sensitivity and understanding for people in the highlands and islands.

In March, I vigorously opposed the abolition of allowances for exploration wells, which was introduced by the previous Chancellor, the right hon. Member for Kingston upon Thames (Mr. Lamont). I was part of a delegation that the Financial Secretary received which

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argued against that and which suggested what the consequences might be, particularly because the transitional relief was inadequate. This time last year, the oil price was nearly $20 a barrel ; recently it dropped below $14. That has put intense pressure on North sea production. The Government's timing could not have been worse, because, as we face the pressure that their decision has caused, the exploration side of the industry has taken a beating. I told the Financial Secretary that job losses would be widespread. In my own constituency Vetco-Gray has announced the redundancies, before the year end, of more than 100 long- serving engineers as a direct result of the downturn in exploration activity. The downturn in exploration threatens future investment and the overall production potential of the North sea. In the first three quarters of 1992, 63 exploration wells were started. In the first three quarters of this year, that number was down to 30. That is a direct consequence of the Government's policy. It is an extremely damaging development, which we warned that the Government would follow--

Mr. Dorrell : I am grateful to the hon. Gentleman for giving way. I am sure that he would not want to mislead the House on what has been happening on ENA wells this year. Will he confirm that, although the figures that he has quoted for the total number of wells this year are broadly right, the pattern has been of a figure of roughly 10 per cent. in the first quarter, that it fell away sharply during the summer and that the most recent figures for September and October show that that level of activity has increased sharply?

Mr. Bruce : I have no problem. I want to see activity in the North sea. But the reality is that at the moment the year-on-year total shows a sharp reduction. It is too early to say what the net effect is. One must never take one or two months as an indication of a long-term trend. I can tell the Financial Secretary what I am told by people in the industry : there is a real anxiety that the combined effect of the tax changes and the fall in the oil price has serious implications for the North sea.

On behalf of my area and the city of Aberdeen, I have to say that there is some masking of that effect by an ironic twist of restructuring. Many of the oil companies faced with a squeeze on their costs are reducing their total number of employees but increasing the number of people located in Aberdeen, because it is cheaper for them to do so. I welcome that as a development, but am not led into a false sense of security that that does not conceal the underlying anxiety and weakening of confidence in North sea investment.

Mr. Salmond : I reinforce what the hon. Gentleman has just said and draw attention to the fact that the only petroleum revenue tax concession announced in the Budget is a concession specifically designed for one pipeline system--the CATS system--which takes gas from the central North sea and deposits it in Tayside. Many of the other pipeline infrastructures such as the Forties system will not be entitled to the new taxation relief. Does not that quite remarkably illustrate that, in virtually everything that the Financial Secretary has done, he has shown a determination to be as anti-Scottish as possible?

Mr. Bruce : The hon. Gentleman has made his own point. My point of concern is that the Government have not

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helped by creating a more unfriendly tax regime towards the industry at a time when the industry needs some recognition of the difficulties that it has to face. Many of us are worried at the implications of that. I know that there is a compensating benefit from exchange rates, but the net yield of oil production from tbe North sea is more than $4 billion a year down on the current year compared with last year.

I shall draw my remarks to a close by saying that the Budget lacks any indication of a long-term strategy that will achieve what Britain needs : an ability to pay our way in the world. I wholly accept and agree with the need to secure a GATT agreement. Because of the net effect of increased trade, the GATT agreement is absolutely vital for all sectors of the world. Although it has many complications, and not every side of it is wholly beneficial, I hope that I can at least reinforce the all-party agreement that we are wholly supporting the Government and Sir Leon Brittan in his efforts to ensure that we get an agreement in time.

I believe that the Government have not addressed our long-term needs. Only if the country can pay its way in the world can we pay for what I describe as social justice in the broadest sense to ensure that all our citizens can participate in the benefits of being a successful economy. In my view, it is intolerable that the Government should widen social divisions by using their failure and the failure of their economic policy as an excuse to cut essential benefits. If the economy performs well but offers fewer well-paid jobs, we must find other ways of distributing wealth. The Government show no strategy for achieving that necessary economy performance. They simply believe in eliminating budget deficits by cutting benefits and hoping that reduced Government activity will automatically be replaced by private activity. That has not worked in the past and there is no evidence to suggest that it will in the future. Far from laying the foundations for success, there is a real danger that we are launched on a spiral of diminishing returns, punctuated, I regret to say, only by periodic tax cuts and spending sprees that we cannot afford, to kid people into re-electing a Tory Government. Britain needs vision, not blind ideology. I am afraid that we have blindness from the Government, and the Liberal Democrat party is determined to ensure that more imaginative policies are put before the electorate at the next election than either of the two other parties have yet come forward with.

5.54 pm

Mr. Edward Garnier (Harborough) : It is traditinal for Government Back-Benchers to shout "hooray" and for the Opposition to shout "yah-boo" when the Chancellor sits down having made his Budget speech. My right hon. and learned Friend received the traditional reception when he sat down last Tuesday.

My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) who is to my left--I use the sense geographically--is correct to say that I bow to no one in my support for tradition, and whether supported with "hoorahs" and "hoorays", or with words, I wish to add my congratulations to my right hon. and learned Friend the Chancellor.

I do not wish to commend only his performance last Tuesday, but those of our Front Bench colleagues who have led for the Government during the course of the

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Budget debate. The way that they have addressed the economic issues contrasts markedly with that which we have seen presented by the Opposition Front Bench spokesmen. My right hon. and hon. Friends have tackled the matters before us with clarity and intellectual rigour. My hon. Friend the Financial Secretary, in his winding -up speech last night, most aptly described the Opposition's sorry performances. I shall refer to a few parts of the Chancellor's Budget speech to demonstrate why I can support the Budget wholeheartedly and why my constituents in Harborough--and, I dare say, others in

Leicestershire--find this Budget of assistance to them. I refer now to the section dealing with business taxation.

First, I welcome the new benefits to be provided for export credit. It is to be noted that my right hon. and learned Friend is making an extra £200 million-worth of export credit cover available for 1996-97 and to cut export credit premiums for certain important developing markets. That is very welcome. Perhaps more important for my constituency are the measures that are being introduced to smooth the way for small businesses and their development. You, Madam Speaker, will have noticed that, at column 934 of Hansard for 30 November 1993, my right hon. and learned Friend sets out those measures designed to assist small businesses.

One of the major complaints that I have received from business men and business women in my constituency is about the excessive regulation of their businesses. I am delighted to see that my right hon. and learned Friend is increasing the battle to deregulate. I hope that my right hon. Friend the President of the Board of Trade will encourage his Ministers, particularly my hon. Friend the Member for Tatton (Mr. Hamilton), who is his Under-Secretary, to get on and do that job as quickly as possible and introduce regulations for destruction, because over-regulation has been crushing the growth of small businesses, particularly those in my constituency.

I am also pleased to see the introduction of simplified assessment proposals for personal tax. I am sure that that will be of great assistance to the small business men and business women in my constituency. I welcome the VAT threshold increase. It was raised to £45,000 with effect from last Wednesday and that will allow, we are told, up to 75,000 more traders to opt out of VAT altogether. I know that a fair proportion of those will be in my constituency. Another measure that I welcome is the relaxation of the statutory audit rules for my business constituents. It is proposed that there will be a relaxation for the smallest companies to present audited accounts. That, too, will greatly assist those in commerce and industry in my constituency.

There are proposals, too, in connection with capital gains tax--a subject to which I shall return. In so far as we have a capital gains tax regime, what my right hon. and learned Friend the Chancellor has done in his proposals at column 935 is to be welcomed. Again, in so far as we have a capital gains tax regime, I welcome the proposals for the venture capital trust and for the enterprise investment scheme.

Finally, I welcome my right hon. and learned Friend's remarks about late payment at columns 933 to 936. Perhaps I am a late convert to the need for the statutory introduction of interest on late payments. I have always been a supporter of encouragement rather than statutory

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regulation in these matters. I should therefore have hoped that the business community would use moral pressure and publicity to make it unacceptable for big purchasers from small suppliers to be late in paying their bills. I trust that the announcement that legislative measures are to be introduced will of itself encourage big businesses to pay their debts to small businesses that much more quickly. I hope, too, that we shall see a move away from another habit that seems to be developing whereby large businesses call for an order of particular goods--textiles, say--but invite, even require, the manufacturer to warehouse them, drawing on the order only when it suits them. Thus the small manufacturer has to act not only as the big customer's banker but as his warehouseman, storing goods free of charge. I hope that the late payment announcement in the Budget will go some way to encourage the larger businesses to behave more responsibly to their smaller brethren.

All the measures that my right hon. and learned Friend has introduced, together with the low interest rates and low inflation that we are enjoying, will do much to encourage business--especially small business--in Leicestershire and in my constituency. I was pleased to hear my right hon. Friend the President of the Board of Trade say just a few moments ago that one of the first business links offices is to be in Leicester. That, too, will be of great assistance to my constituents.

I should not wish the House simply to accept my word as a loyal Back Bencher supporting the Government : the Budget has been accepted as good by people other than those who sit on the Conservative Benches. Let me refer the House to what was written by the leader writer of the Leicester Mercury on Wednesday 1 December, the day after the Budget :

"Leicestershire, with its thousands of smaller businesses, stands to gain more than most counties from the Budget proposals. Raising the VAT threshold and allowing many companies to avoid the expense of a formal audit will help smaller firms stay alive. More help with export credits and an enterprise investment scheme is likely to boost external private investment in small companies.

All that is good news for local firms and good news for the local economy. There is now even more reason to be optimistic about the way this area is pulling out of the recession."

The Leicester Mercury is not noted for its slavish support of the Government and I find it especially encouraging that the leader writer of that august journal has found it in himself to congratulate my right hon. and learned Friend the Chancellor on his Budget proposals as they affect our county--although I am sure that it is not to be inferred from the leader writer's remark that

"Leicestershire, with its thousands of smaller businesses, stands to gain more than most counties"

that my hon. Friend the Financial Secretary played an undue part in the construction of the Budget speech simply because he represents a Leicestershire constituency.

Let me refer to the Budget proposals which my right hon. and learned Friend did not make, and which I should have liked him to make, in connection with the reform of the capital gains tax system. In my view, the capital gains tax system should ideally be removed in its entirety. If that is too much to ask for, the rate of capital gains tax should be drastically reduced.

I say that for three reasons. First, capital gains tax is a voluntary tax. It is easy to avoid. It is also easy to evade--although I must admit that I have never tried it myself.

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It is also extremely difficult for the Treasury to manage flows from capital gains as they depend on the whim of the investor. I do not need to lecture the House about the lessons of the Laffer curve. We all know that, with a zero rate of tax, receivables will be nil--not surprisingly--and that, with a rate of tax of 100 per cent., receivables will also be nil--again, not surprisingly. The maximum tax received arises at a rate nearer to zero than to 100 per cent. That must be especially true of a voluntary tax. At 40 per cent., there is a major incentive to avoid paying tax, and also to evade. A cut to 25 per cent. or even lower would actually result in an increase in receipts for the Treasury.

Secondly, the current system, whereby the capital gains tax rate is high but is compensated for by a whole lot of tax schemes such as personal equity plans and the business expansion scheme--I appreciate that the latter is to be phased out--creates many distortions in the economy. A 40 per cent. tax rate creates a major disincentive to investors to change their investment. They get locked in. That makes the economy less efficient and investments less mobile. After 10 years of comparatively low income tax rates, there is a much wider distribution of capital, and that lack of mobility is therefore an increasing problem for the economy as a whole.

I suggest that tax reasons are seldom good reasons for making an investment but such schemes are driving investments. I am thinking particularly of the BES--although that is being phased out--but also of PEPs, because they, too, drive people towards the equity market. That may be good, but they should not be driven there simply for tax reasons.

Another problem is the increasing amount of capital being tied up in PEPs, TESSAs and tax-free national savings. If a married couple had made the full investment allowed in all those schemes, they would now have in excess of £100,000. If they continued to make the full investment and there was reasonable performance--say, 10 per cent. a year--from the PEP, that household would have some £400,000 tied up in such schemes in five years' time. That is a large amount of capital, which will be free of both capital gains and income tax.

Such schemes also create a major distortion in the economy. PEPs have to be managed by professional managers. The individual investor is severely limited in the way in which he can influence investment decisions. The investment managers may become rich as a result but the Government are denied tax receipts and that inhibits the efficiency of the economy. I appreciate that it is now politically difficult to get rid of PEPs, and I freely admit that I have benefited from the scheme myself. A decrease in the marginal rate of capital gains tax--to, say, 25 per cent.--would result in investors not bothering with PEPs in the future. It would also result in greater revenue receipts for the Treasury.

Thirdly, proceeds from capital gains tax are at present very small. The figures on page 128 of the Red Book show that the outturn for 1992-93 was £1 billion--half what it was in 1989. If I heard my right hon. Friend the Member for Horsham (Sir P. Hordern) correctly yesterday evening, he suggested that the figure was something over £2 billion not so long ago. Perhaps my right hon. Friend said 1979, in which case I stand corrected. The Government's capital gains tax receipts have gone down markedly in the past few years and they are not expected to increase at all in 1993-94--the forecast in the Red Book is £1 billion--and the forecast for 1994-95 is only £1.3 billion.

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Those are three reasons for suggesting that the Government should look closely at capital gains tax in the near future. I am reinforced in my suggestions by the fact that some of my right hon. Friends have made similar remarks during the debate, and I trust that, in due course, the Government will review the matter. Having said that, I am very pleased with the Budget that my right hon. and learned Friend the Chancellor produced last Tuesday. The Budget is, as my right hon. and learned Friend said,

"a no-nonsense Budget which deals directly and firmly with the main challenges facing the country today.--[ Official Report, 30 November 1993 ; Vol. 223, c. 938.]

I trust that it is, and I shall be joining those of my hon. Friends who welcomed it with cheers in translating those cheers into action in the Lobby.

Madam Deputy Speaker (Dame Janet Fookes) : Before I call the next Member to speak, may I remind the House that Madam Speaker has ordained that between the hours of 6 pm and 8 pm there should be a limit of 10 minutes on speeches.

6.9 pm

Mr. Giles Radice (Durham, North) : The Chancellor came to the Budget with a number of advantages. He was not the previous Chancellor, who, as we all know, became discredited because he did not resign when Britain left the ERM. He was not, and is not, burdened with ideological fixations or with any great economic track record or expertise. Above all, he had a clear political strategy. The first element was to get the Tories elected, and the second was, if possible, to get himself made Prime Minister.

It was a political Budget which was cleverly and skilfully presented. It temporarily united the Conservative party, although I never expected to see the Conservatives vote for tax increases on the scale that we had last Tuesday. It temporarily satisfied the markets. I suspect, however, that it will not play so well with the British people.

The problem with the Budget was that it was a memory-free zone. The £50 billion PSBR deficit was mentioned as though it were an act of God, a problem from which all decent major countries are suffering, but in reality it is a consequence of economic mismanagement over a decade.

The Lawson-Thatcher boom of 1986-88, with its monetary splurge and tax cuts, put the economy out of control.

Mr. Nicholas Budgen (Wolverhampton, South-West) : The hon. Gentleman supported Lawson's boom.

Mr. Radice : No, I did not. If the hon. Gentleman remembers, the Treasury Select Committee said that the 1988 Budget was a dangerous Budget. Both the hon. Gentleman and I signed that report. It was followed by the Major-Lamont squeeze of 1989-90 which pursued a one-club policy of high interest rates which clobbered business and the housing market. It was followed by a recession with 10 quarters of falling manufacturing output. Of course that had a direct impact on the PSBR because it increased unemployment and therefore produced an increased social security budget and a reduced tax take. Lastly, we had the fiscal irresponsibility of the Government in 1991-92 when they went in for tax bribes and spending promises in the run-up to the general

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election. So the Government were responsible for the £50 billion PSBR which the country is now having to tackle.

The second interesting feature of the Budget was that the Chancellor never mentioned the size of the tax increase. It is the biggest tax increase since the war. We have had two Budgets in 1993, as my right hon. and learned Friend the Leader of the Opposition reminded us, and it has been estimated by Goldman Sachs that the tax increase over a three-year period will amount to something approaching £17 billion--that is based on the two Red Books. That figure was confirmed to me by Treasury officials this morning in our Treasury Select Committee hearing. It will have a major impact on the public.

The Institute of Fiscal Studies has estimated that, on average, every household will pay £9 extra a week, or £460 a year, in taxation. That does not take into account local taxes which are likely to rise as a result of local authority spending cuts and the impact of some of the benefit changes and cuts in benefits. I turn now to the long-term prospects for the economy. The danger of the Budget is that, by hitting consumers with tax increases, it could choke off the fragile recovery. That is why most of the panel of independent forecasters were not in favour of further tax increases.

One could argue that taxing consumption will switch output into investments and exports. That is the most respectable argument for the course that the Chancellor has taken, but the problem is that markets in Europe and elsewhere are depressed. If we clobber consumption with tax hikes, the danger is that consumer confidence will be undermined and therefore the recovery will be choked off. If we are to achieve a sustained growth, not only must we keep up demand, but we have to improve supply. That is not simply a question of deregulation, as the Government sometimes suggest. The real commanding heights of the economy are the application of new ideas and knowledge to production and products, the level of investment behind every employee, and the skills of employees through education and training. However, those are long-term issues which give the Government no short-term political advantages. We have a short-term Government with a short-term ideology and political judgment. Unfortunately for Britain, the 1980s are the years which the locusts ate. North sea oil revenues could have gone into manufacturing investment, research and development and education and training, but unfortunately they did not. There is little to suggest from the Budget or the Red Book that the Government are now giving priority to those areas.

Treasury officials have confirmed to me the real cuts in the money going to training and to infrastructure projects. It is true that there is a short- term, one-year increase in the money to science, but there is a decline in subsequent years. I welcome, as everyone must, the increased money for higher education, but the increases in the education budget are devoted entirely to higher education ; there are no increases for other aspects of education which are so vital to the economy.

I should like to sum up my very short speech by saying that the Chancellor's Budget is socially repugnant for what it has done to benefits, particularly unemployment benefit. It ignores, or largely ignores, the long -term problems of the economy, and I believe and predict that it will prove politically disastrous for the Chancellor and his party as the British people come to understand that, contrary to the

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Government's promises of the last election, they are being asked to pay through the nose for the appalling failure of the Administration over a number of years.

6.16 pm

Mr. George Walden (Buckingham) : Heaping more praise on my right hon. and learned Friend the Chancellor for his Budget at this stage in the proceedings is rather like throwing fivers on a bonfire to keep it alight. We do not have many fivers left after the Budget, so that my right hon. and learned Friend will have to take for granted my praise for what he has done.

Many elderly people in my constituency will be grateful for what my right hon. and learned Friend has done to relieve VAT on fuel. That leads me straight into the issue on which I would like to concentrate. I am sure that the Government are under no illusion that the Budget has done away with the problem of VAT.

Let us take a quick survey of the idiosyncrasies of our national position on VAT over the past few years. First, for reasons best not discussed now, we have VAT on some things and not on others. As far as I can see, the reasons are broadly sentimental, but I shall leave that aside. I shall not go on too long about the poll tax but will simply say that with one stroke of the hand the rate of VAT has increased from 15 to 17.5 per cent.--a volatile tax.

The other week we found ourselves in the Lobby late at night voting on VAT on orange juice. One begins to ask what sort of regime we have. Then we have the entirely spurious defence of VAT on printed matter under inflated slogans such as, "This is a tax on knowledge." That is absolute rubbish. Education dictates the quality of what people read, and the other argument is crude and materialistic. In countries such as France where there is VAT on printed matter, there is no noticeable difference in the quality and volume of reading. It is cultural rubbish and a distorted argument.

Finally, there is the problem with heating. Let us not go over all that again. However, what has happened? As we do not have a rational system on VAT with a lower rate on everything, we end up with 17.5 per cent. which is too much for old people who are near the poverty line. That is partly due to the deviousness of such things as the poll tax.

As we are in this ridiculous situation, we have to throw in massive sums. We throw massive sums into the system indiscriminately to rich and poor alike. Thereby we build yet another contradiction into a situation which Members on both sides of the House secretly accept is unsustainable. That situation relates to universal benefits. We have added to the universal benefit anomaly by trying to salvage the damaging impact of VAT on heating which has arisen from our ridiculous system of VAT. This problem will not go away. One of these days, this country will have to mature into a rational system of VAT on everything, but at a lower level.

One of the difficulties lies in our political system. We have a rather simplistic adversarial system. At each election, we are forced up against a wall and the Government and the Opposition claim that they will not do certain things. I hope that the debate will continue in public because we must try to confront the public with the truth in respect not only of VAT, but of universal benefits. I suspect that, given a free hand and in a politically neutral

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atmosphere--if such a thing could be said to exist--the Opposition and the Government would do all sorts of things to concentrate benefits where they were most needed.

I hope that it is clear to most right hon. and hon. Members that our policy --by that I mean the policy of this House--on the NHS is unsustainable. That policy is the same in all parties, and it is that every person in this country, no matter what their income or wealth, will receive totally free of charge all the treatment that they require, no matter what the cost of that treatment. That is my understanding of the Government's and the Opposition's policy, and that policy is totally uns and consultants are also beginning to understand. The citizens charter states that doctors and consultants should carry out certain operations within certain time limits. Some of those people have told me that they understand what the Government are doing in their reforms which they believe are necessary but that they cannot deliver. They believe that no Government will ever be able to give them the money to deliver. Doctors and consultants are aware of the demographic problems.

Such debates must be kept going because the public are aware of things about which no one in this House is prepared to speak. For example, it is ridiculous that my children receive free meals under the NHS. That is unsustainable and it cannot and will not continue. It is only a matter of time before it ends. My right hon. Friend the President of the Board of Trade referred to the Commission for Social Justice. That is a good thing, provided that it comes up with honest rather than tired political solutions.

There has also been a de facto conspiracy of silence on mortgage tax relief. I am glad to say that that conspiracy of silence has now been broken. The Chancellor has done the right and obvious thing. Clearly, we cannot drop the whole thing tomorrow, although that should be done, as that would force the housing market down in this country which is far too over- dependent on the state of the housing market. As a result of that over- dependency, the situation becomes more fragile and my right hon. and learned Friend the Chancellor cannot do what he, I and the Treasury would like to do, which is to scrap the whole thing tomorrow.

My right hon. and learned Friend the Chancellor has done the sensible thing. However, I stress that the problem will not go away. We have a deformed culture and the press simply states, "Goody, goody. It looks as though house prices will go up." What an extraordinary thing to say. I am not sure whether there are such headlines in other countries. However, the respectable press in this country states that the trend in house prices is up once more. That means bigger mortgages and bigger commitments for everyone, involving a bigger slice of people's budgets. That is another deformation of national investment patterns.

Mr. Budgen : Will my hon. Friend give way?

Mr. Walden : I will give way in a moment.

It is extraordinary that more than 90 per cent. of business expansion schemes were devoted to property. That illustrates beautifully the profound cultural deformations in our economy.

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Mr. Budgen : It is all very well for my hon. Friend to attack the hand that feeds him, but does not he agree that the newspapers reflect the view of a large section of the population in this country that nothing is better than rising house prices? It is politically fashionable now to be rather rude about Lord Lawson, but when he was booming up the housing market, the Conservatives and Lord Lawson were extremely popular.

Mr. Walden : I will let my hon. Friend's remarks stand by themselves. I normally regard him as a highly responsible commentator on economic matters. His remarks owe more to his impish side than to his responsible side.

Another problem to which I want to draw attention and which will not go away relates to hypothecation. That term arises among people who know more about economics than I do and it is arising in a positive sense when explaining where the money is going. I would like to see that term used in another sense. We should say, "Look folks, we're going to be hard up for many years to come and we all know the cuts that the Budget predicates. Therefore, we are going to have to make choices."

Among those choices, we must confront the problem of universal benefits. However, it is so difficult, so sensitive and so raw simply to take away from people what they have been falsely promised for all these years that we must give them something in return. I hope that we shall reach the stage at which our politics will have so evolved that we can say to people, "Look, this cannot go on. We have to cut it, and probably for the middle and upper income brackets. This or that--perhaps child benefit--will have to go, but in return we are going to do something useful with the money."

I was glad to hear that the Commission for Social Justice is talking about taxing child benefit and also setting up nurseries. I suggested that years ago. I am glad to see that the Labour party--

Madam Deputy Speaker : Order. I am sorry, but there has been a slight technical hitch with the clock. However, I inform the hon. Gentleman that his time is up.

6.27 pm

Mr. Calum Macdonald (Western Isles) : The hon. Member for Argyll and Bute (Mrs. Michie) mentioned the air passenger duty which is to be introduced towards the end of 1994. It may be a relatively small part of the Budget--just a detail--which we will be tackling at greater length in Standing Committee, but I refer to the point now because of its importance to my constituents, and because the Chancellor made special play of it in his Budget speech.

When the Chancellor introduced the air passenger duty, he went out of his way to say :

"most flights between the Scottish islands will not bear tax."--[ Official Report, 30 November 1993 ; Vol. 233, c. 932.]

At the time, I thought that it was a thoughtful touch on the Chancellor's part to remember the special needs and circumstances of the Scottish islands. After all, air travel to the Scottish islands is not a luxury like holiday travel. It is not a business man's perk. Instead, it is an essential lifeline which connects remote communities on the far peripheries of the European land mass with the facilities and services which only urban centres can provide. Medical facilities are a good example, because, at some time, many islanders

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