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Mr. Gary Streeter (Plymouth, Sutton) : The hon. Member for Warwickshire, North (Mr. O'Brien) was clearly not in the Chamber last Tuesday to hear the Budget that I heard. I wonder whether he has confused last Tuesday's Budget with the Labour party shadow Budget of last year, because the Budget that my right hon. and learned Friend the Chancellor introduced last Tuesday has received a resounding welcome up and down the country.
I want to speak in support of the Budget, particularly on behalf of the west country, which is the region that I am proud to represent. In the west country, we have a high proportion of retired people. Therefore, I am particularly pleased that, in anybody's language, the Budget can be described as a Budget for pensioners. I was delighted with the compensation package for VAT on fuel. It is an excellent package, and I am sure that it will alleviate--and already has alleviated--many of the anxieties of pensioners living in the west country.
Of course, many of those anxieties have been whipped up by Opposition Members, who I am sure spend every night lying awake thinking up ways of getting up in the morning and frightening elderly people. Now that my right hon. Opposition Members will be dreaming up tonight to frighten elderly people tomorrow.
I welcome the support that we have given, not just to pensioners on income support and the most vulnerable, but to all pensioners. The reason why I welcome it so strongly is that I believe that we should encourage responsible behaviour. We should encourage those who have been
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thrifty, and have put a little by for a rainy day. So often we exclude them from any benefit and compensation, but they can be just as elderly, as concerned and anxious as the next person.I would encourage us to go further down the line of setting up our tax and welfare systems to encourage responsible behaviour and discourage irresponsible behaviour. I particularly welcome the fact that the compensation is to be received by pensioners in advance of the higher bills. That will enable them to see that they no longer have to worry about turning on the gas and electricity for fear of not being able to afford to pay their bills, because the compensation will be there before their very eyes before those days arrive. I welcome also the fact that, on average, the compensation package will broadly cover all changes in fuel bills. I note that the Labour party must be happy about the compensation package, because it has not tabled any amendments to today's debate to amend it in any way. I welcome the guaranteed income bond, which is another initiative of my right hon. and learned Friend. Another anxiety that pensioners have is that, as interest rates decline, and while those of us with large mortgages--in my case, I mean large--welcome interest rate reductions, pensioners see their incomes shrink.
We can argue until we are blue in the face that, with very low inflation, the real value of their capital and their monthly income is being preserved, but it does not feel that way to them. That is why I so warmly welcome the guaranteed income bond, which, when established, will give a guaranteed monthly return for a fixed period of five years. That is something for elderly people to plan on. If there is one thing that pensioners like to do more than anything else, it is to be able to look forward with a sense of certainty and comfort.
Those new bonds, which I am sure will quickly be called granny bonds, are to be warmly welcomed ; they are an excellent part of the Budget.
Mr. Nigel Waterson (Eastbourne) : Does my hon. Friend agree that something else for which pensioners have the Government to thank in planning their finances is the very low rate of inflation, which was not something that they enjoyed under the past Labour Government ?
Mr. Streeter : I am grateful to my hon. Friend for making that excellent point. The bedrock of our policies is to help elderly people with savings. Low inflation is the key : that is something that Opposition Members could never achieve in the past, and of course will never have the opportunity to achieve in the future. I welcome the Budget as a Budget for pensioners, and therefore a Budget for the west country.
The second aspect of the Budget which is a super boost for the west country is the help for small businesses. We know that the west country is full of many excellent small and medium-sized businesses. Until I was elected to this place, I spent my career advising small and medium-sized businesses on legal and other general commercial matters as a solicitor specialising in company and commercial law. I feel that I have a sense of what businesses require. When business people in Plymouth speak to me about what they want from the Government, they say that, first and foremost, they want a stable economic environment.
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Secondly, they want a minimum of expensive bureaucracy. Thirdly, they want the ability to obtain working capital at a price they can afford. I shall examine the Budget against that benchmark : first, the right economic environment. With inflation at 1.4 per cent., with interest rates currently at 5.5 per cent.--we hope that they will go lower yet--and with a competitive pound, that is the right framework that our businesses are looking for.The managing director of the Barden Corporation, which is an excellent company in Plymouth, employs 250 people, makes high-precision ball bearings and exports them all over the world, told me only a week ago that it was now enjoying the best year that it had had for 10 years. He puts it down primarily to two things : first, the competitive pound, which makes his products competitive for overseas markets ; secondly, the fact that our non -wage labour costs are lower than those of our European competitors.
He drew my attention to the fact that his sister company in Germany has non -wage labour costs roughly 30 per cent. higher than the costs in the United Kingdom, because of the implications of German employment legislation reflecting the social chapter. The recipe that Opposition Members wish to prescribe for this country is non-competitive labour rates, which would price our goods out of the market.
When I think about what Opposition Members want us to enter into--a minimum wage, the social chapter and the 35-hour working week--I can only describe it as a charter for job losses. It is to be rejected by all right-thinking people.
We have the right framework for economic growth, and business people in the west country are grateful for that. The Budget has introduced a variety of excellent measures to help the small business man. Again, my right hon. and learned Friend has referred to deregulation, a boost that is to come in the months that lie ahead. In that deregulation, can we also deal with those over-zealous officials who, no matter what regulations we might have, seek to enforce them in a way that does not take into account the requirements of small businesses?
Perhaps it should be made an absolute requirement for enforcement officers to have greater experience of small business, so that they know what it is like for business men to worry that they may not have enough money to pay the wages at the end of the week or to buy food for their families at the weekend unless they get their bills paid and can produce the goods that week. We need to look at the way in which we enforce our regulations.
The deregulation move is important, as are the reform of the current regime for assessing personal tax, the lifting of the VAT threshold and the reduction of audit requirements. All those measures are welcome.
I want to make one final point about small business before I sit down and allow others to have their say. I have been advising small and medium-sized companies for the past 12 years. In my experience, one of the pressing requirements is working capital, in particular the ability to attract equity investment. I welcome the venture capital trust and enterprise investment schemes warmly, because they will be an important factor in helping to bridge the gap in the market.
Unlike some of their European competitors, our business people find it difficult to attract equity capital in relatively small amounts. When I was in private practice, I used to say to clients, "I can find you £3 million, but it will be a struggle to find £100,000." It is that sort of
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amount that makes the difference between standing still or growth, enabling businesses to build a new extension, find extra markets or take on a new sales director. That is the sort of equity investment for which small and medium-sized businesses are looking.I welcome the change from the old BES rules, which will allow investors to take up a paid directorship with the company in which they are investing. Many people with money to invest are looking to become actively involved in small companies for interest's sake. They have not just cash but a wealth of experience and expertise to offer, and can be tremendously helpful to young growing companies. I believe that the measures to help small businesses are an enormous asset to it. They will be a boost for jobs, and will be warmly welcomed throughout the west country.
In my opinion, the most important aspect of the Budget is the way in which it has been received. Its first goal was that it should not damage the recovery. That is why the reception of ordinary men and women up and down the country has been so important. I am one of many Conservative Members who--unlike Opposition Members, I suspect--are in touch with real people outside this place. [Hon. Members :-- "Come off it."] Opposition Members, who spend their time with trade unionists and full-time officials, are not in touch with real people. Real people welcome the Budget. It will not be a brake on the recovery. It will keep tills ringing in Plymouth high street, and I look forward to retail sales in December and January significantly higher than in the same period last year. This has been a successful Budget, and it is an important milestone on the road towards our great goal of sustainable economic growth.
8.24 pm
Mr. Peter Mandelson (Hartlepool) : Last week, in one of the jolly radio interviews that have become the Chancellor's hallmark, the right hon. and learned Gentleman revealed that he was amazed at the positive reception that his Budget elicited. I am not surprised that he was amazed. No one knows better than the right hon. and learned Gentleman just how much of a gamble his Budget was ; how deeply and possibly deadly deflationary it will turn out to be ; and how savage will be its effect on living standards of people throughout the country, as the right hon. and learned Gentleman has been the first to boast. That is why many of the economic judgments that have followed the Budget are rather more cautious than the enthusiastic response of political journalists--a more impressionable bunch, in my experience--not to mention the premature excitement shown by Tory Members as illustrated by the hon. Member for Plymouth, Sutton (Mr. Streeter).
What the hon. Gentleman and other Tory Members need to remember is that the people who have not yet spoken about the Budget are those most directly affected by it--the public. They have yet to give their verdict about the combined effect of tax increases and spending cuts equivalent to almost 8p on the basic rate of income tax. They have not yet said what they think about the implications for services of public sector wage increases having to be paid for out of patient care, school books and social services, or about the additional financial burden on families, as sick pay, invalidity benefit and unemployment benefit are cut. They have not said what they think about the fact that council tax will be pushed through the roof as
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the inevitable consequence of the measures in the Budget. The public's reaction will be justifiable fear, then anger made all the fiercer because of the Government's duplicity and their betrayal of election promises.The longer-term economic judgment of the Budget--and of the Chancellor's claim that the Budget has delivered sound finance at last--depends on a number of assumptions that are by no means certain to be fulfilled : first, that recovery is not damaged by the deflationary effect of the measures ; secondly, that the Chancellor's spending targets are met ; thirdly, that the Chancellor is prepared to put up taxes even further if the totals do not hold ; and, fourthly, that world economic developments promote growth rather than undermine it--a dangerous assumption given conditions in Europe, and particularly in Germany, as well as in Japan.
A great risk is being taken with the recovery, which is very fragile, as Ministers acknowledge in their more candid--or their more cornered-- moments. The recovery is being held back above all by the sheer scale and fear of unemployment, which is still depressing confidence and spending in the economy. That is why the recovery should have been nurtured much more actively, by greater rather than less public investment in housing, infrastructure and other supply side components to strengthen the capacity and performance of the economy.
The Red Book reveals that net capital public sector spending will fall from 2.25 per cent. of GDP in 1993-94 to just 1.5 per cent. by 1995-96 and in each successive year. That is exactly the opposite of what not just the Labour party but the CBI, and now Europe's top industrialists, led by Sir Denys Henderson, have urged. There is no evidence that that huge cut will be made up by the private sector, however much we might welcome that in principle and however hopeful the Government and their supporters might be as a result of the work of the task force led by Sir Alastair Morton.
The issue is not only that fewer jobs will be created as a result of the loss of investment, causing unemployment to remain higher than it need, but that recovery is being directly endangered by the Budget, and that opportunities to stimulate growth and strengthen the economy in the long term are being sacrificed as a result of the Chancellor's shortsightedness. Moreover, to realise their admittedly modest and unambitious growth target of 2.5 per cent. in the next year, the Government will be relying heavily on cuts in interest rates by next spring and summer to stimulate growth in manufacturing output and employment. Desperation over interest rates in the next six months may add further interesting spice to the Chancellor's relationship with the Prime Minister, as they vie with each other over when and by how much to reduce interest rates and compete to catch and influence the ear of the Governor of the Bank of England. It can hardly be sensible for the Government to depend so exclusively on the uncertain weapon of interest rates, that one-club policy to secure growth, when it is also the only weapon open to the Chancellor to control inflation. If there is a conflict between the need to stimulate growth by reducing interest rates and to control inflation by having to increase them, it will be interesting to see which way the Chancellor jumps. It will be an invidious choice. That is why he is wrong to rely exclusively on rate cuts and to ignore other supply-side, investment and employment measures which all in industry and the Opposition have called for to ensure growth is strong and sustained.
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On the Chancellor's public spending assumptions, I echo the views of the Institute of Fiscal Studies that were reflected in the speech of my hon. Friend the Member for Coventry, North- West (Mr. Robinson). The Chancellor's plans are not just a squeeze, they are a huge contraction, and only remotely reasonable when contrasted with what the Chief Secretary would like to do if he were given half a chance. The plans are absolutely unprecedented in their severity ; they are more draconian than anything achieved by Mrs. Thatcher and Nigel Lawson at the height of their power in office. We must question their desirability--they are certainly inconsistent with the pledges made in the Conservative manifesto at the last general election--but also their feasibility.The new spending total suggests a real-term, non-cyclical increase of 3.8 per cent. to 1999. That contrasts with the comparable rise of 12.5 per cent. in real terms between 1980-81 and 1986-87. To meet his spending total, I wonder how far the Chancellor is prepared to go in further decimating public services, driving down their standards, contracting out whatever the sense or benefit in doing so, and pushing up charges to individual users of the services, thereby putting them out of reach for so many. It means the wholesale abandonment of many Tory election promises and I believe that many Conservative Members have yet to wake up to that.
The other assumption underlying the Budget is that the Chancellor would put up taxes even further if his spending plans are not met. Is the Chancellor prepared to own up to that? Certainly on television this weekend he simply said that he did not have a clue. I wonder about that. I suspect that the Chancellor knows now that his arithmetic will not add up and that further tax rises have been planned to pay for past mistakes and the cost of future low growth and continuing mass unemployment.
He hinted as much in his Budget speech when he said :
"I have never disguised my personal view that the coverage of VAT in this country is too narrow.".
He went on :
"The Government's clear policy has always been to shift the burden of taxation, over time from income to spending.".--[ Official Report, 30 November 1993 ; Vol. 233, c. 932-6.]
The Chancellor is putting that cover in place in order further to increase the tax burden in future years. The growth in VAT and indirect taxes is the uncompleted, glossed over, yet-to-explode part of the Budget story as the Chancellor's perilously balanced equations start to unravel, as Conservative Members will soon discover. The Budget managed to combine savage deflationary content with overly optimistic rose-tinted presentation. It does not begin to address Britain's core economic problems : our lack of industrial capacity and competitiveness, the waste of unemployment and our declining share of world trade.
It begins--as it needs to--to deal with the unsustainable financial deficit but is less than honest both in its prescriptions and in its predictions about how the deficit will be conquered. The consequences of the Budget will be tax, tax and yet more tax, however thinly it may be disguised and camouflaged. That is why the Tories' election promises will never be trusted again.
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8.34 pmMr. Nigel Waterson (Eastbourne) : I am particularly pleased to have the opportunity to welcome the Budget, which is both clever and compassionate, and to follow a characteristically churlish contribution from the Labour Benches.
In company with other hon. Members, I should like to take the opportunity to single out a particular aspect of the Budget--the package for dealing with VAT on fuel and its effect on the more vulnerable in our society.
It is a strange issue in many ways because of the emotion it arouses in Opposition Members. The prime emotion it tends to arouse is hypocrisy in many quarters. We saw a classic example from the right hon. and learned Member for Monklands, East (Mr. Smith) when he had the audacity earlier today to claim that the Government were trying to avoid a vote on VAT on fuel.
Even the newest hon. Member of the 1992 intake would know that that vote has already taken place and, as was pointed out earlier, it was perfectly open to the official Opposition to table an amendment on the package, but not on the principle of VAT on fuel, and they have signally and dismally failed to do so. The matter was dealt with following the March Budget and today we are talking about the package for dealing with the less well-off.
It is particularly rewarding to know that, in advance of my right hon. and learned Friend the Chancellor's Budget statement, the Labour social security spokesman, the hon. Member for Glasgow, Garscadden (Mr. Dewar), said that he was looking for 50p extra on pensions. I know that the quotation will appear several times in the debate, but it certainly bears repetition. I know that Opposition Members do not like to hear it, so let them hear it again. I predict that they will hear it many more times in the coming months. The hon. Gentleman said
"The Government has to add something on to take account of that" --the introduction of VAT on fuel--
"and they could do it with an extra 50p on pensions."
Mr. Alistair Darling (Edinburgh, Central) : Is the hon. Gentleman not aware that the publication in which that quote appeared subsequently admitted that my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) said no such thing and that he was misquoted? That has been made perfectly clear, not least by my hon. Friend today to the Prime Minister.
Mr. Waterson : I was unaware that had been the case. I seem to remember that, when the point was made on the first day of the Budget debate, the hon. Gentleman did not leap to his feet to make the point on his own behalf. That is a quotation from The People on 21 November 1993.
Mr. Rhodri Morgan (Cardiff, West) : Will the hon. Gentleman withdraw that quotation?
Mr. Waterson : I will not withdraw it. I am quoting from The People newspaper of 21 November.
Mr. Darling : Will the hon. Gentleman give way?
Mr. Waterson : No. I have a speech to make and I will make it. It is worth commenting that the Government are providing what the right hon. Gentleman was calling for even before VAT is imposed at its standard rate.
Let us move on. I have already dealt with the hypocrisy of Labour Members ; let me now deal with the hypocrisy of
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the Liberal Democrats. I notice that they have not chosen to grace us with their presence in the Chamber this evening.I represent the constituency of Eastbourne, a place reasonably well known in recent political history because of the famous by-election. We have heard a great deal from the Liberal Democrats on the issue in Eastbourne. We have seen endless leaflets and statements in the papers. They have made a great deal of political mileage out of it. As we all know, the Liberal Democrats are political chameleons who change their colour depending on the background in a particular part of the country. In my part of the country, which is predominantly Conservative, they pretend to be just like the Conservatives. Elsewhere, they do the opposite and pretend that they are a more pleasant alternative to the Labour party. However, as we all know, in truth they are Labour's country cousins. If one needs evidence of that, one need only look at the alacrity with which they leapt into a pact with Labour to run East Sussex county council after the elections a little earlier this year.
As I have quoted the Labour party's spokesman on the issue, it is only fair that I should quote the Liberal Democrats. As recently as the Liberal Democrats 1992 election manifesto, they said : "We will support a Community -wide Energy Tax on all energy sources."
In a policy document entitled "Taxing Pollution, not People" which was endorsed by their 1993 party conference, the Liberal Democrats stated :
"We support the European Community proposals for an energy/carbon tax, and would press for its immediate implementation at national level".
Perhaps the most damning quotation, and the one which they can wriggle and squirm about, but from which the Liberal Democrats cannot get away, is set out in their 1990 policy document entitled "Costing the Earth" in which they say that they
"advocate as a first priority the imposition of a tax on energy The UK is unusual amongst EC members in not applying even standard rates of VAT to domestic fuels If it proved completely impossible to persuade our international partners to adopt energy taxes, we would nevertheless press forward, but phase them in at lower levels than otherwise--for example, by ending the anomalous zero-rate of VAT on fuel".
As that quotation rightly recognises, most other countries in the industrialised world, and certainly in the European Community, already have VAT or its equivalent on fuel. It is and always has been a political inevitability that one day, sooner or later, VAT would be imposed on domestic fuel. That must of course be admitted, if only behind closed doors, by Opposition parties.
What matters, and what has always mattered, is the package to be introduced to look after those less able to pay the extra VAT. It is also important to address the feelings of other people in my constituency, the better-off pensioners who have, none the less, expressed their concern about the ability of the less well-off in my constituency to bear the tax.
That is why, since the March Budget, many of us have made representations to my right hon. and learned Friend the Chancellor and his colleagues about this subject. That is why I am so pleased today to welcome, with my colleagues, the extra help and the package which involves £2.5 billion over three years and will benefit 15 million people. All pensioners, widows, the long-term sick on invalidity benefit and those on low incomes will benefit. I need not spell out once more the details of the proposals. However, as if that package were not enough, in
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addition we have an extra £35 million a year for the home energy efficiency scheme. We all know that the elderly and retired often live in large relatively uninsulated and not very energy- efficient properties. They will benefit more than any other group in society from that extra spending. In addition, there is a 25 per cent. increase in the cold weather payments over two years. There is no good reason for anyone who is vulnerable in our society to be worried about paying the extra VAT on fuel despite all the propaganda and worry caused by Labour and Liberal Democrat Members.Another issue that is particularly good news for my retired constituents is the guaranteed income bond, or "granny bond". The Chancellor has rightly recognised that whenever interest rates are cut, although that may be good news for those in business and those paying a mortgage, it has a significant effect on pensioners' incomes in places like Eastbourne and on their spending power. Potentially, that has a knock-on effect on the local economy. We should not underestimate the effect of such cuts on the standard of living of pensioners.
Mr. Bates : Will my hon. Friend confirm that many pensioners are very fearful about inflation because many of them are living on fixed incomes from occupational pension schemes? The last thing that they can afford to suffer is high inflation. Therefore, low inflation is very much the pensioners' friend.
Mr. Waterson : I am delighted to agree with my hon. Friend. One of the Government's most tremendous achievements is that they have brought inflation down to such a very low level--and they are keeping it at that level. We all know that the most important thing that any Government in this country can do for the pensioner is to do precisely that. When I recall the raging inflation prior to 1979, I dread to think of what the effect would be on my constituents if we were still suffering under a Labour Government.
The Budget has done three major things : it has restated the importance of sound public finances ; it has done a great deal to protect and encourage the recovery ; and, at the same time, it has protected the more vulnerable in our society. In that way, it has tackled an issue which was, until the Budget, being cynically exploited by our political opponents.
I am delighted that the Budget has been welcomed so widely by pensioners' organisations, including Age Concern in my constituency. The Liberal Democrats will no longer be able to gain votes by issuing propaganda on that issue. The Chancellor has tackled the problem and has produced a package which no one could have foreseen in its generosity and its comprehensive nature. As far as the Liberal Democrats are concerned, my right hon. and learned Friend the Chancellor has shot their fox.
8.46 pm
Mr. Alan Milburn (Darlington) : As I listened to the Chancellor's first Budget last week, I was overcome by an overwhelming sense of deja vu. I had seen that devil-may-care self-confidence somewhere before. For a moment, I could not recall where, but the cheering from the Tory Back Benches and the waving of Order Papers reminded me that, precisely seven months before, the Budget of the previous Chancellor of the Exchequer, the right hon. Member for Kingston upon Thames (Mr.
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Lamont), was greeted in exactly the same way. He also managed to produce a flurry of Order Papers, and he too was hailed as a financial wizard and conjuror who had saved the Government's bacon. Alas, just a few weeks later, Norman's miracle had turned into a mirage. There he was, back on the Back Benches, sacked because his Budget had been recognised for what it was--a disaster for the country.A week on, and the new Chancellor's Budget is also beginning to unravel. All the representational panache in the world cannot disguise the reality of the Budget--the most deflationary in recent history. How on earth will taking £20 million from the pockets of Darlington families in tax rises next year and £32 million the year after be good for the local economy? That is more than £50 million less to spend on products and services in an area in which more than 5,000 people are out of work and where more, not less, investment is needed.
The Budget, like the 1992 general election, will not produce the promised results because it is built on a series of confidence tricks. The con is that the welfare state is somehow safe in the Government's hands and that the Budget changes merely amount to prudent saving at a time of high public sector debt. The reality is rather different. Even people who are sick and who are disabled face a tax on their benefits. The jobless are to have salt rubbed into the wound of unemployment by slashing their entitlement to benefits. That is just the start. By the time the Prime Minister's B team-- the Chief Secretary to the Treasury and the Secretary of State for Social Security--have their way, we really will be back to basics, back to the time when the disabled, the poor, the elderly and the ill simply had to fend for themselves. However, as the self-same Secretary of State for Social Security acknowledges, growth and jobs will actually bring down social security expenditure by the end of the century. Social security spending is high not because Ministers have suddenly discovered that there are too many elderly people or too many single mothers in our society but because Conservative economic policies have failed. That failure is now to claim yet another victim--the dismantling of the welfare state in favour of an inadequate privatised system of provision.
The Budget is a con for another reason : it promises a new dawn but it represents business as usual. The old dicta remain firmly locked in place-- public is bad, private is good, the best role for Government is to do as little as possible, and the market still rules okay. That means no place for Government incentives to encourage investment, no continuation of the capital allowance scheme fe Budget offers no industrial strategy to take Britain into the next century because it is based on the false premise that the best role for the Government is to have no role at all. That promises no future for my constituents. Darlington is a place of vast economic potential. It has a range of high-quality greenfield industrial sites ready to attract the next Nissan or Fujitsu, it has a highly skilled and trained labour force, and it has a proud history of manufacturing production carried on by first-class
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companies. But it is disadvantaged by virtue of its place on the periphery of the single European market. That means that it is crying out for more infrastructure investment and for more industrial incentives. It means, above all else, that it is crying out for measures that will instil confidence.We heard not a word--not a peep--from the Chancellor of the Exchequer as he delivered his Budget last week about any prospects for economic growth in my constituency. Instead, the Budget perpetuates the con that public spending cuts will somehow encourage more private sector investment. Over the next two years, after allowing for depreciation, capital investment will fall by about £3 billion. The £500 million cuts in public housing finance will not mean a rush of new developments for the construction industry ; it will mean more redundancies and more closures. It certainly will not mean more homes being built ; it will mean fewer. It will not mean fewer people waiting for a home ; it will mean more homeless people on our streets.
The Budget seeks to con Britain by gambling on a self-initiating growth. That flies in the face of reality. Customers and consumers are so overcome with debt and uncertainty that prospects for an old-fashioned consumer-led boom simply do not exist. Such a view takes no account of reality. The housing market is in tatters, and the big boys in the British corporate sector are planning, not more investment to create jobs, but further redundancies and job losses. At best, as the Red Book acknowledges, the Budget will bring only low growth and high unemployment because it does nothing to tackle the lack of productive capacity in the British economy that is at the root of our present economic woes.
The Chancellor managed to skip over our trade balance in his Budget presentation, and for good reason. Rising imports in the midst of a deep and damaging recession tell a story of fundamental economic weakness.
The biggest con of all about the Budget is the Chancellor's claim that there is no other way and that the only way of tackling the mess into which the Government have plunged us all is by cutting and taxing. TINA is back in town with a vengeance. We are continually told by Conservative Members that there is no alternative--there is no other way. Nothing could be further from the truth.
Why did the Chancellor not close all the £10 billion of tax loopholes identified by Labour? Why did he not free local authority capital receipts to put backbone into Britain's building industry and to tackle the obscenity of homelessness? Above all, why did he not put talents to use by making it a Budget for recovery, a Budget that put people back to work, rather than lost to public finances £9,000 for each unemployed person each year? The answer is simple enough : it was a political Budget, designed in a desperate attempt to get the Government off a hook of their own making and to further the Chancellor's own desperate attempt to climb the political ladder. Now we are all to bear the price in higher taxes and savage public spending cuts.
The Budget will do untold damage to the fabric of British society and to our prospects for a durable economic recovery into the next century. For those reasons, it deserves to be rejected by the House.
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8.56 pmMr. John Denham (Southampton, Itchen) : Given the time, instead of issuing a press release which summarises my speech, I have been forced to make a speech which summarises my press release. I wish to draw attention to one long-term aspect of the Budget which is of great concern. In his Budget statement, the Chancellor made it clear that the upgrading of pensions was a one-off event and that he expected to see the real value of the state pension relative to average earnings continue to decline as it has done over the past 10 to 15 years.
It is widely accepted that that means that the basic state pension in the second decade of the next century will be worth less than perhaps 10 per cent. of average earnings. Given the inadequacies of the state earnings- related pension scheme, that means that those who are currently on low incomes and who by then will have retired, and even those on average incomes, will have retirement pensions which are well below the average earnings which are being enjoyed at that time in the next century. Therefore, the Budget and the Budget strategy build inadequate pensions into the next century for many of those who are about to retire and for many of those who are currently at work.
But worse still is the fact that the Budget strategy implicitly emphasises that the Government will continue to encourage opting out of SERPS and into the private pension plan industry. Given the current state of that industry, that is an extraordinary and dangerous strategy which poses a great threat to the future security of far too many people. In the past few years, the Government have fostered a badly regulated personal pension plan industry, which has exposed millions of people to high charges and the risk of erratic market performance and has already wasted hundreds of millions of pounds of the public's hard-won savings.
People who cancel their pension policies early are penalised by the high cost of early cancellation. They may have to cancel because of unemployment or because the policy turned out to be too expensive. The Securities and Investments Board estimates that just under a third of personal pension plans are cancelled within the first two years, leading to the loss of virtually all the premiums paid by people who have been encouraged to opt out of SERPS. A rough survey of the calculations available suggests that the total amount of hard-won taxpayers' money lost through early cancellation is some £200 million a year.
That means that the failure of the personal pension plan industry repeats, every 18 months or so, a loss of public money on the scale of the Maxwell scandal because of bad regulation of the industry and poor protection available to the public. If the Government are to encourage people to rely on private pensions for all or part of their future retirement income, they have a general duty of stewardship over the use of those moneys. Their failure to monitor and regulate the industry effectively is a disgrace that threatens the pensions of millions of people in the next century.
9 pm
Ms Harriet Harman (Peckham) : The Budget breaks election promises on spending as well as taxation. It will make British people pay more and get less. It makes those who can least afford it pay the price of Tory
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mismanagement and it will deepen Britain's economic problems. Above all, the Budget fails three key tests : on jobs, investment, and fairness.According to the Government's own figures, the recovery is faltering. In the Budget, the growth forecast for the second half of the year and the forecast for manufacturing growth next year have both been downgraded. The Budget is testimony to 14 years of economic mismanagement. The United Kingdom's growth has been lower than in any period since the war. Manufacturing output has risen by just 5 per cent. in Britain in the past 10 years, whereas it has grown by 25 per cent. in America, 35 per cent. in Germany, and 50 per cent. in Japan.
There is and continues to be mass unemployment. A third of the United Kingdom's manufacturing employment has been lost and, for the first time ever, Britain has a deficit in manufacturing trade. For the first time, we are importing more manufactured goods than we are exporting.
Against that background, a sensible Budget would have taken immediate action to promote jobs and growth and medium-term measures to step up investment. It would have begun to release the £4 billion of capital receipts from council house sales to revive the ailing construction industry, as Labour called for before the Budget. It would have given incentives to firms to hire the long-term unemployed by rebating national insurance contributions for a year, as Labour called for before the Budget. It would have extended capital allowances to industry to stimulate much- needed investment, as Labour and the Confederation of British Industry called for. It would have ensured that all employers contributed towards vital training of the nation's work force, as we proposed before the Budget. It would have taken measures to modernise our infrastructure through both public and private sector investment working together.
However, the Budget did none of that and the reasons go to the heart of the Government's approach. Stimulating recovery? It has nothing to do with the Government. Investing in the economy? That has nothing to do with them either. It can all be left to the market. We also needed a Budget for fairness. Instead, we got a Budget that made everyone pay tax on their gas and electricity but left tax relief on private health insurance. It put 1p on everyone's national insurance contributions but left completely untaxed the thousands of pounds received by top-paid executives in executive share option schemes. That is the Government's sense of priorities.
Before the Budget, Labour called for tax reforms. First, the Chancellor said that the tax abuses that we had identified did not exist. He then closed some of them, but only £2 billion worth. In the Budget he has now opened up another one.
The Budget breaks promises on public spending. The Conservative manifesto said :
"Lower taxes and a prudent approach to borrowing do not mean public spending must fall ; quite the reverse."
The Prime Minister said :
"If we were going to cut public expenditure we would have done it before and I don't believe it is economically right so you can rule out any prospect of that."
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