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Legg, Barry

Lidington, David

Molyneaux, Rt Hon James

Montgomery, Sir Fergus

Nicholson, David (Taunton)

Onslow, Rt Hon Sir Cranley

Pawsey, James

Porter, Barry (Wirral S)

Porter, David (Waveney)

Robinson, Peter (Belfast E)

Shaw, David (Dover)

Shersby, Michael

Skeet, Sir Trevor

Smith, Sir Dudley (Warwick)

Spink, Dr Robert

Stern, Michael

Taylor, Rt Hon John D. (Strgfd)

Taylor, Sir Teddy (Southend, E)

Thompson, Sir Donald (C'er V)

Thurnham, Peter

Walker, Bill (N Tayside)

Waller, Gary

Waterson, Nigel

Whitney, Ray

Whittingdale, John

Tellers for the Noes :

Mr. Andrew Robathan and

Mr. Julian Brazier.

Question accordingly agreed to.

Bill ordered to be brought in by Mr. David Winnick, Mr. Andrew F. Bennett, Mrs. Anne Campbell, Ms Angela Eagle, Mr. Don Dixon, Mr. Terry Davis, Mrs. Maria Fyfe, Mr. Doug Hoyle, Mr. John McAllion, Mr. Stanley Orme, Mr. Ray Powell and Mr. Alan Simpson.

Employment Protection(Government Communications Headquarters)

Mr. David Winnick accordingly presented a Bill to provide for persons employed at the Government Communications Headquarters to have the right to belong to an independent trade union of their choice ; and for connected purposes : And the same was read the First time ; and ordered to be read a Second time upon Friday 11 February, and to be printed. [Bill 38.]

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Orders of the Day

Finance Bill

[Relevant document : Second Report from the Treasury and Civil Service Committee on The November 1993 Budget (House of Commons Paper No. 87)]

Order for Second Reading read .

Madam Speaker : I have selected the amendment standing in the name of the Leader of the Opposition.

4.4 pm

The Chief Secretary to the Treasury (Mr. Michael Portillo) : I beg to move, That the Bill be now read a Second time.

The Finance Bill begins its passage through the House today. The House will know that managing the Bill each year requires co-operation between the parties. In the interests of good government, we must ensure that each of the inevitably complicated matters in the Bill is given time for discussion and that outside interests are given plenty of time to comment. We have always been able to do that in the House on the basis of sensible arrangements between the parties for orderly debate, but this year the Labour party will not co-operate. I have written to the hon. Member for Peckham (Ms Harman)--my opposite number--setting out a sensible scheme for consideration of the Bill and proposing the clauses to be taken on the Floor of the House and a reasonable timetable to which we can all work to ensure that the Bill can be given full consideration by the Easter recess.

That the hon. Lady has refused to enter into any understanding with me I regard as most unreasonable. The matters in the Bill are very important, and people outside the House expect us to give them careful consideration. It is extraordinary of the Labour party to block the most common-sense arrangements for doing our business. Today, I once again reiterate my appeal to the hon. Lady to reconsider her position and to make an arrangement in the interests of orderly business in the House.

The Government bring their Bill to the House because we are committed to align what the Government spend with what they receive in tax. The Bill is crucial if we are to have sound public finances. Sound public finances are essential to our national prosperity. What is more, the Government believe that it would be ethically indefensible for the Government to plan consistently to live beyond their means when every family and business in the country has had to make the sacrifices necessary to bring income and expenditure into line.

The Government have therefore set out their economic policies with great care. Over the past 18 months, we have set out our monetary policy, we have put in place the transparent arrangements that determine the considerations that lead to our decisions on interest rates ; the markets can be confident about what they are. We have set out a medium-term spending strategy. We did that first in the autumn statement 1992 with the new top-down approach. We produced figures then. We followed that up in the Budget introduced by my right hon. and learned Friend the Chancellor in November with new figures that came in below the public spending ceilings that we had set the year before.

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People know the limits of what the Government will spend. They know that the Government will stick within those limits. In the most recent spending round, we demonstrated our determination not only to hold down public spending but to reduce the plans for public spending that we had made. For 1994-95, we have made, in successive autumn statements, two reductions totalling more than £8 billion off the plans for the coming year. We have a medium-term spending strategy, and a medium-term taxation strategy. The markets know exactly how the Government will raise the revenue that is needed. They know that they can have confidence that the Government's borrowing will be reduced sharply. That confidence is reflected in today's low level of interest--the lowest since 1977.

I now want to make a statement which will, I believe, deeply shock the Labour party, as most statements of the obvious do. There is an unbreakable link between what Governments spend and what they must raise in taxes. At the last election, the contest was between a Conservative party whose every instinct is to control spending and reduce taxation and a Labour party that is dedicated to extending the role of the state through increased public spending and, therefore, to raising taxes in order to pay for that. Nothing that has happened since the last election has changed the validity of the choice that was put before the British people then, or the validity of the decision that the British people made on that point.

Ms Harriet Harman (Peckham) : The Chief Secretary has just been telling the House about ethics. Will he admit to the House that he misled the country on taxes at the last general election?

Mr. Portillo : The Government gave a pledge that they would uphold sound public finances, and we have responded in the difficult circumstances that we have faced since then in order to fulfil that pledge. I do not believe that Chancellor Kohl promised the German people that there would be a 9 per cent. reduction in industrial production. I do not believe that Mr. Gonzales promised that there would be a 22 per cent. rate of unemployment in Spain.

Governments have to cope with the circumstances that they find, and if they are good Governments they do so in accordance with their principles. The principle of this Government is that we will have sound public finances. What the Government raise and what the Government spend will be brought into line with one another.

Ms Harman : What this Government did was promise to cut taxes. Will the Chief Secretary admit that he misled the country in the last general election because he promised to cut taxes?

Mr. Portillo : We gave the most solemn pledge to the country that we would deliver sound public finances. That is what we stand by today. The hon. Lady knows perfectly well that the Conservative party's every instinct is to cut taxation, but our principle to establish sound public finances comes first. We have principles. We have priorities. We know what those priorities are and that is why we deliver policies in which people can have confidence.

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Mr. Clive Betts (Sheffield, Attercliffe) : Does the Chief Secretary remember that in the Budget debate he said that he and his colleagues did not say at the time of the election that taxes would go up because

"We thought that the recession was coming to an end in early 1992."--[ Official Report, 1 December 1993 ; Vol. 233, c. 1072.] How does the right hon. Gentleman square that statement with the statement made by the Chancellor in the same Budget debate? He said :

"It is now clear that the recovery started in the first half of 1992".-- [ Official Report, 30 November 1993 ; Vol. 233, c.l 919.] If the recovery started in the first half of 1992, why did he not manage to anticipate that during the general election and make the clear commitments on taxation that obviously he did not make at that time?

Mr. Portillo : I congratulate the hon. Gentleman. He has had a couple of months to think out that question. There is the small matter of the pace at which the recovery was taking place, and the hon. Gentleman was as wrong as anybody else in thinking that the recovery had begun at a rapid pace during the early part of 1992. Alas, we were disappointed, but the Government have not been afraid to take the action that is necessary.

Nothing has changed about the Labour party. Nothing has changed in the series of promises that it will spend more money, which it gives day after day. In recent times, we have heard promises from the Labour party that local councils will spend another £6 billion from the money that is rightly set aside against their indebtedness. We have heard that it will increase overseas aid by £2.5 billion. We have heared that it will increase health spending, which it wants to take up to 7 per cent. of national income. That would mean another £6 billion. We have heard that it wants to equalise the state pension age at 60 instead of 65, and the additional cost of that would be £12 billion.

There is no accounting from the Labour party to show how all those promises will be paid for, and no Labour spokesman has the self control to get up in a debate in the House or to give a radio interview and last the five minutes necessary without making some new promise about public spending. On Friday evening, I took part in "Any Questions" with the hon. Member for Oldham, West (Mr. Meacher). We had not got five minutes into the programme before he was promising us a new and highly expensive house building programme. Even the shadow Chief Secretary suffers from that marked lack of public expenditure control. One searches in vain through the wilderness of her speeches for any sign that she urges restraint on her colleagues, any sign of the cuts that she believes will be necessary. No such promises are to be found from the hon. Lady.

From top to bottom, the Labour party is characterised by its public- spending incontinence. If spending today, as a proportion of national income, is higher than we would wish, and it is, we can rely on this : it would be much higher under Labour. If the taxes that we require today, at the end of a recession, to balance the books are higher than we would like them to be, and they are, we can count on this : they would be higher still under Labour.

Let me put it plainly. Labour spends more ; Labour borrows more ; Labour would tax more. Come rain or come shine, Labour would tax, borrow and spend more than we do. The House need not take my word for it. In "On the Record", the hon. Member for Dunfermline, East (Mr. Brown) said :

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"The Budget decisions that the Conservatives made in the 1980s were completely unacceptable."

What does that mean? It means that the hon. Gentleman disagrees with the reduction in income tax from 33p to 25p in the pound ; it means that he disagrees with the reduction in corporation tax from 52 per cent. to 33 per cent. Those were changes that we introduced in the 1980s, and the hon. Gentleman disagrees with both of them. There is one honest man on the Labour Benches, although he is too honest to be on the Front Bench. I refer to the hon. Member for Dagenham (Mr. Gould), who, in that same programme, said : "I think the Labour party ought to accept that we will always be likely to have a higher tax burden than our opponents, because we believe in public spending."

Bravo ! The hon. Gentleman spoke the simple truth. Here is a man who is not afraid of the truth--a man with whom it is a joy to have lunch.

The Labour party has changed in only one respect. In the good old days of the Labour party--the days when it was led by the right hon. Member for Islwyn (Mr. Kinnock)--it used to produce a shadow Budget that showed that it would need to raise higher taxes to pay for all its promises of higher spending. Where is that old Welsh honesty that we all miss so much? It has gone out of the window.

In this Bill, the Government recognise that business cannot prosper and jobs cannot be created if public finances are under strain. That is why we have taken decisive steps to bring our finances into balance, tackling both spending and taxing : spending levels determine tax levels, so spending must be tackled.

Several hon. Members rose --

Mr. Portillo : As my hon. Friends know, part of our deficit results from the large increases in what we have spent on health, education and social security. In each of the three years preceding 1992-93, we were spending an extra 5.5 per cent. in real terms on the health service. Did the Labour party ever say that that was too much? No : Labour, disgracefully, used individual cases to lead the public to believe that we were spending too little. Conservative Members well remember the party's scandalous, shameful behaviour over Jennifer's ear.

Several hon. Members rose --

Mr. Portillo : Given that the Government have spent so much on health, would Labour spend more? Labour Members say that they would. Over the past five years, we have increased our spending on education by 25 per cent. in real terms. Did Labour tell us that that was too much? Did they tell us to cut back? No ; they were too busy promising the earth and more. Would they now wish to spend more on education? They tell us that they would.

Mr. George Howarth (Knowsley, North) : Will the Chief Secretary give way?

Mr. Portillo : So the question for the hon. Member for Peckham to answer in her speech is this : what would Labour cut?

Mr. Howarth : Will the Chief Secretary give way?

Mr. Portillo : What would Labour-- [Interruption.]

Mr. Andrew Faulds (Warley, East) : On a point of order, Madam Speaker. I think that you would endorse my view, and the view of many hon. Members who are

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present, that it is most unusual for a senior Minister, having given us this prepared gibberish, not to yield to hon. Member after hon. Member when there are valid points to be made. Would you occasionally reprimand the Chief Secretary, Madam Speaker, or ask him kindly to observe the parliamentary courtesy of giving way when an hon. Member wishes to intervene?

Madam Speaker : Order. The hon. Gentleman is a long-standing Member of the House--[ Hon. Members :-- "Too long."] That may be the opinion of some people but it is not mine. He happens to be my constituency neighbour so I have to be very careful. As he knows, it is up to the hon. Member who had the floor to decide whether to give way. I am sure that the Minister has taken that into consideration.

Mr. Portillo : Indeed, I choose to give way often and have done so several times in this debate. I gave way twice to the hon. Member for Peckham and once to another hon. Member.

I want to ask the hon. Member for Peckham where the Labour party is to make the cuts. Her party says that taxes and borrowing are too high but it has promised extra spending on education, health and overseas aid, so where are the cuts to be made? I want to know. Are they to be made in social security? The hon. Lady and her friends are opposing the Bills that would reduce social security spending. Will the cuts be in transport, in housing, in defence or in training? The hon. Lady must tell us, and if she wants to, I should be happy to give way to her. She does not want to tell us. I genuinely thought that she would get up and make her usual, fatuous commitment that the Labour party will cut unemployment.

Mr. Peter Mandelson (Hartlepool) : Why is it fatuous?

Mr. Portillo : How will the Labour party cut unemployment? It is committed to the social chapter, which we know destroys jobs. Employers across Europe want to locate their businesses in Britain because we have the lowest non-wage costs in Europe. The Labour party wants the social chapter and wants to destroy jobs.

The Labour party says that it wants to stimulate investment but what plans does it have to do so ? It wants to levy a special penal rate of tax on the utilities, which are some of the biggest investors in the British economy, and that would also destroy employment. Labour says that it will put more people into work, but how ? By spending more on job creation schemes, I suppose--and how would they be financed ? By more taxes ? The Labour party tells us that taxation is already too high, so is it going to borrow ? It tells us that borrowing is also too high. If it borrowed more, it would lose the confidence of the financial markets and we should have higher interest rates, slower recovery and fewer jobs, which is why I say that the Labour party's claim is fatuous. It is not only fatuous ; it is misleading, it is dishonest and it is basically ignorant. The Liberals--

Mr. George Howarth : Perhaps the Chief Secretary could throw some light on a subject that is worrying many hon. Members and people outside. During the general election campaign, either the Government knew what lay ahead in terms of public finance and they therefore misled the electorate or they did not know what was to happen, in which case how can we believe the figures that they are using now ?

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Mr. Portillo : We believed, as investment analysts, banks, other Governments, commentators and politicians in the Labour party believed, that the recovery was well under way around the time of the election. If we were wrong, the analysts, the banks, other Governments and people in the hon. Gentleman's party were wrong. If we made an error, it was an error and not a matter of dishonesty. The Labour party is presenting a dishonest policy and the Liberals are not much better--

Mr. A. J. Beith (Berwick-upon-Tweed) : I am sorry, but the Government did not make an error ; they forecast a public sector borrowing requirement of £28 billion. It surely followed that they must already have had an idea that some tax increases would be necessary for a Government whose first priority, as the Chief Secretary has said, was to bring their taxes into line with their spending.

Mr. Portillo : The PSBR that we forecast at £28 billion turned out to be £37 billion. We did not foresee a PSBR of £50 billion. The measures that the Government have had to take are accounted for by the differences between those figures. The hon. Gentleman knows well that the Government's policy has been to balance spending and income over time. We have recognised that we have run a PSBR when we were in recession, in the same way as we ran a surplus when we were at the peak of the recovery. The hon. Gentleman knows perfectly well, therefore, that it was consistent to run a policy of sound public finances and to tolerate a PSBR at the very trough of the recession. That trough turned out to be deeper than we thought and we are taking the corrective action that is in the Bill.

Mr. Paul Flynn (Newport, West) : The Chief Secretary is obviously suffering from repetitive taxing strain. Does he recall telling the country that he promised to provide--his words--an ultra-low-tax economy? Having now presided over the highest tax hike in our history, will he now resign?

Mr. Portillo : My aim is an ultra-low-tax economy and I believe that the British people will believe that the Conservatives are directed towards that. What should worry the hon. Gentleman is that the British people will never believe that that is the ambition of the Labour party. Members of the Labour party think that they are very clever whipping up this tax row. They think that they will make people disaffected with the Conservative Government. Well, perhaps they will, but when the Labour party has succeeded in convincing the British people that they are paying too much tax, and then the Labour party goes to the electorate and puts before the British people its plan to spend more and to tax more, I wonder whether its members will feel so clever then. I very much doubt it.

The Liberal party is not very much better. It does at least admit that it is its policy to spend more and borrow more. It gets some marks from me for frankness for that. At a time when the Government are already borrowing £1,000 million a week, however, what serious political party can propose that the solution to our problem is to borrow more money? The way to establish the low-tax economy that I and my hon. Friends want is to underpin the recovery with prudent fiscal policies. Our recovery will depend on clear, sustained determination to take difficult decisions now to

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provide a basis for longer-term prosperity. No one will look to the Labour party for that type of determination or that type of responsibility.

Mr. Mandelson : If the newspaper is not too undeferential for his tastes, has the Chief Secretary read The Sun today? Very properly, it asks why borrowing is so high. Is not the answer that borrowing is so high because unemployment is costing the country £26 billion a year? Is not the reason why we have such high taxation in Britain that we have such a low level of economic success as a result of the Government's policies?

Mr. Portillo : We had the highest growth in the European Community in 1993 and in 1994. I gave the explanation about unemployment. The hon. Gentleman was too busy squawking, "fatuous" from a sedentary position to listen to what I was saying. I did read the leader in The Sun this morning, which made it perfectly clear that it would be worse under a Labour Government That has been the thesis throughout my speech.

The Government have received the extremely interesting report from the Treasury and Civil Service Select Committee. We shall want to respond to it in due course, but I express my gratitude to the Select Committee. I welcome its conclusion that the Chancellor was right to tighten the fiscal position further, and that not to have done so would have had adverse economic consequences--that, remember, from an all-party Committee. I am pleased, too, that the Select Committee expects expenditure restraint. I know that my hon. Friends will be interested that the Committee expects expenditure restraint to contribute significantly towards the Government's objective of reducing public spending as a proportion of national income. That is the objective of Conservative Members. That has been underlined by the Select Committee. It is not, I believe, the objective of the Labour party. Without our determination to control state spending, the tax rises that we would need would be much higher than those in the Bill.

Mr. Giles Radice (Durham, North) : I am sure that the Minister is aware that two amendments, supported by all the Opposition Members in the Committee, were tabled, expressing concern about the scale of the tax hikes and saying that they could put our recovery at risk. In view of his new worries about the institutions of the House, I am sure that the right hon. Gentleman would not wish to mislead the House.

Mr. Portillo : My interest in the institutions of the House is not new found. As I said, we shall give a considered reply to the Committee's report. It is the judgment of my right hon. and learned Friend the Chancellor of the Exchequer, and my judgment too, that the recovery is strong enough. It is broadening and sustainable, and it will be proof against the increases in taxation this year. Both our forecasts and the independent forecasts for the coming year take into account the tax increases in the Bill, and those in the previous Finance Act.

Mr. Alex Salmond (Banff and Buchan) : Presumably the Chief Secretary acknowledges that in colder areas of the country vulnerable groups in the community have to pay more for their fuel, and will therefore be forced to pay more VAT. Why is that fact of life for those vulnerable groups not reflected in the compensation scheme?

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Mr. Portillo : It is not reflected because there are variations in what people spend on all sorts of goods, depending upon where they live. Some people in city areas have more expensive lives to lead than people in country areas, and so on. It is simply not possible to adjust social security arrangements to take account of each and every different factor, many of which tend to cancel each other out. The hon. Member for Banff and Buchan (Mr. Salmond) has led me on to the subject of VAT on fuel and power. That has been the most difficult decision for my right hon. and hon. Friends, yet they have supported the Government, and I thank them very much for that. I believe that our announcement that we would extend VAT to fuel and power, unpopular though it was, clearly underlines our determination to deal with the borrowing problem.

We were under no illusions about the unpopularity of the measure. It is not the Conservative party that needs convincing that increasing taxes is unpopular, and is to be avoided whenever possible. The fact that, none the less, we decided to extend the scope of VAT made it clear beyond doubt that we were absolutely serious, and that we would take the necessary action to bring the public finances under control. As a result of that confidence, both short-term and long-term interest rates fell in 1993, and the recovery gained pace, because the markets were convinced that we were in earnest about dealing with public spending and borrowing. Several hon. Members rose --

Mr. Portillo : I shall make a little more progress.

The amendment that has been tabled on VAT surprises me. I had assumed that by now the Labour party had given up its opposition to the extension of VAT to fuel and power. If Labour Members were concerned about that, surely the natural time to introduce an amendment was at the end of the Budget debate. That would have been a timely occasion on which to debate the issue. I cannot understand why the Labour party did not table such an amendment then. Of course, I assume that whatever the reason was, it was not just plain incompetence on the part of the Labour party.

Because of the prudent decisions that we have taken, and because of the measures in the Bill, we shall not build up such a large burden of debt to pass to our children. Without that action, the interest rate burden would have mounted inexorably, and high debt interest would have required a permanently higher rate of taxation to pay for it. We have arrested that process in time. By taking steps now to bring our public finances into balance, we have created the prospect of lower taxes in years to come. Without the firm action we have taken, and the action that we propose today, we would have been increasing taxes every year, just to pay the interest on the Government's overdraft.

Any sensible Chancellor of the Exchequer would take action to avoid that. Only one has acted otherwise--a Labour Chancellor, Lord Healey. When he was faced with a mounting debt and a mounting burden of interest, he chose to cut taxes and to leave public spending and borrowing increasing inexorably. That was irresponsible in the extreme. That action by Lord Healey--cynical and irresponsible as it was--taken in 1978-79 as the general election approached, was the starting point for all the comparisons that the Labour party makes about the burden

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of taxation under its Government and under the Conservative Government. It was a year of shame and the Labour party ought to be happy to forget all about it.

The essential difference between the Labour party and the Conservative party is highlighted by our different attitudes to what has been described as the growth dividend. As the economy grows, the Labour party commits itself to squander that dividend on higher public spending. On the other hand, our commitment is to control spending and to pass that dividend to those who earned the money in the first place--the taxpayers. There remains today a huge gulf between the two parties in that respect. It is the same divide that faced the nation at the last general election. It is the same choice between the Labour party, which believes that the state should do more, spend more, tax more, and the Conservatives, who believe in sound public finance, the control of public spending and the shrinking of the state. My right hon. and hon. Friends

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