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Column 230If one trawls through Hansard, one finds comments such as that from the Leader of the Opposition on Budget day when he declared that
"the deficit is the symptom, not the cause."--[ Official Report, 30 November 1993 ; Vol. 233, c. 943.]
I wonder what he means by that. Does he mean that it is a symptom of recession and that the whole budget deficit is cyclical? I can find very little economic basis for that. I am aware of only one economist in the United Kingdom--Professor Patrick Minford--who believes that the entire budget deficit is cyclical and that, if we had sufficient growth, it would disappear. Professor Minford's particular brand of free market economics supports the view that there has been a supply-side revolution in the United Kingdom and that an upturn in growth will lead to the elimination of the budget deficit.
Coupled with those vague phrases from the Opposition, one often comes across statements referring to investment, jobs and skills. There may be an implication that the way to solve the budget deficit is to spend more to make the deficit bigger and it will then get smaller.
We heard a little more of that view tonight from the hon. Member for Peckham, who implied that Labour's answer to the budget deficit was to abolish unemployment. She did not tell us what policies she would put in place to do that, but those policies seem to have escaped her socialist colleagues who were in office in France and those still in office in Spain. Somewhere in the Labour party there seems to be some magic solution to do away with unemployment at a stroke and to make substantial inroads into the budget deficit. My right hon. and learned Friend the Chancellor was wise to reject siren voices advocating that the budget deficit would either cure itself or could be cured by greater helpings of public expenditure. In his Budget on 30 November, he wisely and rightly set about balancing the budget. He made it clear that unless the deficit were tackled, the recovery could not be sustained, low inflation could not be maintained and British industry would not be able to compete effectively in the world.
Since the Budget, we have seen a marked upturn in confidence. We have seen signs of that from the CBI yesterday and in the financial markets. Since the Budget on 30 November, the equity markets have risen by some 11 per cent., demonstrating that investors--who include millions of people in Britain--have confidence in the future of British industry and believe that there are opportunities for increased profitability and success. Furthermore, gilt-edged securities have risen in value and their yields have fallen. The long-term rate of interest has fallen some 0.5 per cent. since Budget day. That is a significant development. Long-term gilt-edged securities are now yielding around 6.5 per cent. That is the lowest level that gilt-edged securities have reached in the experience of most hon. Members.
One would have to go back quite a long way in British economic history to find long-term gilts at 6.5 per cent. If the Labour party is keen for an investment-led recovery, it should welcome that development, because long- term interest rates, the rate that Government have to pay for borrowing money, determine in turn the rate that industry and businesses have to pay to borrow money, build successful businesses and invest for the future. That is a most welcome development.
Column 231That economic environment in the United Kingdom gives us much about which we should be cheerful. The prospects for the remaining years of this Parliament are good. There can be above-trend growth of the order of 3 to 4 per cent. a year, and low inflation. We have what economists call quite a large output gap in the United Kingdom and substantial unused resources, which, in a recovery, can be brought back into play. The prospects for the rest of this Parliament are : continuing low inflation, running at 2 per cent., above-trend growth of 3 per cent. plus and falling unemployment.
If one looks at that background and at what is likely to happen economically over the next three years, one can understand something of the frenzy of the Labour party's current reckless attack. To pose as the party of low taxation is nothing but humbug. What the Opposition will have to witness over the next three years as they sit on the Opposition Benches is month after month of good inflation figures, good growth figures and falling unemployment. That is not a happy political prospect for them.
It is strange that the Opposition are opposing tax rises at the moment when in the past they argued that the recovery should be investment-led. Some of the tax increases that are coming through will help to change the balance of the recovery more towards business and industry. Business and industry are in a strong position for the future. The ratio of corporate liquidity is at its highest level since 1988. Orders for construction and investment are increasing sharply ; up some 6 per cent. in the first 10 months of 1993. Stock building, an important component of recovery, is also likely to rise in the coming year.
Furthermore, export markets are much better for the United Kingdom. The figures released in November by my hon. Friend the Minister for Trade show that, in the three months to August, exports to non-EC markets had increased by some 14 per cent. We can have a recovery, and one that is not just consumer-led but driven by industry, investment and exports. That is a much healthier outlook than we have had in prospect in the United Kingdom economy for some while. Some hon. Members may criticise some elements of my right hon. and learned Friend's Budget. Against the economic task that he had to undertake, it would have been difficult for him to keep everybody happy. Overall, he has completed the process of rebalancing the economy--a task that we set ourselves over the past 18 months. He had the courage to address the budget deficit. Let us remember that there were many voices--in the House and outside--who urged him before the Budget to do nothing. By addressing the budget deficit, he has set us on the road to a sustainable recovery and sustainable low inflation. I believe that later tonight the House will reject unequivocally the Opposition's attempt to set us on some rake's progress. I believe that the House will reject the concept that we should run huge deficits and increase public spending. I believe that we shall vote for policies to eliminate the deficit, to facilitate cheap capital, to enable British industry to revive and to ensure that we have a balanced and successful recovery over the remaining years of this Parliament.
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Mrs. Anne Campbell (Cambridge) : I should like to begin by reading out a letter that I received from one of my constituents. It was sent to the Chancellor of the Exchequer. I think that it is unlikely that he will read it out, so I shall have great pleasure in reading it for him. It says :
"Dear Mr. Clarke,
I write to protest at what I regard as the inequity of the new tax measures introduced in your recent budget.
While I can appreciate the Government's need for raising extra revenue, I can see no reason whatsoever for increasing the tax burden on those least able to pay it.
I felt shocked and deeply betrayed to find today that my Additional Personal Allowance, for which I qualify as a mother of two young school-age children separated (unwillingly) from her husband, had been cut by £340. For me, despite working full-time as a teacher, this reduction in allowances means facing the unavoidable threat of forgoing some of those activities which I regard as necessary for my children's full development, such as out-of-school activities, which include swimming, music and sports lessons.
How can it be right that they should suffer such deprivations when another family, more fortunately positioned than mine, could meet this burden without noticing the extra weight? Perhaps this is one true interpretation of that phrase that seems to be on all Government Ministers' lips, "Back to Basics"--i.e., do without, do without." The real inequity is the way in which the Government have cheated the British people with remarks such as, "We have no plans and no need to extend the scope of VAT", which was said by the Prime Minister just a few days before the 1992 general election. Is it any wonder that people regard Tory politicians with such scepticism? It is not just me who says that ; one has only to look at the opinion polls and the tabloids, which are such good reflectors of public opinion these days.
It has been said even by Ministers that no one expects what politicians say immediately before an election. I suggest that the Conservative party gets back to real basics such as telling everyone what will happen and not trying to con the voters into believing that something will not happen when they know that it cannot be avoided. It is now obvious that the Tory party must have been expecting that it would not be in office, and therefore not held accountable for the tax rises which it knew were inevitable. Just think what its fickle friends in the tabloid newspapers would have said if the Labour party had had to deal with the shambolic mess in which the Tories left the economy in April 1992.
It is true that ordinary people are suffering from the tax rises that the Chancellor is imposing, not the people who benefited from Nigel Lawson's largesse in the previous Tory Government when he abolished the highest rate of tax. Pensioners, students, people on disability benefit and low-income families with children will suffer the most. Lloyd's is trying to bail out rich Tory Members of Parliament. Overseas aid is financing arms sales to Tory backers. Westminster council is turfing out homeless people so that their homes can be sold to Tory voters. It is a case of, "We'll look after our own, and the rest of you will pay for it."
In answer to questions that I asked the Chancellor, he told me that, under his and his predecessors' Budgets, those in the lowest 10 per cent. income group will be just over 1 per cent. worse off. He also told me that if he had taken the money by raising the rate of income tax, the bottom 10 per cent. would not have seen any change in
Column 233their income. Therefore, not only does the Chancellor take away from people more money than ever before ; he chooses to take it from those who can least afford it.
All Opposition Members agree that the most unfair tax of all is VAT on fuel. According to the Institute of Fiscal Studies, the poorest households spend 13.25 per cent. of their incomes on fuel, and that is before VAT. They are the people who will not be able to save energy by turning down their heating because they already run only a minimum level of heating--the pensioners on basic state incomes, students living in rented accommodation and the unemployed. Many people are already afraid to turn on their heating when they feel cold because they know that at the end of the day they will not be able to pay their bills, so they have no room to cut back any further on heating and VAT. The proportion of their incomes spent on fuel will increase to 15.5 per cent. and that will go up to 20 per cent. in April 1995 when the full rate of VAT is imposed. People who work in the public sector, such as the health workers to whom I spoke yesterday, will find their living standards particularly hard hit. As well as having to pay the extra tax, they will suffer from a public sector pay freeze during the next three years. Yet at the other end people on high incomes, earning £800 a week or more, spend only 2.25 per cent. of their incomes on fuel compared with 13.25 per cent. for those on low incomes. When VAT is imposed, that figure will increase to only 2.75 per cent.--hardly noticeable to a person on an income at that level.
Throughout the Tory agenda there is the same message--"If you are old, poor or helpless, expect nothing from us. If you are already well off, this Tory Government will protect you." It is a strange philosophy that taking money away from those on low incomes will make them work harder but that those on high incomes have to be rewarded to produce the same effect.
We have heard something about small businesses from the hon. Member for Milton Keynes, South-West (Mr. Legg), who is no longer in the Chamber. The Budget will do little for the small high-tech businesses that we are relying on to get us out of the recession. A recent survey carried out among small businesses in my constituency revealed that, despite the fact that they are new businesses, only one in three have borrowing facilities with banks. Banks are widely distrusted and have a major public relations problem. Only 6 per cent. had obtained a small firms loan under the guarantee scheme. Interestingly enough, less than a third thought that interest rates affected their businesses. I regret that the good news that the Government have been pouring out will not affect their businesses. The firms themselves regarded traditional venture capitalists as expensive and they were perceived as having little idea about technology-based business. About 60 per cent. of the investments made by venture capitalists are in management buy-outs. A management buy-out on cheap terms is considered to be small business finance. The most widely used method of raising equity funds outside immediate family and friends was corporate funding.
That leaves small firms with the potential to create hundreds of thousands of jobs with totally inadequate means of expansion and development. Banks and venture capitalists tell us that plenty of money is available, but they
Column 234usually claim that the proposals themselves are not good enough. In fact, that probably shows poor judgment on the part of the banks and faulty risk assessment techniques.
St. John's innovation centre in Cambridge, which has about 150 small firms under its roof, is sometimes asked for help by its tenant companies which have already approached the bank and been refused help. The requirement is usually short term, about six to nine months, so it may not be considered appropriate for equity or loan finance. But in the past couple of years, out of 30 firms that have been helped in that way, in only two cases was the decision to provide help incorrect. Those are firms that should have been helped by the banks to which they turned first but which turned them down as being a poor bet. But 28 out of those 30 firms were helped from another source.
The survey raises questions about whether traditional providers of finance can any longer evaluate risk. What seems to have emerged in Cambridge is the growth of a black economy for funding as traditional sources are unwilling or unable to meet demands. That leaves a major problem for those businesses in my constituency that are not lucky enough to be in St. John's innovation centre or those that need equity, where the nature of their businesses does not lead to corporate venturing.
In case it sounds as though I am just another disgruntled person hitting out at the banks and the venture capitalists, let me say that what I am trying to do is to express my profound concern about the relationship between the financial institutions and the industrial sector. The hon. Member for Milton Keynes, South-West regaled us with wonderful stories about the way in which the financial markets were doing extremely well at the moment. But the real problem is the relationship between the financial institutions and the industrial sector. The financial sector does not seem to be helping industrial productivity in Britain in the best possible way. We are seeing a long-term damaging effect on industrial productivity in Britain. That can lead only to the continuation of our well-documented industrial decline.
That is not because we do not have the people or the ideas--we have both in great abundance in Britain ; it is because the financial sector is geared to the non-productive quick-buck merchants who could not care less about Britian's future, only about their own personal gain.
I do not know whether that is what the Government mean by the entrepreneurial spirit, standing on one's own feet or providing for oneself and one's family. But the only way forward is to restructure our financial institutions so that they support British business rather than send it headlong into terminal decline.
The measures proposed in the Bill are inadequate. They only tinker with the problem. I hope that Tory Members who care about small businesses and VAT on fuel will join Opposition Members in the Division Lobby tonight.
Mr. Michael Stern (Bristol, North-West) : I found the comments of the hon. Member for Cambridge (Mrs. Campbell) most interesting, not least because they seemed to lead us towards something which was for many years an essential part of Labour party policy--the partial or complete nationalisation of the banks and the financial institutions. But the problem that the hon. Lady defined will be solved by greater competition between financial institutions rather than less, and will certainly not be solved
Column 235by the state stepping in and telling the financial institutions that they must lend whether or not they consider the proposition a good one.
I want to spend the time allotted to me talking purely about some of the technical aspects of this large Bill. In my maiden speech, nearly 11 years ago--I apologise for repetition, but I promise not to come back to the subject for at least another 10 years--I pointed out that the standard work recording all the law on income tax, corporation tax and capital gains tax, published by Butterworth, which the late and much lamented Lord Ridley referred to in that debate as the "Butterworth mountain", had, 1,017 pages in 1978, and by 1983 had increased to 1,266 pages. Therefore, within five years it had increased by roughly 20 per cent. By the end of 1993--before the enactment of this Bill--it had increased to 3,940 pages. Such an acceleration rate would be much admired in a space vehicle, but I am not sure that it is entirely to be welcomed in complex legislation. As several speakers have pointed out, it is alarming that a Finance Bill should be so long that it must be produced in two volumes. I hope that I shall be forgiven if I cite the observations of that excellent magazine Taxation, on whose editorial board I happen to sit. Every year, the Treasury responds to representations from numerous bodies about whether certain necessary legislation should be included in the Finance Bill by saying that it would be difficult to make the Bill any longer. The editor of Taxation points out that it may be a little difficult in future to argue that this year's Bill had to have no more than 417 pages, that last year's had to have no more than 296, and so on.
I wish to defend my hon. Friend the Financial Secretary in one respect. One reason for the length of the Bill is clear to those of us who have read it : instead of incorporating numerous amendments to individual sections of the existing legislation, the draftsmen chose to introduce the major reforms in the Bill by replacing whole sections of that legislation. The effect is especially clear in the clauses introducing the current year basis of assessment, and those enabling a change to a self-assessment taxation system.
It is possible that the legislation repealed by the Bill is at least as long as that which replaces it. I hope that my hon. Friend the Financial Secretary will clarify the matter in due course ; I also hope that the Bill will not be much longer than 417 pages by the end of its Committee stage. I have long urged the Treasury not to add unnecessary clauses in Committee, and I hope that it will stick to that policy. We may well not be faced with an additional 417 "net" pages of legislation.
I warmly welcome some measures in the Bill. It includes the first instalment of legislation to replace the previous year basis of assessment with current-year assessment. That reform has been urged on the Treasury for as long as I have practised as a chartered accountant--and I started in practice in 1964.
In the past, it was considered too difficult ; but we are well rid of a relic of the past which--like, for instance, our Sunday trading legislation --the rest of Europe viewed as quaint. It was felt that we were living in the previous century. I also welcome the provision to formulate the rules for corporate membership of Lloyd's : that institution clearly needs corporate membership, and it needs tax legislation to match it.
Column 236What I do not welcome is not so much the purpose of the Bill as the esoteric and--as others have pointed out-- unnecessarily prolix way in which it is being introduced. It is all too easy to cite examples from the raw and unstudied Bill, but is it really necessary to use the language exemplified by schedule 7(7)(5)(8A)(1)(a), which states :
"where the whole of the accounting period to which any insurance premium tax is attributable falls within the period of six months next before the relevant date ( the relevant period'), the whole amount of that tax shall be referable to the relevant period"? I am sure that the Financial Secretary will be given an opportunity to explain that and many similar phrases. I am equally sure that he will not be expected to understand his explanation for more than 10 minutes after he has given it, and that many lawyers will disagree with that interpretation of the legislation at the time when it is presented, 10 minutes before and 10 minutes after. We really can do better than the abortion of the English language that is being served up on us.
Like many others who have spoken, I hope that future Bills can be split into two parts. Unfortunately, it is too late to do so with this Bill. One part would consist of a financial Bill dealing with the raising and spending of money ; the other would comprise a tax management Bill dealing with the method of doing that. I would welcome such a move, not least because it would give us the chance to consider the detail of the legislation longer. Moreover--this is perhaps a slightly controversial constitutional point--it would allow us to designate a tax management Bill as a non-money Bill, thus gaining the advantage of double consideration of some of the more detailed wording, which could be debated in the other place. As I said in an earlier intervention, I was a member of the Jopling Committee, which recommended that all major Bills should be timetabled at the outset. Towards the end of this complex Bill, a great deal of legislation requires detailed consideration. If we engage in the standard practice of holding lengthy debates on timetabling and on the first few clauses, and endlessly debating the economic policy that lies behind the Bill, there is a danger that the important work of the Committee will be done badly--if, indeed, it is done at all.
My fear is heightened by something that was said by the hon. Member for Newcastle upon Tyne, East (Mr. Brown).
"This year's debates on the bill are going to look like the Battle of the Somme. It will be parliamentary trench warfare."
That may well be good politics, but the one thing of which we can be sure is that it will enable the House to produce bad legislation.
Mr. Stern : In the past, responsible Oppositions have considered it part of their task to assist the Government to produce slightly better legislation than was served up to them. It is a shame that the current Opposition do not adopt the same approach.
In view of the declaration of war issued by the hon. Member for Newcastle upon Tyne, East (Mr. Brown), the only way in which to secure proper, detailed consideration
Column 237of all aspects of the Bill is to ensure that, on Monday, when the Committee stage begins, we begin with a timetable motion for the entire Bill.
The clauses relating to the introduction of current year assessment, for instance, will be implemented--in theory--in 1996. Many businesses that start their operations after 5 April, or whose accounting date falls shortly thereafter, will be affected by those provisions before Report ; hopefully, the provisions will have been considered in Committee.
It is therefore crucial that at least one Committee has the opportunity to consider the provisions before they become effective in practice. In view of the length of the Bill, I urge my hon. Friend the Financial Secretary to consider carefully giving all parts of it a fair wind by means of an early guillotine motion.
Mr. Cynog Dafis (Ceredigion and Pembroke, North) : On the day that the Government announced that sustainable development must henceforth be the touchstone of all their policies, and on which they also published four important documents as a follow-up to the Rio summit, I thought that it would be appropriate to consider the imposition of value added tax on domestic fuel, in relation to which an amendment has been tabled, from an environmental perspective.
The Government have claimed that VAT is in part an environmental tax. In the document on climate change, they list VAT on domestic fuel as one of the instruments for reaching the target of reducing carbon dioxide emissions to 1990 levels by the end of the century. They suggest that the target can be reached through the more thrifty use of domestic fuel which will result from the instrument. The document speaks of a reduction of 1.5 million tonnes in carbon dioxide emissions. That is 1 per cent. of all carbon dioxide emissions from all forms of energy use. It may not sound a great deal, but it is 15 per cent. of the 10 million tonnes reduction in CO emissions that the Government need in order to reach their stabilisation target by 2000. The Government's intention may be fulfilled, but the reduction is to be brought about in a grossly inequitable way. That point has already been mentioned, and I shall cite one further set of statistics to prove it.
On average, bills will increase by £108 for the bottom 10 per cent. of households in terms of level of income, but by only £135 for the top 10 per cent. There will therefore be a gross disparity in the Bill's effect. Any compensation package will be a blunt and inadequate instrument. I stress that it should be a fundamental principle that environmental taxation must take account of equity. In moving towards sustainability, as we must--the Government have today stated that there is a terribly urgent need to do so--we must proceed in a socially equitable manner. The geographical inequity caused by the imposition of VAT on domestic fuel can be seen in a comparison between Wales and the United Kingdom as a whole. In Wales, the full rate of VAT on domestic fuel will take up 0.9 per cent. of usual disposable income, compared to 0.7 per cent. in the United Kingdom as a whole. I dare say that one could find the same disparity between the north
Column 238and south of England. It proves yet again that a taxation system that punishes low-income groups also punishes the regions where average incomes are low.
That is a general point to be made against the Budget and the Bill. Taxation that punishes low-income groups redistributes wealth by taking it from the less prosperous areas, impoverishing them still further. The first principle is therefore that we must move towards sustainability while taking account of social equity.
A related principle is that a large proportion of the proceeds from any environmental taxation should be invested, first, to maximise the environmental gain that it is intended to bring about and, secondly, to prevent the taxes from being inequitable. In other words, environmental taxation should be recycled in the form of action to maximise environmental gain.
A self-evident way of adhering to both principles would be to introduce a comprehensive energy efficiency package aimed, in the first instance, at lower-income groups. It is perfectly feasible and should be clearly set out as part of the package if we are to take seriously the Government's claim that VAT on domestic fuel is an environmental tax.
Domestic energy consumption produces 41 million tonnes of CO a year, which is 27 per cent. of total emissions from energy use. It is a very substantial contribution. A 20 per cent. reduction through an energy efficiency programme in homes is perfectly feasible, and would in turn produce a saving of 8 million tonnes a year. It would, of course, take several years to complete such a programme, but we could be well on the way by the end of the century. It would be a far more effective contribution towards the task of reaching the target in 2000 than the use of VAT as one of the instruments for that purpose. Energy efficiency must surely become a major investment priority if we are to take seriously the rhetoric of the Government's documents, and their rhetoric is very strong. I cannot understand why energy efficiency has not become a central priority. I believe that the total investment in energy efficiency measures is currently well under £100 million a year. We need to be far more ambitious. The Government have used the introduction of VAT on domestic fuel as an argument against agreeing to the European Union proposal for a Europe-wide carbon tax. I heard the Paymaster General use that argument when I attended a sitting of European Standing Committee B. He said that we did not need to agree to the European demand for a carbon tax because we had our own instrument, and this was it. A carbon tax would be far preferable as an instrument for achieving that aim. It would apply across all sectors, not the domestic sector only. It would apply to commerce and to transport, which is especially important, and those are sectors where, as we all know from observation, energy use is often profligate. I believe that it is profligate in the retail sectors especially. Huge quantities of energy are wasted by overheating and by constantly opening doors. A carbon tax would tackle that waste. It would be more effective and far more equitable.
A carbon tax would also discriminate in favour of renewables. However, one should note that the European proposal is for a carbon and energy tax--a combination--so it is not quite as effective in that way. That combination was suggested because the European Community does not wish to act strongly against coal and oil, and it does not wish to support nuclear energy.
Column 239However, a carbon tax would discriminate in favour of renewables, as it should if we are serious about the environmental issue. I hope that I have made my few arguments clearly. I hope that I have said enough to show the way in which the Government claim about the tax as an instrument of environmental policy is unsustainable and the way in which they get the process of environmental taxation off on the wrong foot by not associating it with the other fundamental and essential principles. I hope that I have completely justified our decision to vote for the amendment and against the Bill.
Mr. Peter Ainsworth (Surrey, East) : Hon. Members would not thank me, I suspect, if I followed the hon. Member for Ceredigion and Pembroke, North (Mr. Dafis) too far down that route. I believe that the extension of VAT to domestic fuel has an important role to play in reflecting the true cost of energy consumption in our society. The hon. Gentleman did not mention several aspects--the enormous unparalleled package of help to those people who will most need it, the fact that fuel prices are falling, the massive expansion of the home energy efficiency scheme, and so on. I could go on, but I shall not.
I was listening to the radio yesterday morning when the dulcet tones of the hon. Member for Dunfermline, East (Mr. Brown) reached my ear. He was speaking about tax. The thrust of his remarks was that he did not think much of the tax proposals in the Bill. He expressed himself with some vigour--so much vigour, in fact, that one might have thought that he would be rather more certain about his position--yet he remained curiously unwilling or unable, under questioning, to confirm whether, had a Labour Government been elected in 1992, taxes would have been higher or lower than is proposed in the Bill. He did say that it did not matter very much because, if there had been a Labour Government, the taxes raised would have produced money to be spent on what he said were "sensible things". On that basis, he justified the theory that Labour taxes are good and Conservative taxes are bad.
The hon. Member for Dunfermline, East did not, as one might expect, spell out what "sensible things" he had in mind, but all Conservative Members know that there is an extensive shopping list. Not much of it appears very sensible from our point of view. There is no doubt--we have heard something about that this evening--that there would be an attempt to spend a way into full employment.
I have thought hard about that. If one of the principal reasons we have a budget deficit is that we have spent too much money as a Government, I simply do not understand how spending more will help--even if, as he seemed to argue, and as the hon. Lady the Member for Peckham (Ms Harman) seemed to reiterate, the excessive element of spending arises only in respect of unemployment benefit. That seemed to me a curious allegation. It brings me to my next argument. Obviously, all hon. Members want unemployment to continue to fall and spending on unemployment to fall, but singling out the increase in unemployment as the reason for the deficit shows a failure not only to grasp the difference between cyclical and structural spending patterns--which
Column 240is quite serious in someone who aspires to be a Chancellor of the Exchequer--but to understand the way in which the deficit has accumulated and where the money is spent.
Spending on unemployed people has undoubtedly increased in recent years. It has increased throughout the developed world, for reasons which Opposition Members do not seem to understand. The recession that the world has been experiencing has been international. The United Kingdom is pulling out of it now, happily--much of the rest of the world is not yet.
I have examined the figures. Opposition Members seem to have gone to The Sun for their figures on the subject. I went to a combination of the Red Book, the excellent document "The Growth of Social Security" and the Library. Spending on unemployed people in 1993-94 is put at £10.4 billion. That is a great deal of money. Of course it is important to get unemployment down, not only for fiscal reasons but for social reasons, but it is important to understand that £10.4 billion represents about 13 per cent. of the total social services bill and less than 3.5 per cent. of Government spending. To pin the blame for the deficit on an item of expenditure representing less than 3.5 per cent. of Government spending is arrant nonsense, but it happens to be convenient nonsense because it obscures the need to confront the real issue, which I will discuss in a minute.
The other reason why the talk about unemployment being the root cause of the deficit is nonsense is that unemployment is one of the few areas of Government spending that goes down of its own accord, as well as up. For example, between 1986-87 and 1988-90 spending on unemployment fell by 50 per cent. in real terms. In addition, as the House will know, unemployment has been falling sharply in recent months--it fell by 223,000 in 1993.
That is no thanks to Opposition Members, who, as well as paying scant regard to the good news when it comes through, do their best to moan about British industry at every possible opportunity. We have heard some of that this evening. When Opposition Members do that, I wonder whether they understand that they are criticising not the Government but ordinary men and women, from the shop floor to the board room, who have been straining every sinew through an extremely difficult recession to improve the productivity and profitability of their businesses. As a result of those efforts, productivity and exports are at record levels, profitability is on the up and Britain is growing faster than any other European country. The CBI survey published yesterday confirms that positive trend. My hon. Friend the Member for Milton Keynes, South-West (Mr. Legg) mentioned the encouraging figures for corporate liquidity.
The last thing that people in industry want is gloomy lectures from the Opposition, half-baked statements about how life under Chancellor Denis Healey was somehow better than it is today, and adherence to the Euro- socialist action programme, which would add £5 billion to the cost of British industry and send the unemployment figures soaring. It is not good enough for the shadow Chancellor to pin the blame for higher taxes on increased spending on unemployment benefit. That is another fatuous strand in the series of fatuous arguments that we have heard from the Opposition. In the light of their employment policies, it is also hypocritical and shoddy.
I shall now answer a question that was asked earlier. There are two clear underlying reasons why there is a
Column 241deficit--the after-effects of the recession, which obviously reduced Exchequer income, and the recent levels of Government spending across the board. As my right hon. Friend the Chief Secretary to the Treasury said, over the past five years the Government have increased spending on education by 25 per cent. in real terms, and since 1992-93 alone, spending on health has risen by 5.5 per cent., investment in British Rail has been trebled and spending on law and order has increased dramatically. Amazingly, at every point the Opposition criticised the Government for spending too little in all those vital areas.
That brings me to the vital question that my right hon. Friend the Chief Secretary asked the hon. Member for Peckham. Perhaps over-optimistically, I look forward to getting an answer where he failed. The Opposition must come clean. If they criticise the Government for the tax increases, will they say where they would have made the savings necessary to restore sound national finances? The silence is almost Pinteresque. Spending restraint does not appear to feature in the Opposition's vocabulary. It did not do so in the 1970s, either--at least not until it was too late, and Denis Healey, whom Opposition Members now seem to revere as a paragon of fiscal probity, had to go cap in hand to the International Monetary Fund, having cut Government spending in crucial areas such as health.
Of course nobody likes to pay increased taxes. The Government, unlike the Opposition parties, do not like having to ask for them. But it is one thing to return to the impoverishing cycle of tax and spend to which the Opposition parties tacitly or overtly still adhere and quite another to raise taxes against a background of tight spending restraint. Let us remember that my right hon. and learned Friend the Chancellor has announced that more than £8 billion is being taken out of the control total over the next three years. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) spoke about fair taxes. Those start when Government spending comes under scrutiny. Fair taxes start on the premise that there is no such thing as Government money, only other people's money which Governments take away and spend in different ways. That is the basis for fair taxation.
I hope that my right hon. Friend the Chief Secretary will understand that it is in no way a criticism of him when I say that I cannot find it in my heart to give an enormous cheer for the tax increases in the Bill. However, in common with other Conservative Members, I understand why they are necessary. I agree with those Conservative Members who have expressed confidence that the tax increases proposed in the Bill will not unduly impact on the recovery.
There is a great deal to welcome in the Bill besides the effective action being taken to reduce the deficit, which is clearly its primary purpose. I especially welcome the measures for business, as somebody who has spent 10 years in the equity markets and who now has a consultancy for the SG Warburg Group, the investment bank. I especially welcome those parts of the Bill which are designed to help businesses and to help stimulate equity investment.
I was sorry that the hon. Member for Cambridge (Mrs. Campbell) felt that the new enterprise investment scheme, which would replace the business expansion scheme, was inadequate and was not able to welcome it. It has a great deal to offer for those smaller companies that we know will lead recovery and will lead the whole process of job creation. For far too long, smaller companies have
Column 242laboured under inadequate access to equity investors and have had to rely, sometimes excessively, on debt. I have long been a great believer in spreading equity investment and ownership and anything that is done to promote that robust type of long-term finance is to be warmly welcomed.
I also welcome the proposals for capital gains reinvestment relief and the venture capital trusts. I would add only that it is a pity that the proposals to restrict the indexation allowance on capital gains to prevent it creating or increasing a tax loss are likely to act as a disincentive to investment, especially in unquoted companies. I know that my right hon. and learned Friend will listen carefully to the concerns expressed by individual investors and by market practitioners on that point.
With an economy which has become fundamentally stronger, more competitive and more productive under the Government, Britain is well placed to sustain economic growth at a rate that can only improve as the international recession lifts. The Finance Bill underpins that opportunity by securing the foundations for national prosperity and deserves the whole-hearted support of the House.
The Bill is important because, as my hon. Friend the Member for Peckham (Ms Harman) said in her brilliant demolition of the Conservative party, it could well represent a turning point in modern political history and certainly in the reputation of the Conservative party. The Bill has exposed the Conservative party as the party of tax trickery, tax unfairness, tax dishonesty and tax lies. The Government may be forgiven by some of the British people for putting up taxes, but they will certainly not be forgiven for promising the opposite and for cheating their way to election victory through their fraudulent claims.
Secondly, the Bill is significant because behind that tax rise is the economic incompetence of the Government. The Labour party has alway known about that, and now the British people will realise it. Thirdly, the Bill makes it clear that the Conservative party represents only a small section of society--the rich. Middle-income and low-income earners are clobbered by the Bill. Those groups will unite and throw out the Conservative party at the next election. Taxes should be increased, but only for the rich, such as the top 1 per cent. of the population, who have benefited to the tune of £3.2 billion a year since 1988. Tax increases certainly should not have been targeted at middle-income people, and especially not at low- income people. Coupled with public expenditure cuts, we have the most massive piece of discretionary deflation since the 1930s. With a very weak recovery, that is exactly what the British economy does not want. Opposition Members oppose the Bill because it will knock that recovery on the head and make further recovery far more difficult, and because of its devastating effect on millions of middle-income earners, people on low pay and people on no pay.
Many measures will affect people on low pay. About 500,000 people will have to pay more in national insurance contributions, although they are not even in the income tax net. The Government have targeted the increase at them. Also, 400,000 people will be brought into tax for the first
Column 243time. Allowances--for example, the married couple's allowance and the single parent's allowance--have been affected.
In the Budget, the Government boasted of what they were doing for low- income women through their child care allowance. However, yesterday I received a written answer that showed that only 10 per cent. of people presently on family credit could get the full benefit of that measure. Many measures will hit the low-paid, particularly low-paid women, who constitute a disproportionate number of the low-paid.
One matter that has not been mentioned much is the public sector pay freeze, which is actually a public sector pay cut.
As for people on no pay, the main criticism is that the Bill will do nothing to relieve the mass unemployment that still afflicts the country. We all know that the official figures show unemployment coming down, but the labour force survey shows that far more people are out of work and are looking for jobs. That figure is not only large but increasing.
There is to be a vote on the VAT amendment. VAT on domestic fuel will punish not only the people whom I have mentioned but those who are on benefit and whom the Government boast that they are helping with a compensation package worth £1.3 billion. Only half of that is discretionary, and the other half is automatic uprating because of inflation. People on income-related benefits will gain by 0.4 per cent. A person with a partner and two children will gain 45p a week. A single person will gain far less. That is the only compensation. In future, the payment will be the normal uprating.
On pensions, the Government boasted of the extra 50p, but we must remember that a single pensioner will receive a derisory increase of £1 next year. Pensioners will still suffer as a result of the measure. I appeal to Conservative Members to join us in the Lobby. 9.17 pm
Mr. Nicholas Brown (Newcastle upon Tyne, East) : Like my hon. Friend the Member for Cambridge (Mrs. Campbell), I wonder whether we would have heard Conservative Members speaking in favour of fiscal rectitude if the Labour party had won the previous general election. It is not long ago that Conservative Chancellors boasted that they had dealt with the public sector borrowing requirement, reduced taxation and increased essential public expenditure. In fairness, they did not say that they had dealt with the deficit "once and for all", but the debate has moved on rather a long way since those heady days.
Now, the Conservative party not only acknowledges that tax increases are necessary but rather irritably says, "So what?" when asked whether the tax rise is equal to 7 percentage points on the basic rate of income tax. The issue has moved on from whether taxes should rise to which taxes should rise and who will bear the burden. The tax cutting of the late 1980s reduced the tax bills of the richest. The tax rises of the post-election period are much more evenly spread. Taking the 1988 cuts and the more recent increases together, all but the very wealthy are worse off.