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Mr. Brown: I shall give way once more, and then I will have to make some progress.

Mr. Heald: The Labour party is committed to the European recovery fund at a cost of £77 billion. Will the hon. Gentleman give us a bit of rectitude now and tell us whether he confirms that the Labour party will go ahead with that programme and what it will cost the British taxpayer? Yes or no--a clear answer, please.

Mr. Brown: That was not the question of an intellectual. The hon. Gentleman is presumably not talking about the European recovery fund but what is called the European investment fund. One of our complaints is that the European investment fund has not been set up expeditiously enough to deal with this recession, and presumably can only be in being, because of all the delays, to deal with a future recession. As the hon. Gentleman knows, what is costing this country billions of pounds is not acting against unemployment; what is costing £25 billion is the failure to take action to remove our present unemployment. When people realise that every ordinary family pays £20 a week to deal with the Government's failure to combat unemployment, they will join us in calling for action.

Mr. Nick Hawkins (Blackpool, South): In the light of what he has just said, will the hon. Gentleman explain why every Labour Government have left office with unemployment higher than when they came into office?

Mr. Brown: Unemployment was falling when Labour left office. Under the Conservative Government, in every year since 1980 unemployment has been 1 million higher than it was under Labour. The Government have been prepared to live with unemployment at more than 2 million--it is now 2.5 million--as an instrument of economic policy. Let me tell the hon. Member for Blackpool, South (Mr. Hawkins) what could be done about unemployment, and what the Chancellor could do next Tuesday if he were prepared to take the action. First, he could release local authority capital receipts and let local authorities build. Secondly, as we have proposed, he could invest in a small business expansion scheme, as existed previously under the present Government and under a Labour Government. That would allow the economy to expand.

Thirdly, the Chancellor could create an environmental task force for the young people in our community so as to engage their energies in dealing with the problems of

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the environment. Fourthly, there could be a tax rebate for employers prepared to take on the long-term unemployed. If Conservative Members ask me whether all that would cost money, I tell them that yes, in the first year it would. But it would enable us to deal with the problem and then reduce public spending on unemployment.

Let me tell Conservative Members how that could be paid for. We have already made our proposals. First, there could be a windfall tax on the excess profits of the privatised utilities.

Mr. James Clappison (Hertsmere): Would the hon. Gentleman be prepared to live with the consequences of such a windfall tax? Imposed on industries that are already regulated, it would inevitably reduce their cost competitiveness, capacity for innovation and, more than anything else, their ability to invest. Is he prepared to live with a return to the sort of customer service that we had from those industries when the Labour party was in power?

Mr. Brown: The hon. Gentleman should be clear with the House; he is defending the profit levels of the utilities, profits of £45 billion during the--

Several hon. Members rose --

Madam Speaker: Order.

Mr. David Shaw (Dover): Will the hon. Gentleman give way on that point?

Mr. Brown: The hon. Gentleman is trying to make a claim to be an intellectual, and we should give him a chance. I shall give way to him first and then answer his hon. Friend's question.

Mr. Shaw: Does the hon. Gentleman accept the figures that I have from the Library, which show that the sum of £45 billion that he has mentioned represents the total pre-tax profit for all the privatised utilities since they were privatised, and that part of pre-tax profit is paid to the Government in corporation tax and to pension funds in dividends? How many pension funds does he think should be denied dividends? Does he also accept that pre-tax profits are used to fund investment that will help this country?

Mr. Brown: The hon. Gentleman is factually wrong, and I hope that he will withdraw his comments.

Mr. Shaw: I got the figures from the Library.

Mr. Brown: The question is not whether the hon. Gentleman got the figures from the Library but whether he can understand them. The £45 billion represents profits earned between 1989, the year before the recession started, and now. If the hon. Gentleman wants to correct me on that, I shall happily give way to him again.

The utilities' profits have risen by 50 per cent. during a recession. I can think of no other company in the country that could justify a 50 per cent. increase in profits during a recession in which others are having to cut back. I believe that the Energy Users Council, whose secretary is a former Conservative Member of Parliament, has now put the case for a windfall tax on the privatised utilities.

Government Members will come to recognise that, as the water companies have been afforded tax allowances of £7.5 billion, the British Rail privatisation contains extra tax allowances of £1.5 billion, and the National Grid is

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about to be demerged from the electricity companies--giving a windfall profit, over and above those about which we are talking, of nearly £4 billion--the case for action on behalf of the consumers of this country is now overwhelming.

The Government are not prepared to act in relation to the privatised utilities or to take the advice of the vice-chairman of the Conservative party in relation to competitive share options, because too many people in the Conservative party benefit from those profits and from those share options.

Let us remember that, on the board of British Gas--we have been talking about the company this week--is the person who privatised British Gas, Lord Walker; on the board of BT is the person who privatised BT, Lord Tebbit; on the board of National Freight is the person who privatised it, the former chairman of the Conservative party, the right hon. Member Sutton Coldfield (Sir N. Fowler); and on the board of Cable and Wireless is the person who used to regulate Cable and Wireless, Lord Young.

I believe that people in this country are increasingly disgusted by the fact that the people who are defending excessive salary rises are also the people who want to deny a decent income to pensioners during these winter months. It is time we had a Government which will do something about that.

When there is a consensus in the country about what needs to be done in relation to unemployment, there is also a consensus about what needs to be done in relation to industry--to end short-termism in relation to dividends, to introduce commercial finance into the Post Office, to further public-private partnership with the task force which we have proposed, and to create a university of industry for skills education.

Why does the Queen's Speech not contain one measure to deal with the problems on which consensus now stretches from the trade union movement through to most people in the business community? It does not, because the Cabinet and the Government--our entire political leadership--are paralysed by bitter entrenched factionalism. That is why they cannot act on Europe in a way which is sensible for party policy. The Maples memorandum makes it clear that the key issue is not what is good for Britain, but party unity. The memorandum states that the Conservative party must remain more Euro- sceptic than Labour.

They cannot act on the Post Office because of the bitter entrenched factionalism in the Conservative party. The left vetoes privatisation, and the right vetoes public-private partnership, so nothing is done. The memorandum from the Lord Privy Seal made it clear that the reason private finance for a publicly owned Post Office was rejected was not because it was against the interests of the country or taxpayers, but because it would seriously undermine the Government's whole approach to privatisation. Factionalism is again rampant. Private funds were rejected for the Post Office not because they were unhelpful, but because they would have revealed the limitations of privatisation as a dogma.

What of industry policy as a whole? We know that dividends have been too high for the levels of investment which we need in the economy. We know also that a new industry policy was favoured by the President of the Board of Trade before he came to the Department of Trade and Industry, when he advocated an English

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development agency, research and development incentives, tough monopoly and merger legislation, and a training level for skills. But why is Britain denied an industry policy such as other countries have? Again, bitter entrenched factionalism in the Conservative party has dictated that there should be no industry policy.

The industry budget, as we know, was the subject of an acrimonious dispute between right and left, and between the President and the Secretary of State for Employment, this summer. The President wanted to continue the regional incentive, and the Chief Secretary--as he was then--wanted to get rid of it.

Bitter entrenched factionalism has also paralysed policy on investment and the City. We know now that there will be no full publication of the review on dividends for the City. It will not be published because of what we know now was opposition, not from the right or left of the Conservative party, but from outside this House, from a sponsor of the Conservative party, Lord Hanson. He told the Prime Minister that the proposals were socialist, the Prime Minister dropped them, and the review will now not be published.

The right wing vetoes a competitiveness review from the President of the Board of Trade, Lord Hanson vetoes a dividend review, and nothing is done to deal with the problems we face in relation to industry.

It is factionalism which explains why there is no agreement in the Conservative party and why there is a yawning gap growing between what needs to be done in the interests of the public and what the public are getting from the Government. It explains what is happening about Europe, industry and the economy. That is why, as the Maples memorandum showed, the people find that they have a Government whom they cannot trust and do not believe to be telling the truth. Nowhere is the betrayal of the Government greater than on taxation. It is not an accident that we are soon to face a Budget just when the Conservative party is trying to tell us that tax cuts are on the way at some point, but when everyone knows that we face seven tax rises over the next few years.

Let us be absolutely clear about VAT. The same Chancellor who has been asked by some Conservative colleagues to abandon the rise in VAT to 17.5 per cent. is the person who wrote a letter to one of his constituents saying:

"I have always thought we exempt too many goods and services from VAT in this country."

Let us also be clear that he is the same Chancellor who said: "With hindsight it would have been politically advantageous to go to 17.5 per cent. straight away and bring it in this April." Far from wanting to leave it at 8 per cent. next year, the Chancellor wanted VAT at 17.5 per cent. this year.

If anything shows how out of touch and insensitive the Chancellor and his colleagues at the Treasury are, it is that they are prepared to impose VAT on fuel at 17.5 per cent. At the same time, the Chancellor has made clear his

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commitment to impose VAT on food, transport, including rail fares, and on children's clothes, if he could get away with it, because that is the principle in which he believes.

Mr. Iain Duncan Smith (Chingford): Given that the hon. Gentleman now believes that taxation is too high, does he therefore believe that public expenditure is too high or too low?

Mr. Brown: We are wasting huge amounts of public money on paying the bills of unemployment.

Mr. Duncan Smith: Answer the question.

Mr. Brown: I will tell the hon. Gentleman how he could reduce public expenditure--by tackling the long-term problems of unemployment that the Conservative party has failed to do. He could cut out waste in the public sector by taking up some of our proposals concerning tax reliefs on executive share options and private medical insurance.

Today, the Dudley--

Mr. Duncan Smith: How about an answer?

Madam Speaker: Order. The hon. Gentleman has had his intervention. I will not tolerate remarks from a sedentary position.

Mr. Duncan Smith: On a point of order, Madam Speaker. I asked a clear question in my intervention. You said, quite rightly, that I had had my opportunity. I asked whether public expenditure was too high or too low, but the hon. Member for Dunfermline, East (Mr. Brown) failed to answer my question.

Madam Speaker: That is not a point of order for me. The hon. Gentleman had an opportunity to put his question, and the hon. Member for Dunfermline, East (Mr. Brown) responded in the way he wanted. That is not a matter for me. I will not have barracking. I am sick and tired of barracking from both sides of the Chamber.

Mr. Brown: The hon. Member for Chingford (Mr. Duncan Smith) interrupted me during my discussion of VAT, but he might have reminded the House that, despite all his right-wing views, his own constituency association put a motion before the Conservative conference urging the Government to abandon VAT on fuel as a matter of urgency.

Today the Dudley by-election has been called. The promises on VAT have been broken; the promises made on national insurance have been broken; the promises on income taxation and on allowances have been broken. A new tax has been introduced on home insurance, and taxation on mortgages will rise despite the Government's promise at the election to "maintain mortgage tax relief." Ministers even promised:

"We will raise the tax threshold for inheritance tax", but then failed to do that. They are a Government who not only break their promises to the living, but are even prepared to break their promises to the dead.

Taxes will rise because of bills of more than £25 billion a year to pay for unemployment. Those tax increases are a direct and inescapable consequence of economic mismanagement. What does the Chancellor say now? Does he admit that the Government misled people and betrayed their promises? Does he apologise or confess his

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mistakes? In words that will haunt the Chancellor throughout the Dudley by-election, he told us that promises did not really matter. He said:

"I am less impressed by out-of-context quotations from stray remarks in speeches in Dudley on a wet Wednesday night during a general election campaign".

His defence is, "Read my lips, but not in Dudley on a wet night". May I remind the Chancellor what was said in Dudley during the general election campaign? The manifesto of the Tory candidate for Dudley, East said:

"We will get taxes down"--

[Interruption.] The Chancellor seems to think that the Dudley by- election was last year. It is about to happen, and the Chancellor had better face up to the fact that what he said last year will be repeated this year, because it has significance for the Dudley by-election and what people there think about the country. The manifesto of the Tory candidate for Dudley, East said: "We will get taxes down further, building on the new 20 per cent. rate . . . Tax is the dirtiest word in the Conservative philosophy, unlike the socialists who are going down the disastrous pathway of higher taxation and national insurance contributions, taking money out of your earnings".

Which party has put up taxation and national insurance contributions? The Conservative party did so, in the biggest tax rise in history. Although promises were made throughout that election campaign in Dudley, the Chancellor says that we need not pay them too much attention, because there are promises, electoral promises and promises made in Dudley.

We know what the Chancellor thinks of the people of Dudley. We shall soon hear what the people of Dudley think of the Chancellor. Let any Minister go to Dudley and outline his plans for the next few years. I assure him that no-one will believe a word he says.

Mr. Hawkins: Will the hon. Gentleman give way?

Mr. Brown: I shall not give way again. I had to educate the hon. Member for Chingford (Mr. Duncan Smith) to make him something that he is not--an intellectual--after the last intervention, and I do not propose to do it again.

As the Chancellor admits, there is no feel-good factor in Britain today. There is a feel-angry facto, and a feel-betrayed factor caused by broken promises, which the Gracious Address does nothing to answer.

I have a final warning for the Chancellor before his Budget. A fundamental review into social security expenditure is currently taking place. The Chancellor's policies and those of his Government have already undermined sickness pay, maternity pay, invalidity benefit and unemployment benefit. He now seems to be out for industrial injuries benefit, and even help for the disabled and the unemployed. If the Budget does nothing about abuses at the top, continues to impose VAT on fuel and yet cuts into vital services for the sick and disabled, the country--not just people in Dudley--will never forgive the Chancellor.

Allegations of sleaze are but one manifestation of a breakdown in this Government. They are symptoms of a deeper malaise--a breakdown in ethics at the heart of government: the £1,000 questions; the visit to the Ritz; top salary rises that go uncondemned; public funds, according to the Maples memorandum, to be used for

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party advantage; public servants to be fingered; the media to be suborned; the news to be controlled; and opponents to be shouted down or, if they are public servants in the health service, to be menaced. The Conservative party's desperate scramble for survival is the only thing that unites it.

The Government have long since abandoned the interests of country as a whole, and have retreated into the interests of the party. They have now abandoned even that, and are continually retreating into factionalism and greater division. They can no longer speak for Britain. They must go, and they must go soon.

4.18 pm

The Chancellor of the Exchequer (Mr. Kenneth Clarke): Before you, Mr. Deputy Speaker, took the Chair, Madam Speaker made a ruling on a point of order in which she asked the House to have regard to common sense in its proceedings. It was a bold attempt to overturn the tradition of centuries in our proceedings. If we were to follow common sense, it might be an idea not to hold a debate on the economy about a week before a Budget. However, those are the only debates that we ever have on the economy nowadays, because of the choice of the Labour party. Debates on the economy are few and far between. After this week, we shall not see much of the hon. Member for Dunfermline, East (Mr. Brown) before this time next year, when he will come back, as he came back a moment ago, with some of the same passages from the speech that he gave at this stage last year. I remember times past, when the International Monetary Fund ran this country, when Mr. Healey kept having to change his mind, and when we had frequent Budgets and frequent debates. Those days are behind us, but they are behind us because the economic news is steadily getting better, so the Opposition no longer want to debate the economy. They choose a week before the Budget because they believe--

Mr. Gordon Brown rose --

Mr. Clarke: I shall give way in a moment.

The Opposition choose a week before the Budget because they know that Budget secrecy restrains Conservative Members, and they speak on the Budget because they have to speak on the Budget. When we ask any questions in between, all is silence.

The hon. Member for Dunfermline, East used a great deal of his material from what he called "the Maples memorandum"--a survey that was targeted at a section of the population that is not voting for the Conservative party. Bill Clinton's team probably used many similar surveys. The hon. Member for Hartlepool (Mr. Mandelson) probably has many such surveys. The difference between the Conservative party and the Labour party--which used to believe in socialism, and used to have an economic policy--is that Labour uses such surveys to try to find out what its ideas should be. However, when, in reply to an intervention, the hon. Member for Dunfermline, East told one of my hon. Friends that when the Labour party has debates, it comes

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to conclusions, we realised all over again that conclusions on economic policy there are none, and there will not be, from the Labour party.

Mr. Nigel Griffiths (Edinburgh, South) rose --

Ms Angela Eagle (Wallasey) rose --

Mr. Clarke: I shall give way in a second, if either of the hon. Members persists.

The hon. Member for Dunfermline, East will produce a shadow Budget. Today he has the Floor of the House of Commons, and he could have produced that shadow Budget. He is not doing so. He will produce it tomorrow; and he will produce it tomorrow because he knows that its hollowness, its emptiness and its list of meaningless slogans would not bear scrutiny in the House.

Earlier, the speech of the hon. Member for Dunfermline, East rattled on for a time about some public expenditure by local authorities on capital projects and new environmental schemes for young people. When insistently questioned about how he would pay for it, he made evasive and all-too- familiar noises from the past about, "You would not have to pay for it because we would get unemployment down," without saying how he would ever get unemployment down. The hon. Member for Dunfermline, East did not mention the loopholes that he mentioned last year. Last year, the loopholes were revealed to be taxes on legitimate business that would have damaged business, as Howard Davies said. This year, he has come up with the so- called "windfall tax", which will, apparently, produce millions of pounds for a Labour shadow Budget.

The purpose of the windfall tax is to revisit successful businesses--which have modernised themselves, invested heavily and reduced costs to their consumers in the case of electricity and gas--to obtain a second price for privatisation, at the expense of shareholders, at the expense of investment, and at the expense of the prices that those industries would charge consumers.

The hon. Member for Dunfermline, East has no understanding of a market economy. He dare no longer say that he would renationalise those industries; he produces a windfall tax to return to them for a second tranche of money to finance the Labour party's spending programmes, at the expense of the consumer and of the people who invested in the companies.

Mr. Brown: Now that the Chancellor has ruled out action in relation to excess profits of the privatised utilities--and presumably he is ruling out action in relation to the demerger of the National Grid, where a £3 billion windfall will be made by the electricity companies--will he also tell us whether he unequivocally condemns the 75 per cent. pay rise for the chairman of British Gas?

Mr. Clarke: The National Grid was taken into account when we sold the company. The hon. Gentleman suggests returning for a second tranche on top of the price that the market has already paid for it. The improved efficiency, including the possible next steps for the National Grid, has already produced reductions in prices for consumers. The hon. Gentleman is going back to deceive the country into believing that taxing those companies will somehow

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do no damage to the falling prices, the improved efficiency and the greater effectiveness of our electricity industry.

Ms Eagle: I thank the Chancellor of the Exchequer for his courtesy in giving way. Will he admit that the precedent for a windfall tax on any type of industry comes from a Tory Government, who introduced a windfall profit tax on banks in 1981?

Mr. Clarke: In 1981 there was a windfall tax because the banks were making profits, not as a result of their actions, but because of the monetary policies of the then Government, which were producing a windfall for the banks. The monetary policies of the then Government produced a hugely successful decade--the 1980s. The Labour party is proposing new and unexpected taxes on successful private companies that are improving the efficiency of our public services. When the Labour party sees success in the private sector, it instantly thinks of taxation. The hon. Lady's example was not a precedent.

Mr. Denis MacShane (Rotherham) rose --

Mr. Malcolm Bruce (Gordon) rose --

Mr. Rhodri Morgan (Cardiff, West) rose --

Mr. Gordon Brown rose --

Mr. Clarke: As I see only one intellectual rising, I shall give way to the hon. Gentleman.

Mr. Brown: If the Chancellor condemns new and unexpected taxes, perhaps he should condemn the tax rises for which the Government have been responsible. Will he now answer the question: does he condemn unequivocally the 75 per cent. pay rise for the chairman of British Gas?

Mr. Clarke: If the hon. Gentleman wants to talk about taxation policy, he should get rid of the rubbish about loopholes and windfall taxes, and answer the simple question about what he would do about taxation to finance the spending commitments that we hear from him every time that he makes a speech. On the salary increase of the chairman of British Gas, I disapprove of large salary increases for executives, in any company, which go far beyond those deemed reasonable for their performance.

The performance of the chief executive of British Gas has been extremely successful, which is why there has not been one gas price increase since 1991. Nevertheless, as my right hon. Friend the Prime Minister said yesterday, we should look at what can be done to increase shareholders' ability to take responsibility for the pay and rewards of their company's chief executives. The hon. Member for Dunfermline, East is thunderstruck--I have just suggested where we might look for policy. All he does is to protest. Presumably, he has in mind higher rates of taxation on high earners at every level.

Mr. Brown: The Prime Minister did not say yesterday that he was proposing increased powers for shareholders to deal with that matter--that is a new suggestion today from the Chancellor. Will the Chancellor take up our suggestion to give the regulator the power to intervene

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when excessive pay rises cannot be justified? If companies can afford excessive pay rises, they can afford to cut prices.

Mr. Clarke: Every time that he speaks, the hon. Gentleman reveals that he has no understanding of a market economy--even though he purports to be a member of a party that has suddenly undergone a St. Paul-like conversion to market economics in the past two years. The regulator is there to protect the consumer and control prices. The price record of those public utilities is extremely good. The idea that a regulator should regulate the salaries of the management of a private company is a throwback to the old Labour party--as is the proposal to introduce a windfall tax if a company is profitable. If that is Labour's policy--if we at least have an inkling of it--we see that it is not a new policy, but a throwback to the past errors that brought Labour into such terrible difficulties.

Mr. Brown: Does the Chancellor agree that the proposal to give the regulator power to cut prices when there were excessive salary awards came initially from Sir Bryan Carsberg--who was appointed by the Government to be the regulator in the first instance and who has now been appointed to head the Office of Fair Trading? Will the Chancellor answer my question? Will he unequivocally condemn the 75 per cent. pay rise awarded to the chairman of British Gas?

Mr. Clarke: The regulator is responsible for looking at the management, costs and efficiency of the industry and the profitability of its operations. He then has to set what he believes to be price regulations that protect the interests of the consumer. The regulator is not there--no agency should be set up--to start determining, at the behest of the hon. Gentleman, the salaries to be paid at each level of a company. When the Labour party was last in power, it nationalised many companies and was responsible for great trading companies such as British Leyland. It was precisely the sort of interventionism that the hon. Gentleman espouses, whatever fancy new academic theories he tries--unsuccessfully--to find to support it. He is returning to the old interventionism that ruined this country as a manufacturing economy when the Labour party was last in power. Several hon. Members rose --

Mr. Clarke: I will give way more later, but I hope that hon. Members will allow me to continue for a while. The persistence of the hon. Member for Dunfermline, East has held me up somewhat. The reason why the hon. Gentleman dismisses the background to his shadow Budget and my Budget next week is that good economic news is extremely bad news for him--it was scarcely touched on in his speech. We can usually see that in his face. Like his leader, who has now departed, the hon. Gentleman often smiles, but he cannot be accused of smiling all the time. When unemployment falls, as it is falling, he positively scowls. When inflation goes down, he glowers. Output and productivity increases always bring a large number of frowns to his face. The hon. Gentleman reminds me of Eeyore in "Winnie the Pooh". When there is good economic news, we can rely on the hon. Gentleman for

"a loud roaring noise of Sadness and Despair".

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Let me remind the hon. Gentleman of the peroration to the speech that he made on the Budget last year--not this half-quoted stuff about Dudley that he came out with again today. On 1 December 1993, he said:

"As a result of this Budget, we are worse off today without the slightest prospect of being a great deal better off as a nation tomorrow . . . It fails even to appreciate that the problems of trade deficits, unemployment and inflation will return again and again as long as the Government do not tackle these basic and fundamental issues . . . We wanted a Budget for employment, and the Government cut the employment budget. We wanted a Budget for industry, and the Government cut the industry budget. We wanted a Budget for investment, and the Government cut public investment in our economy. We wanted a Budget for fairness, and the Government ended up penalising 95 per cent. of the population. This Budget does nothing for fairness, jobs, industry and investment in the way that the country needs." --[ Official Report , 1 December 1993; Vol. 233, c. 1071.]

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