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"If we were going to cut public expenditure, we would have done it before, and I don't believe it is economically right . . . I see no reason why we should not meet our promises . . . We have seen these concerns in the past and it has not been necessary to change plans."

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What has happened since the general election, and what happened yesterday?

Mr. Butterfill: There was a recession.

Mr. Brown: The one thing that we did know about was the recession, which was raging before the general election. That is hardly an excuse for not keeping public spending promises. On transport, the Conservatives said:

"Over the next three years, we are committed to the biggest investment in Britain's infrastructure."

The Government will slash the transport budget 30 per cent. next year and 23 per cent. in 1997-98, and will slash London Transport's spend by £40 million next year and £165 million the year after. That is what promises mean to the Conservatives. They said also: "We believe that the railways can play a bigger part in responding to Britain's growing transport needs."

The Budget cuts spending on the railways by £521 million. The Conservatives promised:

"We will continue to give the police the support and resources they need to carry out their duties effectively on behalf of the public."

The Budget will cut Home Office spending by £200 million over the next two years. All that from a Government who said that they stood by their public expenditure figures, that there would be no cuts and that such cuts were not economically necessary.

After hearing today's statement by the Secretary of State for Social Security, we are clearly seeing the dismantling of vital parts of the welfare state that have been accepted by both political parties for 40 years, since the second world war. Sickness pay has been transferred to employers, there have been cuts in invalidity benefit, there will be cuts in mortgage help to the unemployed, and there will be a ceiling on help for the bereaved with funeral expenses--even when the Government are in a position to reclaim those expenses from the estate of the deceased.

Why do not the Government deal with problems of bed-and-breakfast accommodation and find a far better way of investing in this country's housing? They cut, cut and cut again. They have failed to act against offshore trusts, abuse of non-domicile and non-resident taxation facilities, privatised utilities and their tax arrangements, and abuse of corporation and capital gains tax. The Government are prepared to make the unemployed, sick, disabled and pensioners suffer instead of imposing the changes necessary for fairness in our society.

Eighteen months ago, the Chancellor made an analysis of the problems facing the Government and the country. He said:

"We are in a hole. We are in a dreadful hole."

He identified the problem precisely. His difficulty now is that, 18 months later, we are even further from a solution. The Chancellor identified urgent action. He said that there had to be agreement in the Conservative party, yet it is even more split than it was. The Chancellor said that a medium-term view had to be taken, and there is none. He said that there must be a sense of purpose, but where is that now? The Chancellor said that the Government must have an agenda for the next two years. They had Post Office privatisation for a day or two, but then dropped it.

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What does the Chancellor tell us now? In an interview a few days ago he talked about what he called a "slightly hysterical political atmosphere", which is no doubt a reference to Cabinet meetings under the present Prime Minister. He said:

"The key thing for the party is not to panic".

There we have it--the Tory strategy is "Don't panic, don't panic," with the Chancellor as the Corporal Jones of the embattled rerun of "Dad's Army" but without any of the resolve, organisation, leadership or popularity of the original.

Let us describe the Government's problem in terms that Conservative Members will understand. The Government now have all the hallmarks of a business on its last legs. As we saw in the Budget yesterday, they have no new ideas and there is no innovation from the Cabinet. Decisions are made not for the future but just to get through the day. They have lost credibility, exploited all the assets and wasted them for no long-term benefit. They have run out of credit; they are now divided and paralysed by a board that is split. They ignore all the problems and challenges facing us in the future and have ceased to operate as a viable entity--they are bankrupt in all but name. They are wasteful, divisive and incompetent; they are in need of liquidation and being wound up.

There is one final point of which the House should be aware. The Dudley by- election takes place in a few days. The Conservative manifesto in Dudley at the previous election was very clear. It rejected what the Conservatives called

"the disastrous pathway of higher taxation and national insurance contributions taking money out of your earnings",

but the Conservatives went on to do precisely what they had promised the electorate they would not do. The Chancellor said that promises made in Dudley do not matter. Let us remember the election manifesto-- [Interruption.] Oh yes, the Chancellor not only said it in the Press Gallery but repeated it in the House. The manifesto issued at the last election contained words that will haunt the Conservative party throughout this campaign. It stated:

"You can depend on John Major".

But the voters of Dudley will never trust the Conservative party on taxation again.

The Budget is unfair. It cannot unite Britain and does nothing for Britain's long-term economic future. What people will remember above all about this Budget is that, when the Government had the opportunity to think again, they still decided to impose VAT on fuel. That is why Conservative Members should use the next few days to wrestle with their conscience. They should look again at the election manifestos that they signed and which the Conservative party issued; they should reconsider what they said immediately on the imposition of VAT some months ago and then vote with us to defeat the Government next Tuesday.

5.11 pm

The Chief Secretary to the Treasury (Mr. Jonathan Aitken): This is supposed to be a debate about this year's Budget, but instead the hon. Member for Dunfermline, East (Mr. Brown) treated us to a vintage Uncle Grumpy performance, during which he complained bitterly, mainly about measures that were not in this year's Budget but in last year's.

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The hon. Gentleman's speech was an absolutely characteristic mixture. He could not bear to say a single good word about the excellent health and success of the British economy but indulged in ludicrous exaggeration and made uncosted public expenditure pledges, such as that in his throwaway line about the £6 billion capital receipts, which would add massively to the public sector borrowing requirement. We witnessed his over-reliance on pantomime humour and his over-confidence in his personal infallibility as a prophet of doom on the British economy.

Mr. Gordon Brown: Will the Chief Secretary begin by apologising for breaking promises on VAT on fuel?

Mr. Aitken: If it comes to breaking promises, I have a rather more up-to-date example of the hon. Gentleman's own activities in that department. I was very amused when, as a rehearsal for his pantomime performance today, he became so over-confident at the weekend that he made a rather embarrassing appearance in the News of the World . There he was, on page three in a full-frontal photograph, holding up Mr. Gladstone's famous Budget Dispatch Box outside No. 11 Downing street. Someone might have warned him of the danger of such a Prince Hal-like performance, trying on a crown before he is entitled to it--it can sometimes bring bad luck because pride comes before a fall.

Even worse than the presumptuous photograph was the preposterous prediction in the opening words of the article--

Mr. Brown: I was not there.

Mr. Aitken: The hon. Gentleman says that he was not there so I am sure he will have great sympathy with me over forgeries by newspapers. If he was in a compromising position for the News of the World , he should have used the famous exit line of that newspaper and made his excuses and then left.

The hon. Gentleman is trying to get out of the embarrassing situation to which I was referring, which was the preposterous prediction in the first words of the article. They were:

"Nobody should look to Kenneth Clarke for new hope for the unemployed when he presents Tuesday's Budget."

As we now know, the hon. Gentleman yet again got it hopelessly wrong, because one of the most important and much-praised features of the Budget-- even The Guardian praised it--was the £680 million package of measures to help the unemployed back into work. I shall say quite a bit more about that later.

No one should be surprised that the hon. Gentleman got everything so wrong in the News of the World last Sunday. Whenever Uncle Grumpy talks about unemployment, he defies the law of averages and always gets it wrong. It is worth reminding the House of what he said in the debate on the spring 1993 Budget resolutions. He said: "I make one Budget forecast--that, after the Budget, unemployment will rise this month, next month and for months afterwards."--[ Official Report ,17 March 1993; Vol. 221, c. 289.]

No sooner had the hon. Gentleman opened his mouth than unemployment fell steadily month after month. It has dropped by more than 450,000 from its peak and continues to fall at a rate of more than 1,000 a day.

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As we have now firmly established the hon. Gentleman's credentials as an economic forecaster--he is in a rather less reliable category than the astrologer in the News of the World --we can perhaps deal with more serious matters.

Dr. John Reid (Motherwell, North): I know that the Chief Secretary's memory does not stretch back 15 years but I remind him that, when the Conservative party came to power, there were 340,000 long-term unemployed people; there are now more than 1 million, or three times as many. Why?

Mr. Aitken: As that statistic comes from a member of a party that, whenever it has been in power, has left unemployment much higher than when it took office, I do not regard it as reliable.

Instead of my following the Uncle Grumpy pantomime line, I thought that the House would expect the Chief Secretary to make a serious speech about what the Budget means to the fundamentals of our economy-- [Interruption.] I know that Labour Members do not like to be told home truths or the good news about the economy, but the country at least will wish to hear the facts, seriously presented.

Mr. Nigel Griffiths (Edinburgh, South): If the action to help unemployed people is so important, and if the Chief Secretary and the Chancellor are so proud of it, why do we have to wait 16 months before it is implemented?

Mr. Aitken: Some of the measures are in trial schemes that are already in place. Let us not lose sight of the fact that unemployment is coming down--by 28,000 in September, by 46,000 in October and by more than 1,000 a day. My right hon. Friend the Secretary of State for Social Security has introduced a package of measures that will accelerate that downward trend, and all credit to him. [Hon. Members:-- "Why wait?"] Those who were listening to my right hon. Friend the Secretary of State for Social Security will know that some DSS schemes take a little time to introduce, which is fair enough. Let me now return to the serious speech about what the Budget means to the fundamentals of the economy, about how our policies will be seen after the Budget by international markets and about the public spending programme of priorities and reductions for the next three years.

Mr. Derek Enright (Hemsworth): Will the Chief Secretary please, before he leaves the subject, explain in words that even I can understand why it takes so long to put the measures in place?

Mr. Aitken: There are not always instant solutions to long-term problems. My right hon. and learned Friend the Chancellor's measures complement measures that are already in place. Some of the schemes, which have been piloted for some time, are now being built on and extended at considerable cost, quite rightly, to the taxpayer. This criticism of the timing is not well merited. What really matters is whether unemployment will come down, as it is coming down now, and whether it will continue to come down, which is what will happen. I was trying to tell the House how the Budget relates to a number of important areas and, above all, how it relates to the ordinary and understandably anxious people who are having to learn to live with the consequences

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of a global economic environment that is in a period of astonishing change. It is not surprising that new measures on unemployment or on anything else have to be tailored to cope with a fast- changing world.

Mr. Clive Betts (Sheffield, Attercliffe): The Chief Secretary has drawn international comparisons. Does he accept that on every comparison-- the growth of the economy, manufacturing capacity, manufacturing investment or the loss of manufacturing jobs--this country has done worse since 1979 than has every other one of the G7 countries? If he disputes that, will he give us one indicator on which we have done better than any of the other G7 countries?

Mr. Aitken: This is the old game of selective statistics. Let us get back to the hard facts of what is going on today. We have had two and a half years of steady growth and falling unemployment. Our economy is now growing at more than 4 per cent., easily the fastest rate of growth for any of the major economies in Europe. Underlying inflation is at 2 per cent. and my right hon. and learned Friend the Chancellor has kept inflation below 3 per cent. for more than a year. The last time we saw a performance as good as that, the hon. Member for Dunfermline, East was 13 years old. In those days, good news for Britain may have made him a great deal more cheerful than he was this afternoon.

Mr. Tim Sainsbury (Hove): My right hon. Friend could go further. Far from the situation being as the hon. Member for Sheffield, Attercliffe (Mr. Betts) described it, in the 1960s and the 1970s, this country finished bottom of the league of the G7 countries in productivity, exports and output growth. In the 1980s, we did not just move right up the league, but went right to the top of the G7 countries. That performance is quite contrary to the one described by the hon. Member for Attercliffe.

Mr. Aitken: I am grateful to my right hon. Friend for reminding the House of the old terrors of a Labour Government, which were much more extensive even than those he has mentioned. The average rate of inflation, for example, during Labour's years of power was 15 per cent.; today, we have inflation at 2 per cent. The Chancellor has kept it below 3 per cent. for more than a year, as I have just said. Let us give credit today to the remarkable performance of Britain's companies, which are creating a great turn-around in our national trading performance. Today, our visible exports are at record levels, with a growing contribution of invisible exports. My right hon. and learned Friend the Chancellor forecasts that our balance of payments on the current account will improve by about £7 billion this year overall. In fact, some independent forecasters are going further and saying that next year we shall actually be in trade surplus. After all those locust years of Labour, in which we had huge trade deficits, this turn-around in our economic performance deserves some congratulation.

Mr. D. N. Campbell-Savours (Workington) rose --

Mr. Aitken: I will take one more intervention and then I must get on.

Mr. Campbell-Savours: Are the growth assumptions on which the public sector borrowing requirement for

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1997-98 calculations are made the same as the growth assumptions on which our contributions to the European Community are made?

Mr. Aitken: I am sure that the Treasury is consistent in these forecasts and I have no reason to think otherwise.

Mr. Denzil Davies (Llanelli) rose --

Mr. Aitken: I shall take one last intervention and then I shall say something about interruptions.

Mr. Davies: The right hon. Gentleman mentioned the current account and the balance of payments. I do not have the Red Book in front of me, but I seem to remember that for the non-oil visible account, the forecasts show deficits of about £12 billion for the next three years. How does that accord with the great manufacturing upsurge about which the Chancellor spoke yesterday?

Mr. Aitken: I will send the right hon. Member a copy of the lecture I gave only two nights ago on Britain's trade performance. It shows how well we are doing in both the invisible sectors and the non-oil sectors. We are having a success in exports which we have not seen in the country's recent history.

I have now been interrupted about seven times in 10 minutes. In the speech made by my right hon. and learned Friend the Chancellor yesterday, the shadow Chancellor, the hon. Member for Dunfermline, East, interrupted seven times and was like a jack-in-the-box on pep pills. I draw the attention of the House to a thought from the Father of the House, my right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath). We should reflect on what he said if we are to be a serious debating Chamber. He said:

"We sit in the Chamber, and we jump up constantly. Nobody on the Front Bench can any longer deliver a speech, as there are an enormous number of interventions. Hon. Members who intervene are not trying to find a solution, but are trying to find some way of knocking the other chap down . . . I hope, therefore, that we can perhaps give some thought to the way in which we behave in the Chamber. People want to hear what ideas we have".-- [ Official Report , 23 November 1994; Vol. 250, c. 637.]

Mr. Gordon Brown: Will the Chief Secretary now take this opportunity to condemn Mr. John Maples and his memorandum, which suggested that Conservative Members should shout down the Labour leader?

Mr. Aitken: I do not agree with everything that every private memorandum says. If I were the hon. Member for Dunfermline, East, I would be a little quieter than he has been. The Maples memorandum, warts and all, was at least written in English whereas the Balls memorandum, on which the hon. Gentleman based a major speech, was incomprehensible and was written in jargon, such as endogenous growth zones, which needed a translator. The hon. Gentleman's intervention shows only that he does not want to listen to serious debate and serious argument. He was not in the endogenous zone, but in the dodgy zone. This afternoon, he dodged all mention of the public sector borrowing requirement and certain key features.

There are two important things about the Budget. First, it enhanced our international competitiveness. We are determined to stick to our supply- side reforms. No social chapter, no minimum wage legislation and no interfering socialist quangos of the kind that spew out from the Labour party with great regularity will destroy jobs or

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scare away the great inward investment surge which is coming into this country as long as this Government are in power.

Secondly, the key element in our approach is the commitment to sound public finances. I sometimes think that the Labour party does not even understand what the term means; it thinks only in terms of soundbite public finances. We want none of the pantomime sideshows in which more public expenditure can be promised without any payment from the taxpayer and in which it is assumed that full employment can be produced by the wave of a wand-- [Interruption.] My right hon. and learned Friend the Chancellor-- [Interruption.]

Madam Deputy Speaker (Dame Janet Fookes): Order. The House knows my views on seated interventions. My view is even stronger on what I call a seated running commentary.

Mr. Aitken: I am grateful to you, Madam Deputy Speaker. I appealed to the wise words of the Father of the House because the country sometimes wants to listen to serious arguments and serious speeches. I was making the point that my right hon. and learned Friend the Chancellor lives in the real economic world. He has set out a sensible Budget to reduce our debt. Some of the things that the hon. Member for Dunfermline, East advocated this afternoon would simply increase our debts automatically. He needs, of course, to ensure that our standing in the international markets of the world is maintained because that is important in terms of judgments on our interest rates and our currency rates.

Last year, the Government borrowed more than £45 billion, or 7 per cent. of gross domestic product. This year, on the revised forecasts in my right hon. and learned Friend's Budget, we are set to borrow £34.5 billion, which is more than £25 a week of borrowing for every household, or 5 per cent. of GDP. We forecast for next year a PSBR of £21.5 billion, or 3 per cent. of GDP. That means that in two years of steadfast policies, we shall have more than halved our borrowing, and that is real progress.

Even at those levels of borrowing, no prudent domestic or international observer of the British economy should have expected to see tax cuts in this Budget. My right hon. and learned Friend was absolutely right to signal that clearly some months ago because in the real world, where sound public finances are the litmus test by which a nation's economic status is judged, it is far more important for the British Chancellor of the Exchequer to be right than to be popular. That is why he has not played to the gallery or taken any fast and loose risks with the British economy and premature tax cutting.

The hon. Member for Dunfermline, East did his best to reopen last year's Budget by concentrating on VAT on fuel. While we are on the subject, I should refer to tax cuts because I know that the Labour party has tabled a procedural amendment to seek to reopen the debate on the second tranche. Indeed, it is getting so desperate in its quest for support that its finance Whip, the hon. Member for Ashfield (Mr. Hoon), is sending unsolicited mail to Conservative Members asking whether they will join the Labour party in the Lobby. I think that the hon. Member for Dunfermline, East, who likes to make noises about the Maples memorandum, should be a little careful about the

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Hoon memorandum and the Balls memorandum. He seems to have more skeletons in the cupboard than we have.

The amendment tabled by the Opposition is entitled "Amendment of the law"-- an appropriate title, since Parliament has now approved this tax in both its stages and four votes by clear majorities. The procedural amendment is an opportunistic wheeze, but the Opposition spokesman who appeared on "Newsnight" last night did not seem to know whether he wanted to repeal one stage of VAT on fuel or not--a sort of half-pregnant position.

The one thing that the Labour party does know is that to proceed with its procedural machinations, it has to ensnare the support of at least a dozen or so of my hon. Friends--hence the Ashfield or Hoon letter, which tries to wheedle my hon. Friends into the Lobby on Labour's side.

Mr. Phil Gallie (Ayr): Will my right hon. Friend note that not only the hon. Member for Ashfield but the shadow Chief Secretary to the Treasury, the hon. Member for Oxford, East (Mr. Smith), seems to be sending letters? It seems to be a developing habit in the Labour party, and I wonder why.

Mr. Aitken: It is getting like St Valentine's day cards at school. One sends out messages from Cupid to people who do not know, in the hope that an arrow will strike here or there.

I should like to say a friendly word to my hon. Friend the Member for Ayr (Mr. Gallie) and to one or two others who I know have sincere reservations about the second stage of the imposition of VAT on fuel. Perhaps they may listen to me with some sympathy because, although my official title in the Government these days is Chief Secretary, for a good many of my 18 years on the Back Benches I am told that my unofficial title in the Government Whips' Office was "chief rebel". From the vantage point of that somewhat unusual parliamentary qualification, the first point that I would like to make to some of my hon. Friends is that serious rebellions should be kept for big votes on great issues of confidence and principle. Voting with the Labour party to support opportunistic and disruptive procedural motions is a cop-out, not just from party discipline but from the Queensberry rules of rebellion. True Conservatives do not, I believe, and will not, I believe, cast their votes in this House to support Labour's procedural dirty tricks letters and department.

Mr. David Winnick (Walsall, North) rose --

Mr. James Wallace (Orkney and Shetland) rose --

Mr. Aitken: I said that I would not give way for a little while and that I would make progress.

Secondly, and perhaps more important, anyone thinking of following the siren voices of the Labour party on this matter has to come up with the answer to one vital question. If they are to support a Labour game plan to blow a £1.5 billion hole in the Budget arithmetic and damage the strategy of sound public finances that my right hon. and learned Friend Chancellor has created--at the admitted cost of doing what is right rather than what is popular--the question that they must answer is, where will Labour find the extra £1.5 billion in revenue that

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would be lost by not going ahead with stage two of the imposition of VAT on fuel? Will it find it by supporting increases in taxation, in which case, which taxation?

Mr. Winnick rose --

Mr. Aitken: I shall give way to the hon. Gentleman, but it will be the last intervention that I shall take for some time.

Mr. Winnick: With regard to conscience and great issues, presumably the Chief Secretary himself was party to the Cabinet decision to exert much pressure on and, indeed, intimidate Conservative Members of Parliament to vote as the Cabinet wanted them to on Monday. Does he agree that, if there were a free vote on a motion that VAT should be applied at the full rate on domestic fuel, it would be overwhelmingly defeated? That would reflect the feeling in the country. Hardly any other issue at the moment is more unpopular than the Government's intention to impose the full rate of VAT on domestic fuel. That is why the House should be given an opportunity to reflect the opinion of the people.

Mr. Aitken: The hon. Gentleman made a speech rather than an intervention, but I shall briefly try to respond. I utterly reject his charges of intimidation by the Cabinet. We thought that it was absolutely right for last Monday's vote to be a confidence issue because it was an international obligation into which we had entered freely and because we should stick to our word, as Britain always should in international matters.

The hon. Gentleman's second point about free votes is a case of the pot calling the kettle black. If we had had a free vote on Monday night, the Labour party and the Liberal Democrats, who have supported the financing of the European Community and the Edinburgh agreement, would have been in the Lobby with the Government--so much for free voting. We do not want too much hypocrisy and humbug on that matter. I shall return to the serious question of thinking, as some of my hon. Friends are, of blowing a hole in the Budget arithmetic with a reversal of stage two on fuel. Where would the £1.5 billion be found--by increasing taxation, and, if so, which taxes? Or would it be found by cutting spending, in which case, which public spending? Those questions will have to be answered.

Mr. George Stevenson (Stoke-on-Trent, South) rose --

Mr. Aitken: I said that I was not giving way any more.

Mr. Stevenson: Give us the answer.

Mr. Aitken: I am going to give the answer. They are serious questions, but one of the reasons why I will not give way to the hon. Gentleman is that his party has already answered them, but in the most frivolous and lightweight of ways.

In his so-called shadow Budget last week, the hon. Member for Dunfermline, East proposed one of his many pantomime solutions: that all Labour's extra spending plans, as well as the plan to drop VAT on fuel, could be paid for by new taxes on what he calls loopholes and windfalls. If the legendary Canon Spooner were still alive and were to describe those two new Labour taxes as loopfalls and windholes, he would be no more credible or

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incredible than the shadow Chancellor. Whatever terminology is used, those two proposals are simply not serious or workable measures for raising that taxation.

Mr. Stevenson: Will the right hon. Gentleman give way?

Mr. Aitken: No, I said that I would not give way.

Labour's proposed new windfall tax would be a tax not on windfalls, as my hon. Friend the Member for Dover (Mr. Shaw) has pointed out several times, but on the earnings of certain utility companies, which are already paying £2 billion a year in corporation tax. They pay those earnings out as dividends to shareholders such as pension funds, which are in turn paying them out as taxed income to occupational pensioners. It would also be a tax on the investment programmes that those companies undertake, such as new telephone lines for BT, or new gasfields and gas pipelines for British Gas. In effect, the windfall tax would be an extra tax on investment, an increase in corporation tax and some form of double taxation on pensioners and shareholders. It would hit all customers by undermining quality of service, raising prices, or both. So much for the windfall tax.

The loopholes that the hon. Gentleman talks about, at least on the scale that he is thinking of, simply do not exist. Of course there are loopholes in the tax system. The Inland Revenue tries to find them every year and my right hon. and learned Friend the Chancellor has closed some down in this Budget, as Chancellors of all parties do every year. However, the bonanza of which the hon. Gentleman is dreaming is simply a fantasy. Some of these loopholes are, in fact, tax reliefs designed to encourage businesses to invest and create wealth. Labour would not be closing loopholes, but closing business. Do not take my word for that. Howard Davies of the CBI said that Labour is proposing

"a massive increase in business taxation."

So, whether we are in the world of Canon Brown or Gordon Spooner, those phoney taxes do not add up or make sense as a fiscal panacea to pay for VAT on fuel. My advice to the hon. Gentleman, if he has loop-fallen into a windhole, is to stop digging and, instead, come clean with the British electorate about how he will really pay for Labour's expensive and ever- expanding high public spending programme, including the cancellation of the second stage of VAT on fuel.

Mr. Wallace: The right hon. Gentleman said that if we were not to increase VAT on fuel to 17.5 per cent., it would blow a hole in the Government's public finances, yet his right hon. and learned Friend the Chancellor has accepted that, at some stage, he would like to cut taxation. At that stage, would it be a priority to reduce VAT on domestic fuel or to seek cuts in direct taxation?

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