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Mr. Sainsbury: I am very proud of the fact that, when a Conservative Government came to power in 1979, one in eight of our young people went on to higher and further education--a lower proportion than had done so in 1973--and that that it is now one in three. I am sure that the hon. Gentleman is well aware of the major steps that we have taken to improve vocational training, and I am also proud of those.

The second important way in which the Budget contributes to solving unemployment is by maintaining macro-economic stability, low inflation and low interest rates. Unless we maintain that stability, we cannot hope to achieve the investment that we all want and that is necessary to maintain and enhance the competitiveness of our economy and to create jobs. I know from my business experience that investment decisions, especially those involving a long time scale to fruition, are difficult to make and require difficult judgments. Invariably, they are taken in the absence of all the information that the investor would like. If they have to be taken against a background of macro-economic instability--with high and varying rates of inflation and interest rates jumping all over the place from 6 per cent. to 20 per cent. or whatever--it will make those decisions much more difficult and be much more damaging to the most important investment decisions.

We must maintain that macro-economic stability and I think that my right hon. Friend the Financial Secretary would agree that that was one of the ingredients that was missing from the otherwise successful record of the 1980s. It was the one area in which we did not achieve the necessary improvement on the dismal record of the 1970s. We now have that stability.

Ms Armstrong: I did not want to intervene before as I hope to have my opportunity to speak later, but the hon. Gentleman should at least try to be consistent when quoting the statistics. Is he proud of the fact that investment as a proportion of our gross domestic product is nearly 3 per cent. lower than it was in 1979? Should he not move on from some of the other statistics that he quoted and recognise that, far from everything being as

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good as he is trying to paint it, investment is lower than it was in that awful year of 1979 that he keeps talking about?

Mr. Sainsbury: The hon. Lady is worried not so much about my consistency as about what she might consider to be my selectiveness when quoting the statistics, but the one to which she referred must be considered in the light of two factors. One factor that the Opposition have consistently ignored is that what matters about investment is its quality and not merely the quantity. When the private sector and private enterprises choose investment, we can be sure that it is of better quality.

Mr. Michael Connarty (Falkirk, East) rose --

Mr. Sainsbury: I shall not give way. I have not finished responding to the hon. Member for Durham, North-West.

The second factor of statistical importance is that investment must be considered in relation to the proportion of manufacturing industry in the economy and, as in all advanced economies, that has been declining. I refer the hon. Lady to an answer that I received earlier this week, however, which pointed out that, merely by transferring certain functions of industry to sub-contracted firms--whether in transport, catering, cleaning, laundry or anything else--the activities are now carried out by companies that are classified among the service industries, which has made a difference of about 750,000 in the number of people employed in manufacturing.

Mr. Connarty rose --

Mr. Sainsbury: If the hon. Gentleman will excuse me, my right hon. Friend the Chief Secretary to the Treasury has already reminded us that we should try to develop our arguments instead of constantly giving way to interventions, especially when other hon. Members are waiting to speak.

We now have the stability that I said was so important to investment in our economy and I congratulate all my hon. and right hon. Friends on the Treasury Bench on that achievement. I congratulate them even more on their determination to maintain that stability. Added to the other reforms, gains and changes that we have made since 1979--industrial relations laws, personal and corporate taxation, the advantages of privatisation, progress with deregulation, market opening and especially the single market and our success in attracting into this country the lion's share of inward investment from Japan and America--they have given us a better opportunity of achieving steady and sustainable growth than we have had for decades.

I strongly support my right hon. Friend the Chief Secretary to the Treasury in his determination to avoid the illusory boom that leads inevitably to a painful bust. I support his commitment to the virtuous circle of improved competitiveness, rising productivity, economic growth, low inflation and more jobs. This Budget will help us to stick to that virtuous path.

6.29 pm

Mr. Robert Ainsworth (Coventry, North-East): The speech of the Chief Secretary, who opened the debate for the Government, gave us a clear example of how out of touch are the Government. His rather weak appeals to us not to talk about VAT on fuel because it was in last year's

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Budget suggested that he is not aware of what people up and down the country are talking about. They are not talking about the changes that have been made to certain aspects of public finances in this year's Budget. They are talking about the cruel and unnecessary imposition of the second half of VAT on fuel, which the Chancellor decided to go ahead with. That is what I want to speak about, as it is what my constituents are speaking, and worrying, about. When talking about a potential rebellion by Government Members, the Chief Secretary said that he did not consider the imposition of VAT on fuel to be an issue of great consequence. I must tell him that for many people it is an issue of great consequence. The figures for 1993 show that 141 people died directly from hypothermia, and that 13,457 people died of pneumonia. Help the Aged estimates that 30,000 deaths a year are related to heating and fuel poverty.

It is a serious issue, but it does not have to be so. Such figures are not repeated in other countries. A 1991 survey shows that the average number of deaths in January rises by 16 per cent. above the annual average in Scotland and by 19 per cent. in England and Wales. The comparative figures for Sweden and Germany are 7 and 4 per cent. respectively. Despite the crueller winter climates in those countries, their increase in winter deaths due to fuel-related poverty is smaller.

There is very little doubt about that, and yet the Chancellor of the Exchequer decided to go ahead and impose the second increase of VAT on fuel. Help the Aged estimates that, as a direct result, the increase will rob people of 19 days of heating. That will still apply after the compensation package, which has not improved at all on what was suggested last year.

The only fig leaf of cover which the Government have for the imposition is the £10 million increase in the allocation for the home energy efficiency scheme. I have to say that that is a drop in the ocean. We started off with a home energy insulation scheme costing about £35 million in the Budget. That was increased to £70 million, and now to £80 million. It is estimated that it will take more than 25 years to get around to all the homes where energy efficiency work is needed. Despite the numbers of people who are suffering the consequences of the astronomical rises in their fuel bills, it will be 25 years before the Government's scheme will give them any relief.

I resent the hype and the deliberate misinformation that is put about by the Government about the consequence of the package of compensation. Those who will receive it--those who are suffering from the imposition of the first half of VAT on fuel--know that the package is totally and utterly inadequate. There are poor families and people who will not receive any compensation and who will face the consequences of the imposition of VAT who think that, in some way, pensioners are being protected. However, pensioners are being given totally inadequate protection, and families none at all.

So when the Chief Secretary quotes the right hon. Member for Old Bexley and Sidcup (Sir E. Heath), he ought to remember that the most telling thing that the right hon. Member said last week was that there was far too much fear in the country and it was about time that the Government started to tackle that fear. He was talking

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about employment issues, but I suggest to Government Members that there is a lot of fear about the appalling imposition of VAT on fuel, and they ought to be prepared to do something about that. We can have all of the cliches for the Chancellor, such as "Cool" Clarke, but I suggest that we ought to be talking about "Cruel" Clarke. The Budget raises transport and environment issues. I heard the Secretary of State for the Environment, supposedly quoting Friends of the Earth, saying that the Chancellor was the greenest Chancellor we have ever had. I do not know whether Friends of the Earth said that--if it did, it, not we, must live with that.

The imposition of a landfill tax instead of a landfill levy--where the money raised from its imposition on landfill sites would be used to treat contaminants and enhance the environment--is a sign that the Government are interested only in taking revenue from those situations, and that they are not really interested in that aspect of the environment.

I shall speak now on what are probably the more important issues of the transport-related decisions that have been taken. I have been brought to a position where I now agree that there is no justification, as I understand it, for a differential in taxation on diesel and on unleaded fuel. I accept that that difference should be levelled in the way in which the Chancellor proposes, but I must ask why he has done nothing about super unleaded fuel. There is absolutely no justification for giving a tax advantage to a type of fuel that has been proven to contain higher levels of volatile organic compounds--particularly benzine--does nothing for the environment and is by and large used in cars without catalytic converters. Yet we continue to give tax incentives for people to use super-unleaded fuel. There is no justification for that, and the Chancellor should have taken the opportunity do something about it in the Budget.

Overall, the Chancellor's transport decisions cannot be considered to be green in any way. Increases in petrol taxes have been combined with huge cuts in the road programme, but with even bigger cuts in railway expenditure, which has been slashed by £521 million. We all know that we shall see the attacks on local government expenditure which, combined with deregulation, will make absolutely sure that we cannot develop and maintain a public transport system that provides people with alternatives to their cars.

Clearly, it is not an environmentally friendly strategy to have motorways jammed with cars and lorries which do not necessarily have to be on them. That is not good for the environment or for jobs. We need a decent infrastructure, we need investment in our transport infrastructure and, yes, we need to be concerned about the environment when making those investments. The Chancellor's proposals have done nothing about that at all.

The Chancellor called it a Budget for jobs. As an hon. Member representing a constituency that contains areas of some deprivation, I welcome the right hon. and learned Gentleman's attempts to get the long-term unemployed off the register, but they are hardly adequate when we are talking about people who have been unemployed for two years. By then, it is already considerably more difficult to get those people back into work than it needs to be. Why have the Government not done something about those

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who have been unemployed for one year? Why have they not done something about the long-term unemployed now, instead of in April 1996?

The Government may talk about getting the long-term unemployed back into the labour market, but why have they slashed the training programme? They set up the training and enterprise councils, the TECs, but even before they started to operate properly the Government cut their programmes and their budgets to a shadow of what they had been promised. The Government are now taking another £115 million off the budgets of the TECs and £500 million from the Department of Employment's budget in total.

Hardly anything in what the Government propose is designed to do anything serious to overcome the problems of unemployment. However, the Government's attempt to ensure that the long-term unemployed are as fairly treated by employers as those who are unemployed for a short time is welcome as far as it goes. I am slightly concerned, however, because a few years ago, before the flexibility and deregulation in the employment market that the Government have introduced, employees were in a better position to ensure that they could not be deliberately put out of work just to enable employers to pick up the incentives, such as those now offered to get the long-term unemployed into jobs. I fear that the employment practices that the Government have encouraged may result in the worst employers trying to do exactly that to their existing workers.

The Government have identified the increasing concern about unemployment and they want to pretend to do something about that. We have not heard much about the long-term problems in the economy. We are, supposedly, at that point in the recovery when things should start to get better. However, as recently as 17 November, the Engineering Employers Federation issued a document which analysed the employment prospects in the engineering sector. It concluded: "Employment in the sector . . . After falling 20 per cent. over the last four years . . . will fall by 18,000"--

a further 18,000 jobs--

"in the next 12 months to reach 1.66 million by the second half of 1995."

Even though we are in a recovery, the engineering industry has lost 20 per cent. of its existing jobs and employment in that industry is continuing to fall. I suggest that any reasonable person would accept that, by the middle of 1995, when we reach the end of the recovery, such as it is, we shall then have to face whatever downturn may hit the economy with an engineering industry offering far fewer jobs than it does even now.

Mr. Gallie: What levels of investment has the engineering industry received during that time? Can the hon. Gentleman estimate the proportion of the labour force that has been lost as a direct result of investment in new technology?

Mr. Ainsworth: Some investment has been made in the engineering industry but jobs have not been created. I do not know how Conservative Members think that the country can be run on the basis of a policy, pursued for such a long time, that has deliberately created and maintained a pool of unemployed people.

Different types of employers operate within the engineering industry. Some employers still believe that they should run their companies using exploitation and

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divisive employment practices, but the most successful companies are run by those employers who have come to recognise that the only way to be successful is by getting everyone working together in the same direction. They recognise that everyone should be rewarded appropriately. That is what makes those companies successful. Why do the Government not recognise that our country would be successful if they brought everyone on board and ensured that we all work in the same direction? Instead, the Government have deliberately pursued an utterly unfair taxation policy and other divisive policies that have created and maintained unemployment.

The basic issue is that our manufacturing base is too small, because such a massive proportion of it was lost in the early 1980s. The recovery will be choked off because of that fundamental lack unless and until the Government invest in our future. Small businesses should be given capital allowances so that they can offer new jobs, but the Chancellor has deliberately refused to do that. I should like some answers about what has happened to the single regeneration budget, but I would not be surprised if I did not get any, because, despite all my studies, the bundle of information that we received on the Budget is absolutely beyond me. Tucked in that bundle was a press release from the Department of the Environment claiming a £800 million increase in the single regeneration budget. It claimed that that was a huge increase in that fund, but the figures contained in the Budget tables reveal a cut in the figures that were supplied to me in answer to a parliamentary written question in April. I do not know how the £800 million has been created. In some way, every penny of new spending on the single regeneration budget, not just for one year but for each year in a given four years, plus a little bit more, has been lumped together to round the figure up to £800 million.

The Government are pretending that there has been a big increase in regeneration money, but they have cut the budget. The Government originally created that budget from a number of budget heads of a number of Departments and, in doing so, they managed to inflict a massive cut in the available funds. Now the Budget figures reveal yet another cut in the money available for that single regeneration budget.

It is clear from the Budget that the Government are continuing to implement the huge tax increases announced last year. They are treading water while the British people continue to pay higher than necessary taxes just so that those taxes can be cut, cynically, before the next election. They have failed to address the appalling unfairness of the tax system. They have failed to address the long-term need to invest in our future. The Government have divided our country and they are divided themselves. As we know, a house divided always falls, so let us hope that the Government fall before they do irreparable damage to our economy and our society. 6.47 pm

Sir Andrew Bowden (Brighton, Kemptown): The hon. Member for Coventry, North-East (Mr. Ainsworth) made great play of fuel costs in relation to deaths. Perhaps he has forgotten, or was lucky enough to be too young to remember, the days of the previous Labour Government when electricity prices went up by 2 per cent. a month, month after month. The hon. Gentleman is therefore on dangerous ground.

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I welcome the great bulk of the proposals in the Chancellor's Budget. I am particularly glad about the active steps that have been taken to help the long-term unemployed and I know that they are also welcomed by people throughout the country. Before I discuss pensioners and some of the problems that they face, I must mention tax on alcohol.

I feel that my right hon. Friend has not been quite as imaginative as he might have been. Unfair competition is being created as a result of the competition in Europe, and the ease with which many thousands of people can travel to Europe and obtain large quantities of cheap drink. Jobs are being lost in my constituency in Brighton, and throughout the country, as a result of the massive quantities of alcoholic refreshment that enter Britain month after month. I know that the Chancellor will not increase the duty on beer and wine. I would have preferred a positive cut, because there continues to be a massive gap between the prices of those drinks in Britain and the prices a few miles across the water, or under the channel tunnel. That does not provide fair competition for the industry.

On pensioner issues, the Budget contains good news and some not so good news. I welcome the approach by the Chancellor to clamp down on the misuse of housing benefit, which happens in far too many places, but I urge that that be done carefully. We must not create a position whereby older people who are new claimants of housing benefit may be penalised for living in high-cost housing when they have nowhere else to go, or for living in districts where they may have spent most of their lives, with their families and friends nearby, when it would be difficult and unwise for them to move far from the district where they have their roots. We need to be flexible and careful in framing those regulations.

I warmly welcome the Chancellor's announcement of an increase in tax allowances for pensioners. Indeed, I wrote to him, with my fellow officers of the all-party parliamentary group for pensioners, on 7 October, when we used the following words:

"we feel strongly that tax allowances should not be frozen for a third year. Some pensioners have actually been brought into taxation by the freezing of allowances even when their income has only kept pace with inflation. A continued freeze on allowances will affect the least well off taxpayers, many of whom are pensioners."

Therefore, that increase is very much welcomed by retired people. To give two examples, a pensioner aged between 65 and 74, with an income of only £5,000 a year, will, in the next 12 months, be better off to the extent of £86 less tax. If that pensioner has an income of £8,000, he or she will be better off to the tune of £118. That was a splendid move by the Chancellor, which I am sure that the whole House will welcome.

The cold weather payments are the most generous and the best that we have ever had. The increase to £8.50 per week brings those payments near to meeting the average fuel bill of the average single pensioner. It will mean that, if that pensioner is in the financial category of entitlement to cold weather payments, he will be able to spend, in a very cold week, nearly double the amount that he would otherwise.

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Another of the important reforms that the Government have already implemented is that no longer will pensioners who are entitled to a cold weather payment have to apply for it--it will be paid automatically. In the past, many pensioners who were entitled to the payment did not, for one reason or another, apply for it, and did not receive it.

Mr. Connarty: I know of the hon. Gentleman's work on behalf of pensioners, but does it not strike him as odd that the payment is made only after the event, and that the Government have rejected the concept of a cold weather credit so that people can have the money in advance? The problem is that often they cannot afford to heat their homes when the cold snap comes.

Sir Andrew Bowden: If the hon. Gentleman thinks through what he said, he will realise that it would be difficult to pay cold weather payments in advance because one would not know when the cold weather was coming. For example, we have had a very mild November this year. The object of cold weather payments is to give additional help in exceptionally low temperatures.

As the payment will be paid automatically, it will quickly come through the social security system. In the past, it did not, because the person concerned had to fill in forms to apply for the payment and the application had to be considered and checked. Now all that has gone, and the arrangement works much more smoothly than it has ever done before.

Mr. Sainsbury: I am sure that my hon. Friend shares my welcome for the generous improvement to the home energy efficiency scheme, which I know has helped many older people in his constituency, as in mine--they are close together. We need to do all that we can to give more publicity to that excellent scheme, which reduces costs to pensioners at all times of the year and in all weather conditions.

Sir Andrew Bowden: I endorse what my right hon. Friend has said. That help must be concentrated on people who do not have the financial resources to protect and insulate their homes properly. The great bulk of the nation's householders must invest in ensuring that their homes are heat -efficient and have double glazing and proper insulation in the roofs or elsewhere.

Let me return to cold weather payments. I continue to be worried about the group of pensioners who have a small income that slightly exceeds the income support level. That group is not eligible for cold weather payments. I urge the Government and my Front Bench colleagues to consider carefully whether they can find a way to help that group next year, because many of our pensioners whose incomes marginally exceed the income support level are worse off than pensioners who are in receipt of income support. That is not just.

I must now discuss a subject that leads me, I fear, to criticise Government action somewhat--value added tax on fuel. When the tax was proposed and announced by my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), I did not oppose VAT on fuel in principle, although no one likes new taxes. However, I believed that, if we were to introduce that tax, it was essential that significant help was given to pensioners and people on low incomes.

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I am pleased to have played what I believe was a significant part in the campaign to persuade the Government to help, not simply pensioners in receipt of income support or other state benefits, but all pensioners. That is not because I believe, broadly speaking, in universal benefits--I do not. About 3 million pensioners pay tax, some even paying tax at the rate of 40 per cent., but I could envisage no way in which it would be possible to help the 3 million pensioners who have only a comparatively small amount--£5, £10 or £15 a week--more than income support levels, without giving that help on VAT on fuel bills to all pensioners.

I am delighted that the Government accepted that suggestion, and took action to implement it. That is the first time ever that a Government have increased the basic pension to help towards the costs of a specific tax that they have brought into operation.

The House will recall that, this April, the specific increase was 50p a week for single pensioners and 70p a week for married couples, on top of the basic pension and in addition to the increase for inflation in that basic pension in the previous year. That was clearly a separate increase for all pensioners. It was widely believed, certainly by me and I think by many hon. Members, that next April that would happen again, and there would be an additional 50p and 70p for single and married pensioners, plus the increase for inflation.

In last year's social security uprating statement my right hon. Friend the Secretary of State for Social Security said:

"I was also determined to help those who have worked, saved and earned modest pensions, and who normally get no extra help. So, from next April, on top of uprating for inflation, all pensions will be increased by 50p a week for single pensioners and 70p a week for couples. The following year, extra help for VAT on fuel will be £1 a week for single pensioners and £1.40 for couples."--[ Official Report , 1 December 1993; Vol. 233, c. 1039.]

From that statement I concluded that that increase would be implemented in the same way as the additional 50p and 70p for this April. In his broadcast last night, my right hon. and learned Friend the Chancellor said:

"By next April, a single pensioner will have an extra £52 a year, and a couple an extra £73 a year, put into everybody's pension, on top of the normal pension increase."

I am extremely disappointed at the way in which the increase will be applied. It will be applied on the basis that in the year September to September, inflation went up by 2.2 per cent. As the House knows, that automatically means that the following April the basic pension will increase by 2.2 per cent. But within that 2.2 per cent., 0.4 per cent. was inflation caused by VAT on fuel. The Government now say that that means that for the single pensioner, that is worth approximately 25p a week, and that they will reduce the 50p increase on the overall basic pension to only 25p and that there will be a proportionate decrease for married couples. I deeply regret that decision, which will be extremely difficult to explain to our 10.5 million pensioners.

Because of the way that the Government intend to apply this increase, I am afraid that it is true that the average fuel bill for a pensioner will leave that person with a net loss from April on of 56p a week. That is not a fair deal for millions of pensioners, and especially for those who have only a small amount above the level of income support. I ask the Chancellor and the Government to think again about that.

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I am not asking for a massive sum. I want to support the Government on the second wave of VAT on fuel, not because I like it, but because we have to deal with the PSBR, and the money has to come from somewhere. The vast majority of our people can pay VAT on fuel without hardship, but many pensioners cannot. The Government should implement what they proposed last April--a separate 50p for the single pensioner and 70p for the married couple. That would cost a maximum of £130 million, but there would be a considerable tax clawback from the 3 million pensioners who pay tax.

The House must never forget that today's pensioners are from the second world war generation. They made enormous sacrifices and suffered great hardship during that war. Some pensioners are still with us from the first world war. The great majority of those people had little chance to save, and by today's standards had relatively low incomes. They deserve, and should receive, a more generous slice of the national cake.

7.5 pm

Mr. Ken Livingstone (Brent, East): The Government owe a great debt to their former Chancellor, the right hon. Member for Kingston upon Thames (Mr. Lamont). The press have described the Budget as boring, and most press comment has been about jam tomorrow and about how the Chancellor has not taken any risks. But if the former Chancellor had not announced in advance two years' worth of tax increases, and those increases, which people will begin to pay at the start of this financial year, had been announced yesterday, the country would be in uproar.

The reduction of mortgage interest relief alone would have dominated our debate and Conservative Members, as much as Opposition Members, would have been expressing doubts about that and worrying about its impact on middle- class household incomes. If out of the blue yesterday the Chancellor had announced that he was more than doubling VAT on fuel, there would also have been uproar. It might have been like the time when Nigel Lawson announced the reduction of the top rate of tax to 40 per cent. On that occasion the uproar in the House was so bad that the sitting had to be adjourned until order was restored.

However, because measures have been trailed and debated for months, most people think that this was rather a dull Budget. I nodded off because the beginning of the Chancellor's statement was so mind-numbingly dull. At least Nigel Lawson gave a view of what was happening in the world economy and said what he thought would happen. Yesterday's Budget statement was largely a party political speech that was geared to domestic politics and looked no further than the next general election.

I was surprised at the absolute unanimity, even among newspapers that give blanket support to the Conservative party, that everything has been put off until next year's Budget. In that Budget the basic rate of tax will be reduced to 20 per cent. so that some time in the summer of 1996, at about the time of the intergovernmental conference on Europe, money will be feeding its way into the pockets of ordinary families and voters. That is when the Government will make their dash to try to get re-elected and will run a Europhobic campaign about how we do not want to be dominated by the Germans. It is clear that that is the strategy, and it is completely out of keeping with Britain's needs.

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Because of the way in which the Budget has been managed in public relations terms, its reception has been favourable, but the Budget is disastrous for the reconstruction of the economy. It is deeply flawed. I am used to people on the left delivering fairly savage critiques of the Government's economic policies, but I am surprised that there has not been more comment about the recent analysis by The Economist .

It is not news when members of the Labour party, Tribune or The New Statesman slag off the Government for economic incompetence, or warn that disaster is coming. But when The Economist --which, year by year, has supported the Government and their economic policies totally, giving the most widespread and consistent support for all their economic measures, such as financial deregulation and privatisation, being almost a generator of many of the ideas that have been taken up by the Conservative party in government--published its predictions for the British economy for next year in a book that is now on sale on the bookstands, I assumed that it would back the Government and say that they were broadly right, but I was amazed because I thought that I had picked up a copy of one of my articles in the Socialist Economic Bulletin.

I shall read what The Economist says in order to put it on the record. It is a damning indictment of the Government. I put it down as an early-day motion and the usual suspects all signed it. However, I want it to have a wider circulation. This is the expectation of The Economist about what will happen to the British economy and it is in complete and stark contrast to much of the misinformed waffle in the media yesterday.

The Economist says:

"Believe it or not, the best is over for Britain. The economy will decelerate in 1995, living standards will slip and 1994's sharp falls in unemployment will slow to a crawl. There will be no return to recession nor will there be any kind of inflationary explosion. But humiliatingly for John Major, who has become accustomed to bragging about Britain's place at the head of the European league of economic performance, the country will slide back to its traditional place near the bottom of the international pile."

Coming from The Economist , that has much more force than any complaints from Labour Members, particularly when one remembers that this book of predictions is edited by a Conservative Member of Parliament, the hon. Member for Kensington (Mr. Fishburn). If that is what the hon. Gentleman believes, he should be joining those who are now sitting unwhipped on the Conservative Benches, withdrawing his support from the Government who are presiding over this economic mess.

The Economist does not take the view that this is all some international problem; it nails the blame exactly where it lies--with Government incompetence. Referring to the time since we were evicted from the exchange rate mechanism, leading to the boost to the British economy that we have seen in the past year, it states:

"What has gone wrong since those happy days? The answer is simple-- government policy. Kenneth Clarke, the chancellor of the exchequer, quite rightly undertook a drastic tightening of fiscal policy, announcing the biggest round of tax increases in post-war history for 1994 and 1995. But he failed to counterbalance this with a corresponding monetary relaxation. The result was bound to be a slowdown in the economic recovery. This was just becoming apparent in the late summer with the weakening of consumer spending, car sales and housing, when the Bank of England bizarrely piled on the monetary pressure with a half-point increase in rates"--

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that is, interest rates.

"This masochistic mix of monetary and fiscal tightening, combined with the sharp increase in long-term interest rates caused by the worldwide collapse of bond markets and the Bank of England's misguided warnings about inflation, is sufficient to explain Britain's deteriorating prospects. With macroeconomic incompetence like this, there will be no need to look for sob stories in the alleged deficiencies of the economy's supply-side-- deficiencies like low skills, inadequate training or unwillingness by industrialists to invest for the long term."

The Economist , which has supported the Government more loyally than any other economic organ during the past 15 years, is not saying that the problem is an international one, but that it is the incompetence of the Chancellor and the Bank of England that will lead to the deterioration in living standards next year.

It would be easy for Opposition parties to say that that is good news, because, just as the Government are trying to sneak their way into the 1996 election, people might see that the economy is turning down again. But I know what that means in my constituency where, effectively, one person in four is out of work. The Economist article sums it all up perfectly with its heading, "A lost last chance". Already, the Government's incompetence in handling the period since our eviction from the exchange rate mechanism and the way in which they have lost the opportunities presented to them will lock us into the next recession.

Hon. Members should consider where we are in the economic cycle. We know that we have a business cycle. This is the high point. This is the boom between the recession of 1990 and the recession of the late 1990s. That is what is so depressing. If one compares where we are on the economic upswing today, since the end of the recession in mid-1992, with the last time that we came out of recession in the early 1980s after the Government's first real severe recession, we are in an equivalent position to the end of 1983. In 1983 people thought that there was a feel-good factor. They were confident. They were taking on bigger mortgages. They were expanding their personal consumption because they thought that they could see real growth. When one compares the situation then and now one realises how much more weak and fragile has been the recovery from this recession and how much shorter and insubstantial it will be. When one considers the past 25 years of economic history in Britain and removes the distortion of the great bonus of North sea oil, one sees a consistent pattern of decline, with each recession biting deeper and longer than the one before and each subsequent boom shallower and less substantial, leaving a weaker economy than before. That is why I find this depressing.

Had we had policies that encouraged investment, we should now see the increase in exports being built much more strongly into our economy. But how many businesses will go for a sustained expansion of investment when they have already seen a 0.5 per cent. increase in interest rates and when the overwhelming assumption is that that will be followed by another 0.5 per cent. and another 0.5 per cent? The markets are telling us that they expect inflation to rise in the long term. That is why long-term borrowing is so expensive. The Government have not convinced the markets that we have broken free of the cycle.

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There is much talk of us being in a uniquely good position and that we can see the prospect of export-led growth and low inflation stretching ahead, but that view is not shared by the markets or the economists. But people are talking themselves into that belief and I find that worrying because we are missing an opportunity.

The Economist accuses the Chancellor of macro-economic incompetence. We have been bubbling along with inflation at 2 per cent., but inflation is still the overwhelming obsession of Conservative Members. But the most frightening prospect for the British economy is the fact that our investment has collapsed. For the past 20 years I have been used to seeing those interesting analyses of what proportion of GDP in each of the G7 countries goes on investment. We all know the pattern. Japan has 30 per cent. or 35 per cent. year by year, most of continental Europe has between 20 per cent. and 25 per cent., and Britain has 15 per cent. or, if we are lucky, up to 18 per cent. The only country investing less than us has been America, with about 14 per cent. For the first time, we have sunk below America's pattern of investment. We are now at the bottom of the G7 pile for investment.

That means that, in the Government's failure to create a climate in which business feels that it can plan its own investment, and when the Government have savaged their own investment programme year by year so that our infrastructure is a disaster in comparison with that of modern European nations such as Germany, Holland or Sweden, we have lost an opportunity and our competitors will pull further ahead of the British economy. In Japan, Germany and France, industries with their higher investment will be a greater threat in terms of competition in the export markets. Their people will see a higher degree of skilled labour building up as it matches the investment pattern. We are already locked into a further qualitative decline between ourselves and our major competitors. Conservative Members are slapping themselves on the back for a cunning strategy, but the Government are preparing a grim and depressing inheritance for the next Administration.

Whether the next Government are the lot opposite, having conned their way back to power with a little chicanery, or whether my poor right hon. and hon. Friends will be left to clear up the mess, they will find, immediately they assume office, declining productivity and export markets relative to our competitors. International investment will be looking elsewhere, and the new Government will be confronted with all the usual economic crises that flow from that situation. I am not interested just in slagging off the Government--I have been critical of my own party on more than one occasion. I want to examine what should be done. The Economist is not a magazine that I usually invoke in my arguments, but the final paragraph of its article on developments at the time of the next general election is equally revealing:

"Britain will become more prone to inflation in the long run. This malady will again be more threatening from 1996 onwards, when the government suddenly takes its foot off the monetary brakes and steps on the fiscal accelerator ahead of the general election. That would have been the right time for the authorities to put on the brakes against a traditional boom- bust cycle. But when did the Bank of England or the Treasury ever do the right thing at the right time?"

The next Government will not find it easy to take that inheritance on board. My party should be thinking now what should be done to break out of the trap. Although

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inflation has been a problem in the past, it is not the immediate problem. The overwhelming difficulty facing the British economy is lack of investment and of a skilled work force who can fully utilise high investment.

The Labour party has published a series of proposals, which I completely support, to increase work force skills, improve education spending and increase training. I should be more than happy to see a fairer system of taxation, to restore many of the inequalities of the past 15 years. If it were up to me, the Budget would include a top rate of tax of 55 per cent. for anybody earning more than £50,000 per annum, and of 48 per cent. for anybody earning more than £40,000. That group, which accounts for 4 per cent. or 5 per cent. of society, has done well out of the Government, and in attempts to rebuild the economy, it must make the greatest contribution.

Low-income and middle-class families are already taxed more severely than in any period outside wartime, and no one could seriously propose major increases in the burden of taxation on them. The people who should make the greatest contribution are those who have done best over the past 15 years. I much regret that my party is not saying that loudly, and persuading the public that we shall increase tax rates for that group. Once one has spelt out the point in the wealth structure at which taxes will be increased, one can make a firm commitment to taxpayers below that point that they will not pay a penny more under Labour. I want a firm commitment to taxing people who have done best, but to protecting those already squeezed by the Conservatives.

If possible, some of the increased taxation on those earning more than £40,000 a year could be used to relieve the tax burden on ordinary working-class and middle-class families. That would redress the redistribution of wealth, which has been going the wrong way in recent years.

The two tax increases that I propose would produce another £3 billion. It would be for the Government of the day to decide whether to redistribute that revenue to people on pensions or benefits, or to remove part of the tax burden on lower-income groups. It might have to be used further to reduce the PSBR or to fund an investment programme.

Nevertheless, no one believes that £3 billion from the richest in society could solve the problems facing the British economy. A much more vast sum is needed. If Britain is to match German investment levels, it must look elsewhere than the taxation of private income--to the City of London. The operation of Britain's financial sector is like something from "Alice's Adventures in Wonderland".

Not everybody knows this, but I grew up as a working-class Tory in a working-class Tory household. I was the first person from either side of my family not to vote for the crooks opposite. It was traumatic. I was not allowed to tell my ailing grandmother that I had become a Labour supporter in case the shock killed her. My information came from the Daily Express , so I do not know how I ended up on the Labour Benches. Nothing in my early childhood led me to question the usual assumptions.

I grew up believing in capitalism. I understood that, when there was a boom, companies made a profit, shareholders received dividends and workers enjoyed wage increases. I understood also that in a slump, companies did not make a profit, shareholders did not receive dividends and the poor old workers were kicked

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