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on to the dole. The simple, raw logic of capitalism has been replaced by a system whereby when there is a boom, profits are made, dividends are paid and workers enjoy a pay increase--but when the boom ends and there is recession, companies do not make a profit but dividends are increased, often while workers are laid off. The year 1986 is generally thought to have been one of Mrs. Thatcher's best years. I remember Nigel Lawson saying that Britain was on track to replace Germany as the strong economy of Europe. That is a bit of a laugh now, but in those days people thought that we were living a boom and had broken out of the cycle of boom and bust. People began to believe Tory party propaganda. At that time, good dividends were paid but today, after all the pain of the past few years, dividend values have doubled in real terms. On what basis can one justify paying today twice the dividends that were available during the Thatcher boom of the 1980s?The effect of doing so is to squeeze out investment, because the first call on company profits will be increased dividends. There is nothing in this squalid little Budget to challenge that. Where is there any encouragement, in terms of tax concessions, for companies to increase their investment? That should have been the centrepiece of the Budget and would have had the support of Labour Members. Instead, the Budget contains piddling little measures against a crisis of under-investment.
The Labour party will be failing in its duty if, when it takes office, it does not pass legislation or use the tax system to reduce dividends to a reasonable level. I am not proposing anything revolutionary--I just want the Budget to return to the situation that existed in Mrs. Thatcher's heyday. Why not cream off the extra money that is paid in dividends and return it to what it was in 1986 in real terms? If there were a tax mechanism to do that, £11.96 billion would be released this year and every other year for investment--the sort of sum needed to match German investment levels and research and development. At present, that money is siphoned off and taken out of the City and paid as dividends.
Company law is so structured that virtually everybody running a major company in Britain has as his first concern not investment or capturing new markets, but that a shark such as Hanson will make a vast bid, shareholders will sell out, and Hanson will immediately make a quick profit and destroy the industry by asset stripping and dumping its workers on the dole, so that another productive part of our economy is lost. That is how the British economy is functioning, and nothing in the Budget will shift those priorities. Unless we shift them, we shall continue to fail in comparison with Germany, Japan and the more successful industrial nations.
A couple of years ago, I was invited to open an extension to a factory in my constituency. There are not many factories left in my constituency because, like most of the core of outer London which used to be a manufacturing heartland, it has been destroyed by the first and second Thatcher and Major recessions. The factory is small but competent. It was the last in Britain to produce the wall sockets into which one plugs electrical appliances; every wall socket not produced by that company is imported.
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The factory had bought the most modern high -tech machinery and plant, which Germany and Japan have. Its work force was drawn from the locality and comprised many who had failed in or been failed by the education system. They may not have had great skills, but the firm ensured that they were offered day release and training to improve their skills so that they could fully utilise new equipment. I said that I was surprised to have been invited to open the extension because I had expected the factory to ask El Presidente--the Secretary of State for Trade and Industry--or one of his juniors. I was told that Ministers were not welcome there because they had never lifted a damned finger to help such companies.It soon became obvious to me that the company was successful because it had no shareholders. It was owned by two brothers, which meant that, at the end of the year, they could make their own calculations. They could work out their profits and decide how much to invest. The investment decision was the first to be taken. Until we change our company law and, therefore, the pattern of investment, we shall continue to fall behind other nations. That means that the next Labour Government will have to tackle the City with a major programme of taxation and general reform to shift the balance. If the next Labour Government do not do that, they will fail just as the previous two Labour Governments failed. I desperately want my party's Front-Bench spokesmen to start to spell out in detail, as I have tried to do in my small contribution to the debate, precisely what it is going to do to reverse the decline in the economy.
We can all slag off the Tories; it is wonderful stuff. Having listened to their speeches, one cannot fail to slag them off. However, I am in the Labour party because I know that the Tories are useless. I want to be told what we are going to do and I want us to tell the British people so that there is no doubt or illusion.
Whichever party wins the next election will face a long period of pain. No one can turn the economy around without a major adjustment, without many people having to change their employment and be retrained and without a great change in the way in which the City of London operates. Unless we are prepared to stand up and tell the people that in advance, I greatly fear that we shall be vulnerable to some of the distortions that we have witnessed in previous election campaigns.
I have not the slightest hesitation in saying that I condemn the Budget and the Chancellor to the oblivion which they so richly deserve and to which they are condemning the British economy and the British people. However, it is not enough to oppose the Conservative party; we have to spell out what we will do, how it will be better than what the Conservatives have done, who will pay the price and who will benefit. Until we do that, people will continue to doubt us, and the Conservative party, with its skilled electoral machine and its supporters in the media, will seize on every doubt, just as it did during the previous election, to distort reality.
It is in the Labour party's interests to spell out the truth and tell people that there is pain to come, whoever governs Britain, but that we would ensure that it was fairly spread and that, at the end of that period of pain, we would emerge as a modern European economy.
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7.33 pmMr. John Butterfill (Bournemouth, West): While I was listening to yesterday's debate, I looked across to the Opposition Front Bench and saw the grinning features of the right hon. Member for Kingston upon Hull, East (Mr. Prescott) and the mournful features of the shadow Chancellor, the hon. Member for Dunfermline, East (Mr. Brown). I was reminded inexorably of "Hancock's Half Hour" with Sidney James and Tony Hancock. However, the big difference was that Tony Hancock was a good deal less gloomy than the hon. Member for Dunfermline, East. I am sorry that he is not in his place at the moment. His speech today reminded me rather of "Four Weddings and a Funeral" because he is the only man who, by his very presence, can make a wedding seem like a funeral.
The gloomy way in which the shadow Chancellor approached our economy was matched only by the incompetence of his suggested remedies for reducing, for example, unemployment. His big idea was to release local authorities' capital receipts to be spent in the economy. He thought that that was the secret to reduce unemployment. Of course, he does not realise that most of the councils that he was talking about, especially those run by Labour, have no cash but enormous debts. Indeed, some of the fiefdoms controlled by Labour have debts so large that the majority of the taxes paid by their residents are going to pay for the servicing of that debt rather than the provision of services.
Dr. Lynne Jones (Birmingham, Selly Oak): I hope that the hon. Gentleman is not suggesting that housing debts are being paid from council tax receipts. As he will be aware, the housing revenue account is ring- fenced and it is the tenants and their rents who pay those debts. If councils were allowed to raise capital and then invest in their housing stock, they could generate more rents, invest further and give tenants what they really want and, at the same time, put people back to work.
Mr. Butterfill: The hon. Lady should know that if some Labour councils collected their rents they might be considerably better off. However, the fact is that some, although not all, are enormously indebted. There are a few, exclusively Conservative councils, I believe, that have some money in the bank and do not have enormous debts. If the hon. Member for Bristol, South (Ms Primarolo) would care to name a Labour council that does not have enormous debts, I should be happy to give way to her. I see that she is not anxious to respond.
Dorset county council was controlled by the Conservatives and had £20 million in the bank. Unfortunately, the Liberals took over at the previous local election and, in a very few months, they have spent nearly all of it. Some councils are debt-free, but not the vast majority. The shadow Chancellor's proposition would merely add to the public sector borrowing requirement. My right hon. Friend the Chief Secretary suggested that it would add about £6 billion when we are radically trying to reduce it.
Mr. Connarty: Is the hon. Gentleman suggesting a model for industry- -it should not invest and take on indebtedness and, therefore, not grow? Is that the model
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that he is planning for the economy--just like the local authorities that he admires, it should have no debts and therefore no investment?Mr. Butterfill: No, I am suggesting that the level of debt should be reasonable and appropriate to balance the budget and ensure decent housekeeping. That is why I commend the Budget of my right hon. and learned Friend the Chancellor. He has ensured that we shall have sound finances and he has laid the foundations for a growing economy--the fastest growing in western Europe at the moment. That is the right thing to do. In the process, he has of course had to reduce some aspects of Government expenditure.
I commend the Chancellor on the fact that, within a policy of general spending restraint, he has found substantial additional money for the national health service and education and has found enough to increase police expenditure by 3 per cent. while cutting Home Office expenditure as a whole. That shows that he has his priorities right. It is the right way to run the economy. All the commentators whom I have read certainly believe that to be so.
I now turn to VAT on fuel, which is, of course, a controversial item. I greatly respect my hon. Friend the Member for Brighton, Kemptown (Sir. A. Bowden), who made a passionate plea on behalf of pensioners. I also have many pensioners in my constituency and I know that many of them find great difficulty in meeting their fuel bills. However, we can exaggerate the problem.
A constituent came to my advice centre earlier this month and she showed me her fuel bills. She said that she was very worried about her ability to meet them if we increased the level of VAT to the full 17.5 per cent. The interesting thing was that she thought that she was currently worse off as a result of the previous increase than she had been before. She spends a small amount--about £37 a quarter--on fuel.
When we went through her bills, we discovered that far from being worse off, even with only the 50p increase we have given this time, she was better off by a few pounds a year than she would have been without the changes we have made. If we take into account the reductions in fuel costs in the past two years, she was actually significantly better off. It is wrong to alarm all pensioners, as the Opposition have done, because although some of them will undoubtedly be a little worse off, the great majority of them will have their bills met and some of them will, as I have illustrated, be better off.
I am especially pleased that we have found more money for home insulation. The £10 million proposed means that many pensioners will be able to spend about £300 per house on insulation. The most vulnerable will, of course, be eligible for the large increase in cold weather payments that the Chancellor has been able to make, and I am very grateful to him for that.
I made a number of representations to the Chancellor before the Budget and I especially drew to his attention the predicament of those who, because they have small savings or a modest occupational pension, are just outside the level at which they can obtain benefits. It is true, of course, that they have had an especially difficult time during the recession. I was especially pleased, therefore, that the Chancellor was able to raise the level of personal allowances, which most benefits those on the lowest incomes. I was pleased in particular that he was able to
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raise the age allowance by £430, which is a considerable sum and will certainly be of great assistance to my pensioners who have modest incomes from a source other than the state retirement pension.The increase in the number of people paying the lower rate of income tax is also especially welcome and is something that I urged on my right hon. and learned Friend. About one in five of all taxpayers now pay at only the 20 per cent. rate. That is something on which we should and, I hope, will continue to build.
The other matter that gave me particular pleasure was the help that we have given on business rates. When we passed the Local Government Finance Act 1988, I tabled an amendment urging the Government to keep any increase to a maximum of 10 per cent. At that time, the Government did not feel able to go that far, but they met my concerns by agreeing to a maximum of 15 per cent. I am especially pleased that now, with things getting a little better and with a revaluation coming up once again, the Government have recognised that the impact of sudden and unexpected changes in business rates can be very disruptive, especially for small businesses. The restriction of any increase on a transitional basis to a maximum of 10 per cent., with a maximum of 7.5 per cent. for small businesses, is therefore especially welcome and will give great heart to that sector of the economy, which is so vital in securing our economic recovery. The changes that we made in national insurance will not only help many of the unemployed back into work, but will be of great benefit to many small businesses. All in all, this is a good Budget for small businesses. The encouragement of the provision of capital other than through bank borrowing--through business angels or venture capital trusts, for example, where we have made important improvements--is another aspect of trying to recreate a more secure capital base for business and I greatly welcome the Chancellor's action in that respect.
I am also pleased that the Chancellor has given help for personal equity plans, PEPS, by widening their investment criteria, thus enabling many people to invest more widely--perhaps sometimes more wisely in the present climate--than they have been able to do hitherto. The roll-over that the Chancellor has given to tax-exempt special savings accounts--TESSAs--will mean that some of the schemes will not have to close down and that these important savings areas will be safeguarded.
TESSAs are very important. I point out to the hon. Member for Brent, East (Mr. Livingstone), who talked about lack of investment, that, historically, the problem in this country has been that our savings ratio has been so much lower than that of our competitors--lower than that in almost any nation except the United States. The encouragement of savings produces the funds for investment, so it is vital that we continue to encourage saving as against giving incentives for borrowing or spending. That is the path on which the Government have been embarked for a considerable period and I hope that they will continue on it.
On a personal note, last year I tabled a new clause to the Finance Bill in which I asked the Government to exempt from tax liability the indemnities that companies give directors and other employees against claims being made against them in the performance of their duties; those indemnities are called directors' and officers'
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insurance. I am delighted to note that the assurances given to me by the Financial Secretary at the time have borne fruit and that the Government have announced this year, in the document IR6 from the Inland Revenue, that all my representations on that subject will be met in full. In future, this important safeguard for companies, employees and the public at large will be secure.I am a little sorry that the Government have not been able to reform the capital gains tax regime; we may be able to debate that further in Committee. In terms of encouraging saving and investment, it cannot be right that a man who has spent 10 years of his life building up a business is taxed on its disposal at the same marginal rate as applies to somebody who makes an overnight, speculative gain on the currency markets. We must do something to encourage more long-term investment. At the moment, it pays people to strip the money from companies through dividends and exorbitant salaries, which we should all like to discourage, rather than to leave the money in the company, thereby helping it to grow. I hope that, in the fulness of time, the Government will look at that area.
I also hope that the Government will look at the impact of inheritance tax on small businesses. I hope that they will look in particular at some of the inheritance tax concessions, such as gifts on marriage or gifts to an overseas-domiciled spouse--we purport to support the family--and will realise that it is important that they are indexed. Many of them have not been increased in line with inflation since inheritance tax came in. I hope that the Government will look at that matter at some time in the future.
Having said all that, I believe that this is a prudent Budget. It has clearly been welcomed in all quarters. The financial markets have given a favourable verdict on it. It has kept Britain on its course--and strengthened its position--as the fastest-growing economy in the whole of the European Union. I congratulate my right hon. and learned Friend on a thoroughly prudent and well-judged Budget. 7.47 pm
Mr. Michael Connarty (Falkirk, East): I appreciate the problems that Chancellors have in budgeting. I remember that when I was a university student studying economics in the late 1960s, the Labour Government had problems and were forced to bring in what seemed to me to be draconian cuts in public services to keep the International Monetary Fund happy. I remember that the sum was £3 billion, which seemed like a very large sum. I have since read Lord Healey's excellent book "The Time of My Life", in which he explains that when the outturn figures were eventually presented to him two or three years later, he discovered that the £3 billion which he was supposed to have as a deficit was in fact not a deficit, and that the balance of the Budget would have been fine in that year.
Lord Healey was, of course, driven by the statisticians. He recounts a story about the time when he was in the Army and was asked to check the people going to and from a railway station--people getting on trains and off trains, transferring to other places. He bribed the guards on each train to give him a figure and he bribed the chap on the gate to give him the figure for the gate. When he eventually left the station, they all had a little celebration and he said, "You were quite accurate with your figures. How did you manage to count all those people?" They
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replied, "We just made up figures and added them together." Every one of them made up a separate figure and all the errors balanced out and it became quite an accurate account of the people who went through the station. Lord Healey realised that he should have drawn on that experience when looking at the statistics which were presented to him in relation to the Budget.Let us consider the public sector borrowing requirement figures presented in the economic indicators in the House of Commons Library--the latest of which were for28 November. There is absolutely no doubt that the figures for the United Kingdom show a very stark difference between 1988-89 and 1992-93--and, in fact, 1993-94. There is no doubt that the Government had got themselves into such a mess with a £45.95 billion deficit in the public sector borrowing requirement that they had to do something very serious.
What they have done is very serious, all right. It is very serious for the people of this country because the Government's plan, as announced by the Chancellor in the latest Budget, is to take another £24 billion off public spending. That is not just about money being lopped off bank balances and deals being done with the Bank of England: it means £24 billion off services.
Given that the Government have been in power for 15 years, those services must initially have been set by them--albeit perhaps reluctantly. They may not have wanted to provide them because they had a different philosophy-- but they seemed to think that they had to respond to the people and provide services. Now they are slashing those services and selling off assets and they are still having to cut the public sector borrowing requirement by cutting public services further. It is not a fiddle or a Healeyite statistical error: it is a real attack on people's services.
The second thing that the Government felt that they had to do--it is important to return to this as everyone mentions it in the debate--was to attack the poorest in the country by putting a tax on yet another unavoidable use of resources: full VAT on fuel. People have been asking why Labour does not find another tax. There is nothing wrong with the idea of taxing people who received share options when they were senior officials of privatised industries--often, the same officials as those in charge when the industries were public. They got large salary hikes and, on top of that, share options. Those share options have become valuable--some of those officials are millionaires.
It is very strange that those same people were running the industry when this Government were saying how inefficient it was but that when they became private sector chief executives or chairmen or whatever they suddenly became extremely competent and talented entrepreneurs deserving of large salaries and very large slices of the available shares. Why not tax them?
I am told that taxing the share options and other gifts to those people in the privatised industries alone would raise enough money to enable us to keep VAT on fuel at 8 per cent. That seems to be a perfectly adequate transfer of responsibility away from those who are struggling to those who have made large amounts of money.
Mr. Butterfill rose --
Mr. Connarty: I noted that the hon. Gentleman said, in contradiction to his hon. Friend the Member for Brighton,
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Kemptown (Sir A. Bowden), the chairman of the all-party pensions group, that most people would not be worse off. His hon. Friend the Member for Kemptown said that most people would be 56p per week worse off even with the Government's compensation scheme.Mr. Butterfill: I wanted to explore with the hon. Gentleman the idea of taxing options at the time at which they are granted. Of course, shares can go up or down, as he will appreciate. Suppose that the hon. Gentleman raised a tax on a gain which has not yet been realised--in other words, charged somebody up front before that person dispensed with the shares. Would the hon. Gentleman give him a rebate, with interest, if those shares were subsequently sold at a loss?
Mr. Connarty: The theory would be to tax people on the realisation of the asset. If people receive share options, after a certain number of years, they can capitalise on them. Those shares then have a value. Those people have share options which they can take up. They are taking up those options at the price that was offered on the market when the private sector got its hands on public assets. As we know, the Government's incompetence has meant that every privatised industry has been sold vastly under the market value on day one but that its value has increased very quickly--and then, over the years, has increased massively.
In fact, those taking up share options are getting the value of the share as it stands in the market when it is taken up by the chief executive or whoever was bribed with the offer, compared with the value at which the Government sold it. So in a sense such a tax would not only be a windfall tax: the Government would be taxing their own incompetence, which would be quite valuable.
Mr. Butterfill rose --
Mr. Connarty: I do not wish to get into a dialogue with the hon. Gentleman, but he obviously wishes to intervene.
Mr. Butterfill: I am puzzled by what the hon. Gentleman said. He said that the tax would be levied when the asset was realised. Of course, that is what happens now: we do not tax the gain until somebody gets the money by selling the shares. But I understand the hon. Gentleman and some of his hon. Friends to be saying that they would levy a tax up front on a notional gain, before the asset was realised. In other words, a theoretical gain would be taxed. Where would people get the money to pay such a tax, because they would not have it from the realisation of the shares? And what would happen if the share value went down subsequently? Would Opposition Members then repay the tax with interest?
Mr. Connarty: Although it is a very interesting theoretical debate, the question what the word "realises" means is worth looking at. If the share option is offered at, say, 100p a share, and three or four years later when people are allowed to take it up, it is worth 500p a share, that is the point at which those people would be taxed. Yes, that would mean that they would have to realise some of their vast windfall asset to pay their tax burden. There seems to be no unfairness in that at all.
It would appear that the Government do not care that a pensioner knows that he or she cannot afford to pay VAT on fuel without cutting something else-- without cutting
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expenses on food or other expenses, which are meagre at the moment. That does not seem to bother the Government or their supporters. Is it because the burden is spread among so many millions of pensioners that the Government do not have to look them in the eye and see the pain? I know that the hon. Member for Ayr (Mr. Gallie), who is present, has told the pensioners that he sees their pain and is distressed about it. I hope that that pain is carried with him to the day on which we vote against the Government next week.I received a delegation from Scotland yesterday and the day before, led by Mrs. Ina Craig, a retired nurse, whom I would wish to commend. She is the secretary of a local pensioners group. The members of that delegation spoke eloquently to members of the Scottish parliamentary Labour group, and to others who wished to be present about the real hardships that pensioners will face and the choices that they will have to make between putting the heating on or putting a cooker on. It is a strange world. I was told by one of them that things have got so bad in the world of social security benefits under this Government that a cooker is now not considered to be an essential item of household furniture if one lives in an urban environment where fast-food shops are round about. People cannot even get a social fund loan for a cooker. But if people do have a cooker, they will have to choose whether to cook food or put on the heating because they will have to find extra money.
According to the figures given by the chairman of the all-party group on pensions, a Conservative Member, the deficit per pensioner per week will be 56p even after the compensation schemes. The deficit will be up to £3 per week for a pensioner couple, even with the compensation. Pensioners are having to take real-life decisions. They do not have to take theoretical decisions about how many millions of pounds or hundreds of thousands pounds they will have after their share options are realised and have to be taxed. Instead, they are having to worry about where they get the money for food and heating when the Government take VAT from them.
As I turn to the Chancellor, I am reminded of the story of the person who once asked whether Hitler was a bad or a good man and was told that he was good at the job he set himself. The Chancellor is good at his job. He wants to bring down the public sector borrowing requirement; he wants to cut expenditure; he wants to bring down inflation. There is some movement in that--there is no doubt about it. He cut £8 billion last year and is on for a target of £28 billion. In that environment, why did the right hon. and learned Gentleman not say that we could be softer on the elderly sector of the community? Is it because the Government have another agenda? Do the Front-Bench spokesmen have to be tougher that anybody else in the Conservative party now to get any support for any future position? It would have been sensible and politically adept of the Chancellor to relax in this Budget--not to have put the 17.5 per cent. VAT on fuel; to have worked out another taxation strategy; even to have let borrowing go up slightly. The cost would not be so fantastic that it would affect the Government's calculation over the longer period. I do not understand why they did not do it. Is it because they are determined to go down in a suicide pact on one vote or another?
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On the question of taxes, I had thought that the Conservative ranks always looked for the support of the middle income person. In fact, every analysis of the tax burdens placed on such people in the previous two Budgets and this year's Budget shows that Mr. and Mrs. Average will be hit. Some of the figures struck me as very interesting. Someone earning £14,000 a year will be £9.52 a week worse off under this Government. Someone earning £19,500, which is roughly what Mr. and Mrs. Average earn in the community in which I live, where we have quite high average earnings because of the petrochemical industry, would be £12.52 a week worse off. Getting closer to the Mr. Average who socialises with Members of Parliament, someone earning £29,000--which is about what Members earn--would be £21.58 worse off a week. That sort of salary is usually a joint income in my community. Someone earning £40,000, a potential Conservative voter in most parts of the country other than in Scotland where people's income does not take away their social conscience, would be £26.74 a week worse off. Someone earning £60,000 would be £32.50 a week worse off. On earnings of £80,000, someone would be £38.26 worse off. Even someone earning £100,000--which must be natural Conservative-voter territory--would be £44.02 worse off. Not only are the Conservatives attacking each other, which seems to be their favourite sport this season; they are attacking the people who have given them their present mandate and the mandate that they have held for the past two Parliaments. Tax is not something in respect of which the Chancellor is doing the Government any favours.Mr. Gallie: The hon. Gentleman has just referred to someone earning £100,000 a year. I suggest that that person is considerably well off and certainly does not move in the circles in which I move. The hon. Gentleman referred to the high levels of tax that such individuals are charged. In the past, the hon. Gentleman said that the Conservative party has not hit such people with high tax bills, but he is now arguing the reverse. There seems to be some confusion.
Mr. Connarty: When the hon. Member for Ayr speaks, there is always confusion--not just sometimes. The elements of tax are income tax, national insurance, VAT and other indirect taxes. There is no voter in the country who does not know that this Conservative Government are the Government of high taxation. All voters have got the message that indirect taxes have substituted for direct taxes and that we are carrying a higher and more unreasonable tax burden than our neighbours in Europe.
We are talking about incompetence. If the tax burden was meant to lead to investment in manufacturing to reclaim our manufacturing industry given that it has been almost destroyed by Conservative ideology, we would not mind. People would put up with that. However, people are fed up with paying high taxes because of the Government's failure and the fact that 5 million people who want to work are languishing on benefits or the dole-- [Hon. Members:-- "What?"] If hon. Members want to challenge my figure, they can do that later. I am interested in employment. I am carrying out a task for the parliamentary Labour party in Scotland which has made me look closely at employment and unemployment figures. We can debate whether unemployment is at a
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certain level and whether investment is at the level that the Government claim it is or whether it is heading in the direction in which everyone else says it is heading, but the Government are not listening.According to the Scottish analysis, a single parent will be £5 a week worse off. On average, a pensioner couple will be £2 a week worse off. A low-paid family will be £2.20 a week worse off and a higher-paid family will be £3.80 worse off. An average family on an average wage will be £1.15 a week worse off. A single person will be £2 a week worse off.
That is the result of this Budget. That is what the Conservatives have done in the Budget to the people whom I--perhaps falsely--thought they were trying to win round. The Conservatives must know that they have to win the people round because the Conservative party is not the electors' favourite party. The electorate will not wait long enough for the Government to get their act together and get the economy going.
I want to consider the real economy. The Chancellor has done something about inflation. My Opposition Front-Bench colleagues may not want to jump up and down about this because that could have created the headline: "Opposition Front Bench commends Chancellor". However, I believe that controlling inflation is a good thing. Inflation is not necessarily generated by the United Kingdom Government. It is created mainly by world forces and those who control oil prices and the prices of the raw materials that we used to get so cheaply when we exploited the world as our playground and as a source of cheap raw materials. When fair prices began to be charged, the British economy could not cope with that and we have been paying the price ever since.
There is an investment debate in respect of the real economy and I want to consider some of the statistics provided by the Government in their "Financial Statement and Budget Report". I presume that the Government did not put the statistics together on one side while they drew up the Budget. They must have collected the statistics at the same time as they drew up the Budget.
The most important point is the level of fixed investment in the economy. That is the measure of our ability not just of coping at the moment or taking advantage of the world upturn or the trade cycle or Germany's recovery from its depression and from its problem of overheating when it took in East Germany. According to page 27 of the Red Book, business investment was only 1.25 per cent. higher than it was a year ago. That is not enough to put our economy on an upward growth path. It is enough for us to turn over and take some advantage of the trade cycle, but until the upturn reaches 3 per cent., we will not be able to say that we are investing enough to be on a growth path.
As my hon. Friend the Member for Brent, East (Mr. Livingstone) said earlier, we are slightly hiccuping up on a continuously downward trend. That is clear if we consider the statistics over a considerable period. There is clearly a downward trend in investment in this country. Chart 3.11 on page 27 of the Red Book shows that there has been a decline from 1989. According to that chart, the estimates suddenly take a sharp upturn for 1994 to 1996. However, there is no evidence that that is happening.
I attended a briefing with the Engineering Employers Federation a couple of weeks ago. The federation makes it clear that, in terms of investment,
"The 24 per cent. reduction in fixed investment"
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by volume in the manufacturing industry since 1990 is a very significant trend. If we cannot get our manufacturing investment up, we can only eke out our spare capacity in the upturn. We must take the next step and jump out of the trough and begin to grow. There is no evidence that that is happening so far.According to the federation's table on fixed investment in manufacturing and non-manufacturing, it is clear that engineering fell steadily from the third quarter of 1989. The latest figures available, that is for the first quarter of 1994, show the same downward trend. In engineering and non- manufacturing, there is a bit of a turn up after 1992.
What element has caused that? It may be a positive element. It may be possible to say, "Yes, we are doing something. Our manufacturing industry is turning up." However, that is actually happening in housebuilding. It is the same old trap for the Conservative party that was in evidence during the Lawson boom when the Government pumped up the economy which pumped up the housing sector. At the end of the day, after the Lawson boom, it went down like a deflated balloon.
Page 28 of that wonderful document, the Red Book, shows that Government fixed investment rose by 5.25 per cent. in 1993. Despite themselves, the Government are way ahead in percentage terms in investment in comparison with the rest of the economy, so what are the Government going to do? The Chancellor said that he was going to cut several hundred million pounds off the roads programme. When that element of the roads programme switches to private investment, that will not be investment in new projects. It will be investment in exactly the same projects for which the Government should have been responsible. However, if they ever come off, it will be called new investment. I have never quite managed to work out why the Government are so pleased when they can do that. It is the same investment and it has the same result for the real economy. What can we do? It is important that we consider what could have been done in the Budget to get out of the trough and to leap beyond that turnover percentage. The Engineering Employers Federation did an excellent job by making recommendations for the Government but the Government did not seem to pay much attention to them.
The EEF sent us all a brief and I have kept in touch with the federation in Scotland and in England for some time and I believe that the federation should have been listened to. The Engineering Employers Federation said:
"Inflation indexation of existing capital allowances for plant and machinery"
should have been brought in. It also suggested a
"100 per cent. capital allowances for the initial £200,000 of plant and machinery investment".
The Chancellor and others often talk about quality investment. They would leave it to companies: they are not given incentives so they pick the best projects in which to invest. That is rich coming from a Government who brought in the business expansion scheme, which was supposed to be the last marvellous incentive for industry. It brought about a massive, pumped-up level of housing investment. It did not create many more houses, but it created massive inflation in house prices. That was caused by a Government who were badly tailoring, badly guiding and badly constraining an investment package. The bubble burst. I bought a flat in London which was
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worth almost £20,000 less than was paid for it two years earlier. People could not get their equity back. They had to abandon their homes because their mortgage debts were worth more than their properties.All that we needed to achieve quality investment was for the Chancellor to heed the suggestion of the Engineering Employers Federation and say that the proposal would apply only to plant and machinery and only to things that can be sold. Things that should have been done were not done, and things that should not have been done were done.
The Chancellor made much of employment levels. I was in the House in October when the right hon. and learned Gentleman said that we should not take account of people on benefit because there was a problem with that. We had statistics showing that 500,000 new people were on category E income support--that is, for disability, single parenthood and sickness--and that 2 million people were receiving that category of benefit who did not register as unemployed. We were told, "Don't look at that, look at the work force count."
I always like to consider matters that the Chancellor recommends, on the basis that he thinks that he is an intellectual, as my colleagues say, because he wears Hush Puppies. I have never liked Hush Puppies, but the Chancellor obviously favours them. I do not think that they are the mark of an intellectual. Perhaps they are the sign of someone who is locked in an era before people wore sensible shoes. However, the Chancellor told us to look at the employment count, so I have been looking at the employment count in the House of Commons research documents.
The 1994 figures show that there are 1,992,300 fewer people in the work force. That includes people in employment, the self-employed, Her Majesty's forces, and people on work-related Government training programmes. There are almost 2 million fewer people in employment now than there were in 1990 at the previous peak in unemployment in England and Wales. According to the Scottish statistics, there are 55,000 fewer people in employment in Scotland than there were in 1991. The Chancellor says, "I don't mean that you should look at the work force count. I was only kidding. You should look at something in this wonderful document that the Government have produced." At page 31 of the "Financial Statement and Budget Report" we find that the labour force survey is mentioned. Much to my amazement, the right hon. and learned Gentleman told us in his Budget statement that there are 334, 000 more people in employment in 1994 than there were in 1992-93. We are always told that employers are closer to the Government and that they are the people whom the Government should consider. Their statistics are almost the same as those in the research documents of the House of Commons, which show that almost 2 million fewer people are employed in our economy. The balance of two to one is against the Chancellor. We must seriously consider how his policies and those of past Chancellors have affected employment. We have a £40 billion to £50 billion deficit in the public sector borrowing requirement because people are not employed. They are not contributing in taxation. They must live on benefits and other support. That is the crux of the problem in our
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economy, and it is closely linked with the statistics relating to investment levels in the United Kingdom economy.Some of the employment measures that the Chancellor mentioned are deeply offensive. Once or twice, he mentioned the encouragement of low-paid employment--saying that we should actually encourage people to take low- paid employment. I do not see the virtue in that. I see a virtue in work and in employment. The Chancellor seems to be fixated on the idea that there should not be a national minimum wage. The Government wave Euro- banners which they hope will frighten the public and stampede them into voting for the Conservative party. There is no evidence around the world that jobs are lost if people are paid a decent wage. I believe that Winston Churchill said that if we do not have wages councils and minimum wages, we will have poor employers at the cost of good employers. We have a strange system in which family credit means that poor employers who pay low wages are supported by taxpayers. Employees are paid low wages to keep them at an adequate standard of living, not a decent standard of living, while the employer is commended by the Government for creating low-paid employment. It is a very strange country indeed. We heard the Chancellor say that exports are turning up. Nothing from the Engineering Employers Federation confirms that. Its analysis of exports and imports is that imports are increasing faster and staying ahead of exports in manufacturing. As the analysis is that fixed investment in manufacturing is not increasing in the productive and non-building sectors at the required speed, we will soon run out of capacity to compete with imports. We will suck in imports so that we can fulfil suppliers' demands even from our local economy. Certainly, in respect of products that we send to other countries, there will be a greater percentage of foreign input. That is the consequence of not getting back on a manufacturing track. The Chancellor stands rightly condemned for that.
The Engineering Employers Federation candidly says that, in 1993-94, we are having the benefit of a once-and-for-all effect of the devaluation of the pound in the autumn of 1992. When we are on a level playing field, we will fall badly behind our European and other world competitors.
There has been a sharp increase in electronic imports and an exceptionally high level of aerospace equipment imports. That is not to be commended, because they are supposed to be at the sharp end of high technology.
I shall give another statistic on the problem of fixed investment, as I want to place on the record the matters that the Government have failed to address. In 1971, more than 10 per cent. of our net domestic product was in net fixed investment. We are now talking about 5 per cent. The trend is clearly downward. There are little blips, but there is mostly a continually decreasing trend. Having dealt with several points of interest to the economy, I shall refer to one or two matters that I found rather offensive. In fact, I probably shouted from a sedentary position yesterday, because it seemed that the Chancellor's housing benefit amendments attacked people at the poorest level. We know the rents that people must bear. I place the statistics on the record because they are very important. Average local authority rents have risen by 35 per cent. since 1988. Housing association rents have doubled in the same period. Private sector rentals have
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risen so rapidly that the mean assured rent was £53.65 a week in 1993-94. Government pressure mounts to cut the housing benefit bill. When I was the leader of a council, we went through the trauma of the Government switching support from bricks and mortar, to which everyone then had access, to support only for people who could prove that they were on low incomes. I always found it rather odd that, if I wished to buy a house, I could get mortgage interest tax relief on up to £30,000. People who had to pay rent had to prove that they were very poor before they could receive any state subsidy. I personally look forward to the day when there is no mortgage tax relief, because I believe that it should be replaced by a housing benefit for everyone. Those in the private and public sectors should gain some support for the principle of having a roof over people's heads. They should not be discriminated against on the basis of whether they are poor or not.There have been eight amendments to eligibility for housing benefit to take people out of housing benefit. It is becoming more and more difficult to get an adequate level of housing benefit, and the latest attack will make it more difficult for more people.
I do not know why the Conservatives are doing what they are doing if they are looking to win an election. They appear to be attacking people who, at this moment, are in great difficulty anyway. If people with a mortgage become unemployed or are made redundant, it is a difficult trauma because they obviously thought that their standard of living was rising and thus went into the private sector. The Chancellor announced that he is going to find a way of cutting support for such people, so from October 1995, if they take out a mortgage they will lose everything if they are made redundant. Those people will not get support from the Government in the way that others do at the moment. I think that that is a foolish move and one that will obviously deeply offend many of the people that the Government are looking to for support.
The Government have not managed to deal with the problem that they created with the explosion of the Lawson boom. A total of 160,000 people are in serious mortgage arrears in 1993-94 as a carry-over consequence of the Government's responsibilities in that period. I want to make one or two comments about the effect on Scotland, because it seems to me that, as usual, Scotland will bear the brunt of the Government's attacks. The Scottish budget will go up by only £220 million to £14.3 billion- -a rise of 1 per cent. That means in fact that the Scottish budget will be seriously cut.
That budget will be wholly inadequate in providing housing in Scotland. It means that--I know that the hon. Member for Ayr understands this--the effect of the local government reorganisation and transition costs added to that will cut available moneys for public services very severely.
The effect of the care in the community programme will not be paid for by the rise in funds available for councils in Scotland. There will be massive cuts in services in other areas so that community care can be brought in.
I want to make one special plea in relation to something about which the Chancellor has failed to do anything. I represent the port of Grangemouth. It received a very good submission from the National Union of Marine,
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Aviation and Shipping Transport Officers about the Budget, which presumably went to the Chancellor as well but about which nothing was done.The figures in the NUMAST submission show that in 1976 there were 1,614 ships under United Kingdom ownership. We are down to 258 ships in 1994. The age of those ships is now an average of 15.4 years, and only one fifth of our fleet are under 10 years old. The average in the world is one third of fleets 10 years old or less. We are not the great seafaring nation that we were. We are not looking seriously at the needs of those who work in shipping and exporting and those who get the added value.
Currie Line, the firm at the port that I know best, has to lease German shipping in order to ship materials from the United Kingdom. That is the pattern now. Germany has put in place a financing method whereby small investors can get together to form a consortium, buy into shipping and then lease it out to the world. The British--the great sailing nation of the world--now have to rent German ships in order to export British goods. That has become a shame on this Government and they must look at that matter very seriously.
Mr. Eddie Loyden (Liverpool, Garston): My hon. Friend has raised a very important point which, as far as I can see, the Government continue to ignore. Future projections regarding shipping investment are tremendous and the increases in investment in shipping that will be made over the next decade will mean that this country will be left far behind the rest of the world. We are a maritime nation and rebuilding the British merchant fleet will not only mean a great deal to Britain's economy but will improve the viability of shipyards in Tyneside, Merseyside and Clydeside. The skills that they have accrued over many years could be adapted to future shipbuilding to give this country a great role to play in the industry's future. My hon. Friend has raised a very important point.
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