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Mr. Connarty: I am very grateful to my hon. Friend. I do not represent anything that could be called a shipbuilding area; as he represents Liverpool, Garston, my hon. Friend obviously has a greater knowledge of the industry than I do.

As a Scot, I can plead one unique statistic to quote. The largest passenger -carrying fleet in Britain today is the MacBrayne fleet, which plies its trade between the islands of Scotland. It was always seen as a joke by the great liner and shipping companies of the past but it has now become the single largest passenger-carrying fleet in Britain. That is a shameful indictment of the Government. I conclude by saying to the Conservatives that the Budget did not help anyone. It was not a boring Budget; I am prepared to be bored by someone who is being rational and is showing a little sensitivity. Often when people talk about responsive policies they do not do so in histrionic terms. It was a Budget which showed that the Government did not really care about anything apart from their own wish to be re-elected and to store up some goodies in the cupboard to dish out before the next election.

I think that the public have twigged that. They took the pill last time; they said, "We'll give them one more chance," and they have been seriously let down. They have been betrayed on the promises about VAT and they have been betrayed on all the promises about the economy. It is no longer enough to stagger along; if


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Britain wishes to recover, it needs to get off its knees. I am afraid that the Chancellor did not in any way give us the incentive to do that.

8.26 pm

Mr. Paul Marland (Gloucestershire, West): I was absolutely shocked by the speech of the shadow Chancellor of the Exchequer. I have never heard such a shallow, ill-thought-out sham from someone who poses as the chief economic spokesman of the Labour party.

In fairness to the hon. Member for Falkirk, East (Mr. Connarty), at least he tried to put a constructive argument together. However, it was heavy going following much of what he said. When he talked about a housing subsidy for everyone, I am afraid that he lost me completely.

I agree with the hon. Member for Brent, East (Mr. Livingstone)--it would have been very nice to hear a little more about what the shadow Chancellor has in mind for the economy. Instead, we heard something--it is a pity that you were not hear to listen to it, Mr. Deputy Speaker--which was more like a musical turn than a serious speech. He failed to recognise that the economy does not stand still and that circumstances and conditions change. Instead he bleated about the Government not having made these changes years ago. The fact is that conditions change.

The hon. Gentleman suggested that we should plunder funds from the sale of council houses. He said that this was the great salvation: everyone will be in work if we dig into that money. That is utterly ludicrous. He does not seem to realise that the money is invested to keep down the rate of council tax. What will happen to council taxes if we spend all the money which has been squirrelled away from the sale of council houses?

The hon. Member for Coventry, North-East (Mr. Ainsworth) said that there was fear in the countryside. I believe him. I think that people are frightened by the horrendous thought that the hon. Member for Dunfermline, East (Mr. Brown) might one day take the place of my right hon. and learned Friend the Chancellor of the Exchequer, who has just come into the Chamber.

Thoughtful commentators recognise the value of my right hon. and learned Friend's Budget. Large employers and many other people have commented that it is quite a dull Budget, with nothing much for the larger employers. Today when larger companies invest, information technology means that they invest in plant and machinery rather than in people. But I have heard small employers say on the radio--it is rather refreshing to hear favourable comments about the Budget on the radio--that my right hon. Friend's measures will help to create more jobs for the long-term unemployed.

So I welcome my right hon. and learned Friend's speech. What he has achieved by sticking to principles is excellent. I believe that principles in political life are essential. We have principles in the Conservative party and we stick by them. They include opportunity, ownership, low direct taxation, helping those who are in need and promoting and endorsing the principle that the user should pay through value added tax. I agree with that.

In recent years, whenever VAT has been discussed, we have been reminded that food, rent, fares and children's clothes are zero-rated. We always took some pride in the


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fact that fuel for domestic heating was also zero-rated. I applauded that. I am sorry at this stage to have to sound a note of discord. To me, VAT on domestic heating and lighting costs goes against the grain. Heat and light are essential. Every family in the land is affected by the tax. People have no way of choosing to avoid it. I like indirect taxation because, if people do not want to pay the tax, they do not spend the money in the first place. They can save it. With VAT on heating, there is no way of avoiding paying. I applaud the extra money that has been made available for the insulation of homes. It costs a lot to insulate homes, yet, I am sad to say, those who live in rented accommodation may not have an opportunity to make use of the money that has been made available. Much of the rented accommodation that needs to be insulated is in Labour-controlled boroughs. Those authorities will not make money available to take advantage of the opportunity to conserve energy in such homes.

Mr. Connarty: The hon. Gentleman knows more about farming and investing in Lloyd's than running public authorities. As a former vice- chair of the Convention of Scottish Local Authorities, I assure him that the heatwise, heatsave and energy saving schemes came from local authorities. They did not come from central Government Departments. They were all introduced by local authorities, which have asked for funding. They asked not for a piffling £10 million a year but for a great deal more to get up to the speed of the rest of the continent.

Mr. Marland: I have already commented on the hon. Gentleman's belief that everyone should receive a housing benefit, so I regard with some scepticism his point that the idea of insulating homes came from local authorities. I am sure that they would like to join in with that, but the point that I made and which I stick by is that the landlord has to make a contribution if people who want to insulate their home live in rented accommodation.

Sadly, as we heard earlier from my hon. Friend the Member for Bournemouth, West (Mr. Butterfill), too many Labour-controlled local authorities have large debts and cannot come up with the money to pay their share of the cost of insulating their properties. That is a disgrace. It is a fair indication of the way in which the Labour party, whether potentially in national government or in local government, talks a great deal but effects poor stewardship of our affairs.

I approve of the aim and ambition of my right hon. and learned Friend the Chancellor of the Exchequer to hand back considerable sums of money to help pensioners and those on income support with their heating costs. However, I am worried about those who struggle to earn whatever money they can and are just above the threshold. They are on low incomes, but their income puts them just above the threshold. They will receive no help with the extra cost of heating. In my constituency, pay levels are pretty modest. I would have liked the Budget to keep everyone in the Forest of Dean warm on cold winter nights. Furthermore, massive rebates go against the principles of a Government who believe in deregulation. Rebates are well intended but costly. There will be some winners and an awful lot of losers.

The proposal reminds me of selective employment tax, which was a muddle created by the Labour party. I remember wrestling with it when I was trying to run my


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farm--to which the hon. Member for Falkirk, East referred. Selective employment tax was a muddle and a mess. We should not go down that path.

I have found in my constituency that there is a considerable problem with communication about increases in the pension to compensate for VAT on heating costs. If the proposals go ahead, which I am sure they will, and increases in pensions are given, the Government should make more effort to ensure that pensioners understand precisely what proportion of their increase comes from the compensation package to give them more help with their heating costs.

The only people who will be genuinely pleased with the system of enormous rebates are those who will administer them. I believe that we have far too many administrators already and not enough people adding value and creating wealth. We have too many people redistributing other people's efforts. We have learnt that the economy is going much better than forecast. That is a great credit to my right hon. and learned Friend's stewardship of our affairs. However, it is high time that we demonstrated to the citizens of Britain that we want them to share in the success of this Administration. It is a great shame that it has not been possible to drop the second tranche of VAT so that a little warmth could flow into every home in the land and people could share our success. My right hon. and learned Friend the Chancellor rightly asked where those who suggested that the second tranche should be dropped would get the money. I made some inquiries this morning in the statistical section of the House of Commons Library. I was told that the revenue from the second tranche would amount to £1,500 million. That is the figure that my right hon. and learned Friend has used on the radio. From that we have to deduct the refunds to pensioners and others, which amount to £600 million. That leaves a net gain of £900 million. From where could we obtain that amount?

The increase in road fuel tax will yield £1.33 billion. I believe that we should have put another penny per litre on road fuel tax and let pensioners and everyone else share in the recovery of our economy. The rest of the money could have been mopped up from the general economic recovery. That is what I suggested that we should do. I hope that by now I have made clear my view on the imposition of the second tranche of VAT.

I should like to move now from one struggle to another. This struggle involves small businesses and modest property owners. The problem that I want to bring to the attention of my hon. Friend the Paymaster General is highlighted in a small town in my constituency called Cinderford. I make no apology for being parochial because the town demonstrates the problem. Sometimes things are easier to understand if a real example is put before us.

Cinderford was once the busiest town in the Forest of Dean. All the local activity revolved around it. However, over time other towns in the district --Lydney, Coleford and Newent--have flourished while Cinderford has declined. That small town now has far too many empty shops and offices. It looks rather dreary.

In order to do something about the problem, the mayor of Cinderford, Mr. Graham Morgan, and I have put together a task force of local business men and wealth creators. Graham Morgan is a socialist. He and I have decided that we will put our party differences to one side


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and work together for the benefit of the citizens of Cinderford. It may interest hon. Members, especially Labour Members, to know that Graham Morgan's peer group in the Labour party in the Forest of Dean is extremely cross with him for working with the wealth creators and me to solve the problems of the town. I get the impression that too often they would rather leave the town in its current difficult circumstances and do little about them.

So poor Graham Morgan has been criticised by his peer group. I respect him for standing up to that criticism and doing what he can to help out.

Mr. Connarty: May I suggest, to assist the hon. Gentleman, that he should go to Stirling and talk to people there? It has a Conservative council because of a strange quirk of the electoral dice. He will find a pattern through the 1980s similar to the one that he describes. He might find some good examples in which there was no antagonism between the parties because the purpose was local wealth creation.

Mr. Marland: I thank the hon. Gentleman for that suggestion. I appreciate it, but I shall now stay with my speech and I shall not give way again.

I do not see why what I suggest for Cinderford should not work for Stirling as well. One of the biggest problems that has emerged during the past five years is the fact that 50 per cent. of the uniform business rate is payable on empty shops and offices after three months.

The charge represents a huge drain on the owners, many of whom are people of modest means who saved like mad to buy the property, but find that instead of being an asset it is turning into a millstone around their necks. They have no money to paint the shop front, to do it up inside or to promote their premises and attract a new tenant. The uniform business rate is such a drain on their resources that they often find that they must dig into other savings accumulated during their working lives so that they do not get into trouble with the local authority. Banks now regard shop premises not as the asset that they should be but as a possible liability that may drag them and the person who borrowed money to buy them into considerable trouble.

We must encourage small business people. The imposition of 50 per cent. of the uniform business rate on shops and offices that have been empty for more than three months is a disgrace. Local authorities have no discretion over the rates and the situation is causing much resentment.

When I took the matter up with the Department of the Environment, I was told that owners of such premises had to pay 50 per cent. of the rate in case they wanted to call out the fire brigade or the police force. That might happen in some unfortunate circumstance, but it seems over the top to charge 50 per cent. of the UBR in case someone has to call out the fire brigade. I should have thought that 5 per cent., or a maximum of 10 per cent., would be much more in order. The anger of shop and office owners is compounded when they discover that the owners of empty factories and warehouses do not have to live by the same rules. They do not have to pay any uniform business rate if their premises are empty for more than three months. It is utterly wrong that one proprietor should have to pay when the other does not. What happens if an empty factory is


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vandalised or catches fire? Would their owners not call the fire brigade? The owners of empty factories should pay the same as shop owners, or better still, those who own empty shops should pay nothing at all.

In Cinderford, to give the town a boost and make the high street look busier, the owners of empty shops are willing to let other traders dress their shop windows. It gives the town a better look as they try to stimulate business in their shops. That is a generous and a good idea, but there is a problem. The full amount of uniform business rate becomes payable if the windows are dressed. The local authority has little or no discretion in the matter. If it did and the district auditor found out, he would pounce.

A little local initiative is being strangled at birth and a shop owner who once thought of his or her property as an asset has found that it has turned into a liability. I am sure that a similar problem exists in Stirling.

Will my hon. Friend the Paymaster General reflect on what I said about the UBR and its impact on the local business community? We want businesses both large and small to flourish, but we are seriously penalising those citizens who have made a commitment, saved up to buy their commercial property and find that it has turned into a millstone. Will my hon. Friend discuss that scourge--UBR on empty premises--with his right hon. Friend the Secretary of State for the Environment to find out whether they can come up with something practical and instant between them to help our small businesses? 8.43 pm

Mr. George Stevenson (Stoke-on-Trent, South): First, I congratulate the Chancellor of the Exchequer--Conservative Members may be a little surprised about that, but I congratulate him on his sheer brass neck.

We are witnessing a classic Conservative strategy: first create the problems and then claim the credit when they begin to be less of a problem. The Conservative party and the Government would love people to forget the past 15 years and to concentrate on what is happening now. The Government talk about reducing unemployment and give statistics and figures that everyone knows are massaged out of existence, but they want the people to forget that they trebled unemployment. We are here to ensure that they do not.

The Government want the country to forget that they murdered 30 per cent. of our manufacturing industry and that--as we heard from my hon. Friends-- they are continuing the policies that did that. Conservative Members continually talk about manufacturing industry, but they have only to look at the statistics to realise that, in spite of what the Chancellor said, our manufacturing industry continues to decline. The Government create the problem, hope that the country will forget that fact, and then claim some credit for any marginal improvement that may take place. There has been an improvement, they are taking the credit for it, and saying that it is a result of deliberate Government policy. They want the country to forget what happened on black Wednesday and the fact that that selfsame Government deliberately kept to a policy that slaughtered our economy and destroyed whole tranches of our


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manufacturing base year in and year out, until they were thrown out of the exchange rate mechanism. Of course, we know what happened after that.

We are looking at a blip, but the trends are there for us to see. We do not intend to allow the Government to get away with it. We do not intend to allow them to con the people into thinking that the past 15 years do not matter and that the only thing that does matter is what the Chancellor said yesterday. The Government know what they are about and have put their case subtly and ably. They want to concentrate on the here and now and they want the country to forget what has happened in the past 15 years. I believe that the people understand that.

I listened with great interest to the hon. Member for Gloucestershire, West (Mr. Marland) when he talked of principles. I happen to agree. I know the hon. Gentleman well and was glad that he raised that issue. Where was the principle in a Government who told the country, "We have no intention of raising taxes"? Where was the principle when the Prime Minister, when challenged, deliberately told the people that there would be no extension of, or increase in, value added tax?

The hon. Member for Gloucestershire, West and his right hon. and hon. Friends preach to us and to the country about principles, but they should examine theirs first. If they did, I am sure that we would hear no more lectures about principles. We remember January and March 1992, when the Prime Minister gave commitments to the people on taxation and VAT. We shall continue to remind them of those commitments and to ram them down the throats of the Conservatives at every possible opportunity, so we want no lectures from Conservative Members about principles.

I wish to refer to a comment made by the hon. Member for Bournemouth, West (Mr. Butterfill), which was probably a part of the Conservative party's strategy to convince the country that everything in the garden is rosy. The hon. Gentleman said that pensioners would be better off as a result of the VAT increase. I do not know where the hon. Gentleman gets his figures, but no statistic can justify that statement.

Let us take that logic a bit further. When the Chancellor extends VAT to passenger fares, books, children's clothes and possibly food--as I predict that he will--presumably hon. Members such as the hon. Member for Bournemouth, West will tell pensioners and the British public not to worry because, although the Government are imposing extra taxes, they will be better off.

The Government have failed to understand, and continue to do so, that pensioners and the low-paid do not believe them when they talk about taxation and about the meagre compensation package with which they try to alleviate the effects of VAT increase. They do not believe the Government-- not because of how much VAT that compensation package may offset in their bills--but because you told untruths. [Interruption.] I nearly did say the dreaded word. They do not believe the Government because you went to the country and gave promises which you cynically broke at the first opportunity.

Mr. Deputy Speaker (Mr. Geoffrey Lofthouse): Order. I hesitate to intervene, but the hon. Gentleman


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keeps referring to "you". The Chair is responsible for none of the things of which the hon. Gentleman is speaking. He should refer to Conservative Members.

Mr. Stevenson: I apologise, Mr. Deputy Speaker. I am still on a learning curve, and I apologise if I gave offence to any right hon. or hon. Member.

I return to what is a very important point. The people do not trust the Government, not because they have produced a compensation package which they keep pushing, but because the Government broke their promises. That is why people are angry, and that is the reason why the Government will never again be trusted, particularly when they talk about taxation.

Another element of the imposition of VAT which is a real source of anger is that, of all the taxes that the Government could have chosen to reduce the PSBR, they chose the most regressive tax. They chose the tax that will hit pensioners and the low-paid worst.

The Opposition have been challenged by the Government to talk about alternatives. The hon. Member for Gloucestershire, West pointed to one alternative, and there are many others. So let us have no more talk from Government Members about there being no alternatives. Hon. Members know that there are alternatives--what is missing is the political will to address them.

I shall give the House an example of a matter which the Government have not yet addressed, but which I hope that they will address during the debate. When the electricity companies were privatised, they were given the national grid, which was valued at £1 billion. They are now about to dispose of it, and its value is about £4.5 billion. What are the Government doing about that? Are they simply going to wring their hands and say--as the Prime Minister often says--"It is nothing to do with us"?

The national grid was a public asset which was cynically given away by the Government. The people who are in charge of that ex-public asset are about to get a massive windfall. Are not the Government even prepared, in the public interest, to look at that windfall to see what can be done with it? Nobody in the regional electricity companies has done anything for it--the windfall will be a gift to them from the Government. Christmas is coming early for the regional electricity companies.

The Government and the Chancellor have made their usual attack on public expenditure. I was interested to hear the Chancellor talking about how public expenditure would be cut, and I remembered that that was the same Chancellor who sent a letter saying that, between now and the end of the decade, the European Union budget was to increase in volume terms by 16 per cent. There we have the hypocrisy of the Government and the Chancellor. On the one hand, public expenditure is to be cut drastically in this country. On the other, the Government are perfectly prepared to increase the European Union budget in volume terms by 16 per cent.

Where will those cuts fall? Housing is one example. In my constituency, the waiting list for social housing increased by 12 per cent. last year, and the housing investment programme submitted by Stoke-on-Trent showed that it needs to double its provision of social housing to meet the demand. There is no chance of that at all. People, including young couples, who are waiting for housing will get no joy at all from the Government.


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If I have one major criticism of the Budget, it is that I did not hear the Chancellor, or any of his hon. Friends, address chronic short-termism. It is a fact that we suffer from short-termism. Banks and financial institutions want their returns quick and high. If one tries to invest over a period of five years, one is not likely to get any positive response from them. Short-termism is rife, and the Budget does not address it at all.

Share dividends are going up, and average dividends have risen by between 8 and 10 per cent., yet investment has dropped to levels equivalent to those of 1979. We have billions of pounds which could be used in positive way, but they are not being used in that way because of short-termism. The Chancellor of the Exchequer did not address that issue at all. One can conclude only one of two things--he does not recognise the problem or he is not bothered about it. If the Chancellor has taken either of those two views, the Budget will fail the country for that, if for no other, reason. Unless we get to grips with short-termism, we shall not get the economy moving in the way in which we want it to.

I shall conclude by making a few remarks about the Government's frustration at the lack of the feel-good factor. I know why that factor does not exist in my constituency or in the midlands region--Severn Trent Water has just announced another 750 job losses, and job losses in our manufacturing capacity are affecting people in my constituency. They do not have the feel -good factor because the Government's policies--in spite of what we are told--are simply not working in a way that will positively affect the ordinary people of this country. They still believe that their jobs are not secure and that their children and other young people have no future. The Budget has done nothing to address those fundamental issues and until the Government do so there will be no feel-good factor, no matter how hard their propaganda machine tries to convince people that they should feel good. The Government cannot continue to tell people that; they can only produce the policies to engender that feeling. For years the Government have failed to deliver such policies and, as a result of the Budget, they will continue to fail to do so.

Mr. Nicholas Winterton (Macclesfield): I have been listening with considerable interest to the hon. Gentleman, who represents an area where manufacturing industry is important. I accept that there is a lack of a feel-good factor and that the Chancellor has done very little to help the manufacturing industry. He also failed to discourage short-termism. Does the hon. Gentleman accept, however, that there are many good economic indicators? For example, unemployment has fallen by nearly 500,000, the rate of inflation is at a 27-year low and our growth rate, at 4 per cent., is the highest in Europe. Surely those indicators herald well for the future.

Mr. Stevenson: I can tell the hon. Gentleman quite openly that I do not accept the unemployment figures because they are false. I said earlier, however, that some improvements are apparent in the economy, but as I pointed out, they have nothing to do with Government policy. The Government have benefited from them almost by accident and the hon. Gentleman knows that as well as anyone else.

We could make a start on improving the economy if, next Tuesday, right hon. and hon. Members of the Conservative party joined us in voting down the second


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stage of the VAT increase. That would force the Government to rethink their strategy and perhaps we could then make a start on getting the country back to work.

8.59 pm

Mr. Barry Legg (Milton Keynes, South-West): Budget days are great occasions in the parliamentary year, but in any modern economy people would be wise not to overestimate the effects that a Chancellor or a Finance Minister can have upon the economy in the short term, or even the degree of accuracy that may be attributed to any forecasts that are given. The summer economic statement, which the Chancellor presented to the House only four months ago, offers an admirable example of the difficulty of forecasting with accuracy. He forecast that growth in the current year would run at 2.5 per cent., but in the Budget statement that he produced yesterday that forecast had been revised to a growth expectation of 4 per cent. for the current year.

I certainly accept that bad Chancellors and bad Governments can harm an economy, but I believe that the best Chancellors work with the grain of the domestic economy and take into account global economic developments.

There is some pessimism in the country about Britain's prospects, but I think that we have a great deal to be optimistic about, because Britain's performance has improved markedly. The world is moving in Britain's direction, because the policies that we advocated in the 1980s, based on free markets and privatisation, are the very policies that are creating success across the global economy. Free markets are working well; 10 years ago just 1 billion people worked in the global free market system, but now that number has risen to 5 billion people. The global economy has changed markedly, but it has done so in the United Kingdom's direction and to our advantage.

I welcome the Chancellor's efforts to reduce the Budget deficit projections for the coming years. I also welcome the fact that he has endeavoured to cut increases in public expenditure. In the five years to March 1994, public expenditure in the United Kingdom increased by £96.1 billion. If hon. Members take note of that figure they will appreciate that taxes have had to be increased to pay for that substantial increase in public expenditure. I do not remember any Opposition Member, be it the hon. Member for Dunfermline, East (Mr. Brown), or whoever, arguing against those public expenditure increases.

I welcome the reductions that the Chancellor has made in future public expenditure plans. I note in particular that that expenditure is set to reduce, according to next year's forecast, by £8 billion. My right hon. and learned Friend is now projecting a reduction in public expenditure of 0.8 per cent. in real terms next year. That sounds like a pretty tough Budget, but I would draw the attention of hon. Members to last year's Red Book, in which the Chancellor predicted a reduction in the control total of 1.3 per cent. in real terms for the current year.

This year's Red Book shows that the control total for the current year has increased by 1.4 per cent. in real terms. On public expenditure, there has been a 2.7 per cent. swing between what the Chancellor forecast and what has been delivered. That difference accounts for


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about £6 billion. Therefore, scope remains for ensuring that departmental budgets are drawn more tightly, and that expenditure is firmly controlled.

I welcome the comments of the Chancellor about reducing the running costs of Government; that is a sector in which a great deal of effort needs to be made, and in which the number of civil servants has expanded quite a lot over the years. The Chancellor has set a flat Budget for running costs in the coming years. I think that he should go further, to ensure that projections are achieved and running costs fall. It is essential that Government Departments and agencies produce projections for their manpower levels for the coming three or four years, and that the Government ensure that those manning reductions are achieved. Much needs to be done to improve the Government's management techniques, and to ensure that that is carried through to the agencies.

The rate of growth in the economy for the current year is estimated to be 4 per cent. That is very strong growth for the UK economy. The Chancellor yesterday said that he would adopt a "neutral" budget stance. I think that neutrality may not always be enough and that, when growth in the British economy is so strong, further tightening on the public expenditure front in addition to what is in the Red Book would have been welcome.

In the past two years, monetary policy has been one of our outstanding economic successes. The Chancellor and his predecessor, my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), have established a domestic monetary framework that will ensure that we can achieve low inflation in the United Kingdom. Hon. Members will remember that one of the reasons that was advanced for our membership of the exchange rate mechanism was that we could not achieve an effective domestic monetary framework-- that we needed an external guide to achieve low inflation. We have now shown that we can do that in our domestic economy, and we should be proud of it.

Floating exchange rates have worked well in the past two and a half years. They worked extremely well from 1979 to 1986, a period of great economic success for the Conservative Government, and I think that, as long as we hold true to floating exchange rates, economic success for the Conservative Government will prevail.

Mr. Nicholas Winterton: My hon. Friend referred to a monetary policy that has been extremely effective. Does he agree that the Chancellor said that he might have to increase interest rates again? Is he aware that the inflationary pressures in the economy are not domestic pressures on the economy but external pressures resulting from the price of raw materials, over which we have no control? Does he accept that it would be devastatingly damaging for manufacturing industry if interest rates were increased again?

Mr. Legg: I think that inflationary pressures in the economy are well subdued, and that significant increases in interest rates should not take place. As I said earlier, a tighter fiscal stance would probably have helped to achieve that.

The Red Book has plenty of good economic news in it, especially on the export side. In the current year, exports have increased by about 8.25 per cent. It is extremely good news that export-led growth is emerging.


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The report of the Panel of Independent Forecasters, submitted to the Chancellor in November, reflects that dramatic growth in exports. The panel noted that, in July and August 1994, the volume of exports to countries outside the European Community was about 10.2 per cent. greater than the comparable level in 1993, and about 21.1 per cent. greater than the 1992 averages. We are achieving good increases in export volumes. Paragraph 3.53 of the Red Book shows that invisible exports are also growing strongly, and that there was a sharp increase to a surplus of £3.5 billion in the first half of this year.

Earnings from overseas investments are at a record level of more than £4 billion a year. That shows the British economy at its best. Britain is a global trading nation and a global investor, and the changes in the world economy are going Britain's way. We are able to invest successfully in the fastest-growing economies and are directing our exports to those economies. I welcome the changes in Export Credits Guarantee Department cover because they are in line with the endeavours of private manufacturers to strengthen Britain's economy.

I congratulate the Chancellor on reducing public expenditure compared with GDP. It is to come down from 43 per cent. in the current year to 41 per cent. by the end of this Parliament. Public spending under each expenditure heading is being kept flat, is reducing or is increasing by less than the rate of growth in the economy as a whole. The economy is growing at 4 per cent., and, with one notable exception, public expenditure under every heading is increasing by less than that. That exception is the UK contribution to the European Community. The Government have committed themselves, and consider it a high priority to make payments to the EC in excess of the rate of growth in our economy.

Overall, public expenditure is moving in the right direction. The Chancellor had little scope for taxation measures, but those on national insurance contributions and personal allowances are welcome. I was encouraged by his comments on simplification of the tax system, and I endorse the remarks of my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) who pleaded for a root and branch reform of capital gains with, hopefully, a tapering system replacing the present complication and confusion.

The Chancellor has provided the right framework, with tighter control, and an unequivocal acceptance of Britain's global economic interests, which should deliver prosperity and success to the British people.

9.12 pm

Mr. David Congdon (Croydon, North-East): I think that it was Harold Wilson who said that a week is a long time in politics. A year in politics is a lifetime, and it is easy for hon. Members to forget last year's Budget in which the Chancellor had two key requirements. The first was to reduce the enormous deficit and the second was to ensure that any taxation changes did not harm the recovery. At that time many people were concerned about whether the Budget judgment would prove right.

It is pleasing to note, and we should never forget, that the past 12 months have been a period of economic success. In that time the economy has turned round. Growth has been 4 per cent. and although some people think that is a little too high, I do not. The public finances have been brought into much better shape. Therefore, last


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year's Budget was a great success. Likewise, this time next year this Budget will have proved to be a great success.

Last year the Chancellor was rightly tough on public spending when he reduced planned growth. I say that deliberately because my hon. Friend the Member for Milton Keynes, South-West (Mr. Legg) rightly said that when politicians talk about cuts in public spending they mean cuts in proposed increases which, of course, are much easier to make than real cuts. This time last year taxes were put up to try to put Britain's budget on an even keel. Therefore, this year, it was obviously right also to try to keep public spending on a tight rein. It is easy for Opposition Members to suggest that we should increase spending here or not have this tax there, but we should not forget that the public sector borrowing requirement planned for next year will still be £21 billion and be increasing our national debt. Therefore, we cannot take a relaxed view of the PSBR. Quite rightly, the Chancellor judged, and I am sure that most would agree with him, that it would not be appropriate to reduce taxes when public finances are in their present situation.

The Budget provides the opportunity to continue to build on the strong foundation that has now been laid for our future prospects. We have low inflation and we have growth, and for two years running growth will be higher than the level of inflation, a situation that we rarely achieve in the management of the economy.

My right hon. Friend the Member for Hove (Mr. Sainsbury) rightly pointed out that the Government's key role is to create a stable macro-economic framework which enables businesses to get on with their job, which is to produce the goods and services that people wish to buy here and overseas.

Opposition Members talk a lot about investment, but the reality is that businesses invest only if they believe that there is an opportunity to sell more goods and services. They do not invest simply because Governments or Opposition Members say that investment is a good thing; they invest if they know that they are likely to sell what they produce.

As was pointed out earlier, there is a double edge to the sword of investment. In many areas, more investment will lead to more of the product being produced but with a reduced labour force. It does not necessarily follow that increased investment leads to increased employment. That is one of the problems for all modern industrial economies.

The key is for Governments to keep out of the way and let businesses produce their products. That is why all the initiatives, such as deregulation and freeing up the labour market, are important, but equally important is the need to ensure that the tax burden on businesses is not too great. Last year's Budget went a long way towards helping businesses and that is one reason for the growth in the economy during the past year.

Dr. Robert Spink (Castle Point): Will my hon. Friend give way?

Mr. Congdon: I would very much like to, but I am short of time. This year's Budget rightly took the view that something had to be done about the revised business rates and that has led to £600 million of extra expenditure there. I am pleased to see that that threshold has increased and that various other measures have been taken.


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At one stage it was predicted that the Budget deficit would be £50 billion in 1993-94. We now understand that it reached a level of about £45 billion. Much has been said about how we arrived at that situation, much of it wrong. Of course, a lot was the result of the recession which meant that some expenditure on cyclical social security rose. But equally importantly, tax revenues were down by £20 billion in real terms between 1990-91 and 1993-94.

It is equally fair to point out that about half of that deficit was the result of growth in spending which was welcomed by all hon. Members. We did not hear many Opposition Members complain when spending on health was increased in real terms by £4 billion, on education by £3 billion and on Scotland, Northern Ireland and Wales by £4 billion. We have never ever heard from Opposition Members where they would cut public spending because, in reality, they would like to see it increased continually.

The trend for public expenditure has been continually to increase. One only has to look at page 134 of the Red Book to see that it normally increases year on year. It rose vastly from the late 1980s, but initially that growth was masked by buoyant tax revenues. Once they declined, there was a high deficit. It is critical that we never find ourselves in that situation again, which is why I welcome the determination of my right hon. and learned Friend, despite the difficulties, to rein back public expenditure.

Despite the tight settlement, I am pleased to see growth in key areas. Much has been said about the health service, but few people have commented that as a result of not clawing back the excess provision made for inflation, which was lower than forecast, NHS expenditure this financial year will grow 3.75 per cent. in real terms. That follows significant growth in 1991- 92 and 1992-93. The Budget provides for another 1 per cent. growth in the next financial year, and in education as well. That is the way to frame a Budget--rein back less necessary expenditure, such as that on administration to which my hon. Friend the Member for Milton Keynes, South- West referred. That will provide the freedom to provide growth in areas where it will be most useful. The NHS has a good record of expenditure growth--70 per cent. in real terms since 1979, and significant increases since 1991.

It ill behoves Opposition Members to complain, particularly in respect of community care, of a shortage of funds when social service departments throughout the country have enjoyed more growth than ever before. It is about time that they got their act together. I warmly support the Budget and look forward to saying next year that it embodied the right judgment. I am sure that Britain will enjoy continued growth in future years.

9.21 pm


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