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people? Has he learnt to respond to their wishes? How, from his Budget, will he meet the concerns of the people who write to Members in all parts of the House about the problems that they are facing today?

I shall tackle straight on the main issue of the Budget, which will be called the Budget of VAT on domestic heat and light. The decision to proceed, bull-headed, with the imposition of the second tranche of VAT on domestic fuel bills will be widely resented, and will reopen wounds that had been festering already for about 18 months. By the time all the admittedly modestly generous compensatory arrangements are added up, I simply do not believe that the revenue generated by that tax increase on a vital essential of life can possibly be justified, given the opposition that it has created.

My view, as a Conservative Member of Parliament, is that VAT on domestic fuel is fundamentally iniquitous as a tax on an essential part of life. To the elderly, the young and those with young families, heat and light are essential. The tax will hit hardest low-income families--not only pensioners, but the disabled and those who are in work but struggling to make ends meet on a limited income. They are not covered by any of the compensation packages that my right hon. and learned Friend announced this year or last year.

VAT on domestic fuel is widely perceived as unfair by a number of Conservative Members. I must tell my right hon. and hon. Friends on the Treasury Bench that no amount of compensation will eradicate the perception that the Government acted unjustly and unreasonably, and failed to respond to clearly expressed opposition from the public. Many of them wrote to me, not only my constituents, saying that they would gladly have borne an increase in income tax as a means-tested alternative to an across-the-board measure. When Ministers ask how I would raise the money another way, that is the answer I give. I should have preferred the money to be provided from direct taxation, which is means-tested and therefore paid in accordance with people's ability to pay.

People do not have any choice whether to heat their homes in winter, because, if they do not, they die. Many elderly people need rather more light than younger people. Elderly people also leave lights on at night, particularly if they live alone, for security and peace of mind. Many will feel that they can no longer do so because of higher bills.

The Budget missed an opportunity to give a real boost to manufacturing industry. Despite my repeated lobbying, my right hon. and learned Friend failed to give manufacturers the kick-start they still need, with the introduction of 100 per cent. capital allowances to encourage investment in the new plant and products that would enable this nation to remain a major player in an increasingly competitive international market.

Capital allowances would encourage investment, stimulate employment and provide particular help to small and medium businesses. They will provide employment in the months and years ahead, not big businesses. The hon. Member for Norwich, South (Mr. Garrett) said that large companies in the service or manufacturing sector are shedding labour even at a time when unemployment has dropped by just under half a million. The Confederation of British Industry, the Engineering Employers Federation, and chambers of commerce and industry all

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believe that a 100 per cent. capital allowance would be immensely beneficial. It is a shame that that opportunity was missed. Some people describe the film industry as a service industry, and others describe it as a manufacturing industry. I wish that my right hon. and hon. Friends would accept that if the film industry was granted 100 per cent. production cost write-offs in the first year, Britain would attract massive investment in that industry, bringing thousands of jobs. We should look at other countries within the European Union. Only recently, we lost a massive influx of film production, with all the jobs that that would have brought with it, to the Republic of Ireland because of the package which that country offers to encourage film production.

Mr. MacShane: As a result of the Budget, the grant to the British Film Institute has been cut by £600,000 in real terms. That will have a serious impact on one of the major institutions supporting the indigenous film industry.

Mr. Winterton: I share the hon. Gentleman's concern and disappointment. I know well just how hard Mr. Sydney Samuelson of the British Film Commission works for this country's film industry. He is a tireless man, with a pedigree of knowledge that is second to none. If everyone was as committed to the industry as he and his family have been for several generations, this country would be more prosperous, and would have a sounder and larger economy.

The hon. Member for Norwich, South mentioned also the infrastructure. It is unfortunate that cuts have been made in our roads programme, because that will destroy jobs in the construction and civil engineering sectors. If we sought to improve our infrastructure, jobs could quickly be provided. Another result of cutting road construction will be an increase in transport costs borne by manufacturers, who will not then be as competitive. My right hon. and learned Friend's continuing obsession with inflation lies at the heart of that and a number of other problems.

Cutting public spending and raising interest rates to force inflation down is not the only answer to finding satisfactory economic solutions. Taking that action costs jobs and has only a limited impact on the public sector borrowing requirement. I share the view of the hon. Member for Norwich, South that the country needs a well targeted boost for economic growth and infrastructure expenditure. That would create more jobs and wealth, from which the Government would enjoy a greater tax take.

There needs to be an understanding also that high inflation was historically rooted in social and economic conditions that no longer exist. Inflation is not the danger that the Governor of the Bank of England likes to pretend. Recently, in a television programme on which I appeared with a Labour Member, I said that the person whom I should most like to see on the unemployment register was Mr. Eddie George, Governor of the Bank of England. His obsession with increasing interest rates when there is no real inflation in the economy is a danger to our economic recovery.

The economy's problems result from matters over which we have no control, such as the cost of imported raw materials--the prices of which we do not dictate. Given the recovery of our economy, exporters of such

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materials will seek to improve their profitability by increasing prices, and those increased costs will be passed on to consumers. In our own manufacturing sector, there is little room for more squeezing and tightening. If there is more cost-squeezing, any further chances for our manufacturing base will disappear. My hon. Friend the Paymaster General was kind enough to see me and colleagues before the Budget, when I put some of those points to him directly and forcefully. I did not mince my words, and I am not doing so now. I do not believe that one should mince one's words in this place.

The current economic recovery is export-led, and the Government should be congratulated on that. If there are price rises in the system, they relate to imported raw materials over which we have no control--and on which interest rate rises have no effect. May I tell my hon. Friend the Minister: please counsel Eddie George to stop talking about any further interest rate rises? If one wants to kill off the economy and the improvements in it, increase interest rates again. But if one does that, one will have a lot to answer for, and the chances of the Conservatives winning the next general election will be nil.

I make a plea. Let us have no more talk about rises in interest rates; manufacturing industry wants them like it wants a hole in the head. But having said that, I commend my right hon. and learned Friend the Chancellor on the reduction in the Export Credits Guarantee Department insurance premiums. They should never have been as high as they were. I welcome the reduction, as I also welcome the additional resources to do business with important developing countries. I think that an additional £300 million is being provided. I warmly welcome that.

The Budget was a little dull. It missed a number of golden opportunities to show the electorate that the Government were listening. They should have pegged VAT on domestic heat and light at 8 per cent. I give due notice that next Tuesday I shall most certainly support the enabling amendment to provide the opportunity for a vote on that subject. I hope that my hon. Friends who have the courage of their own convictions--I am looking at my hon. Friend the Member for Ayr (Mr. Gallie)--and who sincerely believe that the tax is pernicious and wrong and should not be raised from 8 per cent., will do likewise. We are not voting for Labour in doing that. We are voting from our own conviction and principle, believing that what the Government are doing is wrong.

The golden opportunity to help and give a kick-start to manufacturing industry was also missed. It was, perhaps, as my hon. Friend the Minister would say, a Budget that is "Steady as you go; we are recovering."

Let me finish, as I have on one or two other occasions, with an optimistic comment for the Government. Of course inflation is at a 27-year low. Wonderful. Of course unemployment is coming down, but it is not coming down enough. Yes, we have substantial economic growth--4 per cent. Super. It is higher, I believe, than in any other country in the European Community, and the Government can take proper and full credit for that.

But I ask my hon. Friends to listen to the grass roots of the Conservative party. Listen to the people outside. Listen to small and medium-sized businesses. If they had done that, the Budget could have had a number of real

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rabbits to come out of the hat, and we could look to the future rather more optimistically than we can now.

6.42 pm

Mr. David Chidgey (Eastleigh): In the Budget, the Chancellor of the Exchequer had a window of opportunity to announce measures to attack the root cause of this country's economic decline--mass, long-term unemployment, fuelled by persistent, low skills in our work force. The gap between the low skills of our work force and the high skills of other western nations is continuing to widen, and the hill that we must climb to achieve sustainable growth in our economy is getting higher and higher.

Throughout the country, traditional industries, in manufacturing and engineering, have suffered decades of decline. In my constituency of Eastleigh--a community created from employment in heavy engineering--some 25,000 people were employed in its factories, workshops and railway yards until recent times. It was a community that, generation after generation, had applied its skills and earned its living in manufacturing industry, creating the wealth that underpinned our economic strength.

Today, fewer than 5,000 people work in what remains of Eastleigh's manufacturing industry. A third of unemployed people in Eastleigh have been unemployed for more than a year--a pattern that, as hon. Members will know, is repeated in towns and cities throughout the country. The lack of investment in modern technology and in creating a highly skilled work force has meant that our industry has been unable to remain competitive in the global market place. As company after company has closed, men and women who have given years of good value to their employers, building up skills, experience and loyalty, have been thrown out of work in their hundreds and thousands. Many of those people are redundant for the very first time in their lives, with no prospect of finding a worthwhile job and no opportunity to retrain to develop new, high-level skills.

For those who are over 50, the future is bleak indeed. Many are self- motivated, eager to build on their existing skills and to study and acquire recognised qualifications as a new route to a new and worthwhile career.

Ms Eagle: Does the hon. Gentleman agree that the statistics on that very point--in 1979, 11 per cent. of men aged over 50 were unemployed, whereas the figure now, I believe, is 55 per cent.--demonstrate a really serious social issue in our society, which needs to be dealt with, and quickly?

Mr. Chidgey: I agree, and I shall continue on the same point. A motivated, eager person over 50 who is trying to pursue third-level education and training at a college or university in order to begin a new, worthwhile career will find that no help is available towards his living costs. People over 50 do not qualify for a student loan. The Government have decreed that a student loan is not a worthwhile investment.

For thousands of young people, the prospects have been equally bleak. The training for work schemes available to them have not been designed to develop high skills, leading to productive employment. The initiatives are aimed at providing the minimum skills necessary to get a job--not training that will lead to worthwhile careers, but

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minimalist training to get any old job, just as long as it leads to one fewer being on the unemployment statistics. The Government's training programmes aim to provide the least, when they should aim to provide the most.

Given those circumstances, it is hardly surprising that nearly 1 million people in this country have been out of work for more than a year--some 40 per cent. of the unemployed total. Despite some 18 months of apparent economic recovery, the number of long-term unemployed has hardly fallen at all. The Government's training for work schemes are not succeeding in reducing long-term unemployment. Fewer than one third of those who have been out of work between one and two years and who enter a scheme end up with a stable job. Of those out of work for more than two years, fewer than one in five find and remain in work. Fewer than half of all scheme entrants complete their agreed training. Only just over a half of those who complete a training for work scheme end up with a qualification or even a credit towards one.

There is a desperate need to create high-quality training programmes for the unemployed and to create additional intensive schemes targeted at the long-term unemployed. Long-term unemployment is a major barrier to re- employment. For those who have been out of work for more than two years, the chances of getting back into work rapidly approach zero. At the same time, the average cost to the Exchequer of each unemployed person is £9,000 per year, or more. The cost of supporting people who are unemployed for six months or longer is currently running at £11 billion per year in benefits alone. In his speech to the House at the beginning of the Budget debate, the Chancellor recognised the crisis of the long-term unemployed. He spoke of the dangers of creating an underclass, excluded from economic activity--sentiments that I am sure we all share. He has seen the window of opportunity in the economy of getting people off benefit and back to work.

The Secretary of State for Employment, too, has spoken of his overriding objectives of encouraging job creation and getting more people into work. In his reply to me earlier in the week, he said: "I share the hon. Gentleman's dissatisfaction with the present level of training for work. If we are going to spend that much money from taxpayers' sources on training for work, we should be able to ensure that more people get jobs."--[ Official Report , 29 November 1994; Vol. 250, c. 1066-7.]

The right hon. Gentleman is right: getting people off benefit and support from the state and into productive work--thus creating tax revenue--is not so much a free lunch for the economy as a veritable banquet.

For that reason, I welcome the Chancellor'sinitiatives in cutting national insurance contribution rates for the low-paid, offering an NIC holiday to employers who take on the long-term unemployed and proposing benefit reforms. I also welcome the expansion of workstart and other such schemes. But why so little? With existing training for work schemes failing to make any impact on long-term unemployment, and with long-term unemployment costing the Exchequer £11 billion a year in benefit alone, why does the Secretary of State for Employment propose to provide only £680 million for schemes to target a major failure in our economy?

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It seems to me that the Secretary of State's objectives of encouraging job creation and returning more people to work have been crushed by a Chancellor who is working to a different agenda --an agenda the prime concern of which is to hoard tax revenues to provide giveaway tax cuts before the next general election. That becomes blatantly clear when we examine the detail of the employment proposals. The benefit reforms are far too modest. Tinkering with the system is not the way to improve work incentives; the pilot scheme that is now being recommended-- which is equivalent to the Liberal Democrat proposal for a low-income benefit--should be adopted as a national programme.

Why does the adoption of an employer's NIC holiday apply only to those who have been unemployed for more than two years before being taken on? Why will the unemployed have to work for a further 18 months, until April 1996, before they can benefit from the scheme? Again, they are being given too little too late.

The Budget proposed to extend the community action programme, providing a modest 40,000 opportunities for each of the next three years. Why so few opportunities? The proposals for a citizens service in our alternative Budget created opportunities for up to a quarter of a million people, to use the skills of the unemployed and provide training for the young.

With the total of those who have been unemployed for more than a year still nearly 1 million, the Workstart pilot scheme is to be marginally expanded, with yet another pilot scheme that will provide incentives for just 5,000 people who have been unemployed for more than two years. Even that inadequate scheme will run for only one year, from April 1995.

The Budget presented a major opportunity to grasp the initiative, and to introduce a working benefits scheme in line with our proposals. Under our scheme, social security benefits paid to people who had been unemployed for more than six months would be converted to vouchers payable to employers to subsidise training. The value of the vouchers would fall steadily in each week of employment, avoiding an open-ended commitment; the cost to the state would be negligible, and always less than the total cost of benefit and tax revenue forgone. To benefit from the scheme, employers would have to pay wages at least equal to the value of the vouchers. They would be eligible only if the new employees were genuine additions to the work force.

A crucial difference between the working benefits scheme and Workstart is that employers would be required to provide extended quality training for new employees. By re-establishing working habits and acquiring new skills, long-term unemployed people would become capable, productive members of the work force. Instead of providing a bonus for the employer, the scheme would provide an investment in the employee--an investment in skills and "employability".

The Budget has not only failed to grasp the initiative by providing training schemes that would help significantly to return the long-term unemployed to work but has cut existing training funds for training and enterprise councils. The need for high-quality training is now crucial if we are to rebuild our skills base, but instead of securing support for their schemes TECs will now have to lower the quality of the training that they provide.

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While there is little of substance in the Budget to provide improved training for the unemployed, job creation opportunities have been slashed. By cutting public-sector capital expenditure--that was mentioned earlier--the Budget puts at risk thousands of jobs in the construction industry, which has already been severely damaged by the recession. The proposed £400 million cuts in the roads programme should have been transferred to investment in the public transport system--particularly rail--to provide modern, efficient networks and ease the burdens on business. That, too, has already been mentioned. Reliance on private finance for public infrastructure has failed in the past, and there is no reason to believe that it will succeed in the future.

For the unemployed, the unskilled and those trying to retrain to improve their qualifications and secure a worth-while job, this Budget offers little. There are no plans to invest in our infrastructure and the railways to create jobs; no plans to invest in education or quality training to improve our skills base; and no plans to invest in modernising industry to give our manufacturing firms a competitive edge. In fact, the only plan to emerge from the Budget is the Government's attempt at self-preservation.

6.55 pm

Mr. John Townend (Bridlington): Every politician needs a bit of good luck. Certainly good fortune has shone on the Chancellor over the past 12 months, with the economy performing better than at any time in living memory. Who would have thought two and a half years ago, when we were swept out of the exchange rate mechanism and the pound fell, that we would now have the lowest inflation for 25 years? Who would have thought that we would have an export-led recovery, and that--as growth was secured--we would not suck in imports that would worsen the balance of trade? In fact, our trade deficit is falling dramatically, and will halve in the next year. That, combined with low interest rates and unemployment falling more rapidly than it is anywhere else in the western world, was certainly a good basis for the Budget.

The Chancellor's greatest achievement this year, however, has been his success in bringing the budget deficit under control. As recently as 1993- 94, that deficit was rising at a rate of £1 billion a week, and was expected to peak at £50 billion a year--an appalling figure. This year --as my hon. Friend the Member for Macclesfield (Mr. Winterton) pointed out --the Chancellor has got it down to £21.5 billion, and within three years it will be nil: we will have a balanced budget. As my hon. Friend said, that is a wonderful achievement.

The achievement, however, has not been devoid of pain. Initially, the Government were not prepared to grasp the nettle sufficiently to deal with public spending; the country has had to accept some swingeing tax increases, the last of which will be implemented this year. Last year, thankfully, the Chancellor began to put pressure on spending Ministers by not allowing them to spend the contingency reserve; this year he has reduced the planned public sector borrowing requirement by no less than £8.5 billion, of which £6.9 billion has come from the control total.

If any hon. Members have gained the impression that the Chancellor has become "Ken, the mad axeman of spending", let me reassure them. The hon. Member for

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Norwich, South (Mr. Garrett) is entirely wrong: the real cuts in the control total next year amount to only 0.8 per cent. in real terms, which is more than covered by the £3.5 billion reduction. Whatever anyone says, overall there is no cut in Departments' volume of expenditure in real terms. Indeed, in priority areas the Chancellor has increased expenditure, with an extra real-terms increase of 1 per cent. in education spending, an extra £1.3 billion in health service spending and an extra £150 million to be spent on law and order.

How has "Ken the magician" done it? He has secured most of the savings from lower inflation, which is undoubtedly the Government's major achievement. In the past, when a control total was included in an estimate of inflation, and inflation subsequently turned out to be lower, Departments have rubbed their hands and spent more. I pay tribute not only to the Chancellor but to the Chief Secretary to the Treasury: for this year, most of that windfall has been clawed back and has helped to reduce the PSBR.

I am delighted that the Chancellor has listened to those of us who have said, for some years now, that the Government should follow the example of the private sector. During the recession, every firm in the country had to cut its overheads to survive. We have said that we should follow the example of the privatised industries which, once they were privatised, rapidly got rid of the enormous overmanning. We have made it clear that we consider that there is a great deal of overmanning in the public sector. I was delighted when my right hon. and learned Friend the Chancellor said that he intended to freeze the cash spent on running costs for four years. That will be equivalent to a real-terms reduction of 10 per cent.

Despite all the accusations from the Opposition that we are the party that is always cutting public expenditure, we are still a high-spending Government. General Government expenditure, excluding privatisation, is still 42.5 per cent. of GDP. If the Opposition were in office, it would be about 50 per cent. of GDP. The current level is still too high and on present plans it will be the turn of the century before we get it back to the 1988-89 level.

As a result of my right hon. and learned Friend's successful management of the economy I suggest that my right hon. and hon. Friends on the Front Bench have only one major task left and that is to reduce the overall burden of taxation back to or below the level it was at the last election. That will be no easy task, because tax and national insurance have risen from 33.75 per cent. of GDP in 1993-94 to, according to page 84 of the Red Book, 37.25 per cent. in 1996-97.

I should like to give my right hon. and hon. Friends on the Front Bench the benefit of some ideas about where they might make some cuts next year. I think that they will have to intensify the pressure on public spending over the next 18 months if they are to deliver the tax cuts that we expect.

I want to look at one or two areas that, for some surprising reason, seem to have been sacrosanct. First, we are now spending £2.36 billion on overseas aid. Most people accept that a great deal of overseas aid is wasted. The west has poured billions of pounds into Africa for over 40 years, but has not solved any of the problems. We all know about the amount going into Swiss bank accounts, the money that is wasted and the amount spent on arms.

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I have some sympathy with the view expressed by my hon. Friend the Member for Macclesfield. Now that we are imposing the second tranche of VAT on fuel, my pensioners say to me, "If the Government are so hard-up that they have to tax fuel, how can they afford to give so much away to foreigners, particularly when so much of it is wasted?" I think that they have a point, and we could well cut half a billion from that budget next year.

I shall loyally support my right hon. Friend the Prime Minister in the Lobby on the VAT vote, and I urge all my colleagues to do the same, whatever their views. We have made the decision, and if we had to go back on it at this stage--I hesitate to say this in the House--it could adversely affect the financial markets. If the markets took it badly, it could force up interest rates and that is the last thing that we would want. However, having given 44 per cent. of the tax back in relief, for which we do not receive any credit, I believe that it would have been wiser to put VAT on newspapers instead of on fuel. I think that we will pay a heavy political price for that tax. We should also look at the arts budget. This year, the National Heritage Department budget tops £1 billion for the first time. In view of the amount that will be received from the national lottery which is to be spent on arts and sport, perhaps we should look at that next year.

The biggest spender is the social security budget, which goes up inexorably year after year. It is now £73 billion--28.5 per cent. of our total spending. We spend more on social security than we do on health, education and defence combined. That is why I am delighted to welcome my right hon. and learned Friend's proposals to try to get the long-term unemployed back into work. They are first-class proposals. However, I was not convinced by the reply given by my right hon. Friend the Secretary of State for Employment about the reasons why we have to wait until 1996 for the national insurance holiday. I should have thought that, if it was a good scheme, the Departments could act a little more quickly.

We must intensify our attempts to stamp out fraud. There is a great deal of fraud and we all know about the people in the black economy, earning money in the real world and still claiming benefits. If it will help to have a national identity card, let us get on and deal with it.

I welcome the help for small businesses, in particular the venture capital trust and the transitional rate relief of £600 million with regard to the business rating revaluation. I hope that the proposals on venture capital will deal with an omission in the market. At present, most venture capital wishes to have a guaranteed exit after seven or eight years either by the outright sale of the company or by a flotation. Many of our most successful businesses are in their third or fourth generation and those involved do not want to sell them. However, they are often short of capital, and we should look at new sources.

We should also look at excise duties and cross-border shopping. I declare an interest, since, as everybody in the House knows, 100 per cent. of my working life has been spent in the drinks business. Therefore, I am speaking with a knowledge of the industry. I am pleased that my business is in the north of England rather than on the south coast. I must tell my right hon. and hon. Friends on the Front Bench that the problem is growing. It will not go away, but will get worse every year. The Treasury has underestimated the effect on the Revenue. There was a

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change in the method of assessing duty on beer last year and we should have been looking for a considerable increase in beer duty when we did away with the waste allowance for brewers.

We must take into account the results of this cross-border trade--not only the personal buying, but the bootlegging and smuggling, which is getting worse. There are signs that criminal elements are becoming involved and we all know what happened in America when criminal elements became involved during prohibition. It is not only the loss of revenue from the excise duty that is costing us money. There is the loss of VAT, the effect of corporation tax on the profits of the companies involved, the loss of jobs for the people in the businesses closing down. It is said that the amount of beer coming in is equivalent to the production of four provincial-sized breweries.

I was delighted that my right hon. and learned Friend the Chancellor said that he now accepts the problem, but his solution was not to reduce duty but

"to work with our European partners to bring duties more in line."--[ Official Report , 29 November 1994; Vol.250, c.1096.] Does my right hon. and learned Friend really think that the French will co-operate and put up duties on alcohol, particularly on wine, which they consider to be an agricultural product, in order to stop British shoppers pouring over the channel to Calais, putting money into the pockets of French shopkeepers and, more importantly, putting VAT in the pockets of the French Government?

The only solution to the problem is to cut our duties progressively. I accept that financial constraints prevented us from having a major cut this year, but I would have liked to have seen a start. We must move progressively over a number of years until the differential is no more than 50 per cent. I hope that my right hon. and learned Friend listens to what I have said, and that we will see some action next year.

This is a safe but unspectacular Budget in which the Chancellor has, quite rightly, given overwhelming priority to fiscal rectitude and reducing the budget deficit. I applaud that warmly. This year he has achieved more than anyone expected. I hope that the Budget will give us the platform to continue the economic recovery so that we will be able to fulfil our final pledge to bring taxes down at the next election. The help to small businesses and to the long-term unemployed is welcome. With steady Eddie at the Bank of England and careful Kenneth at the Treasury, we can sleep soundly at night, knowing that the country's finances are in safe hands.

Several hon. Members rose --

Madam Deputy Speaker (Dame Janet Fookes): Order. Before I call the next hon. Member, I remind the House that there is a 10-minute limit on speeches between now and 9 o'clock.

7.9 pm

Mr. Robert Litherland (Manchester, Central): I shall not follow the hon. Member for Bridlington (Mr. Townend) down that line, but I noted that the hon. Member for Macclesfield (Mr. Winterton) gave an honest and passionate speech in which he highlighted the essential need of the young and elderly for heat and light.

I should like to discuss another need in life: housing. I am of the firm opinion, as are local authority representatives and construction industry workers with

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whom I have discussed the Budget, that the Chancellor of the Exchequer has missed a golden opportunity to meet the housing needs of the citizens of this country and to blend those needs into economic growth and regeneration, especially of inner-city areas. The need and demand for affordable rented housing is shown in the figure that various organisations have bandied about for a long time. They say that 100,000 new homes are required every year to meet housing needs, to give real choice and to achieve stability in housing.

The pool of affordable rented housing is diminishing day by day. As every hon. Member knows from attending advice bureaux and surgeries, housing is the issue in the vast majority of constituency cases. I am becoming despondent that I have no answers, and I experience sheer frustration when people seek my help.

According to the Chartered Institute of Housing, since 1981, the social rented sector has shrunk by more than 1 million homes and, under the right- to-buy scheme, council houses are being bought twice as fast as houses are being built by housing associations. The new build by local councils is so insignificant that it has no effect on ever-growing waiting lists. In most authorities, new build is non-existent. The institute argues that the Government's housing and economic policies must be brought into line or both will fail. Action must be taken to increase the supply and to keep down the cost of rented housing. The Chancellor of the Exchequer has failed miserably in the autumn Budget. What will be the cost of that failure to boost house building, repair and renewal? The cost will be that more and more people will languish on housing waiting lists, more homeless people will be on the streets and more houses will fall into disrepair. That is happening while 500,000 construction workers remain on the dole when they could be employed in the building, repair and improvement of houses.

The construction sector has always acted as a barometer, indicating the economy's strength. In housing, the needs indicator should be the measure by which resource requirements are measured. Research emanating from the Housing Corporation clearly demonstrates that the Government are under- investing in social rented houses.

When I was a local councillor, local authorities were the main providers of low-cost, affordable housing until the Government, with their distaste, almost bordering on hatred, for local councils sought to introduce a new system. Housing associations were no longer to have a complementary role in supporting local authority housing. They were, however, given the prime role of providing housing financed by the Housing Corporation.

Housing associations' building programmes are suffering the same fate as those of local authorities. The Government have cut the Housing Corporation's finance to the tune of about £300 million since its inception, and it is £6 million down from last year's autumn Budget. That has meant that there is more reliance on the private money market. The outcome of that is a cut in building starts, high interest rates, rent rises, staff sackings and offers of inferior-quality housing. Those are the alternatives that face housing associations.

For local authorities like mine in Manchester, the basic credit approval was reduced by 35 per cent. in 1994-95, which has already severely limited the city council's

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ability to invest in mainstream programmes outside targeted initiatives, such as estate action schemes and city challenge. Manchester's good performance in securing estate action schemes has enabled the authority to maintain a programme of improvement, reorganisation and remodelling of poorly designed estates. The discontinuation of the estate action programme will be a severe blow to housing authorities such as Manchester.

The single regeneration budget will not provide sufficient levels of support for investment in public housing in the years to come. With mainstream funding, Manchester's estate action investment will amount to £29.5 million in 1995-96. A city officer told me that, by 1998, it will have plummeted to zero. Local authorities will face severe difficulty in presenting any coherent investment programmes. The single regeneration budget will not be an adequate replacement. It is estimated that it will provide only 20 per cent. of investment by 1998. The move away from estate action is a significant blow in housing terms. In that context, any significant reduction in capital allocations will have a serious impact on the planned programmes of housing activity.

In Manchester, the private sector renovation programmes have fallen into disarray. Housing associations have not had the finance to rehabilitate older terraced housing stock, repossessions and absentee landlords. We have the worst private sector housing stock conditions in the north-west of England. In some private property areas, tenants have vacated housing that could not be rescued. They left because of vandalism and break-ins, and they liken their area to streets in Beirut. One husband and wife that I know cannot go out together because one has to keep guard on their house. Sometimes when they go shopping, they call in the neighbours to act as sentries. Programmes to tackle derelict housing rely on a special capital grant for 60 per cent. of the costs and on support from housing investment programmes. Any reduction in either of those two elements will cause irretrievable damage to the programme to rid Manchester of an ever- increasing cancer in its midst.

It should be noted that, in Manchester, more than five times as many empty houses exist in the private sector than in the public sector. Many of those homes belong to housing associations. The city council is attempting to set up a partnership with housing associations, private landlords and lending institutions to put together the largest empty property initiative in the country, but Government co-operation is essential. The Budget has failed to provide that co-operation.

Because of the limited time, I cannot expose the many failures involving housing in Manchester that have arisen since I was a councillor there. To maximise the potential for investment, Manchester is working in a partnership which, if supported by central Government, may enable the city council to generate investment in housing estates, which need fundamental and basic improvements. Manchester city council has worked closely with the Government and made every effort to collaborate, and it should receive recognition for the part that it has played. Regrettably, however, in the climate of continuing restrictions on public spending, the outcome will be longer waiting lists, estates and all the private sector houses falling into dereliction--

Madam Deputy Speaker: Order.

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7.19 pm

Mr. Tim Smith (Beaconsfield): I was proud to be a Minister in Her Majesty's Government, and especially pleased to have had responsibility for economic development, as well as the environment, in Northern Ireland. There is no doubt in my mind that there is more cause for real hope in the Province today than there has been for a whole generation.

The Northern Ireland economy weathered the recession well, and should benefit substantially from peace. Trade, tourism and inward investment will all be gainers, and I welcome the details on the inward investment conference that the Secretary of State announced earlier today. However, unemployment in the Province remains the highest in the United Kingdom, at about 13 per cent., although the differential has narrowed significantly in recent years.

Long-term unemployment is a particular problem in the Province, as in many other parts of the United Kingdom. About half the people out of work are long-term unemployed, so I welcome all the measures in the Budget designed to help such people. Some hon. Members have criticised those measures as inadequate, but I think it right that schemes should start as pilot schemes and then, if they are shown to work effectively and to offer value for money, we can build on them later on the basis of experience.

The British economy is in remarkably good shape. We have low inflation, rising output, falling unemployment and rapid export growth. Perhaps it is the rapid export growth--8 per cent. this year, and 7.5 per cent. forecast for next year--that comes as the greatest surprise to some commentators. A shrinking balance of payments deficit when the economy is growing rapidly is not something that most people would have forecast. Instead, they would have forecast rapidly increasing consumer expenditure, sucking in extra imports. That welcome change has come about partly because of the competitiveness resulting from the devaluation of sterling in 1992, but also because of the more general measures adopted by the Government to increase the competitiveness of the United Kingdom economy. That is what the debate is really about. Jobs will be created only if the economy is more competitive.

I was interested to read about the 1994 World Competitiveness Report, details of which were published recently by the Confederation of British Industry. That report, which was compiled by the World Economic Forum and the International Institute for Management, shows that in terms of domestic economic strength, the United Kingdom moved up between 1993 and 1994 from 19th to 12th in the rankings for competitiveness within the OECD countries.

The United Kingdom ranked sixth in terms of Government policies conducive to competitiveness. According to the CBI, the report says: "We are considered to have a relatively low level of state interference in business, distortion of competition, direction of investment, or pricing policies. Also, fiscal policies treat enterprises in an equitable manner and we have relatively flexible labour markets."

We need to build on those achievements if we are to create more jobs. A minimum wage cannot be the answer. The answer must be for the Government to get off the

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backs of businesses and make it easier for them to create jobs. I welcome all the measures in the Budget that seek to do that. Given that we now have an economy in such good shape, the big question now is how to sustain the recovery. I think that the Budget judgment is about right. We must continue to adopt a tight monetary and fiscal stance, so long as the economy is growing rapidly, as it is now, at 4 per cent. Even next year it is forecast to grow at 3.25 per cent., which appears to be above its trend rate.

We often tend to exaggerate the influence that the Government can have over the economy as a whole, but there can be no argument about the fact that public finances constitute an area in which the Government have a clear responsibility. I welcome the fact that we have public finances under control. Table 6A.1, on page 131 of the Red Book, shows that public expenditure is now falling as a proportion of gross domestic product. However, we still have a long way to go before we return to the levels of 1988-89.

I should like to think that we might set ourselves the target of what was achieved only 30 years ago in 1964, when public spending represented only 36 or 37 per cent. of GDP. At least we should aim to bring public spending below 40 per cent. of GDP and then keep it there.

Another interesting chart in the Red Book is chart 6.6, on page 115, which shows the trend in direct running costs of Departments. The measures that the Chancellor has announced--to cut the direct running costs of the civil service by 10 per cent. in real terms--are tough, but they represent the right approach. I am sure that it is right to try to protect services while cutting the cost of administering them.

That will result in a radical review of the way in which many Departments conduct themselves. The Treasury has given a lead by reducing its number of senior civil servants, and that example could usefully be followed elsewhere in Whitehall. Under the proposed arrangement, it will not be an option to go in for salami slicing, cutting bits here and bits there. Departments will have to carry out fundamental reviews of their operations. They will have to set up more executive agencies to deliver their services, while maintaining a slim administration.

I was interested to hear that although the Chancellor had felt able to increase spending on health and on the police service, which I welcome, he had cut the roads programme. I have mixed feelings about that, because clearly the United Kingdom needs a substantial roads programme, although the programme has already been substantially increased in the past few years. I ask the Minister of State whether he thinks that, in view of the reductions, the Government will still go ahead with the M25 link roads or the proposal to widen the M4 through Slough to 12 lanes, six in each direction. I do not believe that we need those developments, and I hope that, as a result of the cuts, they will be either deferred or abandoned altogether. Two years ago, when the public sector borrowing requirement was approaching £50 billion, who would have thought that today we would have had such firm control over public finances? The fact that next year the PSBR is to fall to £21.5 billion is most welcome. Soon we shall comply with the Maastricht conditions on total borrowing, which is forecast to peak at 49.25 per cent. of gross domestic product, compared with the 60 per cent. reference level specified by the Maastricht treaty.

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