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Mr. Michael Jopling (Westmorland and Lonsdale): I hope that the hon. Member for Burnley (Mr. Pike) will forgive me if I do not follow him. In many ways, I should have liked to follow the hon. Member for Islington, South and Finsbury (Mr. Smith). I did not catch your eye, Mr. Deputy Speaker, at that time but I was aghast when I heard him make a speech that seemed to add up to his solution to the problems of the British economy. He wanted to do something about tax loopholes but also about the salaries of people in top positions in public utilities. With respect to him--he knows that I have a great deal of admiration for much of what he says and does-- he needs to spend a little more time studying the problems of the economy before coming to the House with solutions of that sort.
I wish to make a few comments on the Budget based on comments that I made in March 1993 during the debate on the Budget of my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), the then Chancellor. At that time, I was horrified at reading how the prospective British economy was likely to go in the years ahead, particularly up to 1997-98. I was immensely anxious about the high levels of public borrowing proposed over the five years to that date. I ended my speech by pointing out that the cost of servicing the national debt on the figures produced 18 months earlier in the Red Book was scheduled to rise from about £17 billion a year in 1992-93 to some £30 billion in 1997-98. I said that we could not leave such an inheritance to future generations and that something had to be done to reduce public borrowing and hence the massive sum paid out each year in servicing the public debt. I estimated that the increase in debt servicing alone was equivalent to putting about 4 per cent. on VAT or 5 per cent. on income tax.
I urged the Government to work on three separate fronts: first--I was prompted by my hon. Friend the Member for Bridlington (Mr. Townend) on this --to look closely at public spending; secondly, to be prepared to increase taxes; and, thirdly, to be prepared to do everything possible to stimulate the economy. Those are the only three means available to Governments to try to cut back on increases in the national debt, which were envisaged at that time. So that is the background from which I approach this year's Budget.
The problem of public spending, as any Chief Secretary would agree, is the most difficult task of all. The Chief Secretary has one of the most difficult jobs in the Cabinet. When I was Minister of Agriculture, Fisheries and Food, my most uncomfortable times, apart from facing the farmers, were facing my colleagues in the Star Chamber to explain why I should resist massive cuts in my Department's budget. I found defending my Department's budget extremely difficult and seemed to find myself in the Star Chamber virtually every year at the time of the Public Expenditure Survey Committee round.
Column 48For Governments, it is difficult enough to get Departments to accept cuts in public spending, but for Government managers it is also extremely difficult. I remember my days as Chief Whip and the fact that one nearly always had a small group, some of whom--I stress the words "some of whom"--were mere populists who absolutely refused to support the Government when they were forced to take harsh but essential steps to cut Government spending or impose new taxes. Every party always has those.
I have enormous sympathy with the current Chief Whip in the task that he seeks to fulfil. I have always said that it is a great deal easier to be Chief Whip during the first four years of an Administration, with a majority of 45, than it is to be Chief Whip after an Administration has been in power for 15 years, with a majority of 14 or whatever it is.
Against that background, I very much want to congratulate the Chief Secretary to the Treasury on the result of the Public Expenditure Survey Committee round--on cutting public spending by £24 billion in three years, as the Chancellor announced in the Budget. I know how difficult that has been. I guess that it will cause a good many difficulties in the House, but it has to be right. It is a courageous decision, which has my support.
I spoke about the three things that the Government must do. Being prepared to increase taxes was one of those things. In that respect, I think that the Chancellor has been enormously courageous in doing what any Conservative Chancellor absolutely hates to do--to increase taxation. In my view, it was essential, given the massive increase in public debt that was foreshadowed. I am enormously pleased that it has been reduced, and the fact that the Chancellor has been prepared to put up taxes has contributed to the good news that we had about borrowing in the process of the publication of the Red Book and the Chancellor's Budget speech. I think that it is fair to pay tribute to the Chancellor for the progress that has been made in the past 18 months in controlling public borrowing, which I regard as the biggest economic problem that has confronted the Government in the past two years.
Of course, it was right for the Government to do what virtually all Governments throughout the world have done in the midst of a worldwide recession--increase public spending. One could say that Keynes still lives. That policy has been entirely correct. We are not entirely through that phase of heavy and excessive public borrowing. Looking at the Red Book, one sees the rather daunting figure that the public sector borrowing requirement for the years 1993-94 to 1997-98 is likely to increase by no less than £120 billion, but the really good news is that, in the years after that, the prospects are that it will go from a negative situation to a positive one as we approach the end of the century, which is excellent news indeed.
I return to the central issue, to which I drew attention at the beginning of my remarks. Eighteen months ago, when I last spoke in a Budget debate, it was possible that in 1997-98 the cost of servicing the public debt would be about £30 billion a year. It is a great credit to the Chancellor that that figure has now dropped, in that same year, to £26 billion. Although that increase is serious, it was inevitable that the cost of servicing the public debt would increase, in view of the world recession and the amount of money that we have had to put into the
Column 49economy to try to get ourselves out of recession. I hope that the Treasury will continue, in the next year and beyond, to do more to reduce the public debt. That is good news. According to the forecasts, it is possible that borrowing will not be necessary after 1997-98. However, the really good news in the Budget was the progress of the economy, largely as a result of the steps that I mentioned. The news of the growth of the economy and its prosperity is even better news--that is only just possible--than the blessed relief from the interminable major structural realignments of the tax system with which we seem to have been burdened almost every year in recent years. I heard what my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler) said, and that was one of the few things that I questioned in what he said, because I thought that he was hell-bent on yet another major change in taxation. I thought that he was moving back in the direction of the tax credit system, which was proposed at the end of the Heath Government. I have always thought that it was rather a pity that we dropped that suggestion a good many years ago.
The Chancellor's policy has given us as sound a prospect for the economy as I have known for a long time. The prospects of expansion with minimum inflation are immensely encouraging and, as unemployment continues to fall, as exports show such healthy growth and as interest rates run at a historically low level, we are correct to have the confidence that the Chancellor expressed last week. If someone had told me 18 months ago, when I last spoke in a Budget debate, that there would be such excellent progress on all the three priorities that I asked for, I confess that I should have been very glad indeed to take a substantial bet against it. However, I am delighted to have been proved wrong and I hope that the Treasury, and the Chancellor especially, will continue the good work.
Mr. Don Foster (Bath): The right hon. Member for Westmorland and Lonsdale (Mr. Jopling) said in his early remarks that the cut in public spending may cause difficulties in the House. I am not especially concerned about difficulties that may arise for members of the Conservative party, but I am very worried about the effects that some of the public spending cuts will have on the people. I was interested to listen to the remarks of the right hon. Member for Sutton Coldfield (Sir N. Fowler). It was especially interesting, given the number of his hon. Friends who seemed to be queueing up to have the Whip removed from them, to hear at least one Back-Bench Conservative Member who was obviously very keen indeed to have the Whip. Given what he said about the re-entry problems that confront him, perhaps he is desperately seeking to get back into his old job. He demonstrated today that, if he does so, he will at least bring something new to it--the ability to produce catchy slogans for the Budget. I am sure that all hon. Members were incredibly impressed with his totally open and honest statement about the Budget--that catchy slogan, "The Budget is good." At least there was no room for misinterpretation or misunderstanding of that. It means that it is easy for me to say that I fundamentally disagree with what he had to say about it.
Column 50I was also interested in the way in which the middle part of the Secretary of State's remarks was reserved for repeating the now oft-heard mantra that we hear from so many members of the Government when they stand at the Dispatch Box and speak about the economy. We hear the standard list of improvements that have taken place. Many hon. Members on both sides of the House welcome some of those improvements in our economy, not least the reduction in the number of people who are unemployed. Many people in my constituency welcome the reduction in unemployment there, although they continue to be worried that it remains true that approximately 15 per cent. of adult males are unemployed there.
The problem with the mantra is that we hear only one side of the story. We hear only part of the description of the economy. For example, Ministers standing at the Dispatch Box never mention the gap between the rich and the poor. There is clear evidence that, during the past four years, the gap between the rich and the poor has continued to grow. In fact, during that four years, the average income of the top 5 per cent. of the country has increased by 4 per cent., whereas for the bottom 10 per cent. it has decreased by 7 per cent.
There is also clear evidence that, although there is a drop in unemployment, fewer people are in employment. If one uses seasonally adjusted figures, it can be clearly demonstrated that the number of people in employment has decreased by 640,000 since the spring of 1991. Equally, we are all worried about the problem of long-term unemployment and welcome some of the modest measures that have been proposed to try to resolve the problem. We should not forget, however, that there is clear evidence over the past four years that those who are out of work remain unemployed for longer. Those who have been unemployed for six months and longer are a significantly larger group as a percentage of the unemployed. The nation needs to be told that when jobs are created, they are more likely than ever before to be temporary. They are also likely to be part time. The past four years have provided clear evidence that temporary and part-time employment has increased.
As I said, I fundamentally disagree with the description of the Budget that was presented by the right hon. Member for Sutton Coldfield. It is not a good Budget. It can be said, however, that the Chancellor of the Exchequer was entirely honest in his presentation this year. Last year, I described the right hon. and learned Gentleman as being rather like a magician, with many of the cards hidden up his sleeve. At least all the cards were laid out on the table this year for all of us to see.
It was clear from what the Chancellor of the Exchequer said that we have a paving Budget for Tory tax bribes before the next general election. Seven new taxes have been introduced this year in the desperate hope that before the next election the Government will be able to introduce tax cuts. The Budget is putting party before country. It is tax today for tax cuts tomorrow.
The Chancellor of the Exchequer should have introduced a Budget for the longer term. It should have contained proposals for investment in jobs, infrastructure and industry. Most important of all, we need investment in the skills and talents of the people. If we are to survive in an increasingly global economy, it is crucial that we invest in our resources. Coal, oil and natural gas, and mineral wealth generally, are, of course, crucial resources, but our most important resource is the people. Investment
Column 51in the people is something that we should have seen in the Budget. It is disappointing that no such provision has been made. We do not see the increased investment that is so desperately needed. Indeed, we see exactly the opposite.
Some of the measures that are set out in the Budget are welcome, but they are often too little, too late. An example is the employers' national insurance contribution holiday, but that will not take effect for 18 months. It will be of little help to the long-term unemployed--for example, those who have been out of work for longer than two years. The minimal expansion of the workstart scheme is welcome, but it will help only about one in 200 of the long-term unemployed. In any event, it will run for only one year.
There are other areas of concern. For example, it cannot make sense to cut the road-building programme without using the money so saved to invest directly in improvement in public transport.
I would be failing in my duty to represent my constituents if I did not express my concern about the Government's proposal for value added tax on fuel. Thousands of my constituents have signed petitions against the Government's plan. Despite the increased compensation that was announced by the Chancellor of the Exchequer, it is clear to me, to my constituents and to many others that the package is inadequate and that many people will lose out.
Only today, Help the Aged announced that it estimates that many pensioners will face a significant increased cost as a result of VAT on fuel. If they cannot meet the increased cost, they will have up to 19 days without fuel. Given the way in which the Government have chosen to raise money--they could have adopted other means--it is becoming increasingly clear that we are engaging in a political debate, not an economic one. I urge Conservative Members seriously to consider the way in which they vote tomorrow night. To vote against the Government tomorrow would lead to far greater popularity than any that might be gained by pre-election tax cuts and bribes. I hope that some Conservative Members will oppose the Government's proposals tomorrow.
The Chancellor of the Exchequer likes to pretend that VAT on fuel is an environment tax. The evidence demonstrates clearly that it is not. Instead, it is another attempt to rake in additional moneys at the expense of some of the poorest in our society to help pay for the tax bribes that will come later.
Too many people will lose out as a result of the Budget. The long-term unemployed will suffer because of the failure to take decisive action to help them. The poor and the elderly will lose out because of the Government's proposal on VAT on fuel. The homeless will lose out because of cuts in the housing budget. The greatest losers will undoubtedly be young people, who constitute future generations. That is the result of the failure of the Chancellor of the Exchequer and the Government generally significantly to boost investment in education and training, which is desperately needed. The Budget offers us interesting reading when it comes to education, especially if we compare it with what the Chancellor of the Exchequer said last year. We are spending £100 million less on education than the sum that
Column 52the right hon. and learned Gentleman predicted in his Budget last year. I accept that that spending represents a 1 per cent. increase in real terms, but the Chancellor has said that over the two subsequent years there will be real cuts in the education budget. That means that in two years' time, the budget will be less in real terms than it is this year. So much for long-term investment in education.
The headline figure of an increase in the education budget of 1 per cent. belies some worrying trends. For example, there was the recent announcement of the revenue support grant settlement. It is clear from that settlement that education's share of gross total standard spending for next year will be £600 million less than the gross total of local education authority budgets for this year. Nothing could be clearer. It is obvious that there will be real cuts in the education service in both schools and colleges. No account has been taken of the known increases in pupil numbers and the likely teachers' pay award.
The Secretary of State for Education is aware of the problems. In a letter dated 1 December to the chairman of the pay review body that represents schoolteachers, the right hon. Lady makes it clear that the proposals within the settlement will mean that most local education authorities will be able to increase expenditure on services as a whole by 0.5 per cent. as set against their adjusted base budgets for 1994-95. In other words, they will be facing cuts in real terms.
Was that a problem for the Secretary of State for Education? Apparently not. Later in her letter she explains how the problem can be solved. She refers to new pressures and the
"scope that local education authorities have for making efficiency gains."
The right hon. Lady clearly believes that a real-terms cut in spending can be offset by efficiency gains. Every hon. Member knows, however, that following the year-on-year squeezes on local authority budgets, those efficiency gains are nothing short of cuts in both budget and services. Undoubtedly, pupil-teacher ratios will worsen and class sizes will continue to grow; books and equipment will be in even shorter supply; and support for children with special educational needs will diminish.
Hon. Members need not take my word for that. Many organisations are now making similar predictions, and many schools are already beginning to write to Members of Parliament explaining their anxieties. Just one of the many letters that I have received came from Darland high school in Wrexham. The chairman and vice-chairman of the governors wrote to many hon. Members as follows:
"As you can see the impact of the cuts over the past two years has been to put at risk the education of a whole generation of our pupils. We are reliably informed"--
now, of course, they know--
"that further cuts are being planned for next year. Any further reduction in our budget will bring about a massive reduction in our staffing levels, both teaching and ancillary . . . We cannot see how we could possibly absorb any more cuts and still produce a curriculum of any kind, let alone deliver the new National Curriculum." That reflects concern felt throughout the country about the impact of the Budget on education and schools.
Many other parts of the education service have experienced the same problems. There has been a modest increase in the capital programme, but it will barely scratch the surface of the estimated £4.3 billion backlog
Column 53of repair and maintenance in our schools, the £1.3 billion backlog of repair and maintenance in our further education colleges and the estimated £2 billion backlog of repair and maintenance in our higher education institutions. Those backlogs take no account of the desperate need for new building to accommodate the significantly increased but underfunded expansion of both further and higher education.
Only one feature of the education budget was welcome--next year's £110 million cut in planned recurrent expenditure on grant-maintained schools, a 57 per cent. cut from the levels predicted in last year's Budget. That cut constitutes the Government's first clear public admission that their grant- maintained schools policy has failed and is--as many of us predicted--a busted flush.
I have demonstrated that the Budget fails to invest in our most important resource, our young people; but it fails in many other ways. It is a Budget that fails the nation, from a Government who deserve to fail in tomorrow's vote and beyond.
Sir Rhodes Boyson (Brent, North): I am pleased about a number of aspects of the Budget. First, provided that we can keep it up, the growth rate of between 4 and 5 per cent. will inevitably raise standards of living for all our people. Secondly, we have low inflation. Under the Labour Government of 1974 to 1979, inflation ate up half people's savings. We are all concerned about the implications of the tax on fuel, but I remind the House that in those five years inflation burnt away half of old people's money.
Thirdly, there is the decline in unemployment. Unemployment destroys the people's mind and spirit. Finally, there is the reduction in borrowing, which was mentioned by my right hon. Friend the Member for Westmorland and Lonsdale (Mr. Jopling). It will be very nice if we can reach the point at which we can stop borrowing and build up money, rather than living on our forebears on one hand and our successors on the other: we want to be able to leave something to those successors, as a tribute.
I am concerned about the size of Government expenditure, and how that money is raised. I consider that a state in which more than 40 per cent. of income goes to Government--whatever party is in power--is a socialist state. Between 40 per cent. and 50 per cent. is the break point. We are still a socialist state, irrespective of which party is in government and which in opposition.
Sir Rhodes Boyson: Even the Liberal Democrats agree. Obviously, I must not mention the hon. Gentleman who has just spoken. It is clear, in any case, that we are a socialist state: nearly half what we produce is controlled by the state.
Let me give some rough historical figures. In Gladstone's time, 9 per cent. of production went to government; exactly the same amount is going to government in Hong Kong now, and that probably has much to do with an actual rise in productivity and living standards there. In 1914, the figure was 15 per cent; in the 1930s it was 25 per cent; in 1979 it was 44 per cent.
Column 54In 1990, it fell to 39 per cent., but it then returned to 44 per cent. I consider that far too much has been going to government, and that government is too big.
Even the number of people in government is too big. In 1900, the great Lord Salisbury--who was Prime Minister and Foreign Minister--had only one Under- Secretary, at a time when we controlled a quarter of the world. Now we have six Foreign Office Ministers, and we can hardly control the Isle of Wight. We now have 60 Ministers outside the Cabinet; there were 17 then. Obviously, the increase in the size of government costs money. As The Economist said last week, the increases of last year and this year have added £6 billion to the burden of the people.
How should tax be raised? On that point I disagree to some extent with my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler), with whom I served as a social security Minister. I believe that basic commodities should not be taxed at all. That was the philosophy of the mid- 19th century; perhaps I am a throwback. At the time of the abolition of the Corn Laws, one of the great arguments was that there should be no tax on basic foods. Now, because of Europe and so forth, we have turned our backs on that, but I do not believe that food, housing, basic clothing, light, water or heat should be taxed. Taxes should be raised when we achieve a higher standard of living.
What will happen if we tax all those commodities and we then try to put the money back in different ways, as we are doing this year? A convoluted Government, with more civil servants, are taking the money in a tin and then spending it on another tin. I should like to return to the days when basic necessities were not taxed. Tax should be raised through income tax and spending on higher-value items, as was originally envisaged.
I consider VAT on fuel a bad tax--a tax on basic living standards. I know that a good deal has been put in--much more has been put in this time and I am thankful for that--but it hurts the old, single people and mothers at home. I fear that, whatever we do, it will be resented. Eventually, the 17.5 per cent. fuel tax may be the equivalent of the community charge. The charge became unpopular; we poured money in. It became more unpopular, and we poured money in again. I warn the Government that they are on dangerous territory. To exempt old people from the tax, which we should always do, there must be a simpler system. I was told this morning that all NHS trusts have VAT exemption certificates which they quote on ordering supplies and do not have to pay VAT. Why should not an old person be able to put his pension number on his gas bill and pay just the cost of the fuel? Perhaps that is too simple and I live in a different world. No doubt the brains on the Treasury Bench will say why such a simple method could not be used. If six people were locked in a room and told that they had to stay there until they had devised a simpler method, they would be able to do so. Perhaps the Minister will answer that and destroy my argument for future debates.
I am also concerned about the removal of part of the married couple's allowance. We either believe in the family or we do not. There is no point in engaging in slogans, because it is reality that matters and once again we are taking money from the wife who stays at home to look after the children. If we are supposed to believe in the family, how can we legislate in that way?
Column 55I have already spoken about high taxes. The Conservative party, of which I am proud to be a member, fought the last election on low taxes, but the Government have put taxes up. It is not surprising that people do not like that, and we do not need media consultants to tell us that. We have been promised lower taxes next year, but next year never really comes. Those reductions will be close to the general election and the party and the Government will have to make some very fine speeches if they want people to believe that taxes will not be raised again later. If we intend to reduce taxes they should be reduced now. Instead of reducing them this year, we should simply get rid of the 17.5 per cent. tax on fuel to show that the promised land is coming. That would be the first item in the bonanza which I have no doubt will arrive before the next general election. The Government have to be careful in their attitude to middle-class people in my constituency and those of other hon. Members who will now have to take out insurance against unemployment so that their mortgage payments can be covered for a number of weeks. That will certainly be unpopular and I suggest that it could be as unpopular as the Child Support Agency. The Government had better watch that as well.
My last points before I make a brief resume so that I may remember what I have said, because that is always difficult and I need help from time to time, are about London. I am a London Member. I have lived more than half my life in London away from my native Lancashire and I am proud of London, which is one of the six great capitals of the world. Too much money is taken out of London and given to the rest of the country. A first-class underground system is needed if London is to remain one of the world's six great capitals. The Government should think about that. If London were allowed to keep the money that its people have paid out instead of that money being moved elsewhere, the capital could have one of the best transport systems in the world.
I shall sum up what I am saying, or what I believe I am saying. It is difficult to speak and listen at the same time, however interesting the topic. I welcome the fact that we have reduced unemployment and that inflation is down, because that eats up the savings of our people. Similarly, we are not taking on more debt but will be able to pay off existing debt in future. I hope that something can be done to simplify VAT along the lines that I have suggested in my simple way. Whatever happens it will continue to be resented. If the Government can overcome that while continuing their policy, and provided that we get tax cuts in good time-- that is important--we can without doubt look forward to victory at the next general election.
We must also have a stable economy and a 5 per cent. growth rate so that at the next election our people will not look back at a plateau or a depression but forward to an increase in the standard of living.
Dr. Jeremy Bray (Motherwell, South): The right hon. Member for Brent, North (Sir R. Boyson) gives the impression of a man torn between his undoubted high principles and his realistic view of performance. I shall deal later with some of the aspirations that he held out.
Column 56The Chancellor set himself three priorities in the Budget: to keep the economy on track, to create more jobs and to strengthen the economy in the long term. We shall have to judge how well he has aimed his measures at those priorities. First, while the economy may be returning to the track of sustainable growth, it is not yet on it. Unemployment is 8.9 per cent. and the borrowing requirement is 5 per cent. of national income. Inflation has certainly fallen to 2 per cent. and the current balance has fallen to a deficit of only 0.5 per cent. of national income in 1994. Those figures are not expected to deteriorate significantly next year. The borrowing requirement is expected to fall to 3 per cent. next year.
Chicken counting is a dangerous occupation for Chancellors and Governments, but certainly the prospects are such as to require no further tightening of fiscal policy beyond that previously announced this year. The projected growth of national income of 3.25 per cent. in 1995 after the growth of 4 per cent. this year need not cause alarm.
Judged by the test of the short-term prospects for economic constraints and forgetting about unemployment, the economy can be said to be getting back on track. Furthermore, looking two years beyond 1995 and beyond the end of the published Treasury forecasts, the panel of independent forecasters sees growth continuing on average at more than 2.5 per cent. a year, unemployment falling to 7 per cent. and inflation giving the Government cause for concern as it edges up close to the top end of the Government's target range of 4 per cent.
To judge the wisdom of Government measures, it is necessary to look at the longer-term considerations and to balance them against the short term. Is the economy heading for an impossible balance of payments or income distribution? Will debt income ratios go to unsustainable extremes, and so on? Such questions are asked on the various national economy models such as the National Institute, the London business school, Oxford Economic Forecasting and the Treasury models in what is becoming a useful annual exercise in which the Treasury should participate. Without Treasury participation, I have to operate the Treasury model myself and, as I well know, that is no substitute for the Treasury participating publicly.
This year, no immediate changes of plan are called for, but the question is asked, what are the Government after in the longer term and how do they see the economy achieving that? Can an electioneering reduction of the standard rate of income tax to 20 per cent. in next year's Budget be justified by any credible budgetary arithmetic? Objectively speaking, it is on the margin. It would take the borrowing requirement to near the 3 per cent. Maastricht condition in 1996-97. Can and will Britain then seek to adopt the single European currency at the same time as Germany, France and the Benelux countries, if they try to stick to the Maastricht timetable? The Chancellor said nothing about that, given the state of war in the Conservative party. My view is that Britain can and should adopt the single European currency, but that to do so it needs further to strengthen the economy and to build up a sufficiently strong position, which on present prospects would not allow major tax cuts next year.
We must consider the Chancellor's other two priorities--reducing unemployment and strengthening the economy in the longer term. To create jobs, the Government are offering modest carrots to employers and carrots and sticks to employees. Some of the measures are
Column 57welcome in so far as they go. However, by concentrating only on the incentive side, they fail to deal with the underlying causes of long-term structural unemployment and the measures needed to deal with them. The causes lie in changing technology, work organisation and international trade. The Government, because of their doctrinal position, are precluded from examining the problems. They believe that the market will deal with the problems and that any attempt to improve its working can only make matters worse.
It is not necessary to be a Luddite protectionist to believe that the market can be helped along. The problems will not be solved merely by improving competitiveness. There is a strong argument for doing so, but for job creation the benefits of improved competitiveness lie in what it enables one to do rather than in what it does in itself. For example, a more competitive manufacturing industry may or may not employ more people. What is needed is a more efficient labour market better matching demand and supply. For better or worse, there has been a change to more contracted-out services, temporary ad hoc teams formed for a particular task, changing demands for skills, varying work loads and varying order books.
We have a vast and expensive market machinery of wholesaling, distribution and retailing for matching the supply and demand of goods, but we have only horses and carts for the labour market. What would happen in a supermarket if the only cornflakes on offer were either a year's supply or a single packet of a brand never seen before and with no guarantee of its being available next week? Yet that is the nature of the job market. Professions and firms existed to package and regulate the supply of work and while they did so it was possible to maintain full employment. Now that they have ceased to do so, we have a problem.
The Chancellor was inconsistent on the question of market intervention. I welcome his landfill tax proposal, for example, if it will help to deter sharks such as Paterson's at Greenhead Moss in my constituency, which has repeatedly breached mere planning conditions and keeps coming back asking for more. It must be hit in its pocket and better waste disposal methods must be found. However, the legislation will need careful drafting if it is not to handicap the reclamation and redevelopment of derelict industrial sites. British Steel is in the process of demolishing its Ravenscraig works in my constituency. It has 1 million cu m of contaminated materials to dispose of--somewhat larger than a cube with Big Ben as one edge. That waste cannot be dumped at sea and there is no landfill site in Europe large enough to take it. The only practical solution is to store it in a sealed and capped landfill storage site, and to blend it permanently into the landscape and land use of the local community. British Steel must pay the full cost, but that money must go into the redevelopment of a community that has lost its livelihood--not into the Exchequer through a grossly unfair tax on industrial regeneration.
The Chancellor said that in some cases taxes do some good by helping markets work better and by discouraging harmful or wasteful activities. I agree. Yet he said nothing about the conclusion reached by the Royal Commission on environmental pollution--that motor fuel duty should increase by 9 per cent., not just the 5 per cent. a year that was the Government's previous target and to which the Chancellor stuck in his Budget.
Column 58On the long-term strength of the economy, it is necessary to see Britain within the global economy. We are in a period of world development with immense potential as rapidly developing countries demonstrate their capacity to produce the highest-technology goods at a fraction of the labour cost of industrial countries while still needing immense infrastructure developments, thus creating the possibility of balanced trade throughout the world. However, that requires enormous adaptability in the developing and industrial countries alike.
The reduction in ECGD premiums is welcome, but action is called for on a very broad front, from an untrammelled overseas aid budget to a secure science base in Britain. On the question of the science budget, which is the deepest foundation of Britain's competitiveness, the Government have still not woken up to the fact that level funding in real terms means a decline in the share of national income, in the quality of Britain's contribution, in the importance of its role in world science and in industrial competitiveness.
The Budget does not make any contribution to the changes in business culture needed to sustain a high level of industrial competitiveness. The measures needed are relatively low in cost, but high in the understanding required. The Government, in their successive Secretaries of State for Trade and Industry, show no signs of achieving that.
The Government cannot take Britain into a single European currency against the background of solid strength in the economy, while at the same time fulfilling the electioneering hopes of the Tory party. No doubt the Government's position as the 1996 intergovernmental conference approaches will be, "We shall not go in unless", but Britain's interest is to go in if the system is managed in the interests of Europe as a whole and Britain's economy is strong enough to sustain it. Therefore, Labour should say, "We shall go in if". I do not envisage the Tory Government being able to go into the 1996 intergovernmental conference with a majority in the House of Commons, so the signs are that there will be a 1996 general election, triggered as a single-issue campaign effectively for or against Europe, but, like the 1974 election campaign, soon broadening out into all the issues concerning the British people. Roll on 1996. 6.8 pm
Mr. Toby Jessel (Twickenham): I listened to the speech of the hon. Member for Motherwell, South (Dr. Bray) with great interest. Half way through it, he referred to the need to reduce unemployment. In fact, unemployment has fallen by almost 500,000 during the past two years and the fall is now faster than it was last year. I understand that in October alone the number dropped by 45,000. That is one reason why I support the Budget strategy in general, which will bring about real growth in our economy, an increase in employment and a fall in unemployment, coupled with holding down inflation.
I served in the Royal Navy for several years, as did my right hon. Friend the Member for Brent, North (Sir R. Boyson). You, Madam Deputy Speaker, have close traditional links in your constituency with the Royal Navy. The Navy has a saying, "Steady as she goes." That means that there is no need to change the speed or direction of a ship. If the ship is our national economy, I say, "Steady as she goes."
Column 59I welcome the £5.5 million increase in the Arts Council grant announced by my right hon. Friend the Secretary of State for National Heritage. Of course, the value of the arts is not just financial--they enrich and fulfil people's lives. Nevertheless, they have a financial and commercial value and, as my right hon. Friend said, visitors come to Britain to experience our heritage, our arts and our traditions. They do not come for the British weather.
Our traditions include the monarchy. It is without doubt a principal tourist attraction. It entails having a grand, splendid and majestic monarchy--not, as proposed by Labour Members, a bicycle-riding Scandinavian monarchy or even the abolition of the monarchy. That would damage not only our cherished institutions but our budgetary position. If one belittles the monarchy, one damages the tourist trade; employment in hotels, restaurants, shops and internal travel; the tax yields to the Government from those activities; and the Budget. I should be obliged if Labour Members would be kind enough to listen. May I wait, Deputy Madam Speaker, until those hon. Gentlemen start to listen?
Mr. Jessel: I am prepared to sacrifice one minute out of 10 so that Labour Members may extend the courtesy of listening to me. Their policy would damage the monarchy and destroy the Government's tax yield from the tourist trade, which is largely dependent on the success and importance of the monarchy. The Opposition would kill the goose that lays the golden egg, and they would be unutterably stupid and foolish to do so. I am sure that the British people would never allow Labour to attain power, to do any such thing.
I wish that the tax on tobacco products had been made much higher. Three different taxes apply, but the net effect of the proposed increase will be to raise the tax on tobacco by 5.5 per cent. A larger increase in tax would reduce the number of horrible premature deaths from lung cancer and other appalling diseases.
Some people view the purpose of the Budget as only financial, but there is no reason why it should not have other aims. That happens when differential rates of duty are imposed on leaded and unleaded petrol for environmental purposes or when mortgage tax relief is given to promote home ownership. There is no reason why fiscal laws should not be used to promote health.
The Royal College of Physicians states that, since 1962, 4 million people in the UK have died from smoking-related illnesses--mainly lung cancer, heart disease, strokes and emphysema. Currently, 110,000 deaths a year, or one in six, are from smoking-related diseases. Although the incidence of smoking has fallen in the past 10 years from 35 per cent. to 28 per cent. of the population, among 15-year-olds the figure has dropped only from 25 per cent. to 24 per cent., which is hardly significant.
A typical constituency has 1,300 15-year-olds. If one quarter of them smoke, on present trends 100 of those 300 youngsters will die from smoking sooner or later. I wish that we could use the Budget to increase tax on tobacco
Column 60steeply, to deter with much greater force the number of young people who start smoking. If anyone proposes an amendment to impose a higher rate of tobacco tax, I, for one, will support it.
Finally, London art auction houses such as Christie's and Sotheby's comprise an internationally famous and important market for the United Kingdom. If anything is done to damage that market or to make it less attractive, it will be tilted away from London towards New York. That would be bad for London, Britain and the European Union. The Budget proposes the adoption of the EU's seventh value added tax directive, which will for the first time impose VAT on works of art imported into this country for auction. If a Japanese or American person sent an object to London to auction, VAT would be imposed--although it could be reclaimed if the object were resold to someone outside the European Union.
The tax is expected to start at 2.5 per cent. Complicated negotiations on the subject went on for years. It is not clear how the new scheme will work, when it will be introduced or whether the 2.5 per cent. will be imposed only on the auction price or on that plus the auctioneer's premium. More importantly, the tax must not be increased in a future year, such as 1999, so that it tilts the market from London to New York. There is a grey area as to how the tax will work. It is introduced at the behest of the European Union--the British Government did not really want it. We ought not to give into the Union, and I hope that Treasury Ministers will have something to say and that the tax can be stopped.
Mr. Mike O'Brien (Warwickshire, North): Today, the Secretary of State for National Heritage predicted that everything will be rosy in the economic garden in the run-up to the general election. Why should we believe him, when he comes from the same Government who ruled out any recession, entered the exchange rate mechanism at an unsustainable level and ignominiously exited from it, damaged the economy with high interest rates and pledged that there would be no tax rises? More than that, the Government said that there would be no need for tax rises after the 1992 general election.
The Government now predict a self-sustaining, non-inflationary recovery with tax cuts. They have some brass neck if they expect British people to believe them. Their credibility has been irrevocably damaged by their economic record. I have never before known the deep anger that has been expressed over the imposition of value added tax on domestic fuel. When a petition was circulated in towns and villages in my constituency, people queued to sign. The impact of that tax on ordinary families will be most damaging. Considerable fear surrounds it. Public anger was exacerbated by news that the chief executive of British Gas is to give himself a big pay rise, and that a new regime for paying gas bills will prejudice customers who do not have a bank account.
All those issues have created deep anger, which the Government and every Conservative Member will feel in rich measure at the next general election. I hope that the Government will be defeated in tomorrow's vote and that increased VAT on domestic fuel will be stopped.
The Chancellor is right to say that the economy has entered a new phase. The country is emerging from recession as part of the economic cycle, but that itself
Column 61produces problems. The recovery is the product of Government failures, not successes. The UK's withdrawal from the ERM, which the Government resisted, allowed our exporters to become more competitive.
The purpose of the present Chancellor's Budget is twofold: he seeks to prepare the ground for pre-election income tax cuts and to create sustained non-inflationary growth. I contend that the two are inconsistent. The economy is rushing out of recession, helped by a low and perhaps undervalued exchange rate and by recovery in other economies. Growth is running at 3 per cent. and may reach 4 per cent. or 5 per cent. in the coming year.
The problem is capacity. Tremendous damage was done to the industrial base in the first Tory recession of 1980-81, as we know in the west midlands. Without North sea oil, the nation would have been devastated. It enabled a recovery to occur in the late 1980s. The second Tory recession of the early 1990s inflicted further severe damage. Although capacity limits in this recovery have not been hit yet, if growth continues they may begin to be hit next year. The extent of the damage done to the British economy in the 1980s can be shown by, for example, the output gap. Professor Christopher Johnson has shown that taking 1977 as the base year and suggesting 2.2 per cent. a year as the potential average growth rate which the economy should be able to achieve, Labour sustained that growth rate easily in office. The Conservative record has been erratic and generally well below par, and it remains below par. Today's output gap in gross domestic product is an overall 4.1 per cent. this year, although falling from 5.7 per cent. last year. It is well below what we should have been able to achieve.
Professor Johnson shows that from 1983 to 1993, increased investment in capital stock in manufacturing was among the worst. Only mining showed a worse performance. The investment change in manufacturing is only 20 per cent. compared with 45 per cent. in finance, 33 per cent. in trade and tourism and 40 per cent. in other services. The weakness of the British economy remains its manufacturing capacity, or lack of it.
The recovery so far has created little full-time employment. All the economic advisers to the Treasury and Civil Service Select Committee agreed on one thing when we spoke to them the other day--that there is no evidence so far that the recovery has created any net increase in full-time jobs. Indeed, there is some evidence that less full-time male employment is generated than is lost. That is why it feels like a jobless recovery. The records of the Department of Employment show that there is no real pick-up in employment, especially in male employment. The Department has turned to the labour force survey, but that also has its deficiencies as an instrument of measurement.
If the recovery is to survive, we need either to slow growth or to boost investment substantially. Growth of 4 per cent. is sustainable only if there is substantial spare capacity in the economy and, as the Chancellor would claim, a genuine supply-side improvement in recent years, or if there is massive new investment which can create new capacity quickly. If that does not happen, the capacity buffers will be hit and inflation will follow. Treasury complacency about inflation and about the problems of capacity is worrying. Tax cuts next year by the Government will have exactly the same effect as they did during the Lawson boom. Tax cuts may look affordable
Column 62in public sector borrowing requirement terms, but they would be appallingly damaging to the whole concept of sustainable, non-inflationary recovery.
I have one point about the PSBR to which I hope the Minister will reply. Table 4.9 on page 73 of the Red Book suggests that the PSBR is to be part- funded by £10.2 billion from sales of commercial bills by the Bank of England. Can the Minister confirm when he replies that that is to happen? If that is the way in which the PSBR is to be part-funded, it will be an interesting development.
Tax cuts in the next year would create a further stimulus to the economy which, I suspect, would leave the economy struggling; the key failure of the economy--lack of manufacturing investment--would then become apparent. The markets knew that after the Budget. In the week following the Budget, the Financial Times 100-share index fell 16 points, and gilts and sterling showed little response to the Budget. The very markets that were supposed to be reassured by the anti-inflation package know that the Budget has placed a great and dangerous temptation in front of the Government. They know that any hard-won economic gains could easily be frittered away by a whopping tax cut from a Government terrified of losing the next general election.
The markets do not believe paragraph 3.34 of the Red Book which predicts that investment will be at 2 per cent. this year, but will surge to 11 per cent. next year. Such a rise in investment is not credible. Even if there were an 11 per cent. surge in investment, the likelihood would be that the financial institutions would look to the Pacific rim for a higher return rather than to the United Kingdom. How can the Government predict that investment can fill the capacity gap when they are cutting their own fixed investment, with a 10.8 per cent. cut in public investment, a 17 per cent. cut in general Government investment and a 16.6 per cent. cut in local authority investment? The Government have no clear, long-term investment programme. There is no investment in skills and no investment in industry. The Government claim that they will get £5 billion from the private sector to make up for their public investment cuts, but they have got only about £0.5 billion over the past two years. In the Chancellor's previous Budget, even he admitted:
"the flow of private finance projects to date has . . . been disappointingly small".--[ Official Report , 30 November 1994; Vol. 233, c. 932.]
The City knows the reality of recovery. The industrial base is weak, a surge in investment is not available to remedy that and large-scale tax cuts would slam us into the buffers of lack of capacity. The result would be higher inflation, higher interest rates, higher sterling exchange rates, reduced exports and a bust to follow any pre-election boom. The economy does not have the scope for large tax cuts. The recovery would be like the previous Tory one. The economic cycle is playing in the Government's favour. The basic problems of the economy are being ignored and a lot of fanciful and wishful thinking is being indulged in by the Chancellor. The Tory record of economic failure will continue to leave our economy even further behind. This Budget is not really about Britain's future--