House of Commons Hansard Debates for 6 Dec 1994

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power, our consumers will suffer most because they also live in the coldest climatic conditions in the whole of the UK?

Mr. Taylor: I agree with the hon. Lady. I know that that matter has been especially controversial in her area. The truth that the tax has nothing to do with the environment and everything to do with raising revenue is revealed most clearly by the fact that it is set to fall on standing charges as well as consumption. There is nothing in that which is green, but there is plenty in it which is regressive for those on low incomes. Moreover, the funds from this so-called green tax are not being used to invest in energy compensation. Just £10 million out of £1,000 million raised is going into the home energy efficiency scheme, helping the environment and those struggling to pay the bills. Nor is the tax a shift towards the "polluter pays" principle because it is not replacing another tax, but being used purely to raise further revenue. That is not the point of the shift for which we have argued--shifting taxes on to polluters.

Of course, Conservative Members of Parliament are briefed by Ministers and told that we, as Liberal Democrats, looked at extending VAT to fuel ourselves. So we did and we concluded that it was the wrong approach for all the reasons that I have given. We were honest enough to say that we considered it and bright enough to rule it out. In contrast, the Government were bright enough to rule it out during the run-up to the last election and dishonest enough to implement it afterwards.

It is true that the Liberal Democrats have long advocated a carbon energy tax--I shall not duck the issue--to address the need for energy conservation. In the early years of its adoption, it would raise similar revenue to that raised by VAT, but there are crucial differences. Unlike VAT, a carbon energy tax would target polluting industries. That means that there would be a far smaller burden on domestic users than is presently the case with VAT on fuel. Unlike VAT, it targets the raw material going into the power stations, encouraging more efficient energy production and, therefore, lower costs to customers, rather than putting up bills willy- nilly. Many power stations are currently only 30 to 40 per cent. efficient- -a good starting point for improvement. Unlike VAT, we would recycle the revenue from the carbon tax into reducing employers' national insurance contributions, the tax on jobs, which returns to the point made earlier. So it would shift the burden from NI contributions, which currently puts people and keeps people out of work, and place it on the pollution of our environment, which is widely acknowledged as needing to be capped.

Unlike Labour, we do not run away from our policies, nor do we propose targets for cutting greenhouse gases without explaining how we would achieve them.

Mr. Fabricant: Does the hon. Gentleman accept that so-called clean producers of electricity--he talked about wind power and about hydro- electric power, which was also emphasised by the hon. Member for Moray (Mrs. Ewing)--represent a very small proportion of the total mechanisms used for generating electricity in the country? At the end of the day, has the hon. Gentleman calculated

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the total cost to pensioners and, indeed, any consumer of electricity, of his carbon tax, albeit, as he points out, that it is a tax on polluting producers of electricity?

Mr. Taylor: First, let us remember that we are talking about giving back with one hand the tax that we are collecting with the other in the same process, rather than giving it back later as tax bribes. So, we are not talking of increasing the overall burden on the economy. Secondly, the hon. Gentleman must remember that the more efficient and cleaner energy producers, those which are not destroying the environment, will be penalised equally by the imposition of VAT on fuel as those which are dirty. That will not be of any benefit.

The hon. Member for Mid-Staffordshire (Mr. Fabricant) is wrong. One of the ways in which we clean up our environment is to make those who burn carbon fuels burn them more efficiently and get better returns on energy. At the moment, whichever power station we are talking about, the same burden of VAT on fuel will apply and the customer will see no benefit from it. However, if fuels were used intelligently to generate electricity, we would see a direct return in the profits of the company and in the prices to consumers under the carbon tax. That is the specific point of the adoption of that tax. That is why environmentalists are united on it and why the European Community also sees it as the best way forward.

The third reason that Ministers give their Back Benchers for supporting VAT is loyalty to the party. They say that the measure is a central part of Conservative Government policy, so Conservative Members should vote for it as a matter of duty, that they were elected as Government Members of Parliament and that they should stand or fall with their Chancellor, right or wrong. That is a new constitutional theory to me and not one, I fancy, for which many of us in the House have time. Members of Parliament are elected to represent and stand up for their constituents, not back a Government who are so out of touch.

Let us look instead at what defeat for the Government will tells us and what it will achieve. First, it will tell us that the Government will not only have lost their majority tonight. It will confirm that they have effectively become a minority Government. They will have got there not only because of defeats by Liberal Democrats in by-elections, but because they ceased to listen to the people who elected them or even to those elected to represent them on the Back Benches. The Cabinet has become so unwilling to listen to others that it can no longer even command the confidence of its own Back Benchers. A defeat for the Government will tell us that the time of this Government is drawing to a close, that the Prime Minister has neither the authority nor the ability to see through his policies, and that his is a Government buffeted and rocked by dissent and confusion.

Far more important is what the defeat will achieve. Whatever the technical status of the amendment, its success tonight will force the Government to abandon their plans for the second-stage increase in VAT on fuel--a result which would be welcomed by people across the country. Even more important, perhaps defeat can persuade the Government to stop listening to their ideologues and start listening to the country. It will be clear that the Government must start to build a more open-minded, a more consensual and a more honest

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approach to governing Britain. If they do not, it will be clear that neither the Prime Minister nor the Government deserve to survive.

Most important of all, a defeat will show that the Government can no longer get away with deceiving the electorate and that they cannot win the next election, as they did the previous election, on the back of promises that they had no intention of keeping. The bluff is called, the disguise uncovered. Their time is up.

6.47 pm

Mr. Iain Duncan Smith (Chingford): After all the days of the Budget debate and having looked through some of speeches, I am fully aware that I will probably be repeating everything that has been said. However, I shall repeat it regardless because this, after all, is a secret that we are keeping in here. I know that nobody up there in the Press Gallery is bothering to report any of it anyway. I shall try all the same.

The Budget, which has been clearly presented to us tonight, falls very much into the context of what we have been doing over the past 15 years, and I shall review a little of that. It has been produced against the backdrop of the particularly successful economic regeneration that is going on at the moment. It is quite interesting to look back through the reforms made to the supply side during the 1980s, because one can see that some of the key areas of success, such as businesses being able to take up extra employment early and therefore producing new jobs for people, are mostly due to those hard decisions. It has meant that businesses are now much more flexible and much more able to compete. Essentially, they are able to take up those extra bits of slack in the economy. I emphasise manufacturing, which did not go through a boom period in the late 1980s, but which, with restructuring all the way through, has come out of the recession remarkably well and is now competing worldwide.

We forget at our cost the change in labour relations which we have undertaken over the past 15 years. Often, not one word is said about that. Back in the 1970s, a Labour Prime Minister was telling trade union bosses to get their tanks off his lawn because they were so threatening and were demanding so many things. We do not hear comments such as that any more because today the trade unions do not have any tanks. All the breast- beating before 1979 about the problems of days lost through strikes has disappeared. Not a word is said about that by Opposition Members, simply because it no longer exists. The concerns and worries that ran up to 1979 have gone, with the result that there has been a major and beneficial change to our economic prospects. The United Kingdom is in the vanguard of trade union reform. Fewer days are lost through strikes in this country than pretty well anywhere else in the western world.

We have talked about the exchange rate mechanism almost endlessly, so I do not intend to make it a great issue this evening. I merely say that our adherence to the ERM must be a lesson for us all. We find greater success through floating exchange rates than fixed exchange rates that peg us to currencies that relate to economies with which only a tiny proportion of our trade is conducted. I welcomed our departure from the ERM. Much of our success and growth since then has stemmed from our leaving it. Those Opposition Members who speak as if they had been talking constantly about departure should

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carefully rethink their position. Earlier they were arguing that we should stay within the ERM regardless of the cost. They advocated upping interest rates. In effect, they were saying that we should find anything that would allow us to stay in. On that basis, they would take no credit from our departure. Indeed, they would still be in the ERM now, and we would see no growth.

We are in a period of sustained low inflation with strong export-led growth. We would have given our eye teeth for such a state of affairs 15 years ago. I remember over the years the growth that moved into consumer expansion, which led to inflation and everyone gritting their teeth and saying, "Up interest rates." We are not, thankfully, in that position. We are in a near-perfect position at the present stage of growth in the economy. It is export-led growth and consumers are not spending at rates that they cannot afford. We have about 8.25 per cent. growth in exports with 2.5 per cent. growth in the level of consumer spending, which does, however, lead to some problems.

Mr. Clappison: My hon. Friend is going to the heart of the debate, which was conspicuously missed earlier by the right hon. Member for Copeland (Dr. Cunningham), who spoke from the Opposition Front Bench. I am talking about sustainable growth. We have heard nothing from Opposition Members about how they would improve our present prospects.

My hon. Friend has made comparisons between now and the 1970s, and Opposition Members have produced a welter of selective economic comparisons. Does my hon. Friend recall a time under any Labour Government when growth was as high as at present and inflation was as low, and it looked as though things would stay like that for a long time?

Mr. Duncan Smith: I cannot remember such a period. I dare say that Opposition Members are unable to refer me to one.

Conspicuously absent from the speeches of Opposition Members is the fact that we have a strong level of growth in the economy. As I have said, there is 8.25 per cent. growth in exports, which is something that we have wished for over the past 30 years. At the same time, there is a lower level of growth in consumer spending. The two levels of consumer growth are the same as they were last year, and the predictions are that they will not rise by very much next year. That produces a strong level of growth and a strong base for the economy, but it is a situation that will lead to problems.

The current problem between consumers and businesses is that the businesses that will satisfy the consumers are in a 2.5 per cent. trap, which means that they do not necessarily recognise the growth that we are talking about. They do not see it to quite the same extent as it exists. We must try to explain much more clearly that in the long term a low level of inflation with export-led growth will be beneficial and that it will not lead to higher levels of inflation. We are in a period of instability because of the shake-outs that have been taking place in manufacturing industry and the service sector over the past 15 years. For the first time, we find a great deal of instability among white-collar workers. Most white- collar workers succeeded in passing through many previous recessions without experiencing too many personal problems. They

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now find that jobs that they might have anticipated keeping for long periods will not necessarily be available to them. They are in the same position as many others in looking much more frequently for jobs. They change their jobs more frequently and consequently are more often looking for new employment than hitherto. The concept of people entering industries and staying within them for their entire working lives has gone. It is a cultural shake-up that has had a major effect on the views that are taken on levels of growth within the economy.

It is excellent that we have low inflation and a good level of growth, but we must understand that outside the House it will take some time for people to recognise, for example, that the value of their houses will not increase massively and that they will not be able to borrow against increased property values. They will not experience wage settlements that bring them a great deal more money. In the short term, they will not think that they are better off. There is a cultural change taking place outside the House. Unfortunately, the Opposition continue to carp. They suggest that they would wave a magic wand and change everything. That is not possible and we must see through the change from an old, manufacturing society to a modern society that is based on knowledge and the employment of people in the selling of knowledge. Those will be the key factors. The change will be better for people in the long run.

We have a growing economy within which there is no real pressure from consumer spending. Against that background, I do not think that the Bank of England is right about pressures on inflation. It went on about them the other day and it is still doing so. If we take account of levels of consumer spending and project them over next year, however, and at the same time bear in mind M4, the broad money measure, which is low for the historical level of upturn within the economy--over the past two months or so M4 has reflected a decrease--the position is worrying. I take that view because the figures reveal that the amount of money in the economy is not as great as it perhaps should be at this stage. At the same time, there is no real pressure on inflation. I wish that people would stop talking about interest rate rises. We have yet to see the results of the most recent interest rate rises.

Mr. Fabricant: Will my hon. Friend give way?

Mr. Duncan Smith: I shall not because I am conscious that I must get on. Others wish to speak.

I welcome the Budget because it demonstrates that we can set a domestic monetary framework that works. We do not have to worry too much about the way in which others are behaving with their exchange rates. We take the right decisions, which are based on floating exchange rates and targets for inflation. Floating exchange rates worked for us in the early 1980s and they are working again for us now. I do not accept the arguments for the adoption of a single currency. Those who advance them suggest that there is a better approach that is based on re-pegging our currency to a fixed exchange rate. I do not agree. I hope that my right hon. and hon. Friends will take that on board over the next six months, when a decision will need to be taken on whether to go into a single currency.

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I am concerned to note that my right hon. and learned Friend the Chancellor of the Exchequer has predicted from the Red Book that there will be a reduction of about 0.8 per cent. in public expenditure next year. That is a pretty tough target given our record. I am concerned because the Red Book figures tell us that we forecast a reduction, ultimately, of about 1.3 per cent. last time round and ended up with an increase of about 1.4 per cent. There has been an overall increase of about 2.7 per cent. from where we projected we would be. That could mean expenditure of up to £6 billion more than we expected. I raise a note of concern. Had we adhered to the figures that were forecast we would be in an even better public expenditure position than at present. The contents of page 10 of the Red Book show clearly that we need to make a greater effort to adhere to our public expenditure programmes. If we say 0.8 per cent., I urge my right hon. and hon. Friends to adhere to that and even to do better.

When the right hon. Member for Copeland was asked by several hon. Members, and finally by me, whether public expenditure was too high or too low, he said that it was too high. He went further and said that social security spending was too high. Let us ask the right hon. Member for Copeland and his hon. Friends, in particular the hon. Member for Oxford, East (Mr. Smith), who is to reply to the debate on behalf of the Opposition, which element of social security spending they are going to cut. Where is the axe going to fall?

I was amazed by that clear statement made by the right hon. Member for Copeland. I would like to follow it up to discover what it means. If public expenditure is not to be cut, which element of taxation is to rise to support higher levels of public expenditure?

Given the figures to which I referred earlier, and the fact that even under huge pressure to keep public expenditure down it has actually risen in real terms, we do not have scope to fiddle around with VAT on fuel this time round. Following a point made by one of my colleagues earlier, it is clear that we do not want to end up with a differentiated level of VAT. We must decide whether we want that tax altogether or not.

Some people may think that we do not want it. I accept that some hon. Members do not want it. However, in present circumstances, where else will they find the money if it does not come from higher public expenditure? There must be a level of taxation and they must want a higher level.

Mrs. Ewing: I must make it clear that I am not responding on behalf of the official Opposition. The City made it very clear that it anticipated a Budget based on a £23 billion public sector borrowing requirement while the Chancellor produced one with a £21.5 billion PSBR. The difference is exactly the amount of money that will be raised from VAT on fuel. Therefore, the City did not see the necessity for the tax on fuel. As Conservatives usually support the City, why does not the hon. Gentleman listen to the City?

Mr. Duncan Smith: I always listen to the City. If the hon. Lady looks at the figures carefully, she will discover that public expenditure this year is higher than was originally forecast in real terms. The question that we must ask, and which has not yet been answered, is that if the Opposition want to get rid of the uprating to 17.5 per cent. VAT on fuel, where will they find the extra money? We are already talking about £3.5 billion more than was

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forecast last year. As I said earlier, if we consider the original forecast, the figure is £6 billion higher. The Opposition have not faced that fact.

I must tell my right hon. and hon. Friends on the Government Front Bench that I am concerned about the fact that, although the increase in VAT on fuel is an important part of the Finance Bill, a week ago, in relation to the European budget, the issue became a matter of confidence and the measure was passed on that basis. Whether or not that measure had been approved, money still would have flowed, as the Paymaster General is aware, to the European Community--although not necessarily at the higher level.

However, if there is a problem further down the road with regard to the Finance Bill, money does not flow to the Government and they cannot finance their operations. It would therefore be wholly legitimate for my Government to say that the increase in VAT on fuel is a matter of supreme confidence in them, but we find that it is not. I am somewhat bewildered by the fact that it seems to be more important to make a matter of confidence out of moneys not being stopped going to Europe, while a serious measure of taxation does not have the same importance attached to it. I hope for an explanation about that.

Those who talk about the effects on poorer people and pensioners have not studied the figures and the package of measures. As was pointed out earlier, the package of measures has wiped out almost half the revenue that will be taken as a result of VAT on fuel. Pensioners across the board, regardless of income, will find themselves--in some cases--even better off. The Opposition say that those people are going to suffer, but that point has not been proved.

The public who are by and large on low incomes, and pensioners, are not suffering because of the measure. There has been a huge amount of largesse from the Government Front Bench in getting rid of a great deal of the money that the Government would have taken from the measure. The figures speak louder than anything else and those who try to avoid that point are avoiding reality. The figures show that we take far less than we might have done in respect of VAT on fuel simply because we are handing so much of it back.

Figures from 1988 to the end of 1993-94 show that there was an increase of between £90 billion and £100 billion in public expenditure. That point was made by my hon. Friend the Member for Milton Keynes, South-West (Mr. Legg) in an earlier debate. That increase in public expenditure is the culprit in respect of VAT on fuel. In those four to five years we took our eye off the ball on public expenditure. The biggest lesson must be that we cannot do that again. That is what has caused the pain and hardship.

Another culprit can be found in the people who, on the one hand, refer to public expenditure while on the other they fight hard to exempt certain things. It is impossible to argue both sides of the argument. Public expenditure must be controlled. I believe that we have not controlled it sufficiently, but we are controlling it now and that is welcome.

Some people say that the Budget falls between last year's Budget and next year's Budget and that it does nothing. I believe that the contrary is the case. Some people have missed the point that we are in the process of restoring finances. It was therefore wise of my right

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hon. and learned Friend the Chancellor not to complete the changes to the taxation system which were started by my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) at this stage. It is remarkable that so few commentators have picked up the fact that we are seeing a fairly major process of change to taxation. There is a general move, by and large, from direct taxation to indirect taxation. That has been a process of Government thinking for the past 15 years, but it was given greater impetus by my right hon. Friend the Member for Kingston upon Thames and it is being pursued now, quite rightly, by my right hon. and learned Friend the Chancellor in this Budget and his previous Budget. That is a very good area of reform and it is one that Conservatives should be pleased about as it shifts the burden and leaves the element of choice.

Mr. Graham: Will the hon. Gentleman give way?

Mr. Duncan Smith: I will not give way because others wish to speak and I have already given way on several occasions.

The success of the changes in taxation will be seen only when we drag the base rate of income tax down to 20p for all and force the level of overall taxation down much further. The key is that the overall burden of taxation must be reduced as a total package. That is what we must get back to. There has been a blip in that regard over the past two or three years. It must now go down as it would remain unfair if we left it simply as moving towards indirect taxation.

My right hon. and noble Friend the former Member for Blaby, Lord Lawson, said:

"The history of the 1980s demonstrates beyond a shadow of a doubt that unique political potency of cutting the basic rate of income tax."

I fully support that. Our economy is clearly now showing that it is a global economy--as it always has been. Most of our exports are outside the European Community, not inside it. The latest figures revealed in the Red Book show that 43.5 per cent. of our exports, including financial services, go to the European Community. It is clear that we will be influenced by the changes taking place outside the Community. We will affected by the massive changes in the far east and north America, which are big markets for us. We should be proud about that. We should not pretend that such growth is an accident.

Our business men are voting with their feet. They are exporting more every year to the far east and to north America and they do not want to be hidebound with restrictions, taxation and other forms of Government interference which the European Community seems to want to dump on us and which, in essence, comprises a smaller part of our exports.

I am tired of the constant gripe about manufacturing industry when not one word is said about the service sector. Financial services in this country are the main exporters. We have the third-largest surplus in financial trade in the world--a £16 billion surplus each year--which is beaten only by America and Switzerland. As one industrialist said the other day, our financial services skills are similar to the skills of which the German engineering sector has been proud for many years. We should trumpet that fact because people are beating a path to our door to employ people with those financial services skills.

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In that light, I welcome the venture capital trust scheme, the industrial financial initiative, and the £600 million package of transitional support on business rates--they will go a long way to demonstrate our support for business activity--as well as the changes to the Export Credits Guarantee Department that were proposed in the Budget.

Opposition Members say that they will sort out the share options scheme and drag lots of money back to the Exchequer on that basis. They are in cloud cuckoo land, just as they are in respect of the loopholes that they will close and the tax that they will drag back to us in that way. It is easy for them to say that, but it does not hold water when we consider the finances.

We are moving in the right direction. At last, we are getting a grip on public expenditure. We are looking to bring down taxation, and we must bring down the overall burden of taxation. We must never let what happened to us in the four years to 1994 happen again. The Budget, seen in the light of the past 15 years, is exactly right. All that I ask for now is that we make certain that we hold tight on public expenditure so that we may deliver a lower burden of taxation to the British people in future.

7.10 pm

Mr. John Evans (St. Helens, North): I have listened to several Tory speeches since the Chancellor of the Exchequer opened the debate, and I have listened to the President of the Board of Trade, in particular. Nothing in the Tory party has changed since, more than a century ago, Disraeli described the Tory party as an organised hypocrisy.

It was interesting to hear the hon. Member for Chingford (Mr. Duncan Smith) refer to the situation in the labour markets and the fact that we have no industrial problems. One reason, if not the principal reason, for that state of affairs is the fear that now exists throughout British industry. That fear was created by the Government's use of mass unemployment as a weapon in their economic policy.

Tories like to tell us that 2.5 million people are unemployed. Of course, that figure is utterly meaningless. There are 2.5 million unemployed people who are claiming benefit. The operative words are "claiming benefit". It is estimated that between 1.5 million and 2 million people are economically inactive, without work, but not claiming benefit. About 4 million people are without employment. One reason for the enormous drain on the public purse is that people who could work and contribute to the national Exchequer in national insurance contributions and income tax are in receipt of benefits of one form or another.

Another reason for the situation that the hon. Member for Chingford regards as so wonderful is that the average British worker has less legislative cover than workers in almost every other European country, including many in the former eastern bloc. The British employee is exposed to the depredations of some of the worst employers in Europe.

I draw the hon. Gentleman's attention to two early-day motions. Early-day motion 166 refers to trade union representation and the fact that several organisations and companies refuse employees the right to trade union

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recognition. Early-day motion 166 states that G. R. Scott Ltd. of Wakefield has sacked four employees with 60 years' service between them because they sought trade union recognition. Early-day motion 178, which relates to Badgerline and the Eastern National bus company, states:

"That this House regrets that employees of Eastern National Bus Company, based in Chelmsford have been dismissed whilst lawfully contemplating industrial action in furtherance of a trade dispute; notes that not a single employee was on strike at the time the sackings took place".

Many British workers find themselves in that situation today. I hope that the hon. Member for Chingford will bear that in mind before he makes another such speech.

The Budget has been described in a variety of ways. The Tories generally say that the Budget is good. Most Opposition Members describe it as bad. I describe it as a typical Tory Budget. It is the sort of Budget that I have witnessed since 1979, when the Tories took office from the previous Labour Government. As usual, it is a Budget that protects and promotes the interests of the wealthy and denigrates and downgrades the interests of the poor, the elderly, the low-paid, the sick and the unemployed. That is what one expects and gets from Tory Budgets.

The Budget reinforces the point that was rammed home by the memorandum that was so expertly leaked from Tory central office, from Mr. John Maples, deputy chairman of the Conservative party. That memorandum has caused many problems for the Tory party and great amusement and interest for the rest of the country. Mr. Maples struck the note exactly right when he said that the general opinion of Tory voters is that

"the rich are getting richer on the backs of the rest, who are getting poorer".

In the Budget, once again, the rich are getting richer through the full uprating of inheritance tax, the venture capital trust scheme, which undoubtedly will be another scam for higher-rate taxpayers, and the extension of relief for investors in personal equity plans and tax-exempt special savings accounts. It is remarkable that, next year, holders of TESSAs--in many instances, they will be husbands and wives--at the culmination of their five-year TESSAs, will be able to reinvest £18,000 tax free for at least another five years. We know that the poor are getting poorer, because VAT will increase from 8 per cent. to 17.5 per cent. if the Government get their way tonight. That will cost the average family an additional £80 a year. We know that, from the previous Budget, seven new Tory taxes will cost the average family another £7 a week. We have seen the freezing of the married couple's allowance, the freezing of the blind person's allowance, the ending of mortgage interest payments for the unemployed and, of course, the continuing tax on ordinary savings. The increase in VAT on domestic fuel from 8 per cent. to 17.5 per cent. lies at the heart of the controversy surrounding the Budget. No one should be allowed to forget that, at the previous election, the Prime Minister, the Chancellor and the Tory party said that there would be no need for any VAT on fuel. That was a specific statement to the country. We now see how worthless that promise was. The VAT increase is undoubtedly one of the most unpopular measures that have ever been perpetrated.

In St. Helens town centre, voluntary organisations and the Labour party organised a petition against the increase in VAT on domestic fuel. People were prepared to stand

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in a queue for half an hour to sign that petition. Thousands of people almost rushed to add their names to the petition for Members of Parliament to present to the House.

Sir Teddy Taylor: Was the hon. Gentleman able to assure those people who felt so strongly, that a future Labour Government would reduce the rate from 17.5 per cent. to its present level?

Mr. Evans: The hon. Gentleman and I share many views about the European Community. As far as I am aware, once value added tax is applied at a particular level, it cannot be reduced or removed. No doubt the hon. Gentleman will tell me if I am wrong. If it were possible, I would certainly like to see VAT removed from fuel. I hope that that satisfies the hon. Gentleman.

Sir Teddy Taylor: I assure the hon. Gentleman that it would be possible to reduce VAT on gas and electricity-- although there might be legal action-- but not on other fuel items, such as wood.

Mr. Evans: I am sure that the hon. Gentleman does not wish to argue with me as we share similar views on the subject. I stress that, as far as I am aware, once VAT is imposed it cannot be reduced or removed.

The Tory party is the party of value added tax. It introduced VAT and has doubled the rate of VAT since 1979. A typical family will pay more than £1,250 in VAT next year, which is £715 more in real terms than it paid under the previous Labour Government.

I believe that the Tories intend to extend the imposition of VAT to other goods and services in successive Budgets. The Chancellor of the Exchequer has made it quite clear that he strongly favours switching from direct to indirect taxation. We all know how unfair that would be. The imposition of VAT on domestic fuel is both a regressive and retrograde step, which will hit hardest the elderly, the unemployed and the low-paid. It is certainly a bigger impost on the poorer sections of the community than it is on those who are better off. All hon. Members who vote on the motion should bear it in mind that if there is a severe winter this year, a number of elderly people will die of hypothermia as a result of the increase in VAT. Elderly people died last year of hypothermia, and this year the Government have imposed an even bigger charge that will hit the low-paid--who will not qualify for any of the Chancellor's so-called

benefits--particularly hard.

Mr. Fabricant: I sympathise with the hon. Gentleman on several points, but is not it the case that people died of hypothermia last year and the year before that? People were dying of hypothermia long before VAT on fuel was ever dreamt of.

Mr. Evans: That is the point that I was making: there will be more deaths from hypothermia this year-- particularly if it is a severe winter-- than occurred in the last three winters, which were not particularly severe. Many weather forecasters are predicting a severe winter. Conservative Members should bear that in mind when they enter the Lobby to vote with the Chancellor of the Exchequer tonight. Tory Members and Ministers constantly proclaim--as the President of the Board of Trade did in his speech today--what a wonderful situation the Government have created in Great Britain. They constantly extol the benefits

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of the growth in exports, the control of inflation, the fall in the public sector borrowing requirement and the decrease in unemployment. They say that we have the strongest economy in western Europe. In the light of those comments, we are entitled to ask: why cannot the elderly, many of whom do not have long to live, share in that wonderful prosperity? Why has VAT on domestic fuel doubled from 8 per cent. to 17.5 per cent.? Apart from food, the absolute necessities of life for the elderly are heating and lighting.

I am a little sceptical about the rebellion that we may see tonight. I would not like to count all the rebellions in the Tory party that have almost taken place about issue after issue since 1979. While I hope that the Government are defeated tonight--and I hope that the Chancellor of the Exchequer will then resign--my instincts tell me that when the vote is counted, we shall see once again that Tory Members have failed to put their vote where their mouth has been in the past three or four weeks. We shall wait and see.

I now refer to an issue that has hardly been mentioned in the debate-- indeed, it was skipped over almost completely in the Budget speech. Public expenditure took up barely two columns of the Chancellor's rather lengthy speech. He said that the Government will maintain "tight control" over public expenditure. That statement can be interpreted as a promise of massive cuts in public expenditure. That is certainly what has happened with local government. It is remarkable that an area of public expenditure that has been pruned so ruthlessly in the past few years was not mentioned in the Budget speech. We had to wait for the statement by the Secretary of State for the Environment to learn precisely what was about to happen in that area.

According to calculations made by the metropolitan authorities local government committee, some 316 English councils face substantial spending cuts if they are to stay within the Government's new capping levels. Some 217 of those councils will be restricted to an expenditure increase of 0.5 per cent. The Chancellor's inflation forecast for 1995-96 is 2.5 per cent., which represents a substantial cut in local government finance.

Once again, the Government have cynically walked away from the results of their actions. It is obvious that they will refuse to fund any agreed national wage increases for local authority workers. When one considers that a 1 per cent. increase in teachers' wages will cost English local authorities £1 billion, which they do not possess, one can appreciate the burden that will be placed on local authorities.

The authority in St. Helens--I am tired of returning time and again to the theme of St. Helens' revenue support grant settlement--has been treated worse than the national average. Its standard spending assessment of £131.9 million this year has been reduced to £129.7 million--a reduction of £2.2 million or 1.7 per cent. of the total. The capping level for 1994-95 is £138.5 million, and for 1995-96 it will be £139.2 million--an addition of £700,000 or 0.5 per cent. The reduction in the standard spending assessment in real terms means that St. Helens will lose £2.2 million in grant and that council taxes will have to rise by £45 for a band D property--or 7.7 per cent-- in order to compensate for that loss.

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The increased cap allows for an increase of only 0.5 per cent. on the existing budget. That falls far short of current inflation levels and means that the Government will again fail to fund any pay awards that St. Helens council may face. As a result of that reduction and the Government's failure to fund correctly in 1994-95, St. Helens borough council will need to make a £6 million cut in its already stricken budget.

One can make an amazing comparison of the treatment of St. Helens with that of Westminster city council-- which I have done on many occasions-- an authority of a similar size, with a similar population. Whereas St. Helens' standard spending assessment has been reduced by £2.2 million, unbelievably and incredibly, Westminster's standard spending assessment has increased by £5.5 million. The permitted increase in St. Helens' budget is 0.5 per cent., but the permitted increase for Westminster is an incredible 15.3 per cent. What does Westminster have on the Tory Government that allows it to get away with such largesse being showered upon it while St. Helens receives such drastic treatment?

We had a meeting upstairs this afternoon with members of the Merseyside fire and civil defence authority, whose budget has been slashed. They told us that they would probably have to ask the five local authorities of Merseyside for a 22 per cent. increase in the precept merely to stand still financially. On top of all the other tax increases that have been imposed on the people of St. Helens, they now face a further substantial hike in their council tax. The upshot will be that social services and education will have to be cut again.

Indeed, I suspect that most local authorities will have to make further savage cuts in their care in the community programmes. I shudder to think what yesterday's High Court judgment will mean. It granted judicial review to two pensioners in Gloucester, who can now take their council to court for cutting expenditure on community care. If councils are forced to meet the costs of community care in full, that can only mean further savage reductions, especially in the education budget.

The combination of ever-increasing taxation and constantly reducing public services, together with the widespread fear of unemployment, supports what the former Transport Secretary, the right hon. Member for Norfolk, South (Mr. MacGregor), said about the lack of a feelgood factor. There is no feelgood factor because, as we know, even the middle classes are bitterly resentful of Tory incompetence and Tory sleaze. Every time people pick up a newspaper or turn on the television, they hear of all sorts of companies and all sorts of industries shedding hundreds and sometimes thousands of workers. A good example of that can be found in St. Helens. Earlier this year, SmithKline Beecham announced an increased profit of £1.2 billion. At the same time, it announced the closure of Beecham's factory at St. Helens, with the loss of 500 jobs. That factory, which stands on a site in the town centre, has not suffered from even one industrial dispute in more than 30 years. It ceased production last week. The spectacle of the privatised utilities paying their directors large salaries and share options nauseates millions of people. There is no feelgood factor; there is only contempt for the Tories. Next week's by-election at Dudley, West will show that.

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One matter in the Budget speech which offended me greatly was the Chancellor's casual reference to

"the emergence of a deprived underclass, excluded from the opportunity to work and dependent on welfare."--[ Official Report , 29 November 1994; Vol. 250, c. 1079.]

Who has created that underclass? Who has been in government for 15 years? Who has presided over the enormous growth in unemployment and the enormous rise in the number of people in receipt of benefit? It is the Tory party; the Tory Government.

I remind Tory Members that in 1979 many of those people had jobs--in many instances, skilled jobs--in factories that were producing goods that were exported all over the world. Many of those factories, especially in places such as Merseyside, have been closed and demolished. The work forces have dissipated and many people have been out of work almost since 1979. In case Tory Members have forgotten, I remind them that millions of young people-- working-class sons and daughters--obtained skilled apprenticeships and went on to produce for and serve their country. Apprenticeships have virtually disappeared in Great Britain and it is now a nation of low-skilled people. Yet what have the Government done? They have cut the unemployment budget by a further £500 million over the next three years.

Tax increases, public expenditure cuts, average families hugely worse off over the past few years--what is the purpose of the Budget strategy? It is to create a situation that will allow the Tories to go to the country at the next general election resting on a 5 or 6 per cent. cut in the standard rate of income tax. They sold that pup to the country in 1992. They will never sell it again because no one with an ounce of intelligence will ever again believe a Tory when he talks about taxation.

7.35 pm

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