House of Commons Hansard Debates for 6 Dec 1994

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I commend all honourable Members who oppose the increase. I do not underestimate the pressure which, even now, may be being brought to bear on Conservative Members who want to keep faith with what they have told their constituents.

One cannot help but wonder whether there are some in the Government who want to lose the vote. How else do we explain the Environment Secretary's tactics in writing to potential opponents of VAT? The Prime Minister may have cause to consider whether that was a wise move. The Environment Secretary wrote that he wanted to reduce bills rather than increase them, and said that that was a real possibility in most households. He said that falling unit energy prices since the mid-1980s had reduced the incentive to invest in saving energy, but the imposition of VAT re-established that incentive in a sensible and moderate manner. There we have it: people have been missing the point. They have not realised that VAT is a "sensible and moderate" measure. The Environment Secretary says that it is an "incentive"; better still, it saves people money. I think that the Environment Secretary has been eating a few too many beefburgers.

As well as the contradictions in the Environment Secretary's letter, Conservative Members should remember that the Prime Minister--I am pleased that he has joined us--said that tonight's vote is not a matter of confidence. He clearly entertains the possibility of the Chancellor being asked to reconsider the issue. He has been supported in that view by the Secretary of State for Employment, who said on the radio this morning that winning the vote was not the "be all and end all of everything" and that it was "not Armageddon".

I ask those Conservative Members who have doubts about the measure--I respect those who have expressed many sincere and honest doubts--to stand firm tonight and resist the increase in VAT on fuel. The Chancellor has no mandate to increase VAT and, as Conservative Members know, it goes completely against what the Conservative party promised at the last general election.

In the past half hour, all sorts of rumours have circulated Westminster about panic, last-minute compensation packages that have been cobbled together in an attempt to buy a vote here or a vote there. Nothing demonstrates more clearly that in Britain we now have government by shambles: the Government are not in control of events. Before we vote on the motion, we should be clear about what the Opposition's amendment says. It says simply that in considering the Finance Bill, hon. Members must not be prevented from discussing VAT on fuel for domestic and charity use. Our amendment says that we should be able to discuss the matter during Finance Bill proceedings. That is an essential step in giving the House the opportunity to reconsider the fuel increase. At the same time, it raises an important matter of principle for the Chamber to consider. When the Government announced tax rises in advance and in the 1993 Finance Bill drove through measures that would take effect only in April 1995, they were trying to make one Parliament's decisions binding on its successors.

Surely it is right that this House of Commons should now have the chance to re-examine the VAT increase. Our amendment would simply give the House the opportunity to look at it again and to vote on it in the circumstances of today. When the Chancellor replies, he must tell us why he wants to deny the House the right

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even to consider the question as a separate issue, as that is what voting against the amendment would do. The Government appear to be staggering from one panic to another and cannot even expose themselves to rational debate through the normal processes of the Finance Bill.

Labour has made its position clear on where the money would come from to replace the increase in VAT on fuel for domestic and charity purposes. I shall tell the Chancellor where in the Budget the money could come from. We have advocated a number of steps that would more than cover the cost of abandoning the VAT increase. The money could come from tightening up the treatment of executive share options-- [Interruption.] Before Conservative Members shout too loudly, they might care to remember that that is a step advised by their own vice-chairman of the Conservative party. The money could come from part of a windfall levy on the privatised utilities, similar to that which Lady Thatcher levied on the banks in 1981. It could come from ending tax relief on private medical insurance. It could come from steps to end the commercial avoidance of stamp duty. For future years, we would also look to draw on some of the gains from retaining the stamp duty charge on share transactions that the Government intend to drop.

Let us not forget--I am sure that the hon. Member for Southend, East (Sir T. Taylor) will not forget--that dropping the VAT increase would reduce slightly our contributions to the European Union. It would cut the measure of gross national product at market prices used in calculating the third and fourth reductions--

Mr. David Shaw (Dover): How much?

Mr. Smith: An £8 million saving on the contributions to the European Union.

There is something else that the Chancellor could do--he could abandon his proposal to cut the duty on champagne. How much more out of touch could the Government get than to cut the cost of champagne while our pensioners shiver? I emphasise that the right hon. and learned Gentleman has other choices open to him, such as those suggested to him during the Budget debate by his hon. Friends the Members for Gloucestershire, West (Mr. Marland), for Macclesfield (Mr. Winterton) and for Mid-Staffordshire.

Hon. Members may recall that when the increase was first put forward 21 months ago in March 1993, the Government justified it as being necessary to bring down the public sector borrowing requirement for 1995-96 to £39 billion. Without that increase, on present projections the PSBR for 1995-96 would be £22.3 billion. We believe that the Chancellor is right to get down the PSBR, which is why we are proposing alternative revenue-raising measures. The figures that I have given show the House how very much circumstances have changed since the increase was first proposed.

The point that I want to stress, in a genuinely non-partisan spirit, is that if the amendment is carried and a subsequent change to the Finance Bill made, the Chancellor has choices--whether he takes our advice, that of his hon. Friends or develops alternatives of his own. If the amendment is carried tonight, the responsible thing for the right hon. and learned Gentleman to do would be immediately to make a statement to the House indicating

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how he would raise the money. Let there be no mistake: choices can be made which leave the Budget's policy balance intact--a point that I know is of great concern to a number of Conservative Members. I understand that the Chancellor acknowledged that after the ECOFIN meeting, when he said that if he were defeated over VAT on domestic fuel, he would find other ways to raise the money.

The Chancellor has choices, but only one choice is open to pensioners struggling to pay their bills--they go cold or they go broke. Here and now, the House faces a clear choice--whether to allow this extremely unfair and bitterly resented tax increase to be implemented without challenge, or to assert the right of the House to question the Executive's revenue-raising powers and to call the Government to account for betraying their election promises. I urge right hon. and hon. Members in all parts of the House to vote for the right and the duty of the House to speak for constituents, pensioners and the country. The people of Britain, whatever their views on the rest of the Budget, want the VAT increase on domestic fuel stopped. Let their voice be heard in the Division Lobby tonight.

9.30 pm

The Chancellor of the Exchequer (Mr. Kenneth Clarke): We have debated the Budget for five days. Most right hon. and hon. Members have participated in many such debates, but this one had an unusual quality. A large number of right hon. and hon. Members, particularly on the Opposition Benches, devoted a high proportion of their speeches to last year's Budget and the Budget before that. They devoted a large part of their speeches also to next year's Budget. The Opposition want to revisit last year's Budget--that is the point of their main motion. They criticise us for raising taxation and invite the House to reverse it. They anticipate and guess at next year's Budget, and criticise it because they believe that the Government intend to reduce taxation.

The issue on which the Opposition want to vote results from last year's Budget and the imposition of VAT on domestic fuel. The main subject of the speech of the hon. Member for Oxford, East (Mr. Smith), like those of other right hon. and hon. Members, was the decision taken in last year's Budget to impose VAT on fuel. Are the Opposition concerned about the effect of higher fuel prices on people in this country and on energy conservation? I think not.

In a case that can be perfectly evenly balanced, we heard the most melodramatic interpretations. No one listening to speeches this evening about people dying from hypothermia would realise that fuel prices had fallen. Even after the imposition of the first stage of VAT on domestic fuel, prices have fallen 1 per cent. in real terms over the past two years- -even taking account of the first stage of VAT, but taking no account of the compensation package for all pensioners and those on benefits.

Even when the full rate of VAT is imposed, gas prices will be 6 per cent. lower in real terms than before privatisation. The level of disconnections for non-payment of domestic fuel bills has never been lower. I will give way to the hon. Member for Moray (Mrs. Ewing); then perhaps I shall be allowed to talk about this

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year's Budget, the measures that I have taken this November, and what that bodes for the British economy and for our prospects over the next year or two.

Mrs. Ewing: Does the right hon. and learned Gentleman deny that people die from cold-related illnesses in this country?

Mr. Clarke: Of course I do not deny that, but as my right hon. Friend the President of the Board of Trade said, fuel prices have been falling in real terms in recent years. Over the past two years, they fell 1 per cent., even taking into account VAT at 8 per cent. already imposed, and compensation has taken the price lower for pensioners and those on benefits receiving compensation. I realise that politics is more often about perception than about reality, but the underlying reality to what we are doing with VAT on fuel is that fuel prices are coming down, that they will continue to come down, that since privatisation far fewer people now have their supplies disconnected, and that we have a generous measure of further compensation for vulnerable groups, for all pensioners, for those on benefit, which I shall return to in due course.

Before we get to VAT on fuel, and I am sure that we will, I insist on reminding people of the Budget strategy to which the Opposition have totally failed to address themselves with the slightest seriousness at all. I set myself three objectives this year: keeping the economy on track for steady and sustainable growth; tackling the problem of long-term unemployment; and strengthening the economy in the medium term by introducing a package of measures to help businesses.

This Budget does have measures to cut long-term unemployment, and everyone has welcomed them. The only point that they can produce is to point out that a minority of the measures and the expenditure start in 1996, for perfectly obvious and practicable reasons. There is a package of measures to help small businesses and, so far as I am aware, no one has directly opposed the package of measures--the tax incentives or the deregulatory measures--that I proposed. The policies on taxation, particularly the cuts in public spending and borrowing, are of the scale necessary to keep confidence in our recovery. Over the vast bulk of the five days of the Budget debate--the Budget has been particularly welcomed by all concerned with business, with our manufacturing base, with recovery and outside this country--there has been very little criticism from Opposition Members for the particular measures that I announced last week when I presented the Budget. What has most significance for our recovery in the Budget is the very firm action that we have taken to get Government borrowing down. The hon. Member for Oxford, East made a passing, apparently favourable, reference to that, but every speech made by almost every Opposition Member, be he or she on the shadow Treasury Bench or behind, by implication seeks to undermine that.

In the 1993 Budget, faced as we had been with the prospect of a £50 billion borrowing requirement after the recession, we effectively reduced public borrowing. We looked to the spending side of the account first--from listening to the Labour party, it is quite plain that that is something that it would never do--and we still had to increase taxes. Of course, Opposition Members heard us as clearly as my right hon. and hon. Friends did, before

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we even reached the Budget, that, this year, it was not practicable, if we were to put our recovery, prosperity and jobs first, to ease taxation, except for vulnerable groups.

I raised tax allowances for pensioners, above inflation. I raised the 20p band above inflation for the one fifth of all taxpayers who pay tax at the very lowest rate. Further tax reductions, including the tax reduction by going back on last year, for which the Labour party is pressing, are impracticable if we are to get borrowing down. I was able to be neutral on taxation, apart from those beneficial changes, then tackle spending, as only a Conservative Government can and as a Labour Government or Liberal Government never would. Last year, I reduced Government spending by £15 billion over three years. This year, my right hon. Friend the Chief Secretary and I have been able to reduce Government spending by another £28 billion over the next three-year period. What is more, as we have managed to find savings, we have done so in so competent and effective a way in pursuing our priorities that we are able to increase real resources for key public services such as the national health service and the police. By improving efficiency, we make sure that the public get better public services for less public money, and we tackle the overheads of Government. Therefore we can produce those results and still build on the improvements which mean that the NHS treats 1 million more patients a year than it did in 1979, and that one in three young people will go on to higher education compared with 15 years ago.

Those measures represent a strategy, unlike the pathetic ramblings of Opposition Members. They represent a strategy that has not only put our borrowing on course but, as a result, has given us a recovery--real growth in the economy, a real increase in our production, rising manufacturing output, falling unemployment, a great productivity record, level unit wage costs, a record level of exports and a record level of retail sales. From beginning to end of this Budget debate, those developments simply have not registered in the speeches of Opposition Members who claimed to be talking about the economy.

Conservative Members recognise the link between public spending and taxes, public borrowing and helping public finances, enabling recovery to be sustained and not turned into boom followed by bust. Labour would put all that at risk. Last year Labour Members voted against our spending reductions, and they are plainly resisting spending reductions again. Last year they opposed our measures to raise revenue, and they would do so again.

Opposition Front Benchers avoid such words, but we need only listen to every Back Bencher to hear them. I sat and listened to Scottish Members questioning this year's Scottish local government settlement. When my right hon. Friend the Secretary of State for Scotland answered questions, every Scottish Labour Member demanded more spending on one service or another-- more for their local authorities. [Interruption.] The hon. Member for Renfrew, West and Inverclyde (Mr. Graham) cheers on behalf of Scotland, but what he wants is not on behalf of Scotland. He is denied by the rest of the Opposition Front Bench.

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The new Opposition Front Bench is semi- detached from the hon. Gentleman, who sits urging public spending that will be the ruin of economic recovery in Scotland.

Mr. Graham rose --

Mr. Clarke: I hope that the hon. Gentleman will forgive me if I do not give way.

If Labour Members do not like the contrast between my measures and their approach, let them look at the shadow Budget. [Interruption.] If I may say so, the revival in Scotland is getting a little carried away. I think that the hon. Member for Falkirk, West (Mr. Canavan) agrees with at least one measure that I took for Scottish industry. Labour presented a draft Budget outside the House-- [Interruption.]

Madam Speaker: Order. Let us have some order in the House.

Mr. Clarke: May I address the Scottish Front Bench? The hon. Member for Dunfermline, East (Mr. Brown) only produced a draft Budget outside the House. A draft Budget worthy of the name should have at least three components--spending plans, tax plans and borrowing plans. The so-called shadow Budget had none of those components; as a document on economic policy, it was about as much use as a used bus ticket.

There were spending commitments. The shadow Budget referred to a regional development agency, allowing local councils to spend their capital receipts and a small business fund. Today, at one point in his speech, the right hon. Member for Copeland (Dr. Cunningham) began to go on about what he regarded as terrible reductions in transport spending; he implied that he might reverse them, although our level of transport investment is much higher than it was 10 years ago. A moment ago, the hon. Member for Oxford, East criticised the savings that we had made in housing expenditure, although we are well ahead of our manifesto commitments on social housing. The Opposition slink into spending commitments without spelling them out or costing them; then they try to address the question of how they would raise the taxation, talking of loopholes and windfalls. The loopholes that they are talking about are unspecified and are not spelled out. Last year, they put a bold figure of £10 billion on loopholes that they would close. In the shadow Budget this year--it is almost an identical document--the £10 billion has vanished because not a single independent tax commentator believed that they could raise anything like that amount.

What does the hon. Member for Dunfermline, East regard as loopholes? Last year, the Opposition voted against a measure in the Finance Bill that blocked the device of paying salaries in gold and coffee beans in order to avoid national insurance. This year, the hon. Member for Dunfermline, East has been publicly criticising the ending of transport zero rating for things such as theme park rides, which have been taking advantage of a loophole. The hon. Gentleman's loopholes are non-existent and he knows that. Howard Davies has been quoted repeatedly in the debate to describe those loopholes as a massive increase in taxation on genuine business.

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What is the one-off windfall tax that the Opposition hold out? In fact, it would penalise the success of those who now own the national grid and are improving its performance. That improved performance allows the national grid to reduce charges on electricity bills by 3 per cent. in real terms every year. The Opposition claim that there is a great pot of money to be had by reversing that. In fact, they would be penalising success, damaging prospects for investment and damaging electricity prices.

Right at the end of the debate the hon. Member for Oxford, East mentioned the tax on champagne. He knows that for legal reasons we are closing an anomaly whereby sparkling wine is taxed at a higher level than loopholes-- [Interruption.] I mean fortified wine. Unlike some hon. Members who will be voting this evening, I have not been partaking of either. The correction of the anomaly on sparking wine will help many sparkling wines made in this country, not just champagne. Champagne socialists may believe otherwise. It produces a princely sum of £5 million if the legal challenge is defied by the Labour party. That leaves £1,495 million to go to give some credibility to its policy on VAT on fuel.

The hon. Member for Oxford, East said that we should reduce our VAT contribution to Europe. That would be another £8 million. It is fatuous as a taxation policy. It is fatuous at the end of a speech in which the hon. Gentleman had already talked gaily about capital allowances being restored, thereby giving great tax exemptions to all investment across all business.

The hon. Member for Oxford, East was attracted by tapered capital gains tax. The Labour party is attracted by every increase in public spending and every reduction in taxation that is put before it by any interest group, or any opportunistic lobby group. That is not a sensible economic policy.

Mrs. Teresa Gorman (Billericay): On the subject of anomalies, can my right hon. and learned Friend explain why he can find almost three quarters of a billion pounds to give to Europe, but he cannot find a similar sum to do away with the increase in VAT which is awfully unpopular? [Interruption.]

Mr. Clarke: That was the biggest support yet shown to my hon. Friend. With respect to her, the figure is £75 million. That is not three quarters of a billion pounds, but she is getting nearer the total of £1.5 billion than the Labour party has remotely got so far--I concede that much to her.

I shall be coming to a subject in which I know my hon. Friends are interested: VAT on fuel. Before I leave the Labour party, however, I should point out that it is not just my view in the debate that the Labour party is putting forward waffle instead of policy: it is the view of the hon. Member for Brent, East (Mr. Livingstone), my sworn political enemy for as many years as I have known him, although my personal relations with him are good. He would be pleased with the first description as he is a man of principle in a party that has been robbed of principles by its Front-Bench spokesmen and I quote him with approval talking of his Front-Bench spokesman. He said that

"it is not enough to oppose the Conservative party; we have to spell out what we will do, how it will be better than what the Conservatives have done, who will pay the price and who will benefit. Until we do that, people will continue to doubt us".--[ Official Report , 30 November 1994; Vol. 250, c. 1268.]

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Until the Labour party does that, anyone with the long-term interests of the British economy in mind should not just doubt the Labour party but reject it for trying to fob us off with such nonsense, as it has done for the past five days.

I had to take the necessary steps. I have explained that the strategy is to keep on course with a reduction in public borrowing, which I think most commentators did not believe possible last year, which we are on course to achieve and which is the principal explanation for the high level of confidence in the future of British industry and in the prospects for jobs and prosperity. Although public spending is the main contribution opposed by the Labour party, the taxation in the pipeline from past Budgets, including VAT on fuel, is a sensible, integral part of our tax policy. At this stage, it would be reckless for the House, having been taken so far on the road to lasting recovery, suddenly to decide that it cannot stay the course, that it will overturn what we have done and go back on the decision last year.

Mr. Harry Greenway (Ealing, North) rose -- [Interruption.]

Madam Speaker: Order. Is the Chancellor of the Exchequer giving way? Apparently so.

Mr. Greenway: As my right hon. and learned Friend returned to VAT on fuel, may I ask him this? Is he aware that, in a constituency like mine, pensioners' heating bills are much higher than they would be if their homes were properly insulated? The reduction in heating bills would probably be as much as 30 per cent. Will he do something about improving home insulation grants, in particular, to pensioners and poor people?

Mr. Clarke: I am surprised that a murmur of discontent broke out from the Labour party when my hon. Friend intervened to press the case for improved insulation of pensioners' homes which, as he rightly said, reduces bills. Loft insulation, for example, takes an average £70 off heating bills. The hon. Member for Moray pressed the same case upon me.

I say to my hon. Friend the Member for Ealing, North (Mr. Greenway) that the tax of VAT on fuel, which I think is defensible for reasons that I shall give in a moment, has to be combined with efforts to protect the vulnerable, particularly pensioners and those people on benefit. Also, it has to be combined with measures that really deliver the fuel efficiency that led the Liberal party to propose it and Friends of the Earth to support it. I should say to my hon. Friend that, last year, I doubled the home energy efficiency scheme budget. As a result, nearly 1 million people have already benefited from it. I added a further £10 million in my Budget speech last week. My hon. Friend, however, has been pressing this case. So have other hon. Members--including the hon. Member for Moray who, with respect, is trying to intervene on me now--who have pointed out the arrears that are built up under the scheme. I am, therefore, prepared to add another £20 million to the home energy efficiency scheme.

Sir John Gorst (Hendon, North): Will my right hon. and learned Friend say whether he has given any thought to imposing VAT on a less vulnerable community, namely the press?

Mr. Clarke: I have thought about it frequently but decided not to do it. The Labour party would have

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opposed it as it opposes all taxation and the further broadening of the VAT base is not necessary if we stick to the course that we are on and reduce public spending as we are doing.

As I have already announced, I have increased the cold weather payments to £8.50 a week in 1995 compared with £6 a week last year. I set out in the Budget help for the least well off, especially pensioners--all pensioners--and vulnerable groups. By April 1995, help for pensioners and vulnerable groups will be worth £52 a year for individuals and £73 a year for couples. From April 1996, the permanent increase in benefits due to VAT on fuel will be worth around £68 a year for individuals and £96 for couples.

Sir Andrew Bowden (Brighton, Kemptown): Will my right hon. and learned Friend confirm that the increase for pensioners next April will be on exactly the same basis as this year, namely that there will be a full uprating of 2.2 per cent. for inflation, including the 0.4 per cent. as a result of VAT on fuel, plus an additional 50p for all single pensioners and 70p for all married pensioners?

Mr. Clarke: For as long as my hon. Friend has been in the House, he has pursued the cause of pensioners with very considerable effectiveness and skill. Ever since I announced the package of measures in the Budget, which I believe implement to the full what we said about compensation for all pensioners and vulnerable groups, he and I have been disputing whether the figure that I have given carries the commitment that I have given-- certainly the package produces the figures that I have just given. [Interruption.] I believe that every statement that I have made is consistent with the figures that I have given but I do not wish there to be any doubt about our commitment to compensating pensioners and those on benefit. Therefore, to resolve the anomaly which has at times become a matter of semantics, when the second stage of VAT goes ahead I shall indeed make the changes to the uprating statement to meet the terms that my hon. Friend requests.

Mr. Gordon Brown (Dunfermline, East) rose --

Mr. Clarke: Is the hon. Gentleman going to oppose it?

Mr. Brown: Will the Chancellor confirm that he is this evening offering not a penny more for families with children, the unemployed, the disabled or invalids and that the 25p a week more that he is offering for pensioners must be set against their average £505 fuel bill? If this scheme, which I estimate is worth only £100 million, is not enough to satisfy the country, it should not be enough to satisfy Tory Members.

Mr. Clarke: I am spelling out what we are doing for pensioners and vulnerable groups. If the Opposition win their amendment the principal beneficiaries will be people of working age who do not receive means-tested benefits, and people in larger houses, who pay the largest bills--obviously they will make the greatest savings if the Opposition have their way. But if the Government succeed we shall have VAT at a lower level than Scandinavian countries, on prices that are dropping in real terms because of privatisation. We shall be on course for a successful recovery-- [Interruption.] The howls from the

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Labour party at what I am saying are howls of rage and disappointment at the fact that a successful economic strategy is being pursued.

Mr. Brown rose -- [Interruption.]

Madam Speaker: Order.

Mr. Brown rose -- [Interruption.]

Madam Speaker: Order. It is 9.59. Mr. Brown.

Mr. Brown: Madam Speaker--

Mr. Greg Knight (Treasurer of Her Majesty's Household) rose in his place and claimed to move, That the Question be now put. Question , That the Question be now put, put and agreed to. Question put accordingly, That the amendment be made:-- The House proceeded to a Division:

Madam Speaker: Order. Before this vote is declared, Members at the Bar will remove themselves behind the Bar. Members in the central aisle will resume their seats before the vote is declared. It is perfectly all right to sit in the aisles or to sit on someone's knee.

The House having divided: Ayes 319, Noes 311.

Division No. 7] [22.00 pm

AYES

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Abbott, Ms Diane

Adams, Mrs Irene

Ainger, Nick

Ainsworth, Robert (Cov'try NE)

Allen, Graham

Alton, David

Anderson, Donald (Swansea E)

Anderson, Ms Janet (Ros'dale)

Armstrong, Hilary

Ashdown, Rt Hon Paddy

Ashton, Joe

Austin-Walker, John

Banks, Tony (Newham NW)

Barnes, Harry

Barron, Kevin

Battle, John

Bayley, Hugh

Beckett, Rt Hon Margaret

Beggs, Roy

Beith, Rt Hon A J

Bell, Stuart

Benn, Rt Hon Tony

Bennett, Andrew F

Benton, Joe

Bermingham, Gerald

Berry, Roger

Betts, Clive

Blair, Rt Hon Tony

Blunkett, David

Boateng, Paul

Boyes, Roland

Bradley, Keith

Bray, Dr Jeremy

Brown, Gordon (Dunfermline E)

Brown, N (N'c'tle upon Tyne E)

Bruce, Malcolm Gordon

Burden, Richard

Byers, Stephen

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