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I emphasise those points because they underline the decisions that the House is being asked to take. We are growing so strongly and the business community is so optimistic about the outlook for output and jobs because the Government are on top of the job of keeping inflation down and delivering healthy public finances.

Mr. Robert Sheldon (Ashton-under-Lyne): Will the Chancellor explain one matter that he did not explain last Thursday? In the past 10 years, the average error in the public sector borrowing requirement has been £10.5 billion. He wants to raise £800 million. Why is he in such a hurry? Is he now a convert to fine tuning? Will the Pergau financing mean further increases in taxation? Why cannot he wait until February, during consideration of the Finance Bill, and make a decision in the light of further information?

Mr. Clarke: Confidence in policy requires clear consistency of purpose and determination to put that purpose into effect. I had a similar exchange with the right hon. Gentleman last week and explained that, of course, these are not exact forecasts or spot figures, but the best forecasts that we can make and that there is a variation around a median line.

The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) was in the Treasury at a fairly terrible time--I think that he was there when the International Monetary Fund took over for a time because of the inability of the Government of the day to deliver healthy public finances. Even when he was in office, he did not take the view that £10 billion on the PSBR here or there was something that the Government would ignore. He and his colleagues published forecasts and missed them rather badly. The downward track on which we are setting the PSBR is essential to the restoration of confidence, as is our commitment to take no risks with inflation.

I think that we would all agree that the past week has been one of slightly greater than usual political turmoil. Fortunately, that has not shaken confidence here or abroad in Britain's ability to keep on course with its recovery. Many countries are going through substantial political crises. Usually, that has a knock-on effect on confidence in the Government's abilities to deliver their economic aims. That has not happened here, in part because of the prompt action that we took.

Mr. Tony Marlow (Northampton, North): Is it possible that confidence was not dented because people think that the present solution is rather better than the one we had before? As we are talking about changes in solutions, and given the state of the housing market and the fact that mortgage interest relief at source is going down, why does my right hon. and learned Friend still think it wise to knock that market on the head again by making people insure their mortgages?

Mr. Clarke: That was as helpful as ever. Confidence was retained overnight not least because I had a monetary meeting and raised interest rates first thing the next morning. It was extremely important to do so to reconfirm the fact that political turmoil would not threaten our commitment to low inflation and to demonstrate that our policy of considering the economic evidence, looking forward and ensuring that, if inflation pressures are incipient, we act in good time and keep control of events remained unshaken. Confidence was retained before I proposed my package of measures on Thursday.

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As I told the right hon. Member for Ashton- under-Lyne, a prompt reaction to events to put in place the Budget judgment was essential to keep us on course. In the short term, the interest rate change was never likely to be welcomed by people concerned about the housing market. The present difficulty is that our manufacturing economy is roaring ahead, with very strong growth, while the housing market remains distinctly flat. In the medium-term interests of anyone involved in the United Kingdom economy, it is essential that a low inflation climate is retained and that it lasts. People involved in the housing market probably realise more than anyone else in business the dangers of returning to boom and bust, and of the apparent prosperity that inflation brings and its effects thereafter.

Mr. David Winnick (Walsall, North): Most people clearly have no confidence in the economic competence of the Government, and the Chancellor knows that. The Government's humiliating defeat on VAT undoubtedly dented them, but does the Chancellor accept that it has in fact reinforced the standing of the House of Commons? Letters to national newspapers and hon. Members have shown that the vote has almost reaffirmed people's faith in parliamentary democracy and the workings of the House of Commons. As a parliamentarian, I think that is excellent. Does the right hon. and learned Gentleman agree?

Mr. Clarke: I regard myself as a parliamentarian, and I am extremely glad about anything that raises confidence in this House, which needs raising by a quite considerable extent. I accepted the judgment of the House, which, although I will not labour the point this afternoon, was reached in an extraordinary way. The House, having confirmed the tax in four separate votes, changed its mind in circumstances where--the hon. Gentleman will concede--background events had a lot to do with the decision.

I have accepted the decision, and that is where we now are. I am explaining that it is necessary to proceed with the resolutions so that the key economic policy of low inflation and healthy public finances is dealt with properly by the Government with the support of the House.

Virtually every major economy in the western world faces serious problems with its public finances as it emerges from recession. The general level of deficits throughout the European Union and across the Atlantic is far too high for comfortable and sustained growth, and every Government is having, or trying, to take action to deal with that problem. I believe that the British Government are tackling the problem more effectively and more promptly than almost any of our competitors in the developed world. That is one reason why confidence in Britain is so high--not only in the financial community, but among the business men and industrialists upon whose confidence we depend to get investment going to sustain our current good performance. We are doing better than anybody else at the moment. That is why the House must accept--if we accept the House's verdict, as we do-- that, having lost potentially £1 billion of tax revenue in the next financial year and

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£1.5 billion worth in years two and three of the survey period, it is essential that it confirms the action necessary to fill that gap in the public finances.

Mr. Dennis Skinner (Bolsover): I go back to the question of the interest rate increase. The Chancellor gave the impression that the increase was not as a result of the defeat in the House of Commons, but that it arose simply because he felt that the judgment had to be made at that time. Why, then, only a fortnight ago, when I asked him directly in the House whether there would be an increase in interest rates before Christmas, did he tell me that he had no plans for such an increase?

Mr. Clarke: With the greatest respect to the hon. Gentleman, I am quite certain that I never answer questions--either in the House of Commons or from journalists outside--about my intentions regarding interest rates. It would be totally irresponsible for any Chancellor to do that, as it would cause turmoil in the markets.

I have always explained my policy on interest rates, which is to ensure that we act in good time to keep control of events and to stop inflationary pressures building. The decision on interest rates to which the hon. Gentleman referred was taken the following morning, and not before, and it was taken on the basis of a judgment of the inflationary pressures. But, at the request of the Governor, we had brought forward the timing of the meeting so that, if we decided to raise interest rates, we would do so in good time before any turbulence in the markets after the decision of this House. I make my decisions on the evidence of the meetings that I hold, but the House must bear in mind the fact that those decisions, and their timing, have to include, among other things, the surrounding political events and the possible consequences of a defeat in the House of Commons the night before and the loss of a billion pounds worth of taxation.

Mr. Tony Banks (Newham, North-West): The Chancellor said that the manufacturing economy was "roaring ahead". Will he tell us when we last had a balance of payments surplus on our trade in manufactured goods, and when he expects us to move into surplus again?

Mr. Clarke: It is a long time since we have had such a strong balance of payments recovery at a time of economic recovery. The hon. Gentleman knows that that is because the recovery is export-led: in volume terms, our exports are up 10 per cent. on a year ago and investment is beginning to press ahead. The course for our balance of payments is improving precisely because this is a competitive country. It is attracting inward investment because it the best place in western Europe in which to invest if one wants to manufacture modern products.

As I said in my statement last week, when it came to filling the gap in the Budget judgment, I turned first of all, instinctively, to public spending. It was obviously right to look at that side of the account. I know from last week's intervention from my hon. Friend the Member for Bridlington (Mr. Townend), as well as from his representations to me for about as long as I can remember in his capacity as chairman of the Conservative finance committee, that he wanted me to do just that.

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As I explained, to make further changes in the public spending total for next year and the year beyond at this stage, after the end of the public spending round, was simply not practicable. I could not do that because of our enormous success in the two successive public spending rounds, which reduced general Government expenditure by at least £43 billion over the four years covered by those two public expenditure surveys. That sum was taken out of general Government expenditure without disturbing the Government's policy priorities and, so long as efficiency is maintained, without threatening the delivery of good, high-quality services.

I accept that a further adjustment to recover money out of those public spending totals may well have been attractive to a number of hon. Friends, as it was to me, but it would not have represented good competent government. It was too late in the year to make such a change. We had just settled the survey and health authorities, local authorities and Government Departments had made their plans on the basis of the figures that we had provided. If we had gone ahead, within 36 hours, to find areas of public spending from which we could have quickly recovered the money further required, it would have been damaging.

I know that my hon. Friend for Bridlington is not alone in making representations to me about public spending--my hon. Friend the Member for Chingford (Mr. Duncan Smith) and others have also done so. Because I was unable to go further on this year's public spending round, however, does not mean that we are lessening our determination to keep public spending under control. In years two and three we have already committed ourselves to filling the expenditure gap by £300 million. The tight public spending control of the kind that we are delivering is not a short-term, temporary Government policy; it is one of the hallmarks of Conservative government that we keep tight control of expenditure.

The resolutions deal with the need to raise taxation. We know that the ability to raise or to reduce taxation is directly linked to control of public spending. If one cannot control that spending, one has lost control of one's taxation policy. In future years we will stick to that principle, but this year, for purely practical reasons, we did not attempt to alter the public spending totals.

Mr. Malcolm Bruce (Gordon): Does the right hon. and learned Gentleman accept, however, that choosing to recover money in taxes has had an inflationary effect of 0.4 per cent., which has meant indexing benefits to the tune of nearly £600 million? Surely he would have faced a much easier task if he had found the money elsewhere. When does he think that the borrowing level will be at a pitch where he will be able to justify reducing taxes? Can he tell us what the criteria would be?

Mr. Clarke: We looked at alternative packages, but one of the attractions of the package that I am commending to the House in the resolutions is that the impact on inflation is rather less than that of the taxes that it replaced. I accept that there are disadvantages in the new package, and, if I am pressed, I will explain why what I am now presenting is, as everyone realises, my second choice, starting from where we were before I prepared this year's Budget. Nevertheless, the substitute package has one advantage, because it slightly reduces the impact on inflation.

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On the borrowing requirement, we published in the Red Book the public sector borrowing requirement that we now expect to be sustained. We published our expectation that general Government expenditure will fall as a proportion of gross domestic product. Judgments about taxation in future years must be made on the same basis as the judgments about taxation that I made this year and last. The lower one gets the PSBR, the more one gets public spending under control and the more one is able, when conditions begin to improve, to consider how far one can reduce taxes rather than increase them. According to the Government, judgments about taxation must be made, and will always be made, on the basis of the health of the real economy. We are committed to industry, to jobs and to prosperity. Our past policy of declining to decide on low rates of marginal taxation was based on our belief that that stimulates a healthy economy. We will make changes in taxation only as and when we believe that it is in the interests of a healthy economy to do so.

Mr. Nigel Griffiths (Edinburgh, South): The Chancellor may talk about judgments on taxation, but how can we trust his judgment to match what he has said about taxation? Before the election, he told us that there was no need to extend the scope of VAT and he made specific promises not to increase the rate of VAT. When he came back to the House, however, he offered proposals that went against everything that he had promised. What will happen on a wet night in Dudley tomorrow?

Mr. Clarke: Before the election, the hon. Gentleman and his hon. Friends campaigned on a policy of increasing taxation in order to increase public expenditure. They also ran a campaign suggesting that they had somehow done their calculations and discovered that the Conservative party would be obliged to raise the rate of VAT. We did not.

The hon. Gentleman has no quotations from me about VAT. He may, however, be referring to some remarks that I made during the election campaign, which were made at a time when his party and my party believed that the recession was over and that public finances would not fall into a worse state. The difference is that when, thank heavens, I am glad to say we found ourselves charged with the responsibility for turning the recession into the recovery, we took the necessary steps to deal with the deficit to get us back on course.

The hon. Gentleman's party opposed every increase in taxation and every spending reduction. Had the Labour party taken office, it would have put into effect the budget of the late John Smith, which would have meant increased taxation and increased public spending. The Opposition would obviously have turned a dangerous borrowing position into a catastrophic one. I recall that that is exactly what the Labour party did when it last took office in similar circumstances.

Mr. Gordon Brown (Dunfermline, East): Did or did not the Prime Minister say that the Conservative party would not extend VAT? The truth is that he said just that. Will the Chancellor, just like the Prime Minister told us before the general election, now tell us that he will never extend VAT to food, travel, children's clothes, books and newspapers? Will he repeat the Prime Minister's promise?

Mr. Clarke: Did or did not the hon. Gentleman and his hon. Friends tell us that, if elected, the Labour party would put up child benefit and all retirement pensions? The Opposition would not have done that if they had been

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remotely responsible upon taking office and discovering that the PSBR was in crisis. The hon. Gentleman looks shocked at my response. He appears to be saying that if the electorate had made a mistake at the election, the Labour Government's reaction to discovering that public finances were in crisis would have been to raise public expenditure on those items by enormous amounts.

The hon. Gentleman has wrung that lemon of the old election quotations dry. As he asked me to give undertakings about the future, let me tell him that we have put in place a policy to match the occasion, which has dealt with the crisis and turned the recession into recovery. The hon. Gentleman cannot even come up with any proposals. Any question to him is waved away and he refuses to give any undertakings about any future Budget, which I hope he will never deliver.

Mr. Patrick McLoughlin (West Derbyshire): I do not believe that we should take too many lessons from the Labour party. Is my right hon. and learned Friend aware that some time ago the hon. Member for Brent, East (Mr. Livingstone) said that those who pay tax on more than £50, 000 should be taxed even more? According to press reports at the weekend, however, the hon. Gentleman's accountant has managed to do some clever tax fiddling for him.

Mr. Clarke: I will not comment on my hon. Friend's second point. We are beginning to quote the hon. Member for Brent, East (Mr. Livingstone) with approval; I have done it myself. There is no point in Opposition Members shrieking derision at their hon. Friend. He is almost the only Labour Member who attempts to make positive proposals. His hon. Friends do not say that they disagree with him: the inclination to go for higher taxation is not disowned. They are silent when we press them, and we shall press them again in the debate.

I shall now deal with the substitute indirect taxes to replace those that the House has rejected and with the increases in duty. The debate is sensible, certainly in the context of Conservative Members. We will support the resolutions but we will do so with some regret. When I was preparing my Budget I rejected those indirect taxes, because, although they raise the necessary revenue, they all present disadvantages which, until we had the vote, I had hoped to avoid. The first issue is duty on alcohol, which I am obliged to raise to make a contribution to revenue. I received a large number of representations about the excise duty on alcohol before I prepared my Budget. I do not meet many of those who wish to speak to Ministers, but all Treasury Ministers meet deputations. I met representatives of the brewers and of the Scotch Whisky Association because, as hon. Members will recall, last year I reflected my concern for the situation that they faced following the opening of the single market and the ending of frontier controls.

One of the delegations was a powerful one and consisted of some of my hon. Friends. It was led by my hon. Friend the Member for Birmingham, Edgbaston (Dame J. Knight) who urged on me the importance to the British economy of the Scotch whisky industry and the need to ease its burden of duty. I accepted that case when I presented my Budget. I had hoped this year to repeat what I did last year--to freeze alcohol duties for the benefit of the British brewing industry and the Scotch whisky industry.

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Unless one wants to load even more on the other chosen sources of revenue, it was impossible to stick to what would have been my preferred policy of repeating that freeze. I assure my hon. Friends who are interested in this matter, and certainly those who came to see me about it, that force majeure compels me to do this: it is not a change of policy. I continue to believe that in next year's talks we must explore the objective of approximation of duties across the European Union. That has been made even more urgent.

I assure the House that we shall sustain and strengthen our actions against the illegal importation of alcohol and tobacco. I am satisfied by recent evidence showing that we are becoming more effective in our operations against criminal gangs of smugglers. Since the ending of frontier controls, we have steadily strengthened the intelligence gathering part of our effort and are becoming steadily more successful.

Mr. William O'Brien (Normanton): What items other than excise duties could the Chancellor have examined in his second look at the Budget? Is he aware of the jobs that will be lost in brewing and distilling and the effect that that will have on regional economies? Will there be less smuggling because of the increase in duty?

Mr. Clarke: I told the House a few days ago about the alternatives and I do not propose to go over them again. Those who argue for alternatives should face the fact that they are either increases in direct taxation by raising the rates or squeezing the allowances, increasing taxation on business in various ways or indirect taxation. That involves the possibility of raising the rate of VAT on its narrow base or indirect taxation in the form of increased duties. I shall not rehearse again the process by which I arrived at the decision. It had to be indirect taxation.

Mr. John Townend (Bridlington): I am grateful to my right hon. and learned Friend for his efforts to stop smuggling. Of course, we could have put VAT on newspapers and I would have welcomed that. Does he accept that, inevitably, if we are to have any success on the approximation of duties with other countries, at some stage the Government will have to reduce our duties to the level of those in other countries? We cannot expect the problem to be solved by other countries putting their duties up to our level.

Mr. Clarke: That may be so, but I do not want to anticipate our negotiating position. I am grateful to my hon. Friend because, without going wider than the terms of the debate, he sometimes shows a slightly fuller understanding than other hon. Members of how European negotiations proceed. I am all too familiar with coming back from European negotiations and, unless I have received agreement to every last dot and comma of the negotiating position with which I set out, being accused of taking part in another humiliation for Britain. One must go to Europe with a negotiating position. Our position is strong, and we have chosen a perfectly legitimate area in which to raise revenue. We need approximation to make sure that revenue is not lost in one country and gained in another, and that trade is not distorted by goods going across borders.

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We would be reluctant to lose that source of revenue altogether. It is perfectly legitimate to raise duties on alcohol, which some people welcome because they blame alcohol for crime and other problems. The difficulty is unlawful smuggling and the legal trade that is encouraged when people go shopping and take advantage of lower duty. We must get the loss of duty in proportion. I sympathise with the argument that jobs and so on will be lost, and that sympathy has twice been demonstrated in my Budgets. Nevertheless, with the greatest respect to them, the brewers and the Scotch Whisky Association negotiate in the way that perhaps one negotiates in Europe--by slightly exaggerating the consequences. Changes in brewing have much to do with changes in custom, trade and consumer taste and changes in the industry.

The brewers are making healthy profits, as are manufacturers. I am extremely glad that, because of the recovery, sectors of our industry are showing a healthy recovery in profits. To put the matter in proportion, the best estimate by Customs and Excise of the current loss of duty from goods smuggled from across the channel is about £65 million a year. We must put in proportion the idea that we can simply afford to wave away all that revenue without recovering it elsewhere.

Mrs. Margaret Ewing (Moray) rose --

Mr. Clarke: I give way to the hon. Lady, who is interested in the Scotch whisky industry.

Mrs. Ewing: The Chancellor will appreciate the importance of the industry to my constituency, which has more than 40 distilleries, in terms of direct and indirect employment. Essentially, I am concerned about how the Chancellor reconciles his decision to put 26p on a bottle of whisky with the reduction of 20p on a bottle of champagne. What kind of message will that send to the other members of the European Union, where 40 per cent. of our export market is based, when he argues for the reduction of discrimination against Scotch whisky?

Mr. Clarke: My statement last week put another 8p back on to sparkling wine, and that was in line with the way that we had based duty before. If one is scraping the barrel for arguments, the champagne thing is fun, but it is fairly irrelevant. The sparkling wines in question include champagne, but they also include many other sparkling wines that are manufactured in this country. The change about which so much fuss was made was a perfectly ordinary, common sense move to bring the duty on sparkling wines into line with that on fortified wines. There was no logical reason for different amounts. My corrigenda statement at the end of last week was to put another 8p on wines, which included Champagne.

The serious point about whisky is that I would have preferred to freeze duty. Scotch whisky is a major employer in the hon. Lady's constituency and in that part of Scotland; it is also one of our most successful industries. The Scotch whisky industry has been even more successful than the brewers in responding to pressures on the trade. It is a successful exporter and is building up its position in many important markets.

The best argument was made by the hon. Lady. In due course, when arguing about the approximation of duty, we shall encourage other countries not to discriminate against

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spirits in their pattern of duties, and perhaps to increase the duty on wine to reduce the distortion. This year, forced as I was to find the revenue, I have not been able to maintain the freeze, but I shall certainly address that key question in talks with our European partners against the background of the policy that I have described.

Mr. Quentin Davies (Stamford and Spalding): Does my right hon. and learned Friend agree that, whatever impact personal imports under the single market may have on excise duty or on the trade of off-licences and supermarkets, there is no reason why the brewing industry or the distillers should suffer? It is no more difficult to ship British beer from Burton on Trent or from London to a hypermarket in Calais than it is to ship beer from Strasbourg, Amsterdam or Copenhagen. There is therefore no reason why there should be a negative impact on the volume of production by British distillers and brewers.

Mr. Clarke: I might, with caution, try out that argument on a brewer, but my hon. Friend should bear in mind the position of off-licence retailers and others who have no such protection against the trade.

I turn to the duties on petrol and diesel, which also will not be welcomed by many right hon. and hon. Members. Again, it was quite impossible to raise the necessary revenue without making a further addition to duty on petrol and diesel over and above that which I had previously resolved to impose. Nevertheless, even with the moves we have made, which have good environmental consequences and are welcomed by the environmental lobbies, petrol remains cheaper in real terms than it was 10 years ago. After both increases in duty, unleaded petrol will still be cheaper in Britain than in most of the major economies of western Europe, including Germany, France and Italy.

Tobacco is subject to many of the arguments that I deployed earlier. We are caught in a dilemma.

Mr. Harry Greenway (Ealing, North) rose --

Mr. Clarke: I shall give way shortly to my hon. Friend, who has a constituency interest in the matter.

The Government are following a policy of raising taxation on tobacco to reduce consumption. That policy has been supported by hon. Members on both sides of the House for some time, so it is not possible to argue against the duty simply on the basis that it is damaging the tobacco industry. It is a positive act of policy to reduce sales and there is no point in shrinking away from it. However, it is never Government policy to damage British sales in favour of continental sales; therefore, the same point that I made about differing levels of duty on alcohol applies. Personally, I am in no doubt--and nor is my right hon. Friend the Secretary of State for Health--that European countries should follow our commendable health policy and raise their duties on tobacco to approximate with ours. Mr. Harry Greenway rose --

Mr. Clarke: My hon. Friend has many constituents who work in the tobacco industry, so no doubt he has a point of view.

Mr. Greenway: I know that the Labour party spokesman wants to go much further than my right hon. and learned Friend, but does he not realise that cigarettes are not only being imported from France and Germany,

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where duty is much lower, but smuggled too? Does he accept that that means jobs are being exported from Britain? In Gallahers in Northholt, 204 jobs have been lost within the week. My constituents' jobs are being exported to other countries. They cannot accept that, and why should they?

Mr. Clarke: I am sorry to hear about the loss of jobs at Gallahers. As the economy is recovering so strongly, and new jobs are being created, I hope that his constituents do not have to wait too long before resuming work in other jobs. My hon. Friend would find it difficult to maintain that the loss of jobs is directly related to my statement last Thursday. I doubt whether that was the critical decision-making factor. It is also by no means easy to demonstrate that it was a result of smuggling; it is a result of changing habits. The point of taxation policy is in part to discourage smoking. My remarks on smuggling remain. We must tackle smuggling ever more effectively and keep up pressure on other Europeans to raise their duties.

Mr. D. N. Campbell-Savours (Workington): Will the Chancellor give way on that point?

Mr. Clarke: I must get on.

Mr. Campbell-Savours: I have waited patiently.

Mr. Clarke: Sooner or later, I shall have to refuse someone. I have not picked out the hon. Gentleman, but I shall certainly make him wait.

I have covered all the resolutions before the House bar one--the first resolution that the Opposition have sought to amend. I can tell from the amendments that they believe that they have read into the first resolution an intention to extend VAT to zero-rated goods. I hope that I am not cutting out a large part of the speech of the hon. Member for Dunfermline, East (Mr. Brown), but before he launches on that I should like to give him a reassurance and undertaking, as it looks like that when one first reads it.

The first resolution is a wholly technical resolution of a kind that has been tabled ever since VAT was introduced in Britain in 1972. It means merely that if, in the course of operating the duties on fuel at an intermediate level and the new ones I have announced--particularly those on fuel--it turns out that anomalies are creeping in and that the drafting is incorrect, that can be changed by order and would not require fresh primary legislation. I am advised that it is quite essential to the proper operation of a complicated tax such as VAT.

The argument has been made before; it is not original. If the hon. Gentleman pretends to read into it a tremendous intention to extend VAT to other zero-rated goods, I shall repeat the undertaking that has been given by all my predecessors since Tony Barber, because the drafting on the Order Paper is the same as that used by Labour Chancellors and not just by Conservative Chancellors. The Government have no intention and would never extend VAT to zero-rated goods without primary legislation. At the moment I have not thought about any future Budget and would not do so. To press the amendments, although they appear to be aimed at a serious political point, would impede the sensible operation of the tax and I hope that the Opposition will not do so.

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I hope that the Labour party will turn instead to taking the third opportunity to try to produce a macro-economic policy of its own. If it plans to vote against any of the resolutions, it must have some germ of an alternative idea in mind about how it would tackle the problems.

I do not wish to ask difficult questions for which the Opposition are not yet ready; I have only straightforward fundamental questions. Is the level of public borrowing too high or too low? Is the general level of taxation we are proposing too high or too low? If the Opposition are unable to answer those questions, they are unable to make a serious contribution to an economic debate.

I hope that we do not hear any more about loopholes. There were £10 billion worth last year and there are none this year. The windfall tax is based on the assumption that when and if a sale of the national grid goes ahead, one taxpayer might be exposed to a particular sum of money replacing a stream of revenue. I shall not go into that again, but at the moment the Shadow Chancellor is putting forward policies that are so shadowy as to be invisible.

This evening the House will vote in a responsible way for resolutions that will deal with the gap in the public finances and, far more important, with the key issue: to back the Government's economic policy which has put Britain on course for recovery. These resolutions keep intact the economic policy of the Government. That policy is a successful economic policy and is sustaining growth and bringing down unemployment. It must be kept on the road. It is the only sensible economic policy on offer in the House and is strongly supported by the business and financial community. These resolutions are consistent with strong and decisive action, which will give us a powerful manufacturing industrial economy again. I commend the resolutions to the House.

5.9 pm

Mr. Gordon Brown (Dunfermline, East): I beg to move amendment (a), in line 7, leave out "for the time being".

This second debate on the Budget, like the mini-Budget last Thursday, arises because the Chancellor got it wrong over VAT on fuel. He got it wrong by going ahead with it in the first place. He then got it wrong by refusing to listen to the representations that were made before the Budget. He got it wrong a third time by refusing to rethink even when the strength of opposition became clear. Events have already shown how right we were to defeat the Government last Tuesday. If the Chancellor gets it wrong on an issue as crucial as VAT, why should anybody believe that he can get anything else right? He has already made his views clear about VAT. He wanted VAT on fuel at 17.5 per cent.--not next April but this April. He has voted for VAT on children's clothes. He favours a principle, as he told a constituent, of going even further, and wants to extend VAT to other goods as well. He said at a by-election that not to extend VAT to items, including food, transport, books, newspapers and children's clothes, was "an anomaly". Therefore, we will need more from the Chancellor than the assurances that he gave at the end of the debate, about existing legislation and statutory orders, before we believe that it is not his long -term plan to extend VAT to other items.

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I noticed when I raised the issue with the Chancellor this afternoon that, once again, he refused to give the promise that even the Prime Minister was prepared to give before the last election- -that they would not extend VAT to those items.

Mrs. Jacqui Lait (Hastings and Rye): I wonder whether the hon. Gentleman will confirm whether it is Labour party policy never to extend VAT to any of the zero-rated goods?

Mr. Brown: I have said on many occasions that it is not our proposal to do that. The question is whether the Chancellor will tell us his policy on these matters. The hon. Lady should think twice before she intervenes to ask about promises, because when she spoke to her constituents during the previous election, she said, "We need low taxes." She has been unable to deliver that, so perhaps an apology from her to her constituents would be in order before she proceeds to interrogate anybody else.

Mr. Kenneth Clarke rose --

Mr. Brown: I shall give way to the Chancellor if he will answer the question that I put to him earlier. Will he repeat the promise that was made by the Prime Minister, that the Government would not extend VAT to food, children's clothes, books and newspapers, and transport? Will he repeat that promise, yes or no?

Mr. Clarke: That is a bit rich considering that the hon. Gentleman just ducked, with no great elegance, the question that was asked by my hon. Friend the Member for Hastings and Rye (Mrs. Lait). He said that his party has no proposals to extend VAT to those items. We have no proposals to do so. He makes extended and distorted use of quotations that I have never considered.

I have said for years that, if we went back and started again, there is a case to be made for having a lower rate of VAT and fewer exemptions. But I have had a policy. I have not extended things. I have had two Budgets. Will the hon. Gentleman give--as he is making so much of this--the guarantee for which my hon. Friend asked? Will he get up and say--he should not if he ever wants to be Chancellor--that he will never extend VAT to any of those goods?

Mr. Brown: I notice-- [Hon. Members:-- "Yes or no?"]--very clearly that the Chancellor has given something away this afternoon that he will live to regret. He has said that he will not give the guarantee that he will not extend VAT to food, children's clothes, books and newspapers, and transport. The Chancellor is now on record in the House of Commons as saying that he refuses to give that guarantee. This is a very revealing afternoon for the House, and I believe that, if the Prime Minister were sitting next to him, he would be very angry indeed that his statement had been contradicted by the Chancellor.

Mr. Richard Ottaway (Croydon, South): Will the hon. Gentleman give way?

Mr. Brown: I shall give way once more, but then I must move on.

Mr. Ottaway: I thank the hon. Gentleman for giving way. He is particularly keen on telling people what they have pledged and what they have not in elections. Is he aware that his own election address in 1992 for Dunfermline, East contained the pledge that Labour

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would be tough and protect the environment? It also said that the polluter must pay. What is that if it is not a carbon tax? Is it not just the same as VAT on fuel?

Mr. Brown: Those are precisely the sort of proposals that we have been making--for example, the proposal for a landfill levy, which I notice that the Chancellor is now prepared to support. But before we leave the question of VAT, perhaps the Chancellor will answer one question. He gave a guarantee to the House only a few minutes ago that he would not extend the coverage of VAT other than by primary legislation. Will he therefore withdraw the VAT transport order?

Mr. Clarke: I have been answering questions all afternoon. The hon. Gentleman is answering none, but I am happy to answer questions in his speech as well, if he likes.

The extension of the VAT transport order was done partly under these resolutions and partly under the Finance Bill as well. The VAT zero rating on transport is designed to protect passenger transport. It has now been extended to air balloon rides, funfair rides, to things inside theme parks. This legislation covers anomalies of that kind, but in this case a combination of an order and, I think, measures in the Finance Bill has been used as well.

The hon. Gentleman knows perfectly well what we are talking about. He comes out with a litany about children's clothes, food, and so on, but he has refused to give a guarantee this afternoon that he will not extend VAT to those as well.

Mr. Brown: The Chancellor made a promise that lasted for about three and a half minutes--that he would never proceed with extending VAT other than by primary legislation. The VAT transport order was laid by the Chancellor. Will he withdraw it and put the measure in the Finance Bill so that we may have a proper debate on the matter, or will he dishonour yet another promise? I think that the House knows exactly where the Government stand on issues such as VAT. We must look at the Budget as a whole and look at its effect on the living standards of people throughout this country.

Mr. Quentin Davies: Will the hon. Gentleman give way?

Mr. Brown: I shall give way if the hon. Gentleman wants to ask me something that I have been talking about in the past few minutes.

Mr. Davies: Indeed. Before the hon. Gentleman moves on to other subjects and tries to bury this issue, will he or will he not give a guarantee to the House this afternoon that he would not extend VAT if ever he were Chancellor?

Mr. Brown: We judge the Conservatives by their actions. The hon. Gentleman has the gall to come to the House this afternoon and talk about promises on taxation. What did he say to his electorate in Stamford and Spalding? He said:

"We are absolutely committed to continuing to bring down taxes." Yet another promise has been broken by Conservative Members. [Interruption.] Conservative Members are clearly living up to the Maples memorandum this afternoon. They are behaving as though they want to

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